TylerDurden in ZeroHedge article Roubini: The US Economy Is Unsustainable writes that Nassim Taleb said that his primary concern about an upcoming “Black Swan” is a failed Treasury Auction. This is precisely what Zero Hedge has been concerned about for the past year, although we feel that this event will likely be at least marginally telegraphed, either in the form of Direct Bidders taking down close to 50% of each auction (with the Primary Dealers monetizing the balance), and an accelerated flattening of the yield curve. Last night, Roubini, who has apparently thrown away the mantle of moderation and is back to his gloomier ways, said that he worries “that with a trillion deficit this year and next year, 2012, and for as far as the eye can see, eventually, not this year, but the next year, the markets are going to wake up and say, this is unsustainable.” In other words whether via the Treasury market, or some other way, at some point the balance will shift from one where the market still believes that reserve currency is enough of a backstop to prevent the collapse of the US, to a regime where incremental bailouts will be seen as negative. That moment will be true black swan, and the beginning of the end of the great US experiment.

A failed Treasury auction would be disaster as the Treasury is running on empty … well it is running on fumes as Vincent Del Giudice of Bloomberg reported on May 13: “The U.S. posted its largest April budget deficit on record as receipts declined in a month that typically sees an increase in individual income tax payments. The excess of spending over revenue rose to $82.7 billion last month compared with a $20.9 billion gap in April 2009. April marked a record 19th straight monthly shortfall. Deterioration in the government’s balance sheet in coming years raises the risk of higher interest rates even as an improving economy helps lift tax receipts. ‘With the recovery in place, we should be seeing higher revenue and lower outlays, not the other way around,’ said Win Thin, senior currency strategist at Brown Brothers Harriman. The government’s April budget deficit compares with a median forecast of $57.9 billion. The last time the U.S. had back-to-back April deficits was 1963-1964. For the fiscal year that began in October, the budget deficit totaled $799.7 billion compared with $802.3 billion during the same period last year.”

My thoughts are that the black swan moment will see a rapid exit from the stock and debt market places; there will be very few buyers in the market place and prices will will fall like a rock. There will be a liquidity evaporation, meaning that one will not be able to access one’s funds in money market accounts and brokerage accounts.

The black swan moment will mean a soon-end to funding of Freddie Mac and Fannie Mae; and as a result home lending will come to an end. As people default on mortgages, the financial institutions will lease properties, and not sell them as interest rates will quickly rise and be much too high. The banks will now longer allow Strategic Defaulters to squat in the houses. The number of realtors will be greatly reduced; the number of property leasers and mangers will grow.

I am of the opinion that subprime mortgage lenders, foreclosed on low FICO scoring, that is working class and low income neighborhoods, which includes Englewood, Illinois.

Whereas, on the other hand, bankers have held off foreclosing on Alt-A and Option-Arms higher FICO scoring middle class neighborhoods, as FASB 157 has preserved the lending portfolio at mark-to-manager’s estimate, rather than to mark-to-market. Documentation for such holding off of foreclosing comes from your article which relates that 24% have made no payment in the last year are still not in foreclosure.

You provide the Nationalized Housing Market Chart which shows that the percentage of GSE financed homes fell from 2003 to 2006 as the banks issued Alt-A and Option-Arms first, second and third mortgages; and then bundled and secuiritized these into CDOs; which some sold short and others wrote CLOs on. These are the ones that the banks have on their books that are just sitting there. These contrast with the REOs, that is the suprime loans which have been written off.

You said it this way in your article: ”Banks are moving on current REOs (the small batch that they have) and pumping this up as good news but the 90 days plus foreclosure number is still trending up. How is this magic done? We’ve talked about it above. You simply don’t move on delinquent homeowners. You ignore actual losses. You mark your assets to fantasy valuations.”

If one does real estate, demographic and neighborhood research on Englewood IL which is zip code 60621; using the tools below; one will find that it is a low FICO scoring, that is working class and low income neighborhood where property values were decimated by foreclosures.

Blockshopper Englewood IL Neighborhood

Redfin Englewood IL Neighborhood

City-Data Englewood IL, 60621

AOL Neighborhoods Englewood IL

Mike Mish Shedlock recently wrote an article recently relating that Illinois is bankrupt.
and relates Illinois just sits, bankrupting companies the state owes money to but has not paid. I believe that social chaos could easily erupt in Illinois very soon as the state fails to pay for social services; and property values are really going to fall across the state..