"By a continuing process of inflation,
governments can confiscate, secretly and unobserved,
an important part of the wealth of their citizens
... in a manner which not one man in a million can
diagnose." -- John Maynard Keynes
"Four sorrows are certain to be visited
on the United
States. Their cumulative effect
guarantees that the US will cease to resemble the country outlined
in the Constitution of 1787. 1) A state of perpetual
war, 2) a loss of democracy [with a] transformation
into a military junta, 3) the replacement of truth
by propaganda, disinformation and the glorification
of war, and 4) bankruptcy [from] more grandiose
military projects." -- Chalmers Johnson
(Sorrows of Empire)
◄$$$ THE MAINSTREAM STARTS TO COMPREHEND
THE DEPTH OF THE FINANCIAL CRISIS. AS STRATEGIST,
BUITER EXPECTS HYPER-INFLATION IN THE UNITED STATES
AND A GRAND FISCAL CRISIS, A KEY FACTOR TO BREAK
POLITICAL GRIDLOCK. $$$
Willem Buiter in his recent Global Economic View
has issued a very dire outlook and forecast.
He predicts unprecedented fiscal crises directly
ahead. He anticipates mammoth monetary inflation
stemming from USGovt debt issuance, resulting in
powerful USFed monetization. Buiter works within
the marbled Citigroup halls, the site of gross insolvency
and wreckage. The mainstream media would normally
be hectic and busy refuting the disaster scenarios
and minimizing the problems that beset the nation.
Instead, from his post as strategist at Citigroup,
Buiter has produced a very bearish negative outlook.
He presents a game theory type analysis, one
that concludes the United States and other sovereign nations will
soon be forced into fiscal austerity. See Greece for clues. Among his critical observations
are that the US is highly polarized, and that the USFed
will soon unleash large scale inflationary monetization
of public debt and deficits. He calls the US
Federal Reserve the least independent of leading
central banks. The next step of course would be
hyper-inflation. Buiter regards the United
States as the one country the
most likely to follow this pathway to ruinous hyper-inflation.
More filled with intrigue, and surely climactic
in nature is his conclusion. Buiter predicts
that a massive upcoming fiscal crisis is the only
event with the potential to break the political
gridlock in the USGovt, and move the nation toward
a legitimate realistic path toward a solution of
the broken national fiscal condition. See
the Zero Hedge article (CLICK HERE).
Buiter overlooks corruption and horrific bond fraud,
a formidable obstacle to reform and any progress
whatsoever. The solution will unfortunately contain
numerous Third World features,
like higher interest rates, lower wages, greater
unemployment, reduced commodity supply, and less
REGARDS THE ORIGINAL SOURCE OF FINANCIAL CRISIS
TO BE THE DEPARTURE FROM THE GOLD STANDARD, A REMARKABLE
CONCLUSION. HE IS A SMART, IF NOT CORRUPTLY DEVIOUS
Former President Bill Clinton can be filed under
the ranks of the Gold Advocate column. In a highly
unexpected admission, Clinton
blamed the current financial crisis on the United
States leaving the gold standard
in 1971. Bob Schaeffer conducted the interview
at the Peterson Institute. Clinton explained his perception that the problems
in the USEconomy began when Nixon went off the gold
standard. He offered the party line justification
that the USGovt abandoned the gold standard for
economic management reasons. Obviously, since management
wanted to spend multiples more money than it had
available, and vast (now sprawling) fraudulent financial
platform enterprises were hatched and planned. Nonetheless,
statement implies that he has a solid comprehension
of how gold is a safeguard restraint on USGovt printing
of money, firmly out of control. See the Real Clear
Politics video (CLICK HERE),
where 2:00 minutes into the clip, Clinton
mentions the gold standard, and Schaeffer shows
alarm if not shock. See the Economic Policy Journal
article (CLICK HERE).
One must wonder if certain syndicate chambers wish
either to come clean on the gold story or to pump
public demand for their gold investments! Some analysts
including the Jackass believe that the Clinton &
Rubin tagteam is very likely in possession of vast
quantities of Fort Knox gold, swapped for tungsten. Well,
maybe not, since that would be a high crime treason.
◄$$$ A GIANT CANCER RESTS ON THE USGOVT BODY,
NOT SO WELL HIDDEN. NUMEROUS NARCO FACTORS DIRECT
AFFECT NATIONAL INTEGRITY. MANY QUESTIONS REMAIN,
WHOSE ANSWERS ARE NOT PRETTY. $$$
When the USGovt national security agencies were
permitted in the 1970 decade to establish a narcotics
trafficking business, after justification before
the USCongress, a cancer began to grow. They operated
above the law, which opened the door to full flourish
development. The justification actually was given
to defend liberty for the United
States. Instead, in my view
its purpose was to create a foundation for the syndicate
that now has spread from the military to the defense
contractors to the big banks and even to the press
media networks. In recent years it has spread
to the pharmaceutical firms. The overall effect
is strangulation of the nation and a forced death
march to totalitarianism. The rest of the world
is far more aware of the syndicate and its narcotics
business than the American people, who are shielded
by a well controlled press. Over $2.2 trillion is
missing from Pentagon appropriations over the last
20 years. Over $500 billion is missing from the
Iraqi Reconstruction Fund. Over $2.0 trillion in
excess USTreasury Bonds have been sold by JPMorgan,
over and above the amount issued by the USDept Treasury.
Over $1.9 trillion is missing from the Fannie Mae
funds during the Papa Bush and Clinton Admins. Over
$700 billion in TARP Funds remains unexplained for
its usage from 2008 disbursement. Templates taken
from the USDept Treasury for $100 bills are missing
routinely, used allegedly by the CIA. The CIA narcotics
business brings over $350 billion in revenue per
year to the syndicate. These are symptoms of the
cancer. The following questions have answers, mostly
ugly. We is the United
States of America.
1) Why is it legal for the CIA and the Bush Family
to traffic in narcotics with impunity?
2) Why do we have a heroin war in Afghanistan
and state-of-the-art heroin vertically integrated
factories run by the CIA there?
3) Why are we now constructing seven new USA-manned
military bases in Colombia?
4) What is the real purpose of the USMilitary raids
against narcotic competitors of the CIA drug cartels?
5) Why is the Drug Enforcement Agency permitted
to operate as a private security force to confiscate
competitor narcotics inventory?
6) Why is the US Coast Guard permitted to operate
as a private delivery contractor for the CIA and
a seacoast monitor against its competitors?
7) Why does the media not check whether drug confiscations
are destroyed or put into CIA drug cartel inventory?
8) Why is no coverage given to CIA boats coming
to shore from oil rigs carrying hundreds of kilos
of heroin & cocaine?
9) Why is no coverage given to USMilitary defense
contractors coming to airports carrying hundreds
of kilos of heroin & cocaine?
10) Why do US NATO allies not object more openly
to the abuse of airbases on their soil, used to
transport hundreds of kilos of heroin & cocaine
to Western locations?
11) Why are major US
banks not scrutinized for money laundering of CIA
12) To what extent are insolvent major US banks currently supported by CIA narco money?
13) What is the function of the US Federal Reserve
itself in coordinating and covering up CIA money
14) Was Fort
Knox gold stolen and being held by the CIA and syndicate?
