MACRO ANALYSIS REPORT
ECONOMICS, CENTRAL BANK POLICY
BANKS, BONDS, GEOPOLITICS

* Gold Market Breakdown
* USTreasury Bond Glimpse
* Central Banks Demonstrate Frozen Policy
* USGovt: Subprime Lender & Landlord
* Sham of Reported Economic Activity
* Banks & Insurers Slide Further
* Commercial Property Crash Impact


HAT TRICK LETTER
Issue #68
Jim Willie CB, 
“the Golden Jackass”
15 November 2009

"If you want to know when a society is set to vanish, watch the money. Whenever destroyers appear among men, they start by destroying money, for money is mens protection and the base of moral existence. Destroyers seize gold and leave to its owner a counterfeit pile of papers." -- Ayn Rand

"The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters is in commercial real estates lending." -- Sheila Bair (FDIC Chairman) which reported $1.1 trillion in CRE loans

GOLD MARKET BREAKDOWN

◄$$$ DECARBONNEL HIGHLIGHTS A GOLD MARKET BREAKDOWN AT THE METALS EXCHANGES. HIS WORK IS COMPREHENSIVE, AND SERVES AS AN EXCELLENT SUMMARY UPDATE ON THE CURRENT SITUATION. $$$

The rise in gold pre-sages a currency collapse, led by the USDollar. Gold vaults at commodity exchanges in New York and especially London are being drained by delivery demands. Gold demand is skyrocketing, as distrust for the USDollar is broadening and revolt against the US$ is deepening. The quintessential finance war is between the United States and China, with the battlefield being the US$ and Gold. The race over the $1000 price level came in the face of mammoth shorting by the same Usual Suspects on Wall Street, which do so with paper, but without the required collateral. The gold market is poised for a surprise upward move from a basic broken condition, as the Powerz are losing control. It would be a joy to watch except for the extreme hardship due to come to the betrayed American people. See the Market Skeptics article (CLICK HERE).

◄$$$ THE BIGGEST GOLD CRIME STORY OF THE CENTURY MIGHT BE SOON COMING TO FULL LIGHT. EVIDENCE IS BEING ACCUMULATING THAT THE CLINTON ADMIN WITH RUBIN AT USDEPT TREASURY REPLACED PERHAPS THE ENTIRE CONTENTS OF THE FORT KNOX GOLD WITH TUNGSTEN BARS PLATED BY GOLD. THE SALTED GOLD BARS ARE FASTING BECOMING A GLOBAL CRIME ISSUE. HONG KONG DISCOVERED THEM, AND NOW ASSAYERS ARE TRYING TO AUTHENTICATE MOST OF THE GLOBAL GOLD HELD IN BANKS. ENTIRE NATIONS ARE AT RISK. BEFORE LONG THE USGOVT COULD BE DECLARED A ROGUE NATION INTERNATIONALLY. $$$

Evidence is being gathered by perhaps a dozen key gold traders with diverse connections to the gold industry. They tie the delivery systems, the authentication processes, the assayers, record keeping, big financial firms, and trading platforms. Evidence mounts that as many as 1.5 million 400-oz gold bars were replaced at Fort Knox during the Clinton Admin with tungsten bars covered with a thin gold plate. This was a complex metallurgical feat, from what is told. The first 'salted bars' were discovered in Hong Kong a month ago, reported by the Hat Trick Letter. Since that time, tens of thousands of bars have been examined, usually using four test holes drilled for direct sampling. Other non-invasive methods are being used as well, such as electro-magnetic tests to detect the actual lattice structure of the metal to distinguish gold from other substitutes. Word came this week that almost every available assayer in the world is currently tied up, charged with proving the authenticity of gold bars worldwide, right now! Rob Kirby suspects that the Street Tracks GLD exchange traded fund might be loaded with such salted bars. It is a perfect destination for them, since the Wall Street syndicate prevents any audit. The total value of gold removed within the plot was worth over $500 billion. So where are the real gold bars stored? My guess is the same location where the Madoff money is secretly held.

My view is the story is not only credible, but it is the climax to the US financial collapse. In time the United States will be isolated, declared a Rogue Nation, unable to fund its debt except with monetization, whose leaders and former leaders face international prosecution. The resulting inflation will undermine the USDollar to the point that it will not be accepted. A USTreasury default will be forced, all in time. To be sure, some demand for gold might be frozen into inaction obviously, as customers would fear owning fake gold bars. However, the significantly greater effect is that sellers of gold will scramble to purchase real gold bars, so as to avoid fraud charges, criminal prosecution, and jail time. They will be motivated to repair the fraudulent transaction with full expedience. The replacement effect will cause an extraordinarily huge demand. Only at that time, will the risk of exposing the stolen gold come, as the thieves will want to cash out on their crime, at least partially.

The removal and illegal swap of gold has precedent. In the 1960 decade, around 1968, President Lyndon Johnson ordered the removal of 7000 of the 8000 tons of gold from Fort Knox, and had it sent to England. The motive was to support the gold price at the time. Just a few years later, the US under President Nixon abandoned the US$ Gold Standard, as dictated by the Bretton Woods Accord. The gold was replaced during the Johnson Admin in Fort Knox by lead bars plated by gold. A contact of mine was in the USMilitary Police at the time. He reported long caravans exiting Fort Knox for weeks at a time, but the details of shipments were not known to the guards, only their duties.

For some excellent forensic financial analysis on the fake gold project, called Operation Grand Slam, see Rob Kirby's article. It is entitled "On Doing Gods Work: Gold Finger - A New Take On Operation Grand Slam With A Tungsten Twist (CLICK HERE or CLICK HERE), dated 12 November 2009.

◄$$$ GOLD MARKET BREAKDOWN IS WITHIN VIEW. LONDON GOLD IS BEING DRAINED BY THE CHINESE. A DISMANTLE OF THE CRIMINAL APPARATUS IS THEIR GOAL. UPON FULL BREAKDOWN, THE GOLD PRICE WILL BE RELEASED FROM PAPER TENTACLES AND RISE SHARPLY. $$$

Pressures mounted in early October at the London metals exchange as gold contract holders demanded delivery of gold. My source tells me that the parties demanding gold were almost exclusively Chinese. It is mostly private billionaires. Their stated motive was to diversify out of US$-based assets. Their rumored motive was to ruin the exchange, expose the chronic fraud linked to government ministries, and force the USDollar to fight in the open to demonstrate value or lack of value. The source said the next round of gold contract delivery pressure comes in late November, then again in March 2010, and finally in June 2010. He said the gold is gradually being drained in London, and that all demands for gold delivery were met in October, using legal force, the courts, and powerful attorneys. Not a single gold contract was settled for cash with a 25% dividend bribe. He concluded that the financial system will be broken at the gold-USDollar cross beam. He openly stated that he could not conceive of the system holding together past June of next year, and a severe test is likely in March 2010. He said with sly tone, "There is a saying: Watch out or you become shit before your own shovel. That is what is happening to the BOYZ right now. The people in the driver seat of the bulldozer have clear instructions what to do in the gold market." When the breakdown comes, it will be next to impossible to trade in USDollars, to settle commerce in USDollars, to finance the USTreasurys, to supply the USEconomy with credit, and to maintain the US banking system. The banks in the United States will then shut down in all likelihood.

My view is that a battle royal is being played out with gross global pressures, between the old broken insolvent corrupted powers of the West versus the new wealthy ambitious powers of the East, led by China. The future chapters will possibly involve the Intl Court in The Hague for prosecutions against the Wall Street firms and former USTreasury officials. It will possibly involve  a wave of murders from the middle levels, working up, since the guilty parties operate with impunity and government protection. It will surely involve  relentless attacks on COMEX and London CME for gold deliveries, where collateral requirements are not enfoced. The practice is known as naked shorting, illegal. It will probably involve the isolation of the United States, with full recognition of a crime syndicate lodged within its government ministries and capital markets. These are truly incredible times.

USTREASURY BOND GLIMPSE

◄$$$ USGOVT FINANCES WERE WRETCHED AND HORRIBLE IN OCTOBER. THE MOST RECENT TREASURY AUCTION WAS POOR. ANY EVIDENCE OF A RECOVERY SEEN IN FINANCES IS TOTALLY ABSENT. $$$

The USGovt federal deficit set a record. Of all the past Octobers, this month in 2009 was the worst on record with a $176.36 billion deficit. The deficit was 17% worse than in October 2008. An incredible skein of 13 consecutive record deficits has been logged in a row. Regard the data as contradiction of any economic recovery. The Gross Deomestic Product is an inadequate measure for recovery, and so especially is the Dow Jones or S&P500 stock index an inadequate measure. The most recent Treasury auction went off last week on Thursday. It was graded at 'C' by Rick Santelli of CNBC, who pulls few punches, fully willing to go toe to toe at times with clownish economic scribes and analysts who defend the system. The $16.8 billion auction went off at 4.469% on the 30-year bond with a bid/cover 2.26 ratio, the lowest since May and below an average of 2.39 set during the last 10 auctions. Also, the USFed announced it had purchased $7.8 billion in GSE bonds in October, otherwise known as Fannie Mae mortgage bonds (Freddie Mac and some Ginnie Mae too). The central bank supports the housing market with outright monetary inflation, and even monetizes GSE bonds turned in by foreign central banks.

William Larkin is a fixed-income portfolio manager at Cabot Money Mgmt in Massachusetts. He said, "It was a mediocre auction. The longer end is embedded with more risk. With the stimulus and inflationary policies, you do not want to hold a long-term bond with a low yield. The USGovt sold $81 billion of debt in the past week, including $40 billion in three-year notes on November 9th and a $25 billion of 10- year debt on November 10th, both at record levels. The total USGovt marketable debt stands at $6.95 trillion and reached a record $7.01 trillion in September. See the Bloomberg article (CLICK HERE).

◄$$$ THE USFED IS FIGHTING A LOSING BATTLE. THE CREDIT FLOW HAS GONE INTO REVERSE AND THE VELOCITY REMAINS IN DECLINE. THEIR REACTION, TO HASTEN THE MONETARY INFLATION WILL CREATE EVEN GREATER STORM CONDITIONS FROM POWERFUL LOW PRESSURE AND HIGH PRESSURE DIFFERENTIALS. GOLD USUALLY WINS SUCH BATTLES, AND ECONOMIES USUALLY LOSE SUCH BATTLES, FROM ENSUING MONETARY CRISIS. THE USFED CANNOT STOP THE HEAVY GROWTH IN MONEY, UNLESS IT WISHES AN ECONOMIC COLLAPSE. $$$

The fabled USEconomic recovery is clearly contradicted in the data for bank credit, which is in fast retreat. The October annual decline in commercial bank credit is a whopping 6%. An extremely powerful decline is noted since midsummer of this year. Money velocity is defined as the ratio of money supply to the aggregate demand for money, called the Gross National Product, which includes commerce in foreign trade. The current money velocity, as measured in MZM or M2, are both low. They show the same decline from midsummer. Consequently, immediate price inflation pressures are low. A surfeit of money exists relative to bank credit demand, so that increased money is not doing much chasing of goods. It is offsetting credit market destruction. Money flows liberally into financial assets, unfortunately the very same site of the bust in September 2008, further evidence of total lack of remedy. Increased speculation is evident in the stock market. The USFed is stuck in its 0% policy, unable to implement an Exit Strategy. On the one hand, the USFed cannot stop its monetization of existing debt, since that would cause a further loss of flow. On the other hand, the USFed must hasten the flow in order to avert an economic collapse. The hyper-inflation in prices is far more likely to come from a USDollar collapse than any USFed actions. If they take their foot off the monetary pedal, the USEconomy faces possible collapse. Foreign response to monetization, corruption, wretched policy, and endless war puts the USDollar collapse as the more likely outcome. See the Crossroads Cafe article (CLICK HERE).

