GOLD REPORT SNAP PREVIEWS
◄ The Saudis, with Russians,
Chinese, and Japanese at their sides, announced the eventual
end of the Petro-Dollar. Germans were involved, but remained
in the shadows of control. Sales of Persian Gulf crude oil will
be consummated no longer in USDollars after a certain date.
Payment for oil will be made in the IMF basket currency. The
USDollar must stand on its own merit, meaning at Third World
levels. Implications to the USEconomy are enormous, as the cost
structure will rise markedly. Implications to the banks worldwide
are enormous, as they will no longer need to hold vast sums
of USTreasury Bonds. Implications geopolitically are enormous,
as the United States will step back from the front of the global
stage of control, respect, and prestige. Clearly the Saudis
reached a military protection accord with Russia. The new global
cops are soon to be the Russians and Chinese, starting with
the Persian Gulf. For your review, note the following articles
by Fisk, a highly respected journalist who is fluent in Arabic.
See the UK Independent article
entitled "A Financial Revolution
with Profound Political Implications"
by Robert Fisk, dated October 7.
See the UK Independent followup
article entitled "Demise of the
Dollar" (CLICK HERE)
by Robert Fisk, dated October 6.
See the analytic treatment of
the blockbuster topic, entitled "Death
of Petro-Dollar, Told Ya So"
by the Jackass, dated October 8. Several mega-forecasts have
come to pass, this the latest. The USDollar deathbed is being
built, and its funeral planned. In its wake comes the Third
Max Keiser comments on the Fisk
articles, an end to a free pass to the US to abuse its credit
facility, an end to the US$ global reserve currency, and an
end to US$-financed militarism. Foreign USTreasury creditors
wish to pursue a different path. The IMF basket will fill the
void for some time, until gold-backed currencies arrive. The
timetable will be just a couple years, not 2018 as Fisk cites.
See the video clip (CLICK HERE).
◄ See the review treatment
of the devastating leveraged vehicle, entitled "New
Deadly Dollar Carry Trade" (CLICK
by the Jackass, dated September 23. The shameful 0% interest
rate is funding a carry trade to invest in non-US$ assets. Implications
will be the destruction of the USDollar and the end of its global
reserve currency status. This carry trade will send the gold
price beyond $2000 and the silver price beyond $50.
The Jackass makes his first appearance
with Max Keiser to explain the Dollar Carry Trade, the illicit
nature of COMEX gold operations, the falsity of USGovt economic
statistics, and the requirement of military backing for any
currency. See the video clip (CLICK HERE).
◄ A surge in the gold price
cometh, perhaps imminently. In the next several weeks, the gold
price might jump quickly to the $1500 level. A contact with
excellent access to gold transaction information and developments
has shared that the sharp price rise could come very soon "due
to certain transactions that
are being consummated at this very moment.
Even if the Boyz try to hold own or depress the price, it will
do them no good. The pressure that has been built up is uncontrollable.
We shall see some big banks hit the wall very soon (weeks/months).
The market will take over in very short order from here on forward."
A phase has begun to remove illicit
corrupt controls on the gold & silver market, from demand
of physical bullion.
The same source told a story about events at the London Bullion
Market Assn. That market is to London what the COMEX is to the
United States, both deep in corruption and government interference,
where grossly inadequate metal inventory exists to maintain
their charades of markets, each dominated by paper pricing.
They manage paper markets for syndicates in total illegal operations.
Several large gold futures contract holders are demanding physical
delivery in London. The LBMA does not
have the metal in inventory. The
officials have offered the futures contract
holders cash plus 25% dividend for settlement without gold delivery.
The contract holders refused. They want their fuchn gold (using
a French term by the source, my unique palatable spelling)!!!
There was very high volume involved in the contracts. The standoff
is not settled. It could go to court. The London authorities
are trying desperately to keep the story from hitting the press.
It helps to have the syndicate in control of the press networks.
The Bank of England and one other European member central
bank are working feverishly to fill the contract order, but
unfortunately they are using very old gold bars that are reportedly
only 90% gold. That invites a new potential challenge.