◄$$$ CITIGROUP ASPIRES TO REVIVE ITS SAUDI
PRESENCE IN BANKS AS AN ATTEMPT TO RETURN TO PAST
NORMALCY. THE EFFORT IS DOOMED TO FAIL, SINCE PRINCE
ALWALEED CANNOT INFLUENCE THE REGION ANY LONGER.
Citigroup aims to re-open businesses in Saudi
Arabia six years after selling
a major stake in a bank. A return might not be as
easy as a departure. Since leaving the country in
2004, the crippled sprawling US bank giant has said it would like to regain
a foothold. Saudi officials, though, are protecting
banks from new competition, according to Jean-Francois
Seznec, visiting associate professor at Georgetown
for Contemporary Arab Studies. See the Bloomberg
article (CLICK HERE).
The Saudis might reinstate the 51% local ownership
rule, in a maneuver to obstruct Citigroup. A contact
from the UAE banking center wrote a message directly.
In it he said, "This was a subject of discussions
here in Dubai.
CITI will not be successful in its effort to
rekindle its Saudi fire. It is the Prince Al
Waleed who would like them to return, since has
juiced the local banks to the hilt." The
good prince might soon be hung out to dry. The Citigroup
return is an intriguing test of US
influence in Saudi
Arabia, and whether the winds
CALIFORNIA & ACUTE STATE
PENSION LIABILITY IS 6X THEIR ANNUAL BUDGET, OUT
OF CONTROL. SERVICES LIKE EDUCATION AND PARKS ARE
BEING SACRIFICED. NEW YORK IS IN A SIMILAR SITUATION. $$$
The entire California pension
fund liability stands at 6x the size of the entire
California state budget. At grave risk is the future income stream
of hundreds of thousands, if not millions, of Californian
retirees. The USGovt might be forced to pick up
the tab, or else retirees in the Golden State will end up with none of their
promised expected retirement benefits. Two alternatives
exist. First, the USGovt could fund this
huge obligation, along with a few dozen other state
obligations. The resultant monetary inflation would
aggravate the already huge USGovt debt issuance.
The monetary inflation in time converts to price
inflation, and the defined pension benefit is reduced
markedly in value. Second, the state of California could issue a gaggle supply of IOU coupons that quickly
are legal tender on a broad redemption basis. Not
just for utility bills and food purchase, the coupons
could produce a local variety of price inflation
within the state borders. In the current fiscal
year, $5.5 billion was diverted from other programs
such as higher education and parks to cover the
shortfall in California's retiree pension and health care benefits.
The Governor's office projects that this figure
will escalate to over $15 billion in the next 10
years, without any beneficial reform. See the Wall
Street Journal article (CLICK HERE).
Enormous demands cometh soon to the USGovt for a
California bailout, the biggest state in the union.
◄$$$ HUNDREDS OF THOUSANDS OF TEACHER JOBS
ARE AT RISK NATIONWIDE. REGARD THIS AS A THIRD WORLD
SIGNAL, A LOUD ONE FELT CLOSE TO HOME. DEVASTATION
COMES TO THE SCHOOL DISTRICTS, BESET BY RAPIDLY FALLING REVENUE AND NEGLECT FROM
THE FEDERAL FUNDS. $$$
Districts in California
have given job cut notices to 22,000 teachers. Illinois authorities are predicting 17,000 job cuts in the public schools.
York has warned nearly 15,000 teachers that their
jobs could disappear in June. New
Secretary of Education Arne Duncan estimated that
state budget cuts could require a reduction of between
100 and 300 thousand public school jobs. He
called it an 'Education Catastrophe' and urged the
USCongress to approve additional stimulus funds
to save school jobs. He must not be aware that they
only fund Wall Street and the Pentagon, the heart
& soul of the syndicate. Watch a proposed educational
emergency bill hatched by Senator Tom Harkin of
valued at $23 billion to provide more stopgap educational
financing. Expect his pet bill to fail, as suddenly
the USCongress cares about budget deficits spiraling
out of control. The Pentagon receives $30 billion
by mere mention of the word SURGE, in its sacred
budget. Remember the days of President Bush II and
his call to leave no child behind. What a farce!
Michael Petrilli served in the USDept Education
under President George W Bush. He urges the school
districts to learn to live with less. One can conclude
the national priority is more guns and fewer books.
See the Chalmers Johnson quote at the beginning
of the report.
School districts around the nation are reacting
to severe revenue constraints, as they are compelled
to enact drastic cuts to save money. The usual
sources of revenue, state budget funds and local
property taxes, have been hit hard by the recession.
About one quarter of all state spending is devoted
to public school systems. The federal stimulus money
earmarked for education has been exhausted this
year. In the USGovt Stimulus Bill passed in February
2009, about $100 billion in emergency education
financing was appropriated. States spent much of
that in the current fiscal year, rescuing more than
342,000 school jobs, about 5.5% of all the positions
in the nation's 15,000 school systems, according
to a study by the University of Washington. The States will face budget shortfalls by some $144 billion,
according to the Center on Budget & Policy Priorities.
The usual first cuts come to teacher positions,
but districts are planning to close schools, cut
curriculum (like fringe topics or non-scholastic
programs), enlarge classes, and shorten the school
day, in desperate attempts to save money. Districts
are struggling with legal requirements on job cut
notifications, the pink slip lead time. Negotiations
are underway in hundreds of districts, with votes
on school tax levy proposals in many states and
towns. A survey by the American Assn of School Administrators
found that 9 of 10 superintendents expected to furlough
school workers for the autumn season, up from 2
of 3 superintendents last year. The survey also
found that the percentage of districts considering
a 4-day school week had jumped to 13%, up from 2%
a year ago. More deep cuts are to come in Los Angeles, where job cut notices were sent to 5200 of the 80,000
employees in the district last month. Officials
called the magntiude devastating. Their $12 billion
school budget was cut by a full $1 billion. The
trend in cuts is expected to continue through to
year 2015. See the New York Times article (CLICK
Enormous demands cometh soon to the USGovt for state
bailouts. Cutting education budgets is a clear Third
HAS FILED LAWSUIT AGAINST ITS OWN STATE PENSION
FUND MANAGERS FOR FRAUD AND FAILURE OF FIDUCIARY
DUTY. GOOD LUCK IN COLLECTING, AS CASINOS WERE THE
MAIN HAUNT OF HIS CROOK. $$$
A lawsuit filed by the state of California has charged former CalPERS board member
Alfred Villalobos for gross misuse of funds.
Money was paid for the wedding of former CEO Fred
Buenrostro, who was flown around the world and promised
a Lake Tahoe condo when he
left the pension fund. The promises were kept. Villalobos
has earned tens of million$ as an agent better described
as a parasite. As middleman, working his personal
angle and not the best interests of the state pension
fund, he won fund investments for clients in a role
after his departure from the California Public Employees
Retirement System (CalPERS) board in 1995. State
officials succeeded in securing a court order that
froze Villalobos assets so as to prevent him from
paying casino debts. Court papers black out details
of his gambling in a redacting process worthy of
USDept Treasury documents. However, copies of canceled
checks obtained by the Sacramento Bee show payments
in 2005 of nearly $1.3 million to Harrahs and $530k
to Caesars. The court order freezes an assortment
of Villalobos assets, such as 21 bank accounts,
five luxury cars, and 16 properties in Lake Tahoe, Hawaii, and elsewhere.