◄$$$ INFLATION EXPECTATIONS DO NOT COME FROM USTREASURYS IN DIRECT FASHION ANYMORE, SINCE TOO MANIPULATED. WATCH THE USTREASURY YIELD SPREAD INSTEAD FOR RELIABLE HINTS. IT SIGNALS HIGHER PRICE INFLATION. $$

The difference between 2-year and 30-year yields reached 3.60%, the most since June. A rise in this ratio is a highly reliable signal for a rising gold price, or imminent price inflation, or both. Rampant expectations prevail that the USDept Treasury will increase sales of longer-term securities, given their perceived prospect for higher price inflation. My charting capability is limited to ratios, which tell an accurate story in parallel. Notice the 30yr/2yr yield ratio has risen above a recent range. This coincides with the jump in the difference in yields.

◄$$$ USFED EXTENDS AUCTIONS FROM 10 TO 30 YEARS ON BOND SECURITIES. THE MESSAGE IS CLEAR, THAT THE USGOVT ANTICIPATES HIGHER PRICE INFLATION. $$$

Even the USDept Treasury believes the USEconomy will be stricken by stronger price inflation in future years. Any institution or business that extends the timespan on a debt security anticipates that inflation will erode valuations, and thus bring about cheaper money for debt repayment. That is basic. The USGovt announced it will sell $81 billion in long-term debt last week. It will be conducted as part of its quarterly auctions. They plan to replace the Treasury Inflation Protection Security (TIPS) 20-year bond with a reintroduced 30-year security. By making this decision, the USDept Treasury is broadcasting a message to everyone of eventual higher than normal price inflation. Treasury Secy Geithner seeks to lock in record low borrowing costs by lengthening the average due date for Treasury auctions. The stated long-term target of six to seven years is the average maturity of USGovt debt. The average maturity is currently about 53 months, according to their data, below the historical average of about five years. They will sell longer-dated securities in order to lift that average. See the Bloomberg article (CLICK HERE).

◄$$$ SHORTING USTREASURY BONDS IS ATTRACTING INVESTOR INTEREST BY THE PROFESSIONALS. ALMOST ONE YEAR AGO, THE JACKASS MADE A WRONG FORECAST OF HIGHER USTBOND LONG-TERM YIELDS. THE ERROR WAS NOT FACTORING IN MONETIZATION, PURE MONETARY INFLATION. NOW AFTER A FULL YEAR OF GAMES AND RIGGED USTBOND SUPPORT AND FALSELY REPORTED AUCTIONS, THE RISK IS FINALLY HERE FOR HIGHER BOND YIELDS. FOREIGNERS ARE IN REVOLT. TIME WILL TELL IF HIGHER YIELDS COMETH, WHICH NOWADAYS MEAN INEFFECTIVE MONETIZATION EFFORTS. $$$

Hedge Fund manager Paolo Pellegrini has a keen eye for breakdown and big accidents. The former Paulson & Co hedge fund manager was part of a team that garnered over $3 billion in profits on a US housing crash. The firm worked with Credit Opportunities Funds. Pellegrini left in December 2008 to start a new macro investment fund called PSQR LLC that trades everything from commodities to currencies, with a deployed strategy to profit from major shifts in the global economy. He believes shorting long-term USTreasury debt is the 'only attractive bet' for investment. He said, "I always like to think about assets that are likely to experience a breakdown. The only thing I am pretty comfortable with right now is USTreasury securities and USAgency mortgage backed securities. I think that those are overpriced, so they are attractive shorts." He also likes the downside prospects of USAgencies including Fannie Mae, calling them attractive shorts.

Pellegrini disagrees strongly with the USFed monetary policy, claiming it is cheating savers to pay for the aftermath of the financial crisis. He is particularly concerned about the devaluation of the USDollar, being a holder of US$-based assets. He actually believes the USDollar has depreciated more than it should for the short term. He has an increasing sum of investment capital on the sidelines.

CENTRAL BANKS DEMONSTRATE FROZEN POLICY

◄$$$ USFED HOLDS THE OFFICIAL INTEREST RATE AT 0.5%, AS THEY JUSTIFY THEIR ENTRENCHED FREE MONEY POLICY. THE USUAL CATCH PHRASES APPEARED AGAIN, SEEN AS FIXTURES ON THE MONETARY BILLBOARD. THE CRIPPLED NATIONS WILL NOT RAISE RATES (US, UK) WHILE THE COMMODITY NATIONS WILL INDEED RAISE RATES. $$$

On November 4th, the USFed once again reiterated its essentially 0% official interest rate policy, offering the usual justification. They refuse to admit openly their stuck position, as they cannot raise rates. Doing so would crush the moribund real estate market. Doing so would raise borrowing costs for themselves and the USEconomy. Doing so would very likely unleash price inflation from controlled spillover. Doing so would reverse the Dollar Carry Trade and anger Wall Street itself. The USFed signaled being nowhere close to raising interest rates, pointing to a weak USEconomy even though the recession is supposedly at an end. The analogy is a man who fell and cannot get up. The central bank said it would keep its benchmark interest rate at virtually zero, and it made no change to its longstanding message that economic conditions were likely to warrant the currently low rates for 'an extended period.' Translate the official USFed message to mean free money would be a fixture for at least several more months. Many analysts concluded that for practical purposes, policy makers are still at least six months away from tightening monetary policy. Despite the phony acknowledgement of an imaginary pickup in economic activity, based purely on extreme stimulus and imprudent programs (like Clunker Cars and Home Buying Tax Credits), the central bank cautioned consumer spending would be sluggish, businesses were still in retreat, and economic growth would be 'weak for a time.'

The catch phrases have become very important, so notice them as offered. They indicate the cornered position of the USFed, and its inability to tighten monetary conditions in any way, shape, or form. They can only talk, but as they do, they lose credibility. In addition to saying that economic conditions would continue to warrant 'exceptionally low' rates, policy makers claimed those conditions included 'low rates of resource utilization' responsible for 'subdued inflation trends' and the wondrous 'stable inflation expectations.' USFed officials have already cut back some of their emergency loan programs and stopped buying Treasury bonds, and they have said they would soon stop buying mortgage securities. In other words, they cannot even remotely raise interest rates. To tighten monetary policy, USFed officials would have to start reducing the size of its mammoth balance sheet by selling the securities it has acquired. Such drain would force a rapid down thrust and deeper USEconomic recession, while at the same time a spillover of inflation. The entire system is propped by stimulus, flow of easy money, mindless programs, and major efforts from the abnormal. THEY HAVE NO AVAILABLE EXIT PLAN, NONE!! See the New York Times article (CLICK HERE).

◄$$$ THE BANK OF ENGLAND HOLDS THE OFFICIAL INTEREST RATE AT 0.5% WHILE AT THE SAME TIME IT ADDS HUGE ADDITIONAL MONEY TO THE SYSTEM. THE B.O.E. WILL AMPLIFY ITS ASSET PURCHASE PLAN. THIS ADMISSION CONTRADICTS PROMISES MADE ONLY A MONTH AGO. THEY ARE OUT OF CONTROL. $$$

They call it 'Quantitative Easing' since it sounds better than extraordinary monetary inflation. On the same week as the USFed, the Bank of England joined the Anglo chorus by announcing it will keep its main interest rate at a record low of 0.5%, equal to that in the United States. The more important feature of the BOE statement pertained to the magnitude of the so-called Quantitative Easing measures. They approved another £25 billion pounds (=US$41B) into the British Economy, hoping to lift it out of recession. The central bank decided to expand its ongiong asset purchase program to £200 billion from £175 billion. The purchases are financed by the issuance of central bank reserves, which means printed pound sterling converted immediately to UKGilts. Two weeks ago a surprise news item came forth that Britain remains in recession. Not a surprise to the Hat Trick Letter, as the Third World awaits both the US and UK from a broken banking systems and busted housing bubbles, upon which economic foundations were built. The expansion in the asset purchase program was at the lower end of predictions, since many analysts were expecting a £50 billion increase. Stephen Boyle, head of economics at the Royal Bank of Scotland explained that economic conditions would be much worse without QE measures. He said, "The extension of the Bank's asset purchase scheme today reminds us that the risks of doing too little considerably outweigh the risks of doing too much." They are trapped!

Although the British economy contracted further by 0.4% in in 3Q2009, the Bank of England maintained confidence of a rise in economic activity due to indicators of spending and confidence. The BOE leans on the same tired backward inane failed indicators as the US hack bankers. Spending will not lift the nation, but rather business investment and a legitimate banking system not mired in insolvency. Every major problem is met by more free money floated and distributed, which destoys true capital and worsens the current problems. The US & UK economists are the worst in the world, dominated by inflation apologists whose loyalty lies with the banker elite. The central bank issued a statement to the effect that unused capacity will keep prices down, while the falling pound sterling currency will offset and push prices up. It said "On balance, the Committee believes that the prospect is for a slow recovery in the level of economic activity, so that a substantial margin of underutilized resources persists. That will continue to bear down on inflation for some time to come, offset in the short run by the impact of the past depreciation of sterling." They acutally risk a currency crisis, just like the United States.

◄$$$ THE EURO CENTRAL BANK HOLDS THE OFFICIAL INTEREST RATE AT 1.0%, TO COMPLETE THE WESTERN CHORUS. THEY CHOOSE TO WAIT AND SEE WHAT COMES, IN REACTIVE MODE. $$$ On the same week as the USFed, the Euro Central Bank decided to keep its key interest rate unchanged at a record low of 1.0% for a sixth straight month. The decision was fully anticipated by economists. The central bank also retained its interest rate on the marginal lending facility at 1.75% and that on the deposit facility at 0.25% for a broad no change. "Obviously, the ECB sits very comfortably in its current wait-and-see position," said ING economist Carsten Brzeski. The last change in the key interest rate was made in May 2009, when the bank cut the rate by 25 basis points. The bank has lowered the key interest rate by a total 3.25% since early October 2008.

◄$$$ THE AUSSIES HIKE THE OFFICIAL INTEREST RATES AGAIN, THE SECOND TIME IN TWO MONTHS. THE RESERVE BANK OF AUSTRALIA IS ADDING FUEL TO ITS AUSSIE DOLLAR CURRENCY, WITH A FUTURE RISK OF DAMAGE FROM A HIGH DOMESTIC CURRENCY VALUATION. BEAR IN MIND THAT AUSTRALIA HAS A HUGE FEDERAL DEBT BURDEN. $$$

In the first week of November, Australia raised its benchmark interest rate 25 basis points for a second straight month, putting it at 3.5%, thus making a global distinction. Australia becomes the only nation to increase the official borrowing cost twice this year. Reserve Bank Governor Glenn promised further rate hikes would come gradually over time. Such a statement plants some doubt for another sequential hike in December. Higher consumer confidence and strong Chinese demand for iron ore and coal has stoked economic growth. In an offset, the Aussie Dollar has risen by 29% this year, enough to make a difference for export prices. See the Bloomberg article (CLICK HERE).

