Banks: “We’re not foreclosing anymore.” Obama: “Yes, you are.”

It is very, very odd.  Unprecedented, if you ask me.

The President of the United States is encouraging banks to foreclose on the homes of Americans, presumably voting Americans.

Let’s get going, says Obama’s right hand man, David Axelrod.

One would think that such a position was politically suicidal in a democracy:  not just siding with big banks against common people, but actually cheering them on.

Perhaps just as weird, the resistance is not coming from the poor schmucks on the receiving end, but from the banks themselves.

They don’t want to foreclose and the president, a supposedly popularly elected politician, is telling them to get off their butts and foreclose.  Can it get any weirder?

Ah, but there’s an explanation.  You knew there would be, right?

Bank of America is not giving anyone a break. They haven’t suddenly gone soft.  They are protecting themselves.  They are looking at the results of all the foreclosures over the last year or so and have seen that they are “realizing” losses on just about every one.  They are drowning in a sea of red ink and they are trying to stop the bleeding.  It’s that simple.

Granted it’s only triage.  There is no cure for this situation, at least not a conventional one.  Not for Bank of America, and not for American banks generally.  But in the near term, “realizing” the losses is going to be a disaster.  If ordinary economic principles are applied, B of A will be seen as the basket case it is and will go under.

For his part, the president should be careful what he wishes for, because he might get it.  His encouragement to keep foreclosing, and thus keep realizing losses, will be interpreted (by the banks, that is.  God only knows how sane people are interpreting it) as an assurance that the US government stands ready to help with the consequences.  That can only mean one thing:  another bailout for the banks.  Which itself is nothing but a band-aid, and a very politically unpopular one at that.

So that’s what’s coming.  If we get that far before something more serious occurs, which it might.  More on that another time.

Maybe we’re just in the eye of the hurricane.  At this point, there hasn’t been a general “capitulation”, as traders looking for a bottom might term it.  There’s a general belief belief in the system but a lot of cracks are appearing and it’s really hard to say how or when this is all going to pan out.

Not to worry, though.  I have a plan.  Just in case.


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