The gold market could soon explode
and possibly work toward a convergent fair market. My
hint is that it is Germans and Swiss with other Europeans are
working diligently and pointedly to kill off the US-UK bank
nazis. A LBMA and COMEX bust and default is visible on the horizon.
See the Jackass article entitled "Hitman Contracts to
Bust Comex" (CLICK HERE)
dated in May 27. It would include big bank ruin and legal prosecution.
The same source hinted that the ruin of commodity exchanges
could coincide with the bust of JPMorgan. So, based upon
the London incident, gold has a real price of near $1300.
◄The USDollar is dead, the G-20 Meeting
concluded. The larger group of bank & finance ministers
appears to have displaced the G-8 Meeting, as the US-UK domination
faces a sunset. The basket of currencies used by the Intl Monetary
Fund its is expected to take a central role in global transactions
like for crude oil. Time will tell whether IMF bonds are floated
or IMF central bank functions arise.
◄ C.I.A. documents confirm a
gold price suppression strategy. This confirms the entire mission
for the Gold Anti-Trust Action committee claims and reason for
being. The wheels of the USDollar and USTreasury wagons are
beginning to come off. If you smell a USTreasury Bond default
on the horizon, then we are on the same trail.
◄$$$ WHAT THE HECK! TOO
PRECIOUS & CUTE! A NEW ZEALAND TODDLER DANCES TO BEYONCE
MUSIC $$$. Sorry, but could not resist. Cory dances to a song
named "Single Ladies"
and shows some style. See the MSNBC video clip (CLICK HERE).
◄$$$ REPO MAN VISITS AN
ILLINOIS POLICE DEPT. $$$ Collapsing state and municipal revenues
have led banks to repossess police cars.The situation turned
so bad this month that the bank repossessed five of his seven
cruisers in Cairo Illinois. Four of them sit in the bank parking
lot, after clipped of their emergency lights, antennas, and
seals. In addition to losing cruisers, the sheriff lost 75%
of his staff, most of them deputies, to budget cuts. At its
peak, the staff had 29 full and part timers. The staff is down
to five. Sheriff David Barkett promised to protect the people
and to continue with a struggle. See the CBS News story (CLICK
The possibly universal breakdown in state and local government
will contribute eventually to panic, slowly at first. As the
public sees law enforcement as a victim in the funding morass,
the chaos grows, riots begin, and looting goes unfettered. Conditions
will call for martial law in time.
◄$$$ LAS VEGAS UNDERGROUND
HOMELESS RESIDE IN STORM DRAINS. $$$ It better not rain! People
are living in drains below Las Vegas. Beneath the glitz of the
casinos, hotels, and non-stop entertainment is squalor, desperation,
but innovation. One couple is are part of a secret community
living in the dark and dirty underground flood tunnels below
the famous strip. See the Sun article (CLICK HERE).
These folks in Vegas are the lucky ones, but they must hope
for no rain. Others less fortunate are the tent city residents
like in Ontario California. As conditions worsen, look for tent
denizens possibly to launch raids on suburban homes to steal
whatever is available during the daytime hours. In time, attacks
of the tent cities might come, and things will turn ugly. The
FEMA Camps will enter the discussion, as an option for an emergency
location to house unruly homeless.
◄$$$ THE UNITED STATES
RELINQUISHES SOME CONTROL OF THE INTERNET. $$$ After years of
complaints about American dominance of the internet and growing
rumblings worldwide, the USGovt promises to relinquish some
control over the way the network is run and share more of that
control with foreign governments. Icann is the official body
that ultimately controls the development of the internet, due
to its oversight of web addresses (such as x.com, x.net, and
x.org suffixes). The group announced an end to its agreement
with the USGovt. Icann chief Rod Beckstrom is a former Silicon
Valley entrepreneur and Washington insider who this summer took
the head post at the organization. He reports legitimate concerns
that some countries were developing alternative internets as
a way of routing around American control. The new agreement
go into effect immediately. Many rules put in place since 1998
have expired. The long term future of the internet is ensured,
by way of a shift of power away from the United States. See
the UK Guardian article (CLICK HERE)
or the Axis of Logic article (CLICK HERE).