◄$$$ THE NORWAY CENTRAL BANK HIKES THE OFFICIAL INTEREST RATE. THE SCANDINAVIAN NATION SEES AN INFLATION RISK, AND IS NOT BURDENED BY HIGH UNEMPLOYMENT. NORWAY PRODUCES OIL. THEY HAVE A LEGITIMATE BALANCED NON-LUNATIC ECONOMY WITHOUT A HUGE DEBT BURDEN. HOWEVER, THE OUTLET FOR EASY MONEY IS A RETURN OF ITS HOUSING MARKET TO BUBBLE STATUS. $$$

In late October, the Norges Bank raised its key interest rate 25 basis point from a record low level. It also signaled steeper future increases than it previously forecast over the next three years. They cited an expected rise in price inflation and stressed a low unemployment level. The Oslo central bank raised the overnight deposit rate to 1.5%, thus becoming the first European central bank to reverse course from crazy low interest rates. In an official statement, the Norges Bank said "The key policy rate should be in the interval of 1.25% to 2.25% in the period to the next publication of the next Monetary Policy Report on 24 March 2010, unless the Norwegian economy is exposed to new major shocks." Norway has a very different economy, not marred by the typical Western absurdities. However, their low jobless rate and fast flow of money (kept consistent with the EuroCB), has resulted in a recovery in the housing market, where home prices have topped the pre-crisis peak levels. In previous public statements, the central bank has noted that asset prices 'have risen sharply and probably excessively.' Norway remains a major oil producing nation, even if its output levels are less than the 1990 decade. Its federal finances are nowhere near as rotten as most European states. See the Bloomberg article (CLICK HERE).

◄$$$ NEW ZEALAND CENTRAL BANK HOLDS STEADY ON ITS OFFICIAL INTEREST RATE, EMPLOYING A WAIT & SEE ATTITUDE. $$$ The New Zealand central bank said it will remain on hold until the second half of next year before raising interest rates. They cited the need for further stimulus as their economy recovers from the recession. Reserve Bank Governor Alan Bollard said "We see no urgency to begin withdrawing monetary policy stimulus. We expect to keep the cash rate at the current level until the second half of 2010." Look for a minor but notable dampening effect on their NZDollar (Kiwi$) in the coming months. It will not run up in any steady manner, like the Aussie$ might continue to do. We live in a bond driven world, and currencies respond to bond yields more than economic performance. See the Bloomberg article (CLICK HERE).

◄$$$ THE INDIA CENTRAL BANK THREATENS AN EXIT PLAN, AS THEY ALTER THE COURSE WITH OTHER DEVICES BESIDES THE OFFICIAL INTEREST RATE. THEY WILL BEGIN THE REMOVAL OF STRONG MONEY FLOW AS THEIR ECONOMY RESPONDS FURTHER WITH GROWTH. $$$

India has begun to discuss its Exit Strategy, but for now its offiical interest rate will remain unchanged. The Reserve Bank of India announced a GDP forecasted growth rate at least 6% in the current fiscal year. The central bank will begin winding down stimulus measures to expand the money supply while turning its attention to price inflation, which is a growing concern. The removal of emergency liquidity measures pulled out temporary support for the Bombay Sensex stock index. Since mid-October the Sensex has been on a roller coaster ride, reaching a high of 17400 then down to 15300 after the news shock, finally a recovery to 16800 in recent days. Indian economic growth is returning in a substantive way, but price inflation has become a concern. See the Money Morning article (CLICK HERE).

◄$$$ PRIME MINISTER GORDON BROWN IN THE U.K. PLANS MORE QUANTITATIVE EASING (FREE MONEY). THE CONTINUED ACCOMMODATION IS A RESULT OF DESPERATION AND A BROKEN FINANCIAL SYSTEM. THE UKGOVT THUS CONTRADICTS ITS PREVIOUS PLEDGE MADE JUST WEEKS AGO. $$$

Gordon Brown plans a new spending splurge, one called the final Quantitative Easing round, a public spending spree intended to pull the British Economy out of recession. A battle royal ensues, since the plan is certain to put pressure on the Conservatives over their plans for deep cuts. This constitutes a new fiscal stimulus with incremental billions of pounds directed toward housing, infrastructure projects, and labor force training. They probably believe the money is free, a good risk given that Britain is mired in recession. Brown is convinced that more spending will be required next year to support any faltering recovery. With full ridicule, some call the advent of another round of high volume money creation as the QE2.0, likely to be followed by QE3.0 and QE4.0, with maybe even more. The launch of new money should not be confused with the Queen Elizabeth ships. She ran a tight ship and would be apalled at the current state of affairs.

Chancellor Alistair Darling from the Exchequer warned ministers of difficult times ahead. He declared that any new projects would need to be 'paid for by savings elsewhere.' In sharp contrast, PM Brown spoke of the importance of not withdrawing 'support for the economy.' A lengthy series of disagreements has been noted in the National Economic Council war cabinet to combat the recession. They indeed realize the threat to survial. They cannot discontinue the stimulus prop. Under the current Treasury forecasts, planned expenditures will rise next year by £30 billion to £700 billion. Within these debates, Darling has called into question new schemes to support the economy. Perhaps he is aware that unbridled new money destroys capital. See the Times Online article (CLICK HERE).

◄$$$ THE HEIGHTENED RISK OF A DEADLY VICIOUS CYCLE IS BEING RECOGNIZED IN BRITAIN. INFLUENCIAL FINANCIAL LEADERS WARN OF A CAUSTIC RELATIONSHIP BETWEEN THE BIG BANKS AND THE STATE, WHICH IS THE ESSENCE OF THE FASCIST BUSINESS MODEL. $$$

A respected voice within the Bank of England claims financiers are fuelling an economic 'Doom Loop' which risks chronic infliction of crises upon the public unless arrested. As executive director of the Bank of England's financial stability arm, Andy Haldane has issued a public warning. The banking sector must be overhauled as completely as in the Great Depression Era or else financiers will 'game the state' over and over again. He pointed the risk core at the relationship between the state and the largest banks. Central bank Governor Mervyn King has made similar rumblings. His call for investment banks to be separated from the UKGovt finance ministry is the most radical yet from the central bank. In the background lies colossal bank rescues without conditions, an elite welfare system. The rescue of Britain's biggest banks will lift the national debt by a staggering £1.5 trillion, instantly putting the UK among the world's most indebted countries.

Haldane has strong credibility. He was a key part of a Bank unit that made loud early warnings well ahead of the crisis over a year ago. He cited a dangerous gap between what banks had in their balance sheets and what they were lending customers, a bloat amidst a deep recession. In a controversial white paper written with Piergiorgio Alessandri, the two men diagnosed five ways in which banks capitalized on the implicit state guarantee for the financial system. They wrote, "[They are] the latest incarnation of efforts by the banking system to boost shareholder returns and, whether by accident or design, game the state... This adds to the cost of future crises. And the larger these costs, the lower the credibility of 'never again' announcements. This is a Doom Loop. [We recommend] a financial sector reform effort every bit as radical as followed the Great Depression." They decried the broken pledges by USGovt officials of never again bailing out economies and banks following crises. Such pledges are undermined routinely. See the UK Telegraph article (CLICK HERE).

◄$$$ ENGLAND CONTINUES GRAND BAILOUTS, THE LATEST BEING LLOYDS AND ROYAL BANK OF SCOTLAND, ITS SECOND GIGANTIC WELFARE CHECK AT PUBLIC EXPENSE. A FRESH £31.3 BILLION IS TO BE MINTED FROM THIN AIR, EVIDENCE OF A BLACK HOLE IN FEDERAL FINANCES. $$$

The UKGovt is set to deposit £31.3 billion (=US$51 billion) in a second bailout of England's largest banks. Royal Bank of Scotland will essentially come under total UKGovt ownership, but not control. Their executives will continue to profit personally. The Treasury will inject £25.5 billion more funny money into RBS, for a total of £45.5 billion, clearly the costliest bank bailout globally in history. RBS will accept more official oversight to insure £282 billion of its riskiest assets with the Treasury. In addition, the UKGovt will fund one quarter of Lloyds £21 billion equity raised. Their CEO expects bad loans will reduce in number, a nice concept. Directors of both banks will defer their 2009 executive bonuses until 2012. A statement was issued by both banks, stating that they "will not pay cash bonuses to workers earning more than £39,000 this year." The big bankers are worried sick about public disgust for their compensation packages after the bank system failure, whose ties clearly trace to the bankers themselves, their wretched decisions, their complicity with Wall Street in bond fraud, and complete lack of criminal prosecution. As with Wall Street executive shell games on bonuses, look for details in stock options put instead of direct bonus payouts. The options are pushed to higher value by the government bailouts themselves, easily detected, but not by the sleepy public. See the Bloomberg article (CLICK HERE).

USGOVT: SUBPRIME LENDER & LANDLORD

◄$$$ FANNIE MAE BLEEDS MORE RED INK. THE PUBLIC IS NOT YET PREPARED TO EMBRACE LOSSES OF MULTIPLE BILLION$ EVERY QUARTER, BUT IT SHOULD ANTICIPATE THEM. THIS IS A BLACK HOLE DUE TO UNCLE SAM BECOMING A SUBPRIME LENDER, AND CUSTODIAN OF A CREDIT DERIVATIVE ACID PIT. ITS STRING OF HUGE LOSSES IS NOT EVEN DISCUSSED ANYMORE, PART OF THE LANDSCAPE. $$$

Fannie seeks $15 billion in USGovt aid finally after its ninth consecutive outsized quarterly loss. Yet the topic is not even discussed, or even debated. A 3Q2009 net loss of $18.9 billion pushed the quasi-firm into the corner. It must request its fourth drawdown on a $200 billion credit line from the USGovt. Its insolvency is too deep and immediate in its effect. Fannie Mae has posted a whopping $101.6 billion in losses over the previous eight quarters, and has already grabbed $44.9 billion in federal aid since April. This is the consequence of nationalization, whose other major motive was to prevent any public disclosure of its bond fraud, let alone lawsuit or prosecution, and to stem the possibility of runaway mortgage rates from rampant foreign bond sales. The criminal activity included $2000 billion worth of bond counterfeit under the Papa Bush and Clinton Admins. One can only guess when demands for a true investigation will come. My guess is not for at least another two years, maybe never, perhaps not until a USTreasury default. The public is too stunned by gargantuan federal deficits to notice the individual line items, and kept off balance too much by new stunguns such as the Health Care Program. See the Bloomberg article (CLICK HERE). A much bigger plan has become clear for Fannie Mae, part of a hidden Communist Agenda where it will act as national landlord after confiscation of proletariat property. Without question or debate, Fannie Mae is a sewage treatment plant, the largest in the world. Without question or debate, the sewage traeatment shown below is far more valuable than the Fannie Mae corporation, a veritable Black Hole for money.

 

◄$$$ FREDDIE MAC CONTINUES TO BLEED RED INK ALSO. FREDDIE ADDS ITS MATCHING LOSSES IN PROPORTIONAL MANNER. ITS SPECIALTY IS THE LARGER JUMBO LOANS. $$$

Freddie Mac lost $6.3 billion, but hesitates to make any new request for federal aid for second straight quarter. The loss includes $1.3 billion in dividends paid to the USDept Treasury. Its executives actually point to higher sales volumes and tiny home price rises, sufficient for a rush of guarded optimism. Its new CEO Charles Haldeman warned that stubborn high unemployment and rising foreclosures will continue to impede a full recovery in his words. Eventually he admits Freddie Mac will need more money from the USGovt to stay afloat. The quasi firm has received over $51 billion since it was seized by federal regulators in September 2008, in order to protect from fraud disclosure and runaway mortgage rates from rampant foreign bond sales. The results were driven by $7.6 billion in credit losses as it continued to build its reserves for bad mortgages. About 3.3% of Freddie Mac borrowers are at least three payments behind on their mortgages, more than double the rate last year.

The problems at Freddie Mac and its sibling Fannie Mae have proven far worse than most experts had foreseen. Together, the fat corrupted duo play a vital role in the last two decades, funding the mortgage market by purchasing loans from banks and selling them to investors. They own or guarantee almost 31 million home loans worth about $5.5 trillion, roughly half of all mortgages. The two companies maintain ultra-low loan standards even after the bust of the residential property market and mortgage finance market. Their high risk loan portfolio features defaults at a record pace, enough for them to be called the USGovt Subprime Lender. Worse still, the recession is causing formerly reliable homeowners with good credit to default. See the Yahoo Finance article (CLICK HERE).