The account freeze was deemed necessary to prevent
the high stakes gambler from squandering ill-gotten
state money before the state can collect a judgment.
Seemingly as a rejoinder to the complaint, the lawsuit
declared that "Villalobos compromised the
integrity of CalPERS investment process."
Investment decisions were clearly motivated by kickbacks
and favors, rather than wise allocations. See the
Sacramento Bee article (CLICK HERE).
◄$$$ MONEY SUPPLY SKYROCKETS, LENDING CEASES,
AS MONEY VELOCITY CAREENS DOWNWARD. THE MONETARISTS
FOCUS ALMOST ENTIRELY ON THE QUANTITY OF MONEY AND
THE MANY CHANNELS TO SUPPLY THE BIGGEST BANKS THAT
PROVIDE AMPLE LIQUIDITY. THEY IGNORE THE VELOCITY
WARNINGS, DRAGGED DOWN BY LACK OF DEMAND. $$$
A fundamental human flaw comes as a result of minimizing
the distress in the US banking industry from official
posts tied to policy making. A problem not addressed
is a problem not treated. A crisis minimized receives
less than its requirements. The arrogance of the
US-UK bankers comes with braggadocio that they can
meet any funding need. Yet they do not. They ignore
the badly harmed demand for money. They ignore the
inability of many banks to approve loans, given
their insolvent condition. While the money supply
has skyrocketed, the reason for being among bankers
is to hoard cash, store it in the USFed, neglect
loan loss reserves, shut down lending (almost),
and hope for the best. In the process, money
velocity, the pace at which money makes round trips
within the USEconomy, has sharply declined, enough
to issue warnings never mentioned to the public.
It is their job to protect themselves, to leave
the people exposed, rarely even to honor share holders,
and to plan for greater power grabs. Check out the
extreme anomaly at work, covered from three important
Colleague Craig McC wrote, "Now & The
Futures normally calculates the broad M3 money supply
on a weekly basis and utilizes slightly different
methodology than John Williams at Shadow Govt Statistics.
Hence, their weekly charts are more volatile than
SGS. However, their longer term chart below [oops,
above here] sure tells the story of Bernanke's bottling
up of the broad money supply. Unless Bernanke
suddenly shifts (unlikely), I do not see how
a Double-Dip recession or depression can be avoided.
All incumbents should be shaking in their boats
regarding the upcoming November elections. The asset
deflation is hitting more than consumers, i.e. commercial
real estate, the trucking industry, Just In Time
inventory systems, and more." Notice the
M3 longer term chart shown above, whose annual rate
of change has sounded loud alarms leading into the
fateful 2008 year when the US banking system died. See
the Now & Futures article (CLICK HERE). Yet the money supply,
the monetary base, the monetary aggregate, it has
gone vertical. USFed Chairman Bernanke has released
all the money valves at a time when the USGovt has
been compelled to issue a flood of new debt securities.
So money has been created, but obstacles prevent
it from being put to work in the financial system
or economy. It is not reaching the broad money supply.
Analyst and colleague Rob Kirby paints a dismal
picture, as he responds to the falling money velocity.
Such a signal almost always results in an economic
recession that hits hard and fast. Kirby wrote in
a private exchange, "But juxtapose broader
money against the monetary base. The monetary base
IS NOW and will continue to grow VERTICALLY, or
else our financial system collapses. Notice how
the monetary base can grow vertically while the
broader measure collapses. The VELOCITY is non-existent.
The willingness of banks to lend and create credit
is not there, because the FED has told them NOT
TO LEND. The story line that individuals cannot
qualify for loans is BOGUS. Their balance sheets
are no worse than the banks who have had money heaped
on them." Imagine a car racing its engine,
burning it up from generated heat, but no traction
and no locomotion. The car does not move.
Kirby explains the outcome, a theme of his that
he has remained steadfast and unswerving for over
a year with personal exchanges. In time, eventually,
inexorably, unstoppably, the money that floods the
system will eventually reach the streets. It does
not all offset the Black Hole needs like with credit
derivatives and impaired bond redemptions. The USFed
and USDept Treasury will continue to direct new
money into the system until a tipping point is reached,
in Kirby's opinion. At that time, the price structures
will react rapidly, turn on a dime, with sharp price
increases across the spectrum resulting. That includes
housing prices, and certainly stock prices.
Kirby wrote about the outcome after the tipping
point, with a hint of an agenda. He wrote, "A
more suitable description might be targeted consumer
credit deflation coupled with unavoidable and necessary
monetary hyper-inflation, unless you want the whole
financial system to implode. This would be akin
to the parasite, namely the FED, killing the host.
Parasites NEVER knowingly or willingly kill their
hosts. The Fed is PAYING commercial banks for excess
reserves held at the FED. Prior to the financial
crisis the commercial banks received NOTHING on
these funds. If the FED wanted banks to lend
money, they would AT LEAST revert to paying the
commercial banks nothing on excess reserves they
are compelled to leave on deposit at the FED.
The notion that Joe SixPack cannot get credit because
his balance sheet is too impaired is ridiculous.
Collectively, the bank balance sheets were WORSE
with multi trillion$ of toxic derivatives on their
books. And yet the FED heaped TRILLIONS on them
carte blanche, with no questions asked. The financial
crisis has been engineered by the FED & Anglo
American Banking Axis. The hard core GLOBALISTS
intend to consolidate their wealth and power. Their
goal is and has been to DESTROY AMERICA.
This is all consistent with the globalist dogma
of one world government controlled by BANKS. I should
expand those targeted for financial genocide is
ANYTHING and ANYONE beyond what seems to be the
chosen ones, like the select commercial banks."
These are harsh words, but little in the last few
years seems to contradict or refute his perspective.
Words spoken in recent weeks by JPMorgan CEO Jamie
Dimon actually reinforce the Kirby perspective.
Dimon, without remorse or a responsible vein, indicated
that the bankers would do a much better job at running
governments. One must wonder if he slipped in making
Notice the pattern of money velocity. The historical
mean is soon to be breached on the downside. The
dark decades of 1930 and 1940 might be repeated.
The 1990 decade, in my view the Stolen Decade of
Prosperity, has yielded to a powerful whiplash whose
momentum has yet to dissipate. That decade was stolen
since Clinton & Rubin swiped the gold supply,
exploited it for Wall Street gain, and produced
a powerful USTreasury Bond rally. Since borrowing
costs are the most important cost component, more
than labor or materials in a debt driven financial
ecosystem that is the United
States, the USEconomy flourished
but in a queer false manner. The hangover decade
was the 2000 ten year span. The death process has
been in high gear since autumn 2008. The Bretton
Woods Accord abrogation in 1971 unleashed instability,
produced a pair of decades filled with crisis, only
to result in systemic breakdown.
◄$$$ THE RELATION BETWEEN MONEY SUPPLY DECLINE
AND LABOR MARKET DETERIORATION IS HISTORICALLY CLEAR.
