Update: As interest rates rise because of lack of investment in goverment bonds (due to a flood of them), banks will make money on the yields curve but the toxic assets will become even more toxic. And toxic assets are the drag on earnings for banks that will increasingly hurting the bottom line.

 If I were a bank I would soak my customers for every penny through fees and high interest rates, which of course means that my customers will never trust me again. I am, as a bank, between a rock and a hard place. I must depend upon the welfare of my mommy government in order to survive the mistakes I made in the past. And they have given me license to steal and loan shark, legally!

 

UPdate: Clearly the big banks like C, BAC, JPM and WF now want to buy toxic assets from each other under the PPIP program. All this does is put taxpayers at risk if the assets move down. That is built into the plan! If the alt a and option arm loans default in massive ways, and if commercial real estate is allowed to be a part of this toxic auction, that banks will use to bid up each other's assets, the US Taxpayer will be in major peril. I repeat, the US taxpayer will be in major peril

I am not speaking for the banks officially. Think of me as a make believe bank as you read on. While this blurb is humor it is also deadly serious. Pay attentiion, you hear? If I were a bank, I would not lend on a single house purchase in Southern California. Why you ask? We need to look at the numbers. In 2007 the median price of a house in California was 500k (k for thousand). Now median prices are roughly 350k.

But historically house prices were no more than 3 times yearly income. Yearly income in Los Angeles is 54k per household. That means historically, house prices in Los Angeles should be 178k on median.

OK, so you want to buy a house. You find an average house in Los Angeles and it is selling for about 400k. I as a banker know it could go down to under 200k. Why would I want to lend you money when I know that you could walk away from the loan when prices drop!!! Do you think I am a crazy banker?

So then, before you all get on the CNBC bandwagon and yell at the banks for not lending, you need to see what we are really up against. The ponzi scheme of easy money (and no money down and liar loans and option arms and all the rest), that was conceived by the government and by us banks to fund the Iraq War (you didn't think our federal reserve was a government entitiy did you?), is unravelling before our eyes with a major asset devaluation and deflation that goes beyond housing. And where it stops no one really knows.

But we do know that the option arm loans will hit in late 2009 and all of 2010 and into most of 2011, and these will be even worse than subprime. Way worse. Option arms could default at the rate of 70 per cent. I am a bank. I am done lending because these bozos will default and your house price will go down from here. I am not stupid. I was stupid but that is because the government "told me" to be stupid so they could pay for the Bush administration follies. But the party is over. I made my money. The party is over. Over, understand? I am a bank. Screw you little people!

And if you don't believe me borrower, listen to the videos collected here. Listen real good. You might learn something stupid borrower!