A blog has leaked the stress tests and in it it says that 16 of the 19 banks are insolvent!

Really, no s**t Einstein! Yes the banks are insolvent, but guess what most banks are! In all of this hoopla, and crying we forget one very important thing, most people and institutions who take credit are actually insolvent!

If you are thinking? WTF are you talking about Christian, let me explain it. I used to write mortgage algorithms and as such I think have a pretty grasp on the topic.

Let’s say that you take a mortgage, and you buy a house, and you make your payments. Yur payments are 33% of your income, and your down payment is 20% of your house. You would think that everything is ok. Well folks let me tell you something, its not!

The numbers of 33% and 20% are actually quite arbitrary numbers used to gauge the ability to generate enough cashflow to manage paying for your mortgage. Yes, a mortgage is nothing more than the ability of the mortgage taker to manage the cashflow of the house. For if it were about true solvency then mortgages would not last as long as they would.

Think about it, a mortgage is a 20+ year affair, and who in this day and age actually keeps the same job at the sample place for 20+ years? Answer very few people. But in theory with a mortgage you are making a prediction that you are going to stay at the same place and at the same job for 20+ years.

Thus the only way to fully appreciate a mortgage you have to think in cash flows. You have to think that the mortgage taker has the means to sustain the cash flows for however long it takes.

I mention this because a bank has the ability to call a mortgage whenever it feels like it. But we don’t hear about this since it would mean an instant insolvency of the mortgage holder. Unless of course the mortgage is for less than 40% of the capital. But how many people get a mortgage with 60% down? Answer NONE!

So when a “leaked” report says that a majority of the banks are insolvent I say, “ok so tell me something that I didn’t know.” And when it says that these “insolvent” banks can’t handle a disruption to their cash flow, again I say, “tell me something I did not know?”

After all imagine if you were laid off and had to make your mortgage payments, how long could you last? Three months? Four months? I doubt past six months.

Wow, guess what 95% of all mortgage takers would be insolvent, and unable to make payments! Guess what 95% of the mortgage takers are BAD…  ooohhh weee let’s take down the market…  Oh wait, this has always been the case and we have managed it quite well in the past.

What actually concerns me here is, who wants to take down the system and why? This memo has an ulterior motive and I wonder what it is… I am very suspicious…