FOLLOW THE SHADOW GOVT STATISTICS GUIDE. A SHARP
DECLINE IN THE USECONOMY COMES. $$$
Let John Williams make the point, from ShadowGovt
Statistics. The main point is that as the money
supply declines, wait a few months and expect jobs
to suffer as the effect hits the labor market and
actual payrolls. The March and April Payrolls reports
are badly skewed. Even with skew and doctoring,
the upcoming decline will be impossible to conceal.
The pattern is clear from past economic cycles dating
back to the 1960 decade. This graph has been shown
on past occasions in Hat Trick reports, since it
is so razor sharp effective.
Williams wrote in a recent issue, "As discussed
in recent Commentaries, declining year-to-year
change in real (inflation-adjusted) M3 signals a
pending economic downturn or pending intensification
of an existing economic contraction. The following
updated graph reflects both the annual payroll change
and the approximate annual real contraction in the
SGS Ongoing-M3 Estimate as of April 2010. The M3
plot is shifted forward on the time scale by six
months so as to show its leading relationship to
payrolls. The April real M3 estimate is based on
approximations of 4.8% annual nominal M3 contraction
and 2.1% annual CPI-U, for a total 6.9% contraction,
versus a 5.0% contraction in March. Assuming the
April estimate holds, such would be a new record
annual decline in the modern reporting of real M3.
A formal preliminary estimate for the SGS Ongoing
M3 measure for April will be published over this
OF BANK FAILURES
◄$$$ MORE BANK FAILURES IN EARLY MAY OCCURRED,
WITH VERY SUBSTANTIAL DAMAGE. INCLUDE PUERTO
RICO IN THE KILL ZONE. THE PATTERN IS CLEAR OF BANK
ASSETS ROUTINELY OVER-VALUED BY 100%. THE BANK BUSTS
EXPOSE THE ACCOUNTING FRAUD FULLY SANCTIONED. THE
ENTIRE U.S. BANKING SYSTEM IS INSOLVENT IN SIMILAR FASHION.
Bank losses were extremely serious two weeks ago.
The Federal Deposit Insurance Corp decided to bring
Puerto Rican bank losses into the fold. Without
much of any press coverage, the largest single week
of bank losses were recorded since the IndyMac Bank
failure in July 2008. Recall that wayward crooked
bloated pig had assets of $32 billion and $19 billion
in deposits against them. That loud failure cost
the FDIC a cool $8 billion. The damage in the last
week of April was big. Seven banks failed with combined
assets of $25.8 billion and deposits of $19.6 billion.
The toll to the FDIC from the failures was reported
to be $7.33 billion. Put it into perspective.
In the nearly four months of 2010 up to then, 57
bank failures resulted in $8.6 billion losses. In
a single week, the failures practically doubled
the FDIC total loss to $15.93 billion. No recovery
is evident within the banking sector, despite the
continual propaganda. The rooted problems in the
banking sector appear to be growing worse over time.
The Deposit Insurance Fund for the FDIC sinks deeper
into the red. As of the end of 2009, the fund
went negative and reached a $20.9 billion deficit.
With this year's losses, the deficit has grown to
over $36.8 billion. The story is worse than
the topline figures indicate. The FDIC carries a
huge exposure for losses worse than anticipated
for $165 billion of assets taken over by acquiring
banks, that have yet to be recorded in writedowns.
Recall the FDIC required banks to pre-pay their
premiums for the period 2010 through 2012. That
revenue for the insurance fund, a 13-fold increase
from just two to three years ago, has been exhausted
on paper already. The FDIC front loaded premiums
to make sure they had a sufficient buffer to combat
the continuing bank collapses, yet that is depleted.
The next dreaded phase for FDIC Chair Sheila Bair
is to saddle obligations to the USGovt and taxpayer,
adding billion$ to the spiraling federal deficits.
A closer look at the five dead banks reveals a
pattern. Westernbank Puerto Rico of Mayaguez Puerto
Rico appeared healthy. It racked up a $3.31 billion
loss after its supposed $11.94 billion in stated
assets were determined to be over-valued by 125%.
R-G Premier Bank of Puerto
Rico in Hato Rey racked up a $1.23 billion loss
after its supposed $5.92 billion in stated assets
were over-valued by 96%. Eurobank of San Juan Puerto
Rico racked up a $0.74 billion loss after its supposed
$2.56 billion in stated assets were over-valued
by 109%. Frontier Bank of Everett
Washington racked up a $1.37
billion loss after its supposed $3.50 billion in
stated assets were over-valued by 99%. CF Bankcorp
Huron Michigan racked up a
$0.62 billion loss after its supposed $1.65 billion
in stated assets were over-valued by 102%. My writing
style is repeated for effect, a powerful effect
actually to make the point. The pattern is vividly
Two important points must be made. First,
the bank insolvency is a common problem far more
systemic than is reported (except by the Hat Trick
Letter and other journals). Banks are operating
as zombies, insolvent to the core, which explains
their lack of lending or deep reluctance often described
as stricter lending standards. The bank assets
are grossly over-valued, known as accounting fraud,
but systemically sanctioned. Second,
these bank failures are being reported with no allegations
of accounting fraud or management negligence. Bank
assets might routinely be over-valued by nearly
100%. Such accounting practices have been fully
sanctioned by the Financial Accounting Standards
Board since April 2009. That event marked the beginning
of the US
stock market recovery. Therefore the recovery itself
is a fraud.
◄$$$ THE PACE OF BANK FAILURES IS ACCELERATING,
WITH THE RISE PICKING UP SPEED EACH YEAR. ANY HINT
OF RECOVERY IS CONTRADICTED BY A SIMPLE PICTURE.
THE STRUCTURAL DEFECTS OF THE U.S.
BANKING SYSTEM HAVE NOT BEEN ADDRESSED. THEREFORE,
NO RECOVERY IS POSSIBLE. $$$
When placed on an embedded chart, the graphical
evidence of accelerated bank failures is obvious
in just the last three years. The Hat Trick Letter
does not begin with a platitude, call it a principal,
and dismiss evidence in clear violation. Instead,
the HTL builds a case from evidence, and takes the
path to its logical conclusion. The sheer number
of bank failures began to accelerate in mid-2008,
shown in the black series. The bank failures again
accelerated in mid-2009, shown in the green series.
In 2010, an even more rapid acceleration is evident,
faster than last year. Each year begins with the
same starting point, so as to provide proper perspective
on each yearly acceleration. The effect is amazing,
startling, and discouraging. Thanks to the Chart
Store for a great graph.
Neither USGovt officials, nor USFed bankers, nor
Wall Street bond fraud kings, nor FDIC bank insurers
even bother to attempt to explain the acceleration
in bank failures. Simply stated, my attitude is
to work off the opposite of their pronouncements
since they protect the banking interests using lies
and deception. My viewpoint is that in autumn 2008,
the US banking system died. It has been writhing ever
since, even though a great deal of tainted money
has been pumped into its sclerotic veins.
