QE3 – Pay Attention If You Are in the Real Estate Market
By Catherine Austin Fitts
I used to have a deputy who said that the FHA mortgage insurance funds were where mortgages went to die. That was, however, before the creation of MERS, derivatives and the explosion of mortgage fraud during the 1990's which in combination with the “strong dollar policy” engineered what I have referred to as a financial coup d’etat.
The challenge for Ben Bernanke and the Fed governors since the 2008 bailouts has been how to deal with the backlog of fraud – not just fraudulent mortgages and fraudulent mortgage securities but the derivatives piled on top and the politics of who owns them, such as sovereign nations with nuclear arsenals, and how they feel about taking massive losses on AAA paper purchased in good faith.
On one hand, you could let them all default. The problem is the criminal liabilities would drive the global and national leadership into factionalism that could turn violent, not to mention what such defaults would do to liquidity in the financial system. Then there is the fact that a great deal of the fraudulent paper has been purchased by pension funds. So the mark down would hit the retirement savings of the people who have now also lost their homes or equity in their homes. The politics of this in an election year are terrifying for the Administration to contemplate.
Various court squabbles over the MERS system for registering mortgages are also nipping at the Fed and Treasury heels. It is hard to win a presidential election in 3100 counties when multiple federal agencies are in the local courts trying to foreclose on half the county while supporting arguments that a national registration system is free to violate local property laws with impunity.
Why should the sheriff respect your rights if you take the position that the county has no rights and local property laws are meaningless? In fact, the Sheriff does not have sufficient staff time to process foreclosures and protect the local citizenry from the growing crime that results from hard times. The Sheriff is also running for election and the people who vote for him or her comprise a much larger group than the handful of local professionals on the big banks payroll, including those processing foreclosures for FHA, VA, Farmers Home and Fannie and Freddie.
So, it looks like the Fed decision last week to buy $40 billion a month in mortgage paper is the ultimate plan to clear the market once and for all of fraudulent mortgages, mortgage backed securities and related derivatives. This means Fannie and Freddie will be bailed out and winding down through the back door. This means the big banks may be paid in full for your mortgage. It also means your pension fund assets will not be marked to market – at the price of debasing the purchasing power of your assets and benefits.
The Fed is now where mortgages go to die. Thousands of mortgages on homes that do not exist or on homes that have more than one “first” mortgage are now going to the Fed to disappear. Thousands of multifamily and commercial mortgages will be bought up as well. As this happens, trillions of dollars that have been amassed offshore will be free to come back into the US to buy up and reposition land, farmland, residential and commercial real estate and other tangibles.
With documents shredded, criminal liabilities extinguished and financial institutions made whole, funds can return without fear of seizure.
QE3 proves beyond any shadow of a doubt that the extent of the fraud was as bad as I said it was. You can count up the bailouts and QE1, QE2, QE3 the numbers speak for themselves. The fraud was indeed in the many trillions of dollars. It was intentional. It was a plan.
Now, the $64,000 question for those whose house is underwater or whose mortgage is in default is whether or not you still owe on your mortgage. Certainly, you still do as a legal matter. If the bank has been paid off, arguably in some cases several times, why not you? Let’s see if Fannie, Freddie and the big banks are under orders to quietly pass through a portion of their largesse to troubled homeowners in amounts sufficient to unfreeze the market. If you are in a workout situation, you need to take notice. If enough mortgage write-offs flow through, the Democrats will quickly amass a lock on the elections in November.
If you are in the market to buy a home or other real estate, you also need to pay attention – a major turn is now underway. Watch to see how much the banks pass through to homeowners and property owners to see how fast and big the turn may be. Watch to see the inflow of funds from offshore. This is not only funds returning but investors around the world looking to exchange their dollars for tangible assets to protect themselves from debasement of the dollar denominated deposits and securities they hold. Watch to see what the renegotiation of federal tax policy and the reengineering of the federal budget in response to the “fiscal cliff” do to reposition housing and real estate prices and cost of financing for an inflow looking for large accumulations.
Finally, the way the Fed has engineered the Slow Burn to date is to continually offset monetary inflation with labor deflation. It is worth contemplating how much labor deflation will be required to offset QE3 and how sufficient additional labor deflation might be engineered. Ben Bernanke was quite clever to tie QE3 to unemployment. The problem has become the solution, which is the basis for QE-Infinity.
About the Author
Catherine Austin Fitts began her career on Wall Street and eventually rose to managing director and member of the board of the firm Dillon, Read & Co. Inc. In 1989, she was appointed Assistant Secretary of Housing - Federal Housing Commissioner in the first Bush administration. Following this appointment, Catherine became president of The Hamilton Securities Group, an investment bank and financial software developer based in Washington D.C. She is currently the managing member of Solari Investment Advisory Services, LLC.