◄$$$ FORECLOSURES CONTINUE TO CLIMB, UP 19% FROM A YEAR AGO, AS THE NIGHTMARE FOR HOUSEHOLDS RUNS UNABATED. DISTRESSED SALES ACCOUNT FOR ALMOST ONE THIRD OF SALES. FUTURE BANK LOSSES ARE ASSURED BUT IGNORED. $$$

US foreclosure filings surpassed 300k for an eighth straight month, according to RealtyTrac. A total of 332,292 properties entered the foreclosure process in October, up 19% from a year ago. The process is defined as receipt of default notice, receipt of auction notice, or actual bank seizure. The ratio nationally was 1:385 households having received a foreclosure filing. However, the filing tally fell 3% from September compared to August, the third consecutive monthly decline. The median home price fell 11% from a year earlier to $177.9k, according to the National Assn of Realtors. Furthermore, distressed property transactions accounted for 30% of all home sales in 3Q2009. The distressed sales involve transactions conducted where the seller cannot or chooses not to make further payments, like with unemployed status. Oftentimes, the distressed sale is a short sale, meaning the sale price is less than the loan balance on the home. In such cases, sellers produce cash at the final closing of the deal, or the bank absorbs a loss at that deal closing.

◄$$$ FANNIE & FREDDIE HAVE EXPANDED THEIR LOAN PORTFOLIO (BOOK OF BUSINESS), EVEN WHILE THEIR DELINQUENCY RATE SOARS TO SUBPRIME LEVELS. THIS IS A CLEAR INDICATION OF MISMANAGEMENT WITHOUT CONCERN. SOME QUEER NATIONAL SERVICE IS THEIR OBJECTIVE, ACTUALLY AN UNFOLDING COMMUNIST AGENDA. $$$

Fannie Mae admitted a delinquency rate of 4.45% in August on loans in its single-family guarantee business. That is a 28-basis point rise in the last month, a grand leap higher than a DQ rate of 1.57% in August 2008. The DQ rate is much worse in Florida, the site of 11% of all Fannie Mae loans. Freddie Mac admitted a delinquency rate of 3.33% on single family homes in its loan portfolio. That is a 20-basis point rise in the last month, and a grand leap higher than a DQ rate of 1.22% in September 2008 a year ago. Fannie Mae cited September data for its mortgage investment portfolio showing an alarming annualized growth rate to $792.7 billion. In September 2008, the portfolio totaled $761.4 billion. The quasi firm boasted of adding $67 billion in liquidity to the mortgage market, which included new mortgage backed securities issuances of $59.2 billion.

WELCOME THE NEW SUBPRIME MORTGAGE LENDER, THE USGOVT!! Despite these worsening arrears on payments, both Fannie & Freddie continue to expand their loan portfolios. Freddie Mac cited only modest growth in its mortgage investment portfolio in September to $784.2 billion. In September 2008, the portfolio was $736.9 billion. The quasi firm had its refinance loan purchase volume fall to $21.4 billion in September, down from $35.6 billion in August. Fannie & Freddie are joined by several other smaller agencies under the Govt Sponsored Enterprise umbrella, serving the role of federal mortgage mismanagers. One must wonder if the ultimate goal of the USGovt is foreclosure and home ownership seizure. The total GSE mortgage stood at $2.243 trillion in September. See the DSNews article (CLICK HERE). By means of Fannie Mae & Freddie Mac participation in the mortgage market over the last 20 years, especially the last 10 years, the proportion of homeowners with negative equity (loan balance > home value) has soared well past 33% in a national tragedy. As of the end of June, more than one third of all mortgaged homes in the United States were underwater, according to a recent by First American CoreLogic, a mortgage industry consulting firm in Santa Ana California. The insolvent percentage is the highest in US history, and continues to rise. The image below is striking.

◄$$$ FRAUD HAS SURFACED IN THE HOME PURCHASE TAX CREDIT. YET ANOTHER FEDERAL PROGREAM LACED WITH FRAUD. INTERRUPTION HAS COME FOR A GOLDMAN SACHS PLOY TO REDUCE ITS OWN TAX BILL. $$$

The Congressional Inspector General reported to a House panel that hundreds of million$ have likely been paid to people who fraudulently or erroneously took advantage of the tax credit for first time home buyers, including some IRS employees. Furthermore, an estimated 19,300 people claimed a total of $139 million on their 2008 tax returns before purchasing a home, even though law requires the purchase take place as pre-requisite. Nearly 74,000 buyers, including many IRS employees, claimed a total of $500 million in tax credits despite indications of previous home ownership. Another $4 million was claimed by 580 taxpayers under the age of 18 years, including some children aged 4 years. See the Washington Post article (CLICK HERE). One must wonder if USGovt programs are devised in order to commit fraud on the inside.

This Home Tax Credit Program is just as inefficient as the Clunker Car Program, but far more corrupted. The tax credit used to be $8000. Its extension is set to be $7200, potentially up to $8000, set to expire in April 2010. The label of a First Time Buyer tax credit was incorrect, not a disqualification at all. The rule was actually that recipients could not have owned a home during the prior three years. Now they have scrapped even that requirement. The total number of sales the credit was applied for was 400 thousand homes, which represented 45% of home sales altogether. The idea to discontinue the program is just political talk. Without this tax credit, the housing market would not demonstrate any semblance of price stability, and would continue its descent. More importantly, the hidden bank-owned unsold inventory of homes enables some appearance of price stability.

In a bizarre event, Fannie Mae is evaluating the need to write down the value of its low-income housing tax credits after the USDept Treasury rejected its plan to do so. More bizarre still, a proposal by Fannie Mae to sell $2.6 billion of these credits to Goldman Sachs would cost taxpayers more than the quasi firm would gain from the sale, according to an official Treasury letter. Goldman seeks to use the credits to lower its company tax bill. If the $5.2 billion in credits cannot be sold, Fannie Mae might be forced to write down their value to zero. See the Bloomberg article (CLICK HERE).

◄$$$ FANNIE & FREDDIE PROMOTE THE 'EXTEND & PRETEND' CONCEPT INTO NEW DEALS. NEXT COME HUD RENTALS AS THE USGOVT TURNS INTO PROPERTY LANDLORDS. THIS IS THE ADVENT OF COMMUNISM. $$$

Fannie Mae and Wells Fargo elect to 'Extend & Pretend' with fake rental deals on a chronic basis. Fannie Mae demands a handover of the property deed in any conversion to rental. Wells Fargo converts to an Interest Only loan that urgently requires the housing market to rebound for their own sake, but without the owner handing over the property deed. The situation is reportedly so bad that a large fraction of Option ARM holders might still be unable to afford monthly payments based on a 30-year fixed benchmark for Interest Only loans after conversion. Wells Fargo, the fourth largest US bank by assets, holds about $107 billion in debt tied to Option Adjustable Rate Mortgages, a bizarre destructive mainstay of the US housing boom that permitted borrowers to make minimal monthly payments in return for increasing their mortgage balance. Triggers have been put in place, if and when the loan balance rises to meet a threshold. If hit, the monthly payment skyrockets to 2x or 4x the previous amount. Many such borrowers now own homes worth much less than the debt owed in mortgage, known as negative equity. Worse still, most cannot afford a full monthly payment that pays down the loan principal. To solve that dilemma, Wells Fargo is taking a gamble. It is converting thousands to Interest Only loans that will defer loan balance repayments for as long as six to 10 years. Wells Fargo essentially is converting the home loan holders into renters on a payment schedule, but without bank ownership. The bank is on the hook for bigger potential property declines, and has chosen to take the steady stream of income. See the Doctor Housing article (CLICK HERE).

Fannie Mae intends to promote conversion of home loan holders to actual renters from the USGovt, after turning over property title. The homes stuck in foreclosure will be offered to the same homeowners, but as rentals of the foreclosed homes. The paperwork changes, but the owner and furniture remain the same. They appeal to the people involved by telling them of an opportunity to stay in their homes, where emotional ties reside. A time limit of one year has been imposed in the offered program. The unstated goal is to keep the foreclosed properties from hitting the housing market as new supply during the current glut. The 'Deed for Lease' Program allows borrowers who do not qualify for loan modifications to transfer their property to Fannie Mae in exchange for a lease. Borrowers turned into tenants will pay local market rents, in most cases lower than the cost of mortgage payments. Extensions when their leases expire could be granted at a future date, an uncertainty for the written policy, but in my view a very strong likelihood.

The volume of these USGovt-owned homes is staggering. Fannie Mae acquired 57,000 properties through foreclosure during the first half of 2009. Two low hurdles must be overcome for residents to remain as renters. Borrowers must demonstrate they cannot afford their current mortgage, but can pay the rent. The mortgage sevicer must show the borrower failed to qualify for a loan modification. Fannie will commission a professional management company to handle maintenance. Also, sale of the newly leased properties can occur, fully permitted, with assignment of the lease to the new owner. The new owner could occupy upon lease end, or induce the tenant to leave with a cash incentive. The policy shift follows a similar effort by Freddie Mac that began offering month-to-month leases to owner occupants who had lost their homes to foreclosure. The Fannie Mae program differs in that foreclosed homes would not be listed for sale. So far, approximately two-thirds of owner occupants who have been offered monthly leases by Freddie Mac have taken them. See the Wall Street Journal article (CLICK HERE).

The politics of home ownership have worked to prolong the glut of supply, delaying the eventual clearing of the market, where demand finally meets supply. The combination of politics and worsening job cuts will force many more years before any remote resolution. Actually, the politics are working toward a path that is visible to almost nobody. The Jackass pointed out in summer 2005 that Fannie Mae Rentals would become a main feature of the American landscape. It is here, a correct forecast! However, one should regard the USGovt capture of property title as a devious step toward communism, where the people are denied owning property. Sneaky indeed, especially since once called the Ownership Society. The proletariat workers were duped into signing predatory home loans that have stripped them of their homes, and title taken by the USGovt. THIS IS A MARCH TO COMMUNISM, the vanishing act of property rights for citizens.

◄$$$ THE F.H.A. TORPEDOES THE CONDO MARKET WITH ABSURD AND RESTRICTIVE RULES, CERTAIN TO BRING DOWN CONDO PRICES IN BROAD FASHION. THE RULES ARE SENSELESS AND HAVE NO BENEFIT. THEY ARE DIRECTED TOWARD PURITY OF RESIDENTIAL MAKEUP WITHOUT MERIT. $$$

Plummeting prices have rendered condos nearly worthless, thanks to absurd FHA rules. The rules took effect on October 1st, and should render a thorough kill to condo prices. The new guidelines prohibit any new FHA-backed loans on condo units for projects that feature more than 25% commercial space. In addition, no single investor, including the developer, is permitted to own more than 10% of the units in any project. That restriction alone freezes decisions for condo builders and foreclosing banks. Another harmful rule prohibits FHA loans in condo developments that are not 'primarily residential.' The common interpretation is the FHA refusal to guarantee loans in future mixed-use projects. Jill Hoogendyk is from Wallick & Volk in Glendale Arizona. She said, "I am predicting that what we will see is whole condominium complexes sitting empty." An experienced home builder contact made a comment on the matter. Craig McC said, "If the facts in the article are correct, then the new FHA rules for underwriting condo loans create very serious valuation problems in the condo marketplace, where values can suddenly switch from fair market values to almost nothing. The government is an idiot as usual." See the Arizona Central article (CLICK HERE).