IN A STALL
◄$$$ TAX RECEIPTS FOR THE USGOVT CONTINUE
DOWN ON YEARLY COMPARISONS, SO AS TO REFUTE ANY
CLAIM OF RECOVERY. $$$
Federal tax receipts are a nice statistic almost
impossible to doctor or alter, thus a Hat Trick
Letter favorite. Week 16 data was released on USTreasury
individual tax withholdings. The comparison between
2009 and 2010 by four week buckets is given. The
weeks 1-4 showed a huge downdraft of minus 7.8%
to kick off the new year. Slight repair came in
weeks 5-8 with minus 2.3% and in weeks 9-12 with
plus 3.0%, but a turn downward has come. Weeks 13-16
showed minus 0.4%, a small negative again. With
individual tax receipts down, one cannot make any
legitimate argument for a recovery. The corporate
tax picture is similar.
◄$$$ CONSUMER PRICE INFLATION CONFLICTS WITH
THE REAL WORLD. THE BREAK FROM REALITY HAS BECOME
ABSURD AND RECOGNIZED. PRICES ARE ACCELERATING UPWARD.
ANECDOTES ARE PREVALENT. $$$
March's Consumer Price Index (CPI) data showed
a core price inflation rate increase of a modest
0.1%, nearly zero. But reality clashes! The contrast
with the real world has become a gross absurdity.
The USGovt in its many chambers prefers to ignore
the rising price phenomena in order to provide political
cover for historically unprecedented monetary inflation
used to finance unspeakable federal deficits. Any
economic participant, who buys things or runs a
business, can recognize the rising price trend.
It is in acceleration. Here is an assortment of
examples. They are taken from a week ago, the point
The price of crude oil is up 14.9% since the first
week of February. A gallon of unleaded gas is up
over 10% since February. In the recent weeks one
can notice that soybean prices are up 7%, cotton
is up 20%, copper is up 13%, and lumber is up a
whopping 50%. Such staples within the USEconomy
are on the move upward, hardly tame. The Commodity
Research Bureau (CRB) Index of 19 diverse resources
and commodities shows an 8.5% price rise since February,
not consistent with the more costly individual items
that should comprise its makeup. College tuitions
are expected to increase by over 10% at many colleges
for the 2010-2011 school year. Even the price of
a first class postage stamp increased 4.8% in 2009.
Car insurance rates in the United States are
up nearly 12% in the past year. Health care costs
are on a relentless upward path. Despite lower property
values, the property taxes and city service costs
are still rising, in response to city & state
A report from London
covers the entire spectrum of metals prices, issued
by the UK-based steel consultancy M EPS. Most
global metal prices are on the sharp rise. Their
price locations (continents) vary and are not cited
here. Stainless steel final transaction prices have
climbed steeply over the past twelve months, up
74% on an annual basis. Rising nickel prices is
the major influence, up 131.6% from one year earlier.
The molybdenum price is 93.4% higher than twelve
months ago. MEPS reported both ferrous and stainless
scrap have been in relatively short supply, but
the economic downturn has reduced recycling due
to low prices. Benchmark hot rolled steel prices
increased by 58% year on year, while rolled coil
prices rose 11.4% only. In Canada, the bridge building
and wind tower industries have brought strong demand,
so the steelmakers are busy meeting project demand.
Steady car demand is not driving the steel prices.
Hardening scrap costs and tight supply are mainly
to blame. Sales of coated steel to the general market
remain subdued, particularly from the still depressed
construction industry. Both hot dipped galvanized
and electro-zinc coated coil transaction figures
have been rising slowly. Although rebar (steel reinforcement
bars, like used in cement forms) sales have failed
to resurge in the US,
producers have secured a hike of $50 per ton that
was tabled to become effective April 1st. Nucor
has kept prices fixed for May shipments.
◄$$$ EMERGENCY EXTENSIONS TO JOBLESS BENEFITS
ARE SET TO END AT 99 WEEKS, AS A LIMIT HAS BEEN
DETERMINED. OVER A MILLION AMERICANS ARE DUE TO
FALL OFF THE INSURANCE WAGON RUN BY THE USGOVT.
IMPACT TO THE USECONOMY IS TO BE IMMEDIATE. $$$
Over a million US
citizens are scheduled to lose emergency jobless
benefits. When the USEconomic recession began in
December 2007, the USCongress extended the length
of unemployment benefits for the jobless a total
of three times. Finally the USGovt has reached its
limit. Without fanfare, without publicity, but
with a cold stroke of hand, the USGovt has quietly
drawn the line at 99 weeks of aid, called emergency
extended benefits. Hundreds of thousands of
Americans have already reached that mark. In coming
months, the proejcted number of workers who will
be cut off is estimated to exceed one million. Republicans
have delayed aid due to cost, while Democrats lack
the consensus to push through another extension.
The mounting concerns over the federal deficit have
weighed down the generosity, expected to reach $1.5
trillion this year. Unemployment aid has become
one of the federal budget's most substantial component,
and one of the fastest growing. This year its
costs will hit $200 billion. That figure is
an incredible six times what was typical in previous
Sounds like the recession is declared over, victory
is claimed, but dead proletariat soldiers litter
the field and countless more are set to die in triage.
In past recessions, only 26 weeks of payments had
been delivered to furloughed workers. The limit
has been declared at 99 weeks. In March, the
total victims tallied to about 11 million Americans,
roughly 70% of the national jobless count, who received
unemployment checks. They averaged $320 per
week. According to the Bureau of Labor Statistics,
44% of the jobless have been out of work for at
least six months. That level stands as the biggest
share since the USGovt began keeping track in 1948.
Worse, 3.4 million Americans have been out of
work for more than a year, according to a study
by the Pew Fiscal Analysis Initiative. A parade
comes. Interviews with state officials produced
state estimated counts who will fall off the emergency
support. In New York 57 thousand,
in Florida 130 thousand, and
in Ohio 30 thousand have exhausted their benefits
and will not receive any further insurance. Goldman
Sachs analysts expect nationwide more than 400 thousand
will soon begin losing benefits every month. See
the Bloomberg article (CLICK HERE).
◄$$$ JOBLESS CLAIMS CONTINUE TO HURTLE ALONG,
BUT SLIGHTLY LOWER, STILL HORRIBLE. THIS GOOD INDICATOR
CONTINUALLY CONTRADICTS THE PROPAGANDA HORNBLOWERS.
THE OFFICIAL JOBS REPORT HAS BECOME A JOKE, WORTHY
OF OPEN DERISION. IT IS RIDDLED WITH CONTRADICTIONS
AND PHONY LIFTS. THE JOB GROWTH IS LED BY THE CENSUS
Despite a slight downtrend in weekly jobless claims,
the news continues to be bad enough to remind of
the human tragedy and recession firmly in place.
A lift in the labor market is the general message
trumpeted, but the jobless claim magnitude is sufficiently
high to contradict any claim of recovery. A rebirth
of the USEconomy requires the hire of a couple million
people, not the ongoing slow hemorrhage of over
400 thousand workers on a weekly basis. In the week
ended April 24th, a list of 448 thousand workers
filed jobless claims, 11k less than the previous
week. In the week of May 1st, 444 thousand workers
filed jobless claims. The weekly job losses
stubbornly remain well over 400 thousand. The trend
is down, but the declining trajectory needs to be
several times greater. The continuing claims are
also on a downtrend. What was once 5.186 million
in mid-December has fallen to 4.594 million in the
last plumb read. Still, these figures are not recovery
So the April official Jobs Report is out, claiming
to reflect 290 thousand net job growth, and upward
revisions to the last two months of over 100k job
growth. What nonsense! What desperate deception!