This story highlights the slip in US control, hampering any
future attempt by the USGovt to limit internet access. Bogus
stories about breached systemic security are sure to come, since
the internet is the primary foundation in truthful reporting,
despite its share of goofy stories. The available foreign routes
might grow like a handy mushroom, in response to USGovt attempts
◄$$$ TRUTH IS ENEMY OF
THE STATE, KEPT PRISONER TO CREATE A SOCIETY OF SHEEPLES. $$$
Wall Street bond fraud, confiscation of USCongress funds, challenges
ot the US Federal Reserve, and rampant dishonesty of the existing
financial system inside the United States are almost never adequately
covered on the managed news media networks. My personal opinion
will be kept close to my vest, as part of the personal threats
received. The Wall Street syndicate steals because members can.
It is not reported properly because the syndicate is entrenched.
See the OfTwoMinds article (CLICK HERE).
If you believe that US interests controls its own media networks,
you are indescribably naïve. An upheaval in the news media
networks is well along, with financial solvency and cash flow
the major challenges to their mainstream businesses. Internet
advertisement is damaging the news networks. The public is fast
losing credibility in major networks. A breakdown in control
of official propaganda stories across the full spectrum is possibly
◄$$$ STUPIDITY OF HERD
IS SHOWN AS IT FLOCKS TO MUNI BONDS. $$$ The municipal bond
yields plummet to a 42-Year low as new issuance slows. But the
size of such funds is growing, despite the heightened risks
associated with municipal and city finances. They are crippled
financially. Just like hefty mortgage bond yields attracted
those clueless fund managers and individuals, now muni bonds
are the lead vehicles going over the cliff. The sheeple are
buying exactly what they should not be buying, having learned
little. See the Bloomberg article (CLICK HERE).
◄$$$ HUGE DEMAND FOR SOCIAL
SECURITY EARLY BENEFITS. $$$ The Social Security Admin reports
that early applications have doubled because of the recession,
up almost 50% from the norm this year. Analysts attribute the
demand to the recession. Agency statistics show that 2.57 million
people requested benefits, up from the 2.10 million applications
received during the previous 12 months. The increase by 465
thousand makes for a rate 47% higher than the expected rise.
This substantial increase in new Social Security applicants
further exacerbates the financial problems of the USGovt. See
the Bloomberg article (CLICK HERE).
People have begun to grab whatever they can from a bankrupted
Social Security system, while income sources have been damaged.
This is clear evidence.
◄$$$ AN OVERSEAS COMMODITY
INDEX GROUP CONSIDERS CUTTING OUT U.S. MARKETS, IN RESPONSE
TO CORRUPT INFLUENCE. ISOLATION IS BEGINNING. $$$ Investors
are seeking a new benchmark for commodities that excludes prices
from US markets in response to a regulatory clampdown in WashingtonDC.
The company behind the world's largest commodity index is working
on such a benchmark, in a move that could threaten trading volumes
on commodities exchanges in New York and Chicago. Way too many
clear examples of heavy strong-arm influence have come from
Wall Street firms with USGovt blessing, such as attacks on hedge
funds and USGovt release of Strategic Oil Reserves, even USMilitary
oil and diesel supply in past years. See the Financial Times
article (CLICK HERE).
Notice the stated excuse of regulatory clampdown but not corruption,
a political sidestep. The days of dominant US-UK financial pricing
systems might be coming to an end very soon. Gold will respond.
◄$$$ IRAN TURNS TO EUROS
IN OIL PAYMENTS, JUST LIKE SADDAM DID IN IRAQ BEFORE HE WAS
ATTACKED. A SIMILAR MOTIVE ARISES, IN ADDITION TO IRAN BEING
A SOPHISTICATED COUNTERFEITER OF USDOLLARS AND MERCHANT OF ITS
OUTPUT. $$$ Iranian President Ahmadinejad (a.k.a. Mr Dinner
Jacket) has ordered the replacement of the USDollar by the Euro
in all its foreign exchange accounts. The September 12th edict
was issued after consultation with the trustees of their foreign
reserves, according to the Mehr News Agency. Earlier, the Islamic
Republic of Iran had announced that the Euro would replace the
USDollar in all its national oil transactions. Iran has called
on other OPEC members to abandon the sinking USDollar in favor
of the more credible Euro. See the Daily Market article (CLICK
One can draw a timeline from how long it took for Saddam to
sell his oil in Euros before Iraq was bombed, attacked, and
occupied. It was about nine months. By that measure, Iran has
until April or May of 2010. Iraq was attacked in March of 2003.