◄$$$ THE MORTGAGE COURT BATTLE CONTINUES TO RAGE. IT HAS FINALLY GONE FEDERAL. STATES LIKE OHIO AND KANSAS HAVE RAISED THE CONFLICT TO THE COURTS. A NATIONAL MOVEMENT FOR HOMEOWNER RIGHTS AGAINST FRAUDULENT MORTGAGE BONDS AND TITLE MANAGEMENT HAS BEGUN, NOT TO MENTION PREDATORY HOME LOANS. BANKERS MUST BE VERY WORRIED AT THE POPULIST MOVEMENT AND COURT REINFORCEMENT. $$$

If the official lender cannot find the mortgage and prove possession of clear registered title for the property, the homeowner cannot be displaced. In fact, the homeowner becomes a default owner!! Another court ruling has come that is favorable to embattled homeowners. THIS TIME THE DECISION COMES FROM A FEDERAL JUDGE. Precedent is being established for all states to follow. The USDept Treasury has sided with the big banks naturally, but hides under the 'Interested Party' role in dubious fashion. A representative of the US Trustee, a division of the USDept Justice charged with monitoring bankruptcy courts, attended the hearings. On October 9th in federal bankruptcy court in the Southern District of New York, Judge Robert Drain ruled that lender PHH Mortgage failed to prove its claim to the home of a delinquent borrower. The judge canceled the entire $461,263 mortgage debt on the property. The case is an alert to lenders that dubious proof-of-ownership tactics may no longer be accepted practice. Such practices by financial firms are on the edge of being viewed as fraud by the court. What an incredible backfire after bank bond fraud!!

In the above case, the borrower purchased the house in 2001 with a mortgage loan underwritten by Wells Fargo. The loan was later refinanced with Mortgage World Bankers. Hard times followed. The borrower fell behind in payments, and later filed Chapter 13 bankruptcy in an effort to save the home from foreclosure last February. A proof of claim to the debt was filed in March by PHH. The borrower's attorney, after months of haggling over a potential loan modification, finally demanded proof of PHH standing in the case. A reply letter was sent stating that PHH was the servicer on the loan, but holder of the note was US Bank as trustee of a securitization pool. But US Bank was not a party to the action. The attorney then demanded proof that US Bank was note holder. He was provided an affidavit from Tracy Johnson, who identified herself as a VP at PHH. It restated that PHH was the servicer and US Bank the note holder. A copy of the assignment of the mortgage was then provided, except the document was signed also by Johnson, this time identified as an assistant VP of the Mortgage Electronic Registration System (MERS). This bank owned registry was originally designed to eliminate the need to record changes in property ownership in local land records. The MERS system was featured in the October Crisis Coverage Report. MERS has been legally discredited in certain states as having no lending standing to claim title since not a principal party in either mortgage bond or loan service contract possession. A database is not a principal party with a formal stake, according to court rulings.

Another problem in the above court case was that the stated document showed the note was assigned long past the bankruptcy filing. The lawyer for PHH was put in the uncomfortable position to explain why there was no documentation of an assignment to US Bank. In a September 29 hearing, the PHH lawyer made a startling admission of sloppy procedures. He said, "In the secondary market, there are many cases where assignment of mortgages and notes do not happen at the time they should. It was standard operating procedure for years." Judge Drain rejected the argument, saying "The claimant has not shown assignment of a mortgage" in simple language. In follow-up PHH appealed the ruling. Either PHH will return to court with a clear claim on the property, including all the transfers and sales necessary in the securitization process, or they will not be able to produce documentation at all. If they do produce the paperwork, they must explain why they did not produce it earlier. Wall Street bond fraud is coming to light, and their power to foreclose properties is unraveling. A populist backfire has begun. Henry David Thoreau would be pleased, especially if civil disobedience from mortgage payment refusals becomes a new wave in populist revolt. See the New York Times article (CLICK HERE).

◄$$$ USGOVT HOUSING LIFELINE FAILS BADLY IN PROVIDING ACTUAL AID TO DISTRESSED HOMEOWNERS. IT IS BY DESIGN. BANKERS WANT THE APPEARANCE OF AID WITHOUT SUBSTANCE. AT ISSUE IS BOND FRAUD AND OUTRIGHT COUNTERFEIT. $$$

The refinancing lifeline created by the USGovt fails to reach most underwater homeowners. It has produced a revolving door that ends in foreclosure on a repeated basis. A USGovt program in its seventh month designed to aid homeowners with little or no equity has so far reached fewer than 3% of those targeted. The goal was to assist in the refinance of mortgages, but staff is grossly insufficient. Many struggling borrowers actually concluded that the benefits of a new loan were not worth the closing costs incurred. The program is a main component of the Obama Admin efforts to stabilize the housing market and halt the rising foreclosure rate. The initiative has aided about 130 thousand of the nearly 5 million borrowers estimated as potentially eligible, under 3% of the target. The home loan refinance movement is actually strong, despite the official program's lackluster results. Mortgage rates hover around the 5% mark. So far three million homeowners have already completed refinanced loans this year in the broad market. The refinance boom has pumped $10 billion of money into the economy, claimed Shaun Donovan, secretary of Housing & Urban Devmt. Unfortunately, the beneficiaries are not those people on the fringe, struggling, with vanished equity, but rather the people with the best credit and strongest equity. National statistics are alarming. Those homeowners who took out loans in 2006 and 2007 are now 60% underwater, according to Fitch Ratings.

The formal USGovt program was initially limited to borrowers who owed no more than 5% more than their home was worth. That made for a marginal underwater status. In July, the threshold was raised to 25%. The higher limit went into effect at Fannie Mae in September, and at Freddie Mac in October. Estimates indicate nearly 600 thousand home loan borrowers 'strategically defaulted' in 2008 from voluntary means, more than double from 2007. They voluntarily quit making payments, after calculating that continued payments on their homes was no longer a sound investment. The Center for American Progress made an astute comment. They stated "They are effectively renters with all of the costs of homeownership." Sure, but with the benefit of renting for free!! See the Washington Post article (CLICK HERE).

Details of mortgage bond fraud bear regular repeating. Wall Street firms sold mortgage bonds with a given individual property tied to between three and ten bonds for securitized income stream. This is bond fraud. Wall Street firms also sold mortgage bonds with mythical properties associated in income stream. Wall Street devised the MERS title database in order to facilitate rapid bond sales, to enable quick bond turnover, to confuse the matter, and to doctor the titles for homes that do not exist. Any true remedy to home loans would involve tracing back to the mortgage bonds in question, thus revealing the fraud. When a home loan's balance is reduced, the mortgage bond must be reduced in value also, thus requiring its identification. Wall Street does not want such scrutiny, and thus pushes for TOP DOWN solutions like the TARP Fund that throws billion$ into their corrupted coffers. Also, when a meaningless revolving door type of modification takes place, like with a 0.5% lower mortgage rate, or a deferred set of interest payments, or deferred late penalties, the defrauded mortgage bond holder loses all opportunity to sue in court for fraud and restitution. The bondholder rights are railroaded and ignored by the USGovt, thus covering the fraud. The motive explains the preponderance of worthless home loan modifications, and a totally acceptable foreclosure revolving door.

◄$$$ THE OPTION ARM MORTGAGES ARE A TIMEBOMB THAT HAVE BEGUN TO GO OFF. THEIR ACCOUNTING CAN PERMIT AN ESTIMATE OF THE TIMING. IT IS IN PROGRESS, WITH A PEAK TO OCCUR NEXT YEAR AND 2011. $$$

The many projections regarding the coming implosion of Option ARM loans have yet to materialize on the scale expected. The article by IAFF dissects what an Option ARM is and looks at what this implies for the market. It is an excellent teaching article on the complex topic with detailed explanations of the loan type. In past reports dating back to summer 2007, the Hat Trick Letter has provided diverse information on the topic and warnings. The author does a great job in the explanations, accurate and complete yet good for even beginners. These loans have largely been ignored by official response to the mortgage crisis. The section headings are: What is an Option ARMortgage?  Actual Interest Rate on the Loan,  Yield Spread Premium,  How the Option ARM Really Worked,  Negative Amortization,  Minimum Payment Versus Fully Amortized Payment,  Refinancing out of an Option ARM,  The Coming Option ARM Implosion,  Federal Reserve & MTA Index,  Results.

Patrick Pulatie is the CEO for Loan Fraud Investigations (LFI), a forensic predatory lending audit company in Antioch California. He has been doing homeowner audits since November 2007. LFI works on a daily basis with attorneys throughout California, assisting homeowners in the battle to save their homes. He and attorneys are constantly developing new strategies to counter foreclosure efforts by lenders. Pulatie wrote the article described. LFI is seeing increasing numbers of Option ARM loans in trouble from recasting, the process of resetting to a much higher mortgage rate after the initial period lapses. Most of the currently troubled loans are the 2005 vintage, with 2004 in second place. That means the loans originated in 2005 and 2004. There have been some 2006 loans in trouble also, and a few from 2007. Most of the troubled 2006 and 2007 vintage loans are likely the result of financial issues related to a drop in income. The good news is that many of the attorneys that LFI works with are reporting success with getting Option ARMS modified. These modifications involve rate reductions and usually principal forbearance. The reason might be that the teaser rate has been so ridiculously low and the recast rate is so ridiculously high, that a compromise can be worked out. The principal forebearance described is a loan balance reduction, clearly the step with most obstruction by banks. Most compromise progress comes to those who do not wait for a Notice of Trustee Sale scheduled. One must wonder about the mortgage bonds associated with modified loans, since they legally require permission by bondholders, and require price reductions.

Aaron Krowne is the manager and owner of the Mortgage Lender Implode website (CLICK HERE). He tracks failed financial firms operating as home loan lenders. Since late 2006, in all 371 such lenders have gone bust. Krowne made a great point in an email about accounting games played by banks. They booked profits from unpaid interest in the Option ARM loans, a further motive not to modify loans in deep distress. When less than full interest is paid in the goofy loans, full interest is booked by the bank as an accounting nicety. To modify would be an instant declared loss from the income that never was collected. He wrote, "Everyone seems to have forgotten that banks booked billions in forward income from the negative amortization markups that were never collected. All signs point to most (>80%) of this money never being collected or collectable. I have heard nothing about mark-downs of these assumptions on their books. So far, it seems 'Extend & Pretend' has carried the day completely. But as the article suggests, the status quo will certainly not be forever." See the I Am Facing Foreclosure article by Pulatie (CLICK HERE).

◄$$$ THE PHOENIX HOUSING MARKET IS BLOATED BEYOND DESCRIPTION. BANKS AND FANNIE MAE TOGETHER CONTROL AN ENORMOUS SUPPLY OF UNSOLD HOMES SEIZED IN FORECLOSURE. $$$ Word comes from a subscriber TomS in Arizona. He wrote, "My father is a retired real estate agent and attends local Tucson real estate meetings. The local real estate board told them a couple weeks ago that Fannie Mae has 80,000 homes in foreclosure in Phoenix that they are holding off the market. If they dumped them all, the market would probably crash. Real estate is going to get worse for a long time yet." A different friend with ties to South Florida reports a similar but grander statistic, that over 200,000 homes are withheld from the residential property market in that region by banks and Fannie Mae combined! The housing market has a long way to go before any bottom is achieved. All efforts currently underway are phony. In fact, the entire USEconomy is propped, probably permanently.

◄$$$ A DETROIT AUCTION WAS A NEAR TOTAL FAILURE, AS THE CITY BECOMES A WASTELAND. $$$ A recent October Detroit house auction was a big flop. An urban wasteland is forming, well along from a decade or more of car industry plight. After five hours of calling out a drumbeat of 'No Bid' results for properties listed in an auction book as thick as a city phone directory, the energy of the county auctioneer began to drain. He said, "OK, we only have 300 more pages to go." On the auction block were almost 9000 homes and lots in various types of neglected condition. They ranged from the tidy owner occupied home to the burned-out shell claimed by squatters. Despite a minimum bid of a mere $500, under 20% of the Detroit properties were sold after four days. See the Reuters article (CLICK HERE).