The official jobless rate grew from 9.7% to 9.9%
during this net job growth episode, a testimony
to its fabrication. Also, the under-employment rate,
as the U-6 series is called nowadays, rose from
16.9% to 17.1% in the last month. The SGS Alternative
Jobless rate (free from all types of accounting
fraud) rose from 21.7% to 22.0% in the last month.
Higher jobless rates but more net jobs, total deception
and works of fiction. The official explanation,
again twisted logic passing for analysis, is that
formerly discouraged workers have lifted themselves
to go seek work, encouraged by the expanding economy,
and thus are considered jobless again. Worse,
the mythical Birth-Death Model that receives hardly
a peep of mention, is responsible for 188k of the
290k in net job growth. Last year, it contributed
only 62k fewer mythical jobs in April, so it is
leaned upon more heavily. This has taken place while
consumption is down, home sales are flat, and lending
is curtailed. It is important not to give such reports
too much credibility, since so easily dismissed
with a little thought! Shadow Govt Statistics actually
estimates that a baseline 230k phantom jobs are
integrated every month generally from the Birth-Death
Model overall distortions.
The April Jobs Report seems quite contradictory
to the respected Conference Board Help Wanted index,
which fell to 9 in March from 10 in February. It
leads the labor market in reliable fashion. The
Conference Board new On-Line Help Wanted advertising
declined by 1.0% in April, for the first time in
five months. Also the ISP Services index showed
falling employment. Note that the services sector
is twice the size of manufacturing in the USEconomy.
Then came the Census contribution that was sizeable
in itself. It added 66k jobs to the April total.
Another 450 thousand census jobs are expected to
be registered in the months ahead, surely to be
touted as a wondrous economic recovery. Let's do
some easy arithmetic. Remove the 188k jobs from
the Birth-Death Model. Remove the 66k jobs from
the Census project. One is left with only 36k jobs
in the April tally, a far cry from the 290k posted
in the official USGovt Jobs Report. Furthermore,
every February, the USGovt does a quiet benchmark
correction of past exaggerations. Last year, it
resulted in a few hundred thousand in reductions.
Expect the same next February.
◄$$$ CONSUMER SPENDING IS AGAIN ON THE DECLINE,
DESPITE PROPAGANDA. THE DECLINE HAS TURNED SLUGGISH,
AFTER THE 2008 CONTRACTION NEVER RECOVERED AT ALL.
Contrary to the popular propaganda promulgated
by the intrepid lapdog US press networks, consumer
demand has been on the decline in nearly non-stop
fashion since 2008. It has merely varied in the
speed of the downward trajectory. Green Shoots were
a convenient fiction. In 2009, a pause was seen,
due to rampant USGovt stopgap and incentive programs.
They have since come to an end. With banks unwilling
to loan, and M2 and M3 plunging, it will not be
long before wider recognition comes. Notice how
the 2008 recovery turned up only slightly, but the
2010 recovery is caught in a sluggish pattern lasting
60 to 80 days. No economic recovery is remotely
THE GREAT MORTGAGE HEMORRHAGE
◄$$$ COMMERCIAL MORTGAGE DELINQUENCIES CONTINUE
TO RISE, SETTING THE STAGE FOR A DEEPER BANK SECTOR
CRISIS. FRESH BANK LOSSES LIE DEAD AHEAD, UNAVOIDABLE.
Commercial property mortgage delinquencies hit
a new record in March. Unlike the residential mortgage
market, where properties have a reasonably tight
price range, the commercial arena reports data in
asset valued volume. Some commercial mortgage backed
securities (CMBS) are 100x the size of others. The
latest RealPoint monthly CMBS delinquency report
cites the situation as worsening. In March,
the total volume of delinquent CMBS increased by
$3.2 billion to $51.5 billion, or 6.4% of the total
notional outstanding. The details are horrific!
The RealPoint report wrote, "Overall, the
delinquent unpaid balance is up almost 268% from
one year ago, when only $13.89 billion of delinquent
unpaid balance was reported for March 2009. It
is now over 23 times the low point of $2.21 billion
in March 2007. The distressed 90-day, Foreclosure,
and REO categories grew in aggregate for the 27th
straight month, up by $2.57 billion (7%) from the
previous month and up by $30.31 billion (352%) in
the past year."
A footnote. The data excludes the recently defaulted
Village & Stuyvesant
Town in Manhattan
which still remained current in March, thanks to
tapping its reserve. This loan will effectively
go into default in April or May, enough to send
the total delinquencies up at least another $3 billion.
Their forecast is for much worse. RealPoint forecasts
the total delinquency rate surpassing 12% under
a more stressed scenario, or almost double from
the current volume rate. RealPoint explains
their dire forecast for the coming months. They
wrote, "With the combined potential for
large loan delinquency in the coming months and
the recently experienced average growth month over
month, RealPoint now projects the delinquent
unpaid CMBS balance to continue along its current
trend and grow to between $60 and $70 billion by
mid 2010. Based upon an updated trend analysis,
we now project the delinquency percentage to grow
to between 8% and 9% through mid-2010, potentially
approaching and surpassing 11% to 12% under more
heavily stressed scenarios through the yearend 2010.
This forecast & outlook is driven by the watchlist
reporting of several Realpoint identified High Risk
Loans from recent vintage transactions that continue
to show signs of stress and are on the verge of
delinquency, along with continued balloon maturity
defaults from more seasoned transactions."
Recent vintage refers to mortgage loans originated
late in the property bubble when prices were much
higher than nowadays. Prices have fallen by 30%
to 50% in the last two years. See the Zero Hedge
article (CLICK HERE).
A great comment came from the bloggers. One stuck
out as a laser beam. "We are curious just
how much of the ongoing deterioration trend in CMBS
was taken into account by banks, all of which decided
to reduce the loss reserves in the prior quarter."
Banks are leaving themselves very vulnerable to
obvious upcoming losses within easy view. A disaster
builds, after past disasters occurred, none of which
were remedied as impaired bank assets were not liquidated
to any great extent.
◄$$$ COMMERCIAL PROPERTY PRICES CONTINUE
TO PLUNGE. THEIR PRICE DECLINE IS WORSE THAN RESIDENTIAL,
WHICH HAS BEEN BUOYED BY FEDERAL PROGRAMS. THE COMMERCIAL
ARENA IS RECEIVING STEADY COVERAGE AS A DISASTER
ZONE. ITS SHORT-TERM FINANCE REQUIREMENTS HAVE FORCED
THE ISSUE WITHOUT RECOURSE. $$$
The commercial real estate (CRE) sector is in turmoil.
Commercial aggregate property values are not
the listed $6 trillion nationwide on the balance
sheets. Instead their value is closer to $3 trillion.
Portfolios for the entire commercial market are
close to being underwater on aggregate. The giant
defaults in CRE bring on two unique problems not
shared by the residential sector. No buyers can
relieve the problem for CRE properties at the current
prices. Then the banks holding the CRE loans use
fictional mark to market methods at lofty exaggerated
prices, elevated even though many of these current
CRE note holders are delinquent on their loans.