Count on it being sooner, but this time China and Russia are
in the theater, watching, motivated, angry, and loaded.
& ABSENT EXIT STRATEGY
◄$$$ FALLING ASSET PRICES,
MAMMOTH MONEY CREATION, AND STALLED CREDIT ENGINES ALL ADD UP
TO FINANCIAL SECTOR BREAKDOWN. IT IS JUST A MATTER OF TIME,
AS WEIMAR CONDITIONS RESULT IN SEIZURES OF THE MACHINERY. $$$
As an astute contact said in a recent email, "It
is like watching an entire train going in slow motion over the
cliff." The US banking system
is not functioning properly. The 0% rate means the primary business
for US banks is borrowing short and investing in USTreasurys
held at the USFed vaults. The USFed in turn is attempting to
act as an entire banking system, while regional and midsized
banks are circling the storm drain in a death spiral. The Federal
Deposit Insurance Corp is drained dry, unwilling even to tap
its credit line, preferring instead to drain the banks with
FDIC 'taxes' now 14 times greater than two years ago. The banks
are sitting on gigantic property inventory from home foreclosures.
That is the domestic summary, when foreigners are shunning the
USDollar generally and USTreasurys specifically. The breakdown
is written in stone, with the climax event being a US bank system
shutdown and USTreasury default. All in time, since the monetization
press is the primary source of credit. That source historically
has never lasted long, always a temporary fix.
Key changes have come in recent
weeks. The bust of the American consumer, the inability of the
USEconomy to create jobs, the continuation of home foreclosures,
and the difficulty in obtaining credit contrast the USGovt initiatives
that further bust the federal finances. The combined effect
is to shatter the notion of any recovery in the United States.
Another Stimulus Bill must come, and is coming, but at a cost
of confidence and trust in the USDollar. This constitutes a
major turning point that the US stock market has noticed, and
the USTreasury Bond market has benefited from, for now. The
USFed must stay on the 0% rate pathway, with great shame and
ample rationalization. It is a badge
Another portion of this bizarre
situation that eludes the analysts and media is that 0% rates
slow the USEconomy from providing savers and retirees almost
nothing for income. That is ok in the minds of Wall Street fraud
kings who control the Dept Treasury though, since it gives them
free money to run their carry trades and other speculation.
Unfortunately for the USGovt, that carry trade that has entered
the financial engineering factor floor feeds off the USDollar.
It will kill the USDollar and ensure a USTreasury default. Foreigners
employ a two-part strategy. 1) Protect their US$-based core
reserves, but 2) abandon the US$ on new commitments such as
USTreasurys. Foreigners are hyper-actively trading in their
USAgency Mortgage Bonds, and with proceeds from USFed monetized
purchases, in turn are buying USTreasurys at auctions. The Grand
Paradigm Shift is in progress. It is
in direct response to the amplified monetization process engaged
by the USFed and USDept Treasury, acting in desperation.
It ensures the gold price will rise, the USDollar will fall,
prices within the USEconomy have a firm floor established, and
asset prices remain at great risk. Shock waves come from the
Paradigm Shift, reverberations of Uncle Sam falling down a staircase
into te Third World. The residents inside the USDome of Perception
are often blind to the shift, a financial revolution rooted
in global response.