SHAM OF REPORTED USECONOMIC RECOVERY

◄$$$ UNEMPLOYMENT STILL LOOMS A MAJOR PROBLEM, GROWING WORSE, WITH NO RECOVERY IN SIGHT. A NEW PHENOMENON HAS CREPT ONTO FINANCIAL PAGES, AS THE UNDER-EMPLOYMENT RATE IS BEING POSTED. AT 17.5%, IT REVEALS DEPRESSION LEVELS. $$$

The broader official measure of unemployment stands at 17.5%, which includes the discouraged workers whose job search is sporadic. It includes those workers who have settled for part-time jobs to bring any income at all for survival. According to USDept Labor in October, more than one out of every six workers (17.5%) is unemployed or under-employed. The previous record was 17.1%, in December 1982. The current level might be a record dating back to the Great Depression, before such records were even kept. Two weeks ago, President Obama signed a bill to extend unemployment benefits and at the same time a tax credit for home buyers. He said he is looking at ways to enact more stimulus. His last Stimulus Bill contained mainly state revenue plugs, and tiny stimulus, spread over three years, amidst huge criticism. Officially, the Labor Department says nearly 16 million people are now out of work and more than seven million jobs have been lost since late 2007. See the New York Times article (CLICK HERE). The Shadow Govt Statistics folks produce an accurate jobless report. The SGS measure of the true Jobless Rate is 22.1%, if all the unemployed are counted, when removing bias and nonsense. This is a national tragedy.

The October Jobs Report measured a doctored inaccurate number of 190 thousand lost jobs outside the farm sector. The revisions were substantial for the previous two months, September revised from 263k to 219k, and August revised from 201k to 154k. The official massaged kooky jobless rate is 10.2%, which really represents the proportion of workers receiving state jobless insurance. This is good news, if you find it remotely credible, given the corrupted source. Revisions might be real, but doubtful. They routinely fail to properly account for small business sector, and engage in illicit massaging of data like seasonal adjustments. Their seasonal adjustment coefficients are altered on almost a monthly basis, to suit their needs, a practice in serious violation regularly. The continuing claims for unemployed show a positive trend. For the week ending November 7th, in all 5.631 million remain on the dole, versus 5.77 million in the previous week. That statistic is hard to doctor, so good news for households at least on direction toward improvement.

◄$$$ HIGH PROFILE JOB CUTS MAKE THE NEWS, MANY STORIES. THEY CONTRADICT ANY SEMBLANCE OF AN ECONOMIC RECOVERY. THE 'JOB-LOSS' RECOVERY IS AN INSULT TO ANY ECONOMIST WITH INTEGRITY, WHICH MAKE FOR THE TINY MINORITY. $$$

Lloyds of London, the insurance colossus, despite its huge bailout gift, plans to cut 5000 workers, 2600 of them in the United Kingdom. Their 2009 cuts total 10 thousand. Sprint, the US communications giant, plans to cut 2500 jobs, which would bring their 2009 total to 10 thousand. Johnson & Johnson announced 7000 job cuts recently, representing 6.5% of its workforce. Applied Materials, the high tech chip equipment fabricator, plans to cut 15% of its workforce, equal to 1500 people. They only cut 1000 jobs in all of 2008. Electronic Arts, the video game maker, plans to axe 1500 workers, after eleven straight quarterly losses. Note the diversity in the list of above job cut announcements.

◄$$$ A RECENT I.S.M. MANUFACTURING INDEX STOOD IN DIRECT CONTRADICTION TO THE MICROCOSM DISTRESS. THE AGGREGATE WAS IN DIRECT CONFLICT WITH THE MASS OF INDIVIDUAL REPORTS. ONCE AGAIN, THE NATIONAL STATISTIC SEEMS CORRUPTED WITH POLITICAL MOTIVE. $$$

Zero Hedge called it 'The ISM Fallacy' when it is more like ongoing fraudulent statistical reporting. It is chronic and diverse. Former Merrill Lynch economist David Rosenberg (a Canadian) avids dismisses and disputes the ISM Mfg growth argument. The regional surveys have almost uniformly not validated the strong message from the national figure. See the list.

1)      Bostons Purchasing Managers Index (PMI) fell to 44.9 from 47.5

2)      Chicagos PMI rose to 54.2 from 46.1

3)      New Yorks PMI index sagged to 60.8 from 72.9

4)      Cincinnatis PMI edged up to 44.6 from 44

5)      Milwaukees PMI fell to 50 from 58

6)      Richmond Fed index dropped to 7 from 14

7)      Kansas City Fed production index declined to 6 from 16

8)      Texas manufacturing index worsened to -14.3 from -6.4

9)      Southeast Michigan business activity index slid to 51.3 from 62.5

So, seven regions were negative and two were positive. Somehow the national index ran up 3.1 points to 55.7, but in my view with almost nil credibility. See the Zero Hedge article (CLICK HERE).

◄$$$ BANKS ARE INTENTIONALLY NOT LENDING. THEY ARE MAKING RULES HARD TO SATISFY SINCE THEY DO NOT WISH TO LEND AT ALL. HERE IS AN ANECDOTE. $$$ Banks choose not complete loans, and steer within their own system lending to create rules that obstruct loan approval. Here is a message from BobO in Kansas. He wrote, "I finally got through to my banker on Monday. He said company management generated all new tightened lending rules for the bank's consumer & business loans. According to him, they want to make it almost impossible for the borrower to qualify. They do NOT want to make loans. They want to conserve cash! This bank is a Fed member, and the last time I checked them on BankRate, they had the highest rating. However, that was before Commercial Real Estate started to go sour. The Wichita area has been mostly spared the effects of the crisis, so far. Housing prices have not been affected that much, and unemployment is still relati vely low. It means they expect the economy to get much worse, and they anticipate having to cover a lot of defaults." This story might be typical across many parts of the country.

◄$$$ U.S. CONSUMER CREDIT HAS NOT PICKED UP, EVIDENCE THAT NO RECOVERY IS IN PROGRESS. $$$ US consumer credit fell in September, for the eighth consecutive month. No upturn yet in this important metric that reflects household health and willing to take on debt for diverse purposes. This is the longest series of declines on record, as millions of Americans have lost their jobs at a time when banks have tightened access to credit. Borrowing declined by $14.8 billion to $2.46 trillion, equal to an 7.2% decline rate annually, according to a USFed report. The consecutive August and September declines were the most since records began in 1943. Chris Rupkey is chief financial economist at Bank of Tokyo-Mitsubishi in New York. He said, "This is truly an ugly report in what it portends for consumer spending. If consumers are indeed the key to recovery, this economic expansion from the recession could be the weakest and most jobless one yet." Revolving debt, such as credit cards, declined by $9.93 billion in September, while non-revolving credit, such as for car loans, declined by $4.87 billion. The USFed report excludes credit data secured by real estate. It is simple, in that the recession is growing worse, and no conceivable recovery is occurring, only political propaganda. See the Bloomberg article (CLICK HERE).

◄$$$ CREDIT CARD DELINQUENCIES RISE UNABATED, SURE TO RESULT IN DEFAULTS DOWN THE ROAD. $$$ Delinquencies in revolving credit accounts are destined to lead to more future defaults, with a pattern established. The blame lies with rising unemployment for creating worsening problems soon to spread. According to the Fitch Ratings Credit Card Index, chargeoffs on credit cards fell to 10.75%, the third month in a row that defaults fell. A chargeoff is credit card debt that a lender no longer expects to be repaid, and thus writes off as loss. Even though defaults in this credit niche fell, delinquencies in late stages actually increased. Fitch reported the number of credit cards that were 60 days or more late increased to 4.22% in October after seeing a drop the month before. Thus chargeoffs are indicated to rise in future months. See the Credit News article (CLICK HERE).

◄$$$ THE NEXT STIMULUS PLAN IS BEING HATCHED, AFTER THE LAST ONE WAS A MISERABLE MISGUIDED EXERCISE IN FAILURE. THE TRIGGER EVENT SEEMS CLEARLY TO BE HITTING 10% IN THE OFFICIAL JOBLESS RATE. $$$ Finally, the Obama Admin has come to swallow a bitter political pill. They will fashion the next Stimulus Bill, after the last one was merely a loaded package to aid states on plugged revenue shortfalls, with a wink & nod understanding of teeny tiny stimulus, and minor incentives for business. A second Stimulus Bill demonstrates failure for the first such bill, as reaching the 10% ugly jobless level makes the effort palatable, even demanded. Diverse approaches are being considered for job creation, something the USGovt has almost no concept of, except of course the war card. Commerce Secy Gary Locke admitted in an interview that President Obamas advisers are seriously considering a proposal for a second stimulus measure to lift the unresponsive USEconomy. They fail to comprehend that the problem is a dead banking system, burdensome business regulations, and still high wage structures, against a backdrop of a nasty withdrawal syndrome from dependence upon the housing inflation bubble. With so much tied to housing and mortgage finance, the reversal has far from run its course. Banks remain tentative if not reluctant to lend. See the Calculated Risk article (CLICK HERE).

◄$$$ STIGLITZ POINTS OUT A GIGANTIC ERROR WHEN THE USGOVT RESCUED THE GIANT BANKS. THE NATURE OF AID GRANTS TO THE ELITE CAME WITHOUT CONDITIONS. NOW BANKS COLLUDE NOT TO LEND, EVEN AS THE USFED GIVES INCENTIVES TO HOARD RESERVES. STIGLITZ IGNORES A CORE PROBLEM, OF DEADLY DEPENDENCE UPON A PROPERTY BUBBLE THAT CONTINUES TO DISSIPATE. $$$

Stiglitz claims the USEconomy is paying for failure to nationalize its banks. Geez! As though nationalization is a solution, complete with its embrace of inefficiency and mismanagement. Well, the USGovt would manage poorly and permit fraud from negligence, while Wall Street would manage a crime syndicate laced with fraud and pilferage on a bigger scale. Whichever is worse, who knows? Nobel winning economist Joseph Stiglitz believes nationalization should have been the chosen during the financial crisis. He said, "If we had done the right thing, we would be able to have more influence over banks. They would be lending and the economy would be stronger. We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend. But they refuse. What we did was the wrong thing. It has weakened the economy and has increased our debt, making it more difficult for the future." He concluded that the recession is nowhere near its end, citing rising unemployment and weak demand. He failed to mention the momentum behind the housing bubble bust and the mortgage finance lack of resolution and liquidation, nor the requisite breakup of big corrupt banks. They continue to hold a sword over the finance sector. The collateral of housing valuations and declining corporate revenue flows freezes bankers in lending decisions. Sadly, Stiglitz does not recognize the illegitimacy of the money itself, and the highly detrimental influence of the USFed as a central bank concept. Or else he is instructed never to mention money and the central bank. My respect for Stiglitz is greater than most all economists, since he has insight, but not without important blind spots. See the Bloomberg article (CLICK HERE).

◄$$$ THE USECONOMIC RECOVERY WILL FIZZLE, ACCORDING TO ANOTHER NOBEL LAUREATE. PHELPS IS FAR MORE CLUELESS AS AN ECONOMIST THAN STIGLITZ, BUT NOT WITHOUT A SHRED OF INSIGHT. $$$

Nobel laureate Edmund Phelps (2006 winner) anticipates the USEconomic recovery will probably run out of gas, in his words, as it converges toward a stable but lower long-term growth rate. He expects it will be burdened by higher unemployment than the previous decade. Phelps actually claims to notice some recovery; he must believe the GDP statistics. He said, We are already seeing a strong recovery. I just think that it is going to run out of gas. As output goes up, employment is going to continue to lag. Firms have gotten rid of a lot of their workforce cushion, so to speak, and they are going to do without that for a quite a while. The Gross Domestic Product statistic made claim that the USEconomy grew the

most in two years in 3Q2009, but that ignores the fact that the Q3 and Q2 activity still is 2% to 3% below the same quarters in 2008. Phelps expects the decline in payrolls to bottom in 1Q2010. However, he decries how the nation has lost its dynamism, a solid insight.

