Wells Fargo bank wants the government to guarantee all mortgages and has threatened to make the 30 year mortgage obsolete if the bank doesn’t get what it wants.
I have been writing about this subject of securitization and Basel 3 numerous times, but this new assault is the first public practical application of Basel 3 that I have heard of. You can forget about taxpayer rights if loan guarantees are permanently baked in to US law.This is the epitome of taxation without representation for our times!
Essentially, the US has four choices with regard to securitization:
1. Do away with securitization and do away with the 30 year mortgage.
2. Allow securitization for prime mortgages only.
3. Allow securitization and ban all securitization of interest only mortgages.
As you can see these are quite diverse solutions. So what will happen to mortgages in the future based upon these four outcomes?
1. If we do away with securitization, we will see a massive drop in house prices, but only if the 30 year mortgage goes away. We have the banker threat that it would go away but no proof.
2. If we allow securitization of prime mortgages only, the bubble blown will be smaller, because there are fewer people qualifying. There could be a bubble, but it would likely be because too many prime mortgages become interest only.
3. If we allow securitization but ban interest only mortgages, then we will have more investment stability, and we may not need to guarantee any mortgages. At any rate, the likelihood of a bubble would decrease because you could not go to pay option arms and other toxic loans and prices would self correct.
4. Wells Fargo’s idea of securitizing all mortgages with a government guarantee is the very worst outcome. But most Democrats and Republicans want this because it starts up another housing frenzy. This allows for kicking the can down the road and will create a massive moral hazard. It would be better to have no securitization than to have this outcome. This outcome gives banks the incentive to write terrible mortgages, and then rely on government bailouts if they go sour. This is madness and another attack on the stability of housing prices and is a massive assault upon the taxpayer.
Keep track, people, of where this is going, but be advised that it is risky to even get a mortgage right now. If the time comes when your neighbour cannot get a mortgage, your house price will drop like a rock!
But it is my view that Wells Fargo will get their way, as it is the Basel 3 plan, and the US taxpayer will be on the hook for any losses in mortgages. This will give banks a chance to offer easy money loans again, and generate lots of fees and all the rest that goes with trying to push up another bubble. Without a crystal ball I guess we will have to observe the outcome.
This behaviour by Wells Fargo is just proof that the banks have been out to get us in collusion with the central banks since Basel 2 in 1998. Basel 2 allowed off balance sheet banking and I have written extensively about it, and now the multinational banks want to permanently cement the taxpayer to their lending schemes. This is so anti American. Never have the banks behaved like this towards mainstreet to the degree that they have done as with this Ponzi housing scam that they apparently want to continue indefinitely.
Yet this is the new financial order that we face, which breaks down the sovereignty of nations to steal from their citizens. I have been warning people this is coming for some time, and this proves that the banks were culpable in the first housing ponzi and meltdown, because they got massive bailouts for loans gone sour. They just want to codify this safety net from hell.
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