◄$$$ A WARNING COMES FROM
JULIAN ROBERTSON ON CREDIT CUTOFF BY FOREIGN SOURCES. HE PROPERLY
RECOGNIZES THE THREAT, WITHOUT MENTION OF THE DEADLY MONETIZATION
CARD CURRENTLY BEING PLAYED BY THE USGOVT AND USFED. $$$
Julian Robertson is a legendary
successful fund manager. He was one of the premier hedge fund
managers of the 1980 and 1990 decades. He has a gigantic investment
position currently in place that is designed to profit from
a steepening of the USTreasury Yield Curve and rising price
inflation. He said openly that the United
States might face 'Armageddon' if China and Japan refuse to
purchase US debt. The United States
is incredibly dependent upon credit for its economic function
and foreign credit in particular for credit supply. Robertson
believes price inflation is a big risk if foreign countries
halt the purchase of US$-denominated bonds. He does not anticipate
the Chinese will stop buying US bonds altogether, but the Japanese
could eventually be forced to sell some of their long-term bonds.
His anticipated extreme price inflation ignores the monetization
pattern (both domestically with primary bond dealers and with
foreign central banks) for purchase of our own USTreasury Bonds
and USAgency Mortgage Bonds. He misses how short-term debt has
0% borrowing cost but long-term debt has higher cost. The
only way to avoid the problem in his view is for renewed US
growth and domestic saving in his view.
US leaders urge more spending while talk about the merits of
saving, the opposite direction of actual solution. He harbors
little optimism, since the global track record of short-term
credit dependence is disastrous. Robertson said the following
in an interview.
"It is almost Armageddon
if the Japanese and Chinese do not buy our debt. I do not know
where we could get the money. I think we have let ourselves
get in a terrible situation, and I think we ought to try and
get out of it. If the Chinese
and Japanese stop buying our bonds, we could easily see [price
inflation] go to 15 to 20 percent.
It is not a question of the economy. It is a question of who
will lend us the money if they don't. Imagine us getting ourselves
in a situation where we are totally dependent on those two countries.
It is crazy. [Outright Japanese bond sales would be] much worse
than not buying. The other thing
is, they are buying almost exclusively short-term debt.
And that is what we are offering, because we cannot sell the
long-term debt. And you know, the
history has been that people who borrow short term really get
burned… The US has
to quit spending, cut back, start saving, and scale backward.
Until that happens, I do not think we are anywhere near out
of the woods. We are in for some real rough sledding. I really
do think the recession is at least temporarily over. But we
have not addressed so many of our problems and we are borrowing
so much money, that we cannot possibly pay it back, unless the
Chinese and Japanese buy our bonds."
See the My Mutual Fund article (CLICK HERE).
◄$$$ SHRINKAGE OF MONEY
SUPPLY SIGNALS BIG TROUBLE AHEAD. THE DEFLATION KNUCKLEHEADS
POINT TO SUCH DATA AS A SIGN THAT THE USDOLLAR WILL RISE FROM
COLLAPSING CREDIT MARKETS. INSTEAD, CREDIT ENGINES WILL RAMP
UP TO FURTHER WRECK THE MONETARY SYSTEM AND CURRENCIES. THE
FINANCIAL SECTOR IS ENJOYING HYPER-INFLATION GRAND FLOWS, NOT
COUNTED IN OFFICIAL ST LOUIS FED DATA SOURCES. $$$
A great storm is brewing, marked
by reduced tangible economy flows and heightened financial sector
flows (but only in speculation, not capital formation). An economic
recession is assured again in both the United States and Europe.
Nothing was remedied, only giant sums
of money were shoved into the biggest banks, impaired bonds
were moved to the USFed, bank stocks were propped with TARP
fund improperly, while many crucial failed financial institutions
changed into government ownership.
The contraction of credit and M3 money in both the US and Europe
signals serious trouble ahead. The previous clear warning came
in July 2008, and current signals are doubly worse. The folks
at Intl Monetary Research, Lombard Street Research, and Gluskin
Sheff (new home of David Rosenberg) have pointed out ominous
money supply signals. The M3 money supply
has been shrinking at a 5% annual rate since June in the US.
It has been slightly negative since March in the Eurozone.
The USFed reports the M2 money supply contracted at a 7.3% annual
rate in August, and a 3.1% rate in July. The bank system is
not dispensing credit as intended. Recession is due soon again,
especially since USGovt stimulus has dissipated.