Lastly, Phelps entered the great economist debate, on whether USGovt stimulus (Keynesian School) and intervention has greater merit than market forces to resolve imbalances and liquidate credit excesses (Neoclassic School). He believes both schools might ignore the fact that the economy has changed in a structural manner. He could be making indirect reference to a broken financial system, a corrupted capital formation process, an absent industrial base, and an imminent lost source of credit supply. JUST A GUESS!! He concluded, "Neither of these schools recognizes the structural changes that the economy is susceptible to. There are signs that the economy has lost its dynamism, its urge to innovate, or its ability to innovate. In that situation [of peak crisis] it made perfect sense for the government to throw in some fiscal stimulus. But now we are in an equilibrium. We dont like it, its a bad equilibrium, but now it is no longer appropriate to think there is an imbalance between supply and demand. He shows serious delusion. The equilibrium involves magnificent props and grotesque inefficiency in the form of endless aid to a failed banking sector, adoption of AIG and Fannie Mae, and ownership of a failed car industry. Dead ahead is a crippling tax increase planned for small businesses. They are the lifeblood of the American system, but they must yield to big bloated business wrapped into the state with tentacles impossible to remove without systemic failure. That is where the nation is heading, failure and very likely martial law. Equilibrium he refers to involves props, supports, and funnels that cannot be removed!! Just what does he notice that is evidence of a strong recovery? Oftentimes, it is an exercise in futility to debate economists or to attempt to understand their mental process.

BANKS & INSURERS SLIDE FURTHER

◄$$$ THE LOUD CALLS REVERBERATE TO BREAK UP THE LARGE CORRUPT INSOLVENT BANKS. SHEILA BAIR AT F.D.I.C. RECOMMENDS UNWINDING LARGE FAILED BANKS, AND PAYING FEES TO UNWIND LARGE FAILED FIRMS. QUIETLY SHE IS BECOMING AN ANTAGONIST TO WALL STREET AND THE USDEPT TREASURY. IN THIS PROCESS WATCH THE USFED GRAB MORE POWER, DESPITE THEIR FAILURE. $$$

The USDept Treasury and House Financial Services Committee Chair Barney Frank agreed on compromise financial legislation in late October. FDIC Chairman Sheila Bair, in opposition to the Obama Admin, pursues a course whereby US financial companies would prepay into a fund used by the USGovt to unwind (liquidate) large failed firms. The plan proposed would have the USCongress to set up a Financial Company Resolution Fund and require institutions with more than $10 billion in assets to pay before a firm collapses. She must be aware of the grotesquely intertwined nest of credit derivatives, which in no way can be resolved ever. Treasury Secy Geithner endorsed the House measure and supports the plan to charge fees before shutting down a failed firm after its collapse. The goal is to reduce moral hazard, which means giving carte blanche for banks to do as they wish and receive bailouts when in trouble. It also means growing a system with no intention ever to bring about any sense of streamlined efficiency, but rather to permit a patchwork of gross insanity. However, here is the danger. The bill would grant the USFed power to reduce the balance sheet of institutions that threaten to destabilize financial markets and the USEconomy. The USFed could then target its opponents and conduct raids on behalf of its masters on Wall Street. The draft legislation creates a council of regulators to monitor companies and the economy for systemic risk. Bair disapproves, calling the proposed council "currently lacks sufficient authority to effectively address systemic risks." Bair must see the motive to appear to reform without teeth. See the Bloomberg article (CLICK HERE).

◄$$$ CONGRESSSIONAL LEGISLATION CONFRONTS TOO BIG TO FAIL BANKS. PROBABLY EASILY OBSTRUCTED, A NEWLY PROPOSED BILL AIMS TO BREAK UP LARGE FINANCIAL FIRMS. THEY FORM THE CORE OF THE SYNDICATE AND WILL SURELY CONTINUE. $$$

Independent Senator Bernie Sanders of Vermont is a maverick, and brilliant man. He is also the former boss of a college roommate of mine who has lived in Vermont for 35 years. It is idyllic up there. We remain in contact. Senator Sanders has proposed legislation that names the 'Too Big To Fail' financial firms. The bill would require them to be broken up within a year. It would require the Treasury Secy Tim Geithner to name banks 'whose collapse may shake the economy' and dismantle these firms within one year. Such a list would include Goldman Sachs, JPMorgan, Citigroup, Bank of America, and Wells Fargo, the extended core of the syndicate itself. Geithner is credited with being the mastermind behind the lunatic bailout of AIG, laden now with endless costs from their hidden ongoing failed credit derivatives. The bill is clear backlash against the continued costs to AIG and Fannie Mae, and more so the betrayal of the TARP Funds. Zero Hedge has a stern editorial comment. They wrote, "Look for some serious flight or flight sympathetic /parasympathetic ganglia to be going like gangbusters in the dorsal column of various bloodsucking marine creatures. After all who'd a thunk that the willing victims of daily monetary rape would have the guts to stand up for themselves. And if things are accelerating now, wait until Main Street learns that the average Goldman employee is getting paid about $750,000 for 2009." See the Zero Hedge article (CLICK HERE).

◄$$$ BANKS FUND THE F.D.I.C. ONCE AGAIN. A MASSIVE DRAIN OF $45 BILLION IN CAPITAL WILL RENDER GREAT HARM TO THE ENTIRE BANKING COMMUNITY. THE BANK TAX HAS NO END IN SIGHT. THE EFFECT WILL BE EVEN LESS LENDING. $$$

US banks must prepay $45 billion in premiums to replenish the insurance fund in yet another revised plan for the Federal Deposit Insurance Corp. The FDIC fund stands in the red, in deep deficit. Depositor accounts are guaranteed up to $250k per account by the FDIC. The new prepaid fees come atop a special emergency fee that took effect at midyear, estimated to have brought in about $5.6 billion. So $50.6 billion drained from the banking system will hinder greatly the entire lending process. These are painful bank levies! With seeming dictatorial power, the FDIC Board voted to mandate the early payments of premiums in advance for years 2010 through 2012. It is the first time the agency has required prepaid insurance fees. Unlike a one-time fee paid in current fashion, the prepaid premiums will not affect bank earnings during challenging times. The prepayments have an added feature, in that the USFed will hold the prepaid funds. Banks can then borrow against their own prepayments. What a game!

The 120 bank failures so far this year have cost the insurance fund more than $28 billion. Small banks object, so the FDIC also set up an exemption process for banks that prove the prepaid fees would be a hardship. The FDIC forecasts the cost of bank failures to grow to about $100 billion over the next four years. Try five times that amount!! The deposit insurance fund stood at $10.4 billion at the end of June, but has since has fallen into deficit. That has not occurred since the Savings & Loan crisis that peaked in 1991. Besides the insurance fund, the FDIC controls $21 billion in cash on reserve to cover bank losses. The agency also has the capability tap a $500 billion credit line at the USDept Treasury, but Bair has chosen not to do so yet. Such a step would push the USGovt deficit over the legal limit, and invite a big battle with Geither at Treasury.

The smaller banks are being pushed over the edge, as reported in previous months. They suffer from a 13-fold increase in insurance fees over the last two years, a note unmentioned in the financial press. Take Southern Arizona Community Bank, whose CEO John Lewis cited a $25k quarterly premium fee plus the new $70k special fee. He called it manageable, but said, "[The annual $70k fee] is a little rough on a community bank. It would push some banks over the edge." Many banks report the impact of prepayment is minimal. Resentment is rampant in the main though. Many smaller banks have protested the insurance assessments. They complain that they shared no role whatsoever with the excesses of big Wall Street banks, the widespread reckless mortgage lending, and the risky leveraged investments that precipitated the financial crisis. Yet they are compelled to pay to help clean up the mess. James Chessen is chief economist of the American Bankers Assn. He said, "The prepaid assessment does come at a cost to the banking industry, impacting bank liquidity, and reducing resources available for lending." But the banker trade group believes the plan is less onerous than the other options for keeping the FDIC fund solvent. The bigger plan still might be to sufficiently weaken the banks across the land so that a Grand Consolidation Plan can be implemented, whereby the biggest banks acquire the mass of banks at bargain prices. See the Yahoo Finance article (CLICK HERE).

◄$$$ BANKS BRACE FOR EXIT STRATEGY, BUT IT WILL NOT COME. MANY DIVERSE FINANCIAL FIRMS MIGHT SOON BE COERCED TO ACCEPT OVERVALUED USTREASURYS. $$$

What comes next might be an experiment by the US Federal Reserve. They are trapped with a 0% rate policy. They are stuck with endless monetary growth, called euphemistically Quantitative Ease (QE). Their balance sheet is beyond bloated, rather stuffed to the gills with USTreasurys and some of the most worthless bond instruments ever to cover the earth. Warren Pollock has a credible theory, one that involves an Exit Strategy for the big banks. It would feature an ugly exploitation of the diverse financial firms, a game change as he calls it. Pollock anticipates the US banks, pension funds, and public will become the new dumping ground for USTreasurys as the USFed secretly tests an end to QE. The banks have been enormous buyers already of USTreasurys. They are playing the carry trade, of borrowing short-term cheap and investing long-term at higher yields, storing their bonds at the USFed itself. They therefore do not lend, preferring the safer confines at the USFed, which even pays out a bribe to deny the public access to bank funds, thus sharply reducting bank loans.

Pollock said, "Perhaps, the banks will be force fed UST's just like geese and ducks are force feed grain to produce foie gras. Unlike the pension funds and the public, the banks just turn the Treasuries around and use them as security at the Fed's window which will further balloon the Fed's balance sheet." My view is that Wall Street, through its puppet Geitner at USDept Treasury, will impose a dictatorial rule that eventually requires financial firms to own a certain minimum USTreasurys in their portfolios, for the greater good. The objections would be great, since the biggest bubble globally now is the USTreasury Bond, ridiculously overvalued by force from the near 0% continued policy. See the Crossroads Cafe article (CLICK HERE).

◄$$$ THE A.I.G. BLACK HOLE CONTINUES TO SUCK CAPITAL, $4.2 BILLION FOR THIS INSTALLMENT FOR THE BLACK HOLE. THEY USE COLORFUL LANGUAGE TO JUSTIFY THE NEEDED FUNDS. THEY CONTINUE TO SHUFFLE ASSETS FROM SUBSIDIARY TO SUBSIDIARY SO AS TO AVOID DETECTION OF GROSS INSOLVENCY AND NON-COMPLIANT MINIMUM CAPITAL REQUIREMENTS. A.I.G. IS DEAD, BUT MIGHT BLEED FOR ANOTHER DECADE. $$$

AIG has tapped the USDept Treasury for $4.2 billion in order to clean up two of its multitude of sickly subsidiaries. The sum includes about $2.1 billion AIG accessed in August. Funds will be used for a 'restructuring transaction' at United Guaranty mortgage insurer, an AIG subsidiary replete with outsized losses. In other words, the guarantor is broke, wishes to unload some toxic assets, and will benefit from a debt revamp, maybe even some writedowns or forgiveness. Details are likely kept secret, since so scummy. Since a publicly owned firm, they are no longer bound by disclosure. In aggregate, AIG owes $44.5 billion on its USFed credit line, a sum it will never repay. AIG plans to devote these provided funds to buy shares of its troubled plane leasing subsidiary, International Lease Finance Corp (ILFC). The aircraft lease firm is owned by one of its insurance units, for sale with no buyers. ILFC turned to AIG to finance contractual obligations after credit downgrades barred the plane unit from borrowing from the US commercial paper program. An analyst at Sandler O'Neill Partners summarized, "It shows that they are still having trouble getting cash to continue to run the operations." See the Bloomberg article (CLICK HERE).