In most cases, regional banks are involved, not
the big Wall Street banks. The regional banks lack
the political connections and access to funds from
the USTreasury and US Federal Reserve. Increasingly,
these smaller banks are entering failure. They are
largely insolvent. This is an issue of solvency,
not liquidity. Notice the downward price pressure
since the January 2008 peak (shown in red).
The crisis for commercial properties was late to
make the headline news. The Hat Trick Letter has
been warning about the phenomenon for two years.
The CRE price pattern rose to higher heights actually
than the composite residential pattern, and has
recently fallen more than the residential. The comparison
is stark and revealing.
Commercial real estate is subject to stricter
short-term refinancing windows, like five or seven
years, much more so than residential loans.
They tend to come due in full, and must be paid
in full or refinanced every few years. Residential
real estate loans typically have longer 30 year
horizons. The due diligence exercised by banks on
individual loan refinance decisions reveals that
cash flow and loan to values do not pass the current
tests. Thus the banks stop lending to cover the
loan. These properties do not qualify for financing
and borrowers are unable to pay the bill, and certainly
not sell the property. The end game is upon them.
Many banks play the Pretend & Extend game, while
others are seized by the FDIC. The banking system
has a two-tier hierarchy, with gigantic Wall Street
afiliates contrasted against the scattered regionals,
in the midst of being unmasked. Take three examples.
The Ritz-Carlton Highlands Hotel in Lake Tahoe California,
the Metro Center III in Hyattsville Maryland,
and the Hyatt Regency in Bethesda
Maryland are three examples of spiffy commercial properties in deep
immediate trouble. They will all three likely to
bust, and be part of an FDIC seizure with heavy
cost incurred. See the MyBudget360 article (CLICK
◄$$$ STRATEGIC HOME MORTGAGE DEFAULTS CONTINUE
TO RISE, UP TO 1 IN 8 DEFAULTS. FURTHERMORE, THE
STRATEGIC DECISION IS HIGHEST IN THE CREDIT GROUP
WITH THE HIGHEST F.I.C.A SCORE. THEY MUST FEEL TOTALLY
NEGLECTED BY THE FEDERAL PROGRAMS, AND HAVE ENDURED
HUGE LOSSES. $$$
More and more 'Strategic' defaults are occurring.
They are identified by borrowers who choose voluntarily
to walk away from underwater mortgage obligations
independent of their ability to make monthly payments.
They just quit, stuck in a losing position, unwilling
to toss good money after bad. Two prominent studies
provide a contrast to the nature of the problem,
one from academia and one from an investment bank.
Strategic defaults account for more than one third
of all defaults, according to fresh research released
by the University of Chicago business schools. The
share of mortgage defaults judged as Strategic grew
to 31% through March 2010, from 22% a year earlier,
professors Paola Sapienza and Luigi Zingales wrote
in the research. See the Financial Trust research
report (CLICK HERE).
The research at Univ Chicago revealed interesting
perceptions, like how lenders are not going to pursue
borrowers who decide to walk away. In December,
the average survey respondent indicated they believe
lenders are 56% probable to chase a borrower, compared
with 54% in March 2010. The results also indicate
the likelihood of strategic default grows 23% if
a borrower learns of an underwater neighbor receiving
partial loan forgiveness. Furthermore, Strategic
default increases by 29% if borrowers can find alternate
ways to finance a new home, as in a different home.
In contrast, data from Morgan Stanley claims only
12% decide not to pay their mortgage. See their
chart above. The university research must use a
broader definition. Although the Morgan Stanley
separate research puts the share of strategic defaults
at almost 20% less, data shows the rate is growing
significantly. Regardless, the trend is clear, one
of defiance, if not outright civil disobedience
that would bring a smile to Henry David Thoreau.
Homeowners are increasingly defying the banks, challenging
them to produce property titles. In too many cases,
the banks cannot.
The Morgan Stanley research is valuable for a different
phenomenon revealed. It found the highest proportion
of Strategic defaults occur with the higher credit
score categories. This is clear evidence of
homeowner revolt. Beware that a higher credit score
does not mean a more wealthy borrower, just a more
responsible borrower. In general the default rate
rises proportionally with the FICO credit scores.
This reverse phenomenon is evident in both earlier
vintage loans made in 2004 and more recent vintage
loans made in 2007, shown in the paired graphs.
"While total default percentages drop as
credit scores increase, strategic default percentages
in each credit score bucket rise steadily as credit
scores increase, dipping a bit only at the highest
end of the credit spectrum," written from
the Morgan Stanley report. Researchers point out
that prime jumbo home loans have the greatest potential
to Strategic defaults. The tendency to strategically
default is higher in the 2006 and 2007 vintages,
late in the housing bubble marred by more extended
bloated prices, thus faster realized equity loss.
These vintages might account for over 40% of total
defaults on the jumbo end of the credit spectrum,
according to Morgan. They wrote, "This is
also the collateral type that benefits the least
from loan modification efforts such as HAMP, and
is the least likely to be eligible for FHA refinancing."
See the Housing Wire article (CLICK HERE).
◄$$$ THE HOME INVENTORY IS 20% HIGHER THAN
A YEAR AGO. THE WEIGHT OF SUPPLY WILL SHOULD HAVE
A POWERFUL SUDDEN DOWNWARD EFFECT ON HOME PRICES.
A SHOCK WAVE COULD EASILY STRIKE. EVEN WITHOUT A
PRICE SHOCK, THE POWERFUL ONGOING EFFECT IS TO PREVENT
ANY PRICE RECOVERY WHATSOEVER IN THE HOUSING MARKET.
In my view, the banking system insolvency on
the financial side and the housing inventory surplus
on the economic side firmly address the brokenness
of the USEconomy and financial structure. The
new phenomenon to the banking woes is not accounting,
but rather bloated home inventory carried on their
balance sheets. FASB accounting rules can permit
fraud, but reality of toxic assets and insolvency
is hard to step around. LPS Applied Analytics estimated
that foreclosures would create so much market supply
that it would take almost nine years to liquidate.
Furthermore, the HAMP (Home Affordable Modification
Program) program started by the Obama Admin is trying
to modify loans so that lenders will not foreclose.
But it too is a failure, born out by the data.
The Wall Street Journal wrote, "As of
March, banks had an inventory of about 1.1 million
foreclosed homes, up 20% from a year earlier,
according to estimates from LPS Applied Analytics.
Another 4.8 million mortgage holders were at least
60 days behind on their payments or in the foreclosure
process, meaning their homes were well on their
way to the inventory pile. That Shadow Inventory
[of unsold bank owned homes] was up 30% from a year
earlier. Based on the rate at which banks have
been selling those foreclosed homes over the past
few months, all that inventory, real and shadow,
would take 103 months to unload. That is nearly
nine years. According to Goldman Sachs, HAMP started
less than 80,000 trial modifications in March, less
than half the number in the peak month of October
2009. At the same time, a growing number of modifications
are being canceled as borrowers prove unable to
pay. By Goldman's count, about 68,000 were canceled
in March. All this means that little can stop the
bank inventory of distressed homes from growing.