USFed Chairman Bernanke prefers stupid
measures in his focus to judge the smooth function of the US
bank system. He embraces low TIPS bond yields, enjoys lower
corporate yields spreads versus USTreasurys, and still crows
mindlessly about tame inflation expectations contained supposedly
in the low USTreasury Bond long-term yield. He led the abolishment
of the M3 data at the USFed, although many sources like the
Shadow Govt Statistics easily reconstruct it. His list of errors
is long and growing. He has no reluctance to pump up the money
supply, and therefore Wall Street loves him. If Bernanke had
been watching M3, he would have known that the bubble was getting
out of hand upside in 2005 to 2006, and conversely that the
banking system was beginning to collapse in 2007, then disintegrate
in 2008. Great audacity was heard from Bernanke at Jackson Hole
this August that nobody could have seen the banking crisis coming,
and worse, that they averted a disaster with prompt action.
See the destruction in bank credit, the falloff of commercial
loans, and the drop in money velocity (excluding finance sector
speculation, as in Shadow Banking System). The crisis in credit
◄$$$ ORLANDINI OFFERS CRITICISM,
WITH ACCUSATIONS OF HIDDEN MONETIZATION. HE WARNS ABOUT USTBONDS
& USDOLLAR. $$$ Enrico Orlandini wrote three weeks ago,
"It has been a while since I have
talked about the bond market and I think things are about to
heat up, so I would like to make a few comments. This week the
government is auctioning off a record US $110 billion in bonds
and it seems like each successive auction is 'record.' Those
bonds are being purchased by someone, and many point to the
fact that bonds are being absorbed as a sign that things are
okay. I disagree. How they are
being purchased is important, and I suspect the
bonds are being purchased by the Fed with printed money.
This type of monetization of
debt is at best dangerous, and in the case of the US fatal.
Everybody points to the fact that the dollar is overbought and
foreigners will have to intervene or their currencies will become
too expensive for them to export to the US."
A global revolt against the USDollar is in full swing, better
described as an integral part of the Paradigm Shift. The desperate
actions taken by US finance minsters can result in sudden death,
just like with the ill-fated Weimar Republic which Americans
refuse to study or comprehend.
◄$$$ DOUBTS ABOUT BOND
MARKET INTEGRITY PERSIST. THE CONTROL PLACED UPON IT REVEALS
TOO MUCH CONSISTENCY. THE EVIDENCE IS UNIFORMITY AND SAMENESS,
TOTALLY OUTSIDE THE REALM OF CHANCE POSSIBILITY. THESE ARE MANAGED
MARKETS. $$$ The HSBC Bond Chief Stephen Major has major doubts
on the economy. He wrote, "Even
more importantly, why is the
yield curve THE SAME across all government bond markets? Why
is the UKGilt curve the same as the Canadian or Swedish curve,
even though these countries have not indulged in QE? Why is
it the same as the US yield curve, when it has a completely
different QE going on?" See the
Financial Times article (CLICK HERE).
The answer is simple. All central banks are working desperately
to manage with coordination, hoping to avoid a collapse. They
are scared white in the face, as their bank systems are uniformly
insolvent. With the flood of printed money, they manage their
own sovereign bonds.
◄$$$ THE USFED MONETIZATION
CONTINUES UNABATED. $$$ Foreigners might possibly bid for close
to half the USTreasury new issuance, but one must work hard
to separate the funds they receive from USAgency Mortgage Bond
abandonment. The USFed talks about halting the Quantitative
Easing (QE), aka money printing (monetization). The auction
dates stream in like milk deliveries. The schedule calls for
another $138 billion in Treasurys consisting of: $30 billion
in 26-week Bills (October 5), $30 billion in 13-week Bills (October
5), $39 billion in 3-years Bills (October 6), $20 billion in
10-year Notes (October 7), $12 billion in 30-year Bond (October
8), and $7 billion in 30-year TIPS (October 5). Resumption of
monetization is obvious, not even in debate by analysts free
from compromise. Monetized TIPS purchases destroy the indication
of inherent price inflation. The USFed will use every trick
in their playbook to conceal the indirect nature of their self-dealing.