◄$$$ NINE US BANKS FAILED ON ANOTHER BLOODY FRIDAY OCTOBER 30TH, NEAR ENOUGH TO HALLOWEEN. THE NINE BANKS WERE SHUT DOWN AT A COST OF $20 BILLION TO THE F.D.I.C. FUND. IT WAS THE LARGEST BANK SEIZURE DAY YET, AND THE LARGEST LOSS FROM A SINGLE EVENT SINCE THE BANK CRISIS BEGAN TWO YEARS AGO. $$$

During a time when claims abound of USEconomic recovery, and improved credit conditions, a truly bloody Friday occurred on October 30th. When nine banks were seized by the FDIC, at a cost of almost $20 billion, almost no details were provided. Probably because they wanted to story to dissipate quickly. The event brought the total number of failed banks in 2009 to a hefty 115, more clearly to come. This is the worst year on record for US bank failures since 1992, at the tail end of the famed Savings & Loan crisis. Among the seized banks was LA-based California National Bank, the fourth largest US bank to fail this year. The LATimes reported that Cal National lost about $500 million on heavy investments in Fannie Mae & Freddie Mac preferred stock. Other seized banks include BankUSA, Citizens National Bank, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, San Diego National Bank, and the Community Bank of Lemont. They will all go under the wing of US Bancorp. More lenders are expected to go bust this year due to commercial real estate loans that continue to worsen. See the Reuters article (CLICK HERE).

On the previous Friday, six banks were shut down. The event took the total over the 100 mark for the first time in 2009. Regulators at the FDIC closed: Partners Bank of Naples Florida, American United Bank of Lawrenceville Georgia, Hillcrest Bank Florida of Naples Florida, Flagship National Bank of Bradenton Florida, Riverview Community Bank of Otsego Minnesota, and Bank of Elmwood of Racine Wisconsin. Banks in Georgia account for 20% of all US banks closed this year. In this cycle, Georgia has been hit hardest, with 20 failures, followed by Illinois with 16, California with 10, and Florida with 11. See the Cleveland Ohio Business News article (CLICK HERE).

Finally, last Friday the 13th, regulators shut down two Florida banks, boosting to 122 the number of US bank failures this year. The FDIC on Friday took over Orion Bank in Naples and Century Bank in Sarasota, both Florida. The small garbage cleanup resulted in only $322 million in FDIC losses. See the INO article (CLICK HERE). Apologies if the count is not quite exact, an impossible task to keep pace with.

◄$$$ BANK DESPERATION IS MADE CLEAR WITH CREDIT CARD EXTORTION. $$$ Credit card companies are jacking rates to historic highs of more than 30%. They are adding new fees, even for customers who pay their bills on time. Personally, my credit card balances are kept to under $1 each month. My bank charges $1.50 per month as a minimum fee. That is ok, since a credit line is desired to make airline reservations. Imagine all the other games with late fees, exceeding limits, end of cash incentive programs, and more. See the Boston website article (CLICK HERE). The banks routinely change credit card numbers for HTLetter subscribers, thus cutting off the scheduled regular payments. They claim it is for security purposes. One friend and subscriber has had his credit card number changed three times in the last year. A quick step puts payments back on schedule, but it acts as a great drag on this business.

◄$$$ CIT GOES TO BANKRUPTCY AGAIN AGAIN, THIS TIME WITH A SIGNIFICANT RESTRUCTURE AND SAFETY NET TO DEAL WITH ANY ADDITIONAL FUTURE BANKRUPTCY. THIS IS A DEAD BIRD FLYING, EVENTUALLY TO FIND A BURIAL SPOT. $$$

CIT approaches bankruptcy for the second time after cutting deals with Icahn and Goldman Sachs. The CIT Group has filed for prepackaged bankruptcy after striking important accords with billionaire Carl Icahn and Goldman Sachs. A prepackaged bankruptcy will call for Icahn to supply a $1 billion loan for supplemental liquidity that can be used as bankruptcy financing. CIT announced it has reached an agreement with Goldman Sachs to maintain a credit line open in the future event they file for court protection. It has been locked out of credit markets after posted nine quarters of losses over $5 billion in total. Under the prepackaged plan, CIT bondholders will be handed 70 cents on the dollar in the form of new commercial notes and equity in the reorganized company. See the Bloomberg article (CLICK HERE).

The CIT Group filed for Chapter 11 bankruptcy, a step made necessary after being denied another bailout by the USGovt. The company bargained successfully with its creditors over a restructuring plan that slashed its heavy debt load by $30 billion securitized in bond debt.

The US taxpayers lose big. The USGovt aid given to CIT, a sum of $2.3 billion in 2008, will almost certainly be wiped out in the bankruptcy process. This constitutes the largest and most definitive loss in the USGovt rescue of the financial system. Actually, it is just the most visible loss, since AIG and Fannie Mae and Citigroup bailouts are gigantic in losses. While CIT had hoped to stay out of bankruptcy court through a bond exchange offer, that plan failed to win enough support from bondholders, the company said in a statement. At issue is whether a financial company can survive the Chapter 11 process and continue operations for a sustained period of time. See the Deal Book article (CLICK HERE).

COMMERCIAL PROPERTY CRASH IMPACT

◄$$$ WILBUR ROSS EXPECTS A BIG COMMERCIAL PROPERTY CRASH, WHICH IS IN MID-COURSE. THE SECTOR HAS FALLEN IN PRICE, WITHOUT YET SEEING ANY RELATED IMPACT ON BANK ASSETS. $$$

Wilbur Ross foresees a 'huge' Commercial Real Estate (CRE) crash in his words, a consequence of the near complete negative alignment visible now. Billionaire investor Wilbur Ross Jr is a savvy soft-spoken, no nonsense fellow. He is one of nine managers participating in a USGovt program to deal with toxic assets on bank balance sheets. He believes fervently that the United States is in the beginning of a "huge crash in commercial real estate. All of the components of real estate are going in the wrong direction simultaneously. Occupancy rates are going down. Rent rates are going down and the capitalization rate, the return that investors are demanding to buy a property, is going up." Banks held about $1.7 trillion in commercial real estate loans as of September 30th, according to USFed data, amounting to about 15% of their total assets. Actual business property sales are forecast to fall to the lowest level in almost two decades as the industry endures its worst slump since the 1990. Stability has not remotely been achieved yet.

The Moodys/REAL Commercial Property Price Indices have already fallen almost 41% since October 2007. Ross said that he would exercise 'extreme caution' before committing investment funds into commercial real estate. He pointed to office space as the highest current risk, since properties are losing tenants. US office vacancies hit a five-year high of almost 17% in 3Q2009, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc. Ross believes a few years are required before the commercial sector can work itself out of the mess. Curiously as of October 15th, Ross admits he had spent less than $100 million of the $1.5 billion available to him under the Public Private Investment Program (PPIP), an investment pool of private and USGovt money for purchasing distressed assets from financial institutions. To date, he has devoted funds to purchase residential mortgage backed securities. The bond securities have been whacked severely on the household side, but not yet on the commercial side. That is next, but resistance is strong. See the Bloomberg article (CLICK HERE).

◄$$$ SOUTHERN CALIFORNIA OFFICE SPACE IS IN RUINS, AS MASSIVE TRACTS ARE IDLE AND VACANT. $$$ The press called it 'Vast Desolation Indoors' in Southern California. The recession impact on professional firms has hit the region's enormous office rental industry. Almost 51 million square feet of office space in Los Angeles County, Orange County, and the Inland Empire now lies empty. That is more than 17% of the total office rental capacity. The exodus from office buildings started in late 2007, and has accelerated during the third quarter as the terrible business environment has taken its toll. Joe Vargas is executive vice president at Cushman & Wakefield, a real estate brokerage firm. He said, "These vacancies are a direct reflection on unemployment. Companies continue to reduce their workforce, or they are not hiring." Such vacancy is difficult to contemplate. It constitutes a mind-boggling 1170 acres of vacant office space in just four counties of Southern California.  The problems in Commercial Real Estate are so grandiose, it has hard to grasp. See the LATimes article (CLICK HERE).

◄$$$ ONE EXAMPLE TELLS A STORY OF THE COMMERCIAL PROPERTY CRASH, THIS FROM LOS ANGELES. THE PACE OF PRICE DECLINE MIGHT BE MORE RAPID THAN FORECASTED BY ANALYSTS. $$$

It is called the South Hope Tower in Los Angeles California, a large 566 thousand sqft office building. In September the property was reappraised at a stunning $121 million, fully $114 million less than its 2007 appraisal value, for almost a 50% decline in two years time. The greater pricing in 2007 was when its $165 million mortgage was securitized. Some call the decline a merciless deterioration in CRE valuations. Next up is the hit to suffer from the commercial mortgage backed security (CMBS), after factoring in the interest shortfall payments. The CMBS investors are braced for losses, especially in the junior tranches. Interest shortfall is factored as master servicers give payments in advance to bondholders on loans that are delinquent until loans are reappraised. Once appraised, the amount of advances is reduced by the new collateral value, with the resulting delta called an appraisal subordinate entitlement reduction (ASER). Shock comes soon! As expected, results in a shortfall of interest payments that first impacts the most junior CMBS tranches. Later, the more senior tranches are cut in price, as the process goes up the ladder. Analysts believes the CMBS momentum has picked up downward speed, and the sector is on the edge of massive CRE crash. A subscriber from California Craig McC sent a message on the subject. He is a former home builder. He wrote, "My Southern CA advisor has been predicting a 30% to 80% downward adjustment in CRE prices from peak to bottom, depending on the type and location. We may be arriving there faster than even he is predicting." See the Zero Hedge article (CLICK HERE).

◄$$$ THE BULK OF THE COMMERCIAL PROPERTY PRICE DECLINE HAS COME IN THIS 2009 CALENDAR YEAR. THE AUGUST PRICE DROP ALONE WAS 3%. DISTRESSED PROPERTIES HAVE GENERALLY SEEN ALMOST DOUBLE THE PRICE DECLINE OVER TIME. $$$

So the reported CRE prices are down 41% since peak, according to the Moodys/ REAL Commercial Property Price Index (CPPI). August 2009 marks the two-year anniversary of the peak on commercial prices. The index is formally adjusted for price inflation (the nominal peak was two months later). The CPPI has fallen for the eleventh consecutive month. The August reading dropped another 3% in that month alone, to a value just above 114 on the index, down from the 192 peak in October 2007. The pace of price decline is accelerating in the current calendar year, as the August index level is down 29% just in 2009, and 33% over the past 12 months. The bulk of loss is during 2009, since the total decline from that 192 value is 41%. The current CPPI ties to levels dated back to the spring of 2003. Based upon repeat sales, a database created the CPPIndex.

The chart above uses the standard RCA (Real Capital Analytics) troubled asset identifying criterion to produce separate indices of 'Healthy' and 'Distressed' property price movements since the October 2007 peak. A property is deemed healthy if it is not flagged by the criterion. The chart reveals that through August 2009, while the overall CPPI has dropped 41%, the 'Distressed' types have dropped 56% while the 'Healthy' types have dropped only 33%. The chart of the 'Healthy' and 'Distressed' property price movements since the peak provides a compelling depiction of the bifurcation in the US commercial property market. See the article by MIT Professor David Geltner on the commercial property on the Real Indices website (CLICK HERE) or the related Calculated Risk article (CLICK HERE).

Thanks to the following for charts StockCharts,  Financial Times,  Wall Street Journal,  Northern Trust,  Business Week,  CIBC Bank,  Merrill Lynch,  Shadow Govt Statistics.