This is not about helping “troubled borrowers“; it’s about maintaining the status quo, and in particular preserving the biblical adage that the borrower is the servant of the lender.

I would say that it is also dishonest, inasmuch as anyone with any relevant knowledge and minimal intelligence must be aware that this is not a real solution to anything.

There is a simple concept that is vital to understanding why Fannie and Freddie are extending “forebearance” to “troubled borrowers”.  Under the most basic principles of accounting, a loan is an asset – an account receivable – of the lender(s).  If the loan is written off as being uncollectable, the lender can no longer claim that it is an asset.  With enough write-offs like that, a lender goes under when the assets disappear, because the liabilities never do, unless you pay them or go bankrupt.

In other words this is about saving banks, not helping borrowers.

“Forebearance” is the only kind of solution the powers that be can contemplate because it keeps creditors creditors and debtors debtors.  The entire monetary and banking system depends on that.  But the very idea of “leniency” carries with it a class differential that we like to think we left behind us in the middle ages.  You can only be lenient to your inferior.  You can only accept leniency with gratitude towards your superior.

This characterizes a master-slave relationship, not a free market exchange of any kind.  Sooner or later such relationships rupture, often violently, for political reasons.  In the meantime, a solution could be had at any time that would resolve the economic and political problems before they become too serious, but such solutions have not really been seen since antiquity.  Jubilees used to occur because some wise and enlightened ruler realized it was necessary and not only decreed it but smoothed over the inevitable problems that go along with a jubilee.  In modern times, a jubilee will never come from an enlightened ruler.  It will have to come from an enlightened populace.

There is no reason to be optimistic.  As I’ve said many times, the scenario playing out is simply a 21st century version of Dickens’ literary portrayals of the conditions leading up to the French Revolution.

Although I must defer to David Graeber on the history and anthropology of all this.  I’m just a lawyer.


On strike.  Sometimes.


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Filed under financial crisis, Media incompetence/bias, Striking lawyers

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