The USFed is buying at least 50% and perhaps 75% of its own
USTreasury issuance. Unless Bernanke and Treasury Secy Geithner
want to risk a failed auction, a resumption of QE is highly
likely. See the Zero Hedge article (CLICK HERE).
In the last week of September,
the USFed tipped its hand completely. The
central bank stated a hold of the key rate near 0% for an 'extended
period' with embarrassment. This is
an admission that the recovery is nowhere to be seen, and the
Exit Strategy is all hyped talk. They actually stated that an
economic recovery was under way, but signaled that it was still
much too early to start raising interest rates. The benchmark
overnight interest rate will remain at virtually zero until
at least some time in 2010. Policy makers also announced that
they would extend the USFed program to buy up almost $1.5 trillion
worth of mortgage bond securities through the end of March.
◄$$$ NOBEL PRIZE WINNING
ECONOMIST JOSEPH STIGLITZ EXPECTS NO EXIT STRATEGY TO BE TAKEN,
AS THE 0% RATE WILL REMAIN. HACK ECONOMISTS REVEAL THEIR SHODDY
LEVEL OF COMPETENCE, IGNORING THE PRIMARY CAUSES OF PRICE INFLATION.
$$$ Stiglitz justifies continued money creation with a hard
foot on the accelerator. Stiglitz said, "To
the high priests of the fiat currency, deflation is like garlic
to a vampire. The US faces the possibility of deflation for
the first time since the Eisenhower Admin, a
threat that may prompt the Fed to keep interest rates near zero
through next year. Deflation
is definitely a threat right now. The combination of the deflation
threat and the sluggish recovery should keep the Fed on hold
for quite a while. A weak labor market in a competitive environment
puts downward pressure on wages. So, the possibility of another
actual decline in wages cannot be ruled out."
Even this competent economist finds himself ensnared in the
traps of deflation concepts. Regard Stiglitz as having good
judgment with too much Toxic American Economics pumped into
his psyche. His comments about deflation probably center on
housing prices and bank assets.
Contrast to a more mainstream
hack economist, with a clueless perspective. Dean Maki is chief
economist at Barclays Capital in New York. He believes recent
reports showing weakness in manufacturing, housing, and consumer
spending suggest that the danger of deflation is overblown.
Maki forecasts 5% economic growth in the US for 1Q2010, which
he expects would translate into higher prices. So Maki believes
prices respond to economic growth, a backwards notion. Then
there is Stephen Stanley, chief economist at RBS Securities.
He said, "Inflation is driven more
by the level of demand and pace of growth than by the size of
the output gap. As the economy returns to solid growth in 2010,
we are quite confident that, in sharp contrast to the consensus
Fed view, core inflation will be creeping higher." So
Stanley believes prices respond to economic growth also. Neither
economist cites monetary expansion or USDollar risk as a relevant
factor to prices, despite being the primary causes of price
inflation. They hail from the Corrupt
American Economics corridors, hampered by horrendous university
training or full compromise from a Wall Street paycheck. See
the Bloomberg article (CLICK HERE).
◄$$$ THE USFED MUST BEGIN
TO DRAIN ITS HISTORICALLY MONSTROUS BALANCE SHEET, TO DISMANTLE
ITS HUGE MONETARY EXPLOSIVE DEVICE HANGING OVER THE CREDIT MARKET.
TALK COMES OF REVERSE REPOS TO FORCE THE US FINANCIAL SECTOR
TO ACCEPT THE RISK ON THE USFED BALANCE SHEET. HOWEVER,
THE INITIAL ACTION APPEARS TO BE IN MONEY MARKET FUNDS ARENA.
THEIR DRAIN MIGHT SERVE AS AN EXPERIMENT TO TEST AN EXIT STRATEGY.