"With QE3, we are essentially being bought out with our own money...and unemployment
is being used to facilitate this process in a very clever manner. Monetary inflation
is currently being offset by labor deflation. The way you avoid collapse is
by printing money and stealing assets. The way you avoid inflation is with labor
– Catherine Austin Fitts
The following is an excerpt from Catherine Austin Fitts' Money & Markets segment on the September 20, 2012 Solari Report. The Solari Report is a subscription-based, weekly briefing via bridge call. Learn more and become a subscriber...
QE3 is fundamentally different from QE1 and QE2 in that the Fed has not put a limit on what they're going to do. They are not saying 'We're going to stop at such and such a time.'
One of the things they're doing – and it's very unusual – is tying QE3 to the unemployment rate. So they're saying 'We're going to keep doing this until we're not worried about unemployment anymore.'
What are they really doing?
The Fed has decided that it is going to once-and-for-all extinguish all mortgage fraud – buy it all up in the market – and in the process extinguish all criminal liabilities and also protect sovereign governments and institutional investors from around the world from losing money on the mortgage fraud, let alone bringing actions ... whether it's nuclear attacks or actions in the courts complaining about the fact that they were sold AAA mortgage paper. Instead, what they got was something that was fraudulently issued. And fraudulently issued with the blessings of the U.S. government and the central banks.
So, this is a "clean-up" action and I think what the Fed is really saying is 'We're going to keep buying this toxic paper and pulling it off of the balance sheets of the banks, pulling it off the balance sheets of Fannie and Freddie, and pulling it off the balance sheets of wherever it is until it's extinguished.'
Why would they want to do this?
One of the reasons is so that the market can clear. Right now, a great deal of the U.S. real estate market is frozen because we have houses and real estate that are underwater. But we also have a whole world of things that can't mark-to-market and that's because there is so much fraud and so much criminal liability involved.
One of the BIG questions is, 'Will any of these benefits pass from Fannie/Freddie, pass from the big banks to mortgage holders – whether it's on commercial real estate or residential real estate – who are in the process of work-outs or in foreclosure?' My guess is Yes, but it's too early to tell.
No doubt, if it happens, it's a lock on the election for the Democrats this year because so much money will flow through. If you flow through enough to clear the market at the work-out and foreclosure level, whether it's clearing the market by forcing the foreclosures through – because the banks can afford for that to happen – or because you're spreading enough money around and allowing people to walk away from their mortgages and other kinds of indebtedness, either way you clear the market, you allow a mark-to-market and you do it in a way that extinguishes the criminal liabilities.
What this means is that the $27 Trillion plus dollars that have been pulled out of the economy are now free to flow back into the U.S. economy and start to accumulate in large amounts of real estate, which I think has already begun to happen, particularly with respect to farmland. But, they can do it with respect to everything.
The thing that makes Bernanke's tying this to unemployment so politically brilliant and really so vicious is that, to date, the way that we have offset the monetary inflation that comes from quantitative easing and the loose monetary policy is with labor deflation. I have spoken many times about the "slow burn." In fact, the slow burn is a process by which you create monetary inflation and offset it with labor deflation.
Three Ways to Subscribe to The Solari Report:
|One Year Subscription with automatic renewal
|Six Month Subscription with automatic renewal
|One Month Subscription with automatic renewal
Annual and monthly subscriptions paid by credit card or Paypal are automatically re-billed at the end of their terms. You may also order a One Year Subscription by check (download an order form here).
What Subscribers Are Saying:
"Joined the Solari Report last week and have been spending the last several evenings listening to past calls. SPLENDID SPLENDID. If there's anything better out there I don't know what it might (be) and I'm telling a number of my friends to sign up. Thanks for this GREAT service!"
"All I can say now after I pick my jaw up off the floor is wow!! Thank you soooo much. What a huge blessing and thank you for your commitment and your courage. You've helped me fill in so many blanks and connect so many dots. I can now better align my intuition with empowering choices in the economic arena."
"They want to make it very expensive to not be in the (healthcare) database...Perfectly put as usual. More truth value per word than anywhere else (kind of like sales per sq foot in retailing)."
Disclaimer: Nothing on The Solari Report should be taken as individual investment advice. Anyone seeking investment advice for his or her personal financial situation is advised to seek out a qualified advisor or advisors and provide as much information as possible to the advisor in order that such advisor can take into account all relevant circumstances, objectives, and risks before rendering an opinion as to the appropriate investment strategy.
© Solari 2006-2013