Too many people owe too much more on their homes
than they can afford. For the housing market, that
could mean a long lasting hangover." See
the Daily Capitalist article (CLICK HERE).
What is not mentioned is the number of sales that
end up as short sales, where people owe more on
loans than the home value. It makes the ratio of
103 of supply all the more dreadful.
◄$$$ FANNIE MAE ADMITS TO A MASSIVE SHADOW
INVENTORY, NO LONGER A HIDDEN SORE ON BALANCE SHEETS.
THEIR OFFICIAL ECONOMIC OUTLOOK EXHIBITS SHALLOW
THINKING, CONTRADICTIONS, AND LACK OF AWARENESS.
The headline on the published story was that excess
shadow inventory threatens a fragile housing recovery.
On one side is how the shadow inventory was not
in the news at all last year. On the other side
is how the overhang does not factor into most mainstream
economic forecasts. That significant point was lost
throughout the entirety of an official economic
outlook that Fannie Mae published. They claim that
although the US housing market shows signs of stabilizing,
excess inventory and shadow supply could hinder
recovery. Fannie Mae economists and mortgage market
analysis group issued a research report of very
shallow thought process. They said new home sales
will likely be slow to recover until inventory of
existing homes and the foreclosure overhang are
worked off. They totally overlook how the housing
market needs a near total shutdown of the new home
market, if the housing market glut is to be relieved.
They acknowlege how the first time homebuyer tax
credit failed to boost sales, but anticipate home
sales to increase. That is cockeyed. They expect
the labor market to struggle as the unemployment
rate remains elevated for some time. Due to a perky
return to a baseline growth, their economists project
unemployment will decline to 9.4% by year end, and
to 8.5% by the end of 2011. This moderate recovery
is all to occur amidst rising mortgage rates. They
forecast mortgage rates are to increase, which should
torpedo any hint of recovery for both the housing
market and USEconomy generally. Fixed rate mortgages
are projected to gain 43 basis points in 2010, rising
from an average 5% in 1Q2010 to 5.43% in 4Q2010,
and later rising further another 38 bpts to an average
5.81% by year end 2011. Such a forecast is totally
inconsistent, contradictory, and foolishly irresponsible.
These guys are hired for perhaps being corrupt rather
than adept, maybe nephews of the management. The
intrepid staff at the Fannie Mae financial sewage
plant take a tepid stance of decelerated economic
growth, down to a 3.1% forecasted rate of economic
growth for all of 2010. It is always a useful exercise
to check in with an official position once in a
while, as a sanity check. These guys are not worth
continuation on the payroll, serving almost no function
of value. Flower pots in their office stalls would
contain more value.
Fannie Mae chief economist Doug Duncan wrote, "Financial
conditions are improving as seen by the unwinding
of various programs, most notably the mortgage backed
securities purchase program which ended in March.
This is strong evidence that the Federal Reserve
believes the financial sector can stand on its own.
We estimate that June 2009 was the end of the recession,
a good sign that we are moving forward. Nevertheless,
significant improvements in the labor market and
consumer spending will be the big hurdles as we
move toward recovery in the housing market and broader
does not see the lunatic position of believing the
financial sector can stand on its own. Huge staggering
financial props and extraordinary liquidity facilities
have kept the system afloat in avoidance of a total
collapse. In fact, narcotics funds kept the
US banking system
alive in the latter months of 2008, according to
the United Nations illicit drug research group.
At least Duncan realizes how important the labor market is, but it is a lagging
indicator of failed remedy and reform to the system.
He seems to avoid all relevant points like insolvent
banks, insolvent households, lack of industrial
return to US shores, need for reduced USGovt regulation,
and the broken USDollar. He might not even observe
shrinking money velocity, vanishing commercial paper
(intermediate commercial lending bond securities
held as collateral), common rejection of small business
loans by banks, or the encirclement by China
of the entire USEconomic supply chain. He certainly
is forbidden to mention the revolt among home mortgage
holders, who are not making monthly payments, even
demanding to see a produced property title. Then
again, he is a government employee who probably
could not find a job in the private sector. See
the Housing Wire article (CLICK HERE).
◄$$$ FREDDIE MAC SPOKE FROM WITHIN THE BLACK
HOLE. ITS Q1 LOSS WAS WRETCHED. IT WILL REQUEST
OVER $10 BILLION MORE FROM THE USGOVT. NATIONALIZATION
PAYS BIG NEGATIVE DIVIDENDS, WHICH MIGHT CONTINUE
TO PERPETUITY, OR AT LEAST UNTIL THE GRAND USTREASURY
Last week Freddie Mac continued to display debris
from the great swirl of the Black Hole firmly rooted
on USGovt soil, when it reported a net loss for
1Q2010 of $8 billion, after accounting for dividend
payments of $1.3 billion on its senior preferred
stock. Apparently the financial results were driven
significantly by the required adoption of new accounting
standards. The continued weakness in the housing
market acted as an additional headwind.
In direct response to profound loss, Freddie
Mac has formally requested $10.6 billion in additional
federal aid. Witness this latest signal not
of purported cost to stabilize the housing market,
but rather the perpetual cost to finance the Black
Hole that contains well beyond $2 trillion on mortgage
fraud, along with the trappings of the mortgage
bubble bust. The new request will bring the total
tab for rescuing Freddie Mac to $61.3 billion. The
cost for Fannie Mae is special, and spectacular
also. In December, under the cover of the Christmas
holiday, the USDept Treasury pledged to cover unlimited
losses through 2012 for Freddie & Fannie. The
Fat F&F Duo will certainly test that unlimited
offer. The imminent request will bring the total
taxpayer tab for both companies to about $136.5
billion. The second shoe from Fannie Mae, to
herald its yawning loss, is expected soon, followed
by a certain request for additional financial aid.
For perspective, Freddie Mac has lost twice as much
money in the last ten quarters as it earned in the
last 30 years.
CEO Charles Haldeman proclaimed his own version
of Green Shoots as he said, "We are seeing
some signs of stabilization in the housing market,
including house prices and sales in some key geographic
areas. [But the housing market] remains fragile
with historically high delinquency and foreclosure
levels." He is delusional, and cannot read
evidence of inventory glut on bank owned properties,
and cannot read evidence of the collapse of the
commercial property sector. These executives are
as inept as they are corrupt. In a responsible vein
not seen among the bigger banks, Freddie Mac set
aside $5.4 billion in loan loss reserves in order
to cover credit losses from bad mortgages. It is
seen as good news that the setaside is much less
than the $7.0 billion devoted to reserves in 4Q2009.
Again a dying man bleeding less on the sidewalk.
One can safely conclude that the USGovt represents
and serves as the entire mortgage market, without
hesitation. Government institutions, mainly Fannie
Mae, Freddie Mac, the Federal Housing Admin, and
the Veterans Admin, underwrote 96.5% of home loans
in Q1 of 2010, according to trade publication
Inside Mortgage Finance. See the Huffington Post
article (CLICK HERE).
The housing market would collapse without such a
sick prominent role.
Thanks to the following for charts StockCharts,
Financial Times, UK Independent, Wall Street
Journal, Northern Trust, Business Week, Merrill
Lynch, Shadow Govt Statistics.