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Running on Debt

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Whether you watch TV, listen to the radio, or stream news and opinions, you will consistently hear the same subliminal message: debt is better than wealth. And people behave accordingly. Nearly all consumers, including the homeowners that I offer some relief, believe that their FICO score is their most valuable attribute. A savings account with real money in it is a distant second.

In case you are not getting the message, having money is far better than owing money. But the banks, especially those on Wall Street who originate all installment payment transactions, have convinced nearly everyone that they are fine as long as they can spend money even if they don’t have it.

Selling the American worker on this way of non-thinking has been the key to keeping wages from increasing to compensate for inflation. It also keeps the minimum wage artificially depressed with the help of the U.S. government, which rewards companies for putting small businesses out of business and unfairly competing in the marketplace because their low wages are offset in part by government programs for food and health care.

Small companies do not get that support from the government. But their employees get paid less because everyone is getting paid less. So workers get access to cash through the appearance of debt transactions, and they get direct monetary assistance from the government. Both are a mirage that drives the typical worker who was able to support a family of 4 on one income into a horrific c cycle of debt and repression.

Intergenerational wealth generally arises when one generation has actual money instead of debts. The most pernicious of the attributes of this scheme is that people are encouraged to buy items that are labeled as “on sale.”

Putting aside the question of retail pricing, if you buy a TV for $2,000 cash it goes without saying that the price will never change retroactively or forward-looking. But if you have been sucked into the morass of debt, you are being sold payments instead of price. That TV on sale could end up costing you $6,000 or more with payments. And that is the equivalent of $4000 in lost savings, which also reduces the retirement benefits of each worker.

And since payments automatically sound less than the price, you buy something for an installment contract that you will never be able to pay off unless you get access to more credit and more help from the government. It’s human nature.

The banks and other companies have also trained us to sign contracts without reading them and without having any idea of their contents. They make sure of that by not giving us enough time to read them if we want the good pur service being sold. Just click “agree.” But that is not disclosure.

In homeowner transactions, federal law requires that a good faith estimate and other summary be represented and there is plenty of readily available information on government websites. The intention of Congress back in the 1960s was to remove the “gotcha” aspect of mortgage loans and other installment loans.

The problem for homeowners is that they did receive disclosure. But the disclosure was for a transaction that did not exist. But it was dressed up as a conventional mortgage loan transaction. Wall Street makes money by selling securities, not by loaning money.

The transaction with homeowners was a securities scheme, not a loan transaction. Homeowners were tricked into buying homes based on payments and then found themselves in debt far beyond their means. As always, they were portrayed as predators who had borrowed more than they could afford.

But they didn’t borrow anything, and not a single one of them entered into any of the proposed transactions in which they assumed responsibility for the viability of the transaction. Federal law (TILA) makes that the lender’s responsibility. It is unambiguous and explicit because of the imbalance between what a homeowner generally knows about these transactions and what the originator knows.

To put it bluntly, homeowners know nothing, and Wall Street banks know everything. The protections under federal law do NOT apply if it is not a loan transaction. If it is a securities scheme, it is either governed by the SEC or not at all. Since the SEC never understood what Wall Street was doing (see Chairman Alan Greenspan’s statements in the late 1990s and late 2000s), the Federal Reserve was relying on market forces to make any necessary corrections.

But as Greenspan admitted later, market forces do not operate outside of a fairly level playing field, and they were not an active component of what was falsely labeled as “Securitization.” In simple language, market forces were not operating because the homeowners had no idea how to comprehend the transaction, and neither did most lawyers.

If the disclosure rules had been followed and applied to nonlending transactions like the ones offered to homeowners, they would have told the homeowner that the self-described lender was not loaning any money and that the closing agent was getting money from unknown sources.

The homeowners would also have been told that the people in charge of the unknown sources were selling securities derived from the appearance of the value of the note and mortgage. And they would have been told that there was no party who was a responsible lender because there was no unpaid loan account receivable created on the books of any person or business entity.

This would have alerted lawyers and other advisers to the homeowner that the homeowner could not rely on the express provisions of the lending laws requiring the “lender” (i.e., pretender lender) to take responsibility for the viability of the transaction and accuracy of the appraisal. It would have been obvious that nobody was accepting the possibility of any risk of loss on the transaction.

Sophisticated homeowners or any good transaction lawyer would then have asked for further information and confirmation about the nature of the transaction. Why was there no loan account? Why was there no lender?

Upon learning that the true nature of the transaction was securities issuance and trading scheme netting the investment banks multiples of the amount transacted with homeowners (yes, all compensation and profits would need to be disclosed), good transaction lawyers would have asked for consideration paid to their client. And the consideration would have been an amount far in excess of the amount transacted since that needed to be paid back with “interest.”

In the absence of payment of a fee for launching the securities scheme, the transaction would be void. The promise to make payments is thereby unenforceable for lack of consideration.

And that is why the lawyer who initiates the foreclosure process is unable to corroborate the most basic element of the claim — i.e., a process to achieve restitution for an unpaid debt. Without a loan account, there is no debt.

by Neil Garfield, June 26th, 2023; posted originally on

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