THEY CHOOSE TO PUT AT RISK ON PEOPLE'S SAVINGS, AGAIN PROTECTING
THE ELITE. HEAR THE ECHO BY EURO CENTRAL BANK TRICHET ON MONEY
The USFed has begun talks with
its primary bond dealers on using reverse REPOS. It must withdraw
the unprecedented amount of liquidity injected into the financial
system the last two years under emergency conditions. Central
bank officials are making plans to use reverse repurchase agreements
to drain some of the $1 trillion they pumped into the economy,
according to sources in private talks. The process has the USFed
selling securities to its 18 primary dealers for a specific
period, temporarily decreasing the amount of money available
in the banking system. Such a course of action is standard.
The USFed must shed some of the mammoth portfolio of mortgage
bonds and USTreasury Bonds acquired as it defended ruined banks
during the financial crisis. The goal would be to drain liquidity
from the financial system, and thus to avoid a burst of price
inflation as the economy enjoyed even a temporary lift. The
threat is that any drainage would cause grand credit market
Next comes word that the US
Federal Reserve is studying the concept of borrowing
from money market mutual funds
as part of eventual steps to withdraw stimulus,
according to the Financial Times
in London. Evaluation of standard mechanisms like REPOS must
be quickly dismissed in ivory offices. The latest FOMC meeting
concluded two weeks ago with no changes. The
big new development is the trial balloon plan, whereby the
central bank would raid money market funds
because it does not believe the primary dealers have the balance
sheet capacity to provide more than about $100 billion.
Notice that London press networks provide better coverage than
the American. Money market mutual funds in the United States
contain about $2.5 trillion under management. Officials regard
them to possibly provide between $400 billion and $500 billion
in a formal raid. They reported that officials saw no urgent
need to drain liquidity all the way to where it was before the
crisis, because it was confident it could raise interest rates
even with a much larger amount of reserves in the system than
existed before the crisis. WE ARE WITNESSING A BLACK HOLE THAT
COULD SOON SUCK MONEY MARKET FUNDS AND ACTUAL US SAVINGS.
Observe the USFed stuck in a
policy corner with no exit, with only trap door to the Third
World. Inaction leads potentially to hyper-inflation. See the
Yahoo Finance article (CLICK HERE).
The altered course to raid money market funds would transfer
the risk to the vast army of small savers in an extension to
the Black Hole. If problems arise, at least Wall Street banks
would not suffer losses, whereas the people would. Their policy
actions to date have been consistent in preserving wealth and
power for the Elite banker community at the expense of the common
people. See also a Casey File article by David Galland entitled
"Is the Treasury Out to Kill Money
Market Funds?" (CLICK HERE).
A great question indeed.
Euro Central Bank head Trichet
has threatened to withdraw support for money markets in the
Eurozone. He cannot maintain support forever, stated before
the European Parliament Committee on Economic & Monetary
Affairs. The introduction of one-year lending to banks is one
of the measures the ECB brought in during the financial crisis.
The EuroCB has been pumping billions
of Euros into money markets over the duration of the crisis
in an attempt to restore order and to reduce the cost of borrowing
for banks, firms, and consumers. This
dominant source of funding for many commercial banks will soon
dry up, but it was not yet time for the ECB to retract its support.
Trichet said, "The strong intervention
of the Eurosystem in the Euro area money market cannot be maintained
forever. We have introduced exceptional measures under exceptional
circumstances. We will have to phase them out once the rationale
for these measures fades away and the situation normalizes.
Now is not the time to exit. However, at some point in time
exit strategies will have to be implemented. The ECB has an
exit strategy and stands ready to put it into action when the
appropriate time comes. Our exit strategy is an integral part
of our overall monetary policy strategy."
◄$$$ KEYNESIAN COPS, FRIEDMAN'S
FOLLIES, AND THE FLAWED THEORY BEHIND THE RECOVERY HAVE RENDERED
GREAT SYSTEMIC HARM. DEBATE IS SORELY ABSENT, AS THE UNITED
STATES BOUNCES FROM FAILED POLICY TO FAILED POLICY, WITH BOOMS
& BUSTS. A DESTROYED ECONOMY AND FINANCIAL FOUNDATION IS
THE RESULT. $$$
The current USFed Chairman Bernanke
claims expertise concerning the Great Depression. The United
States is destined to repeat a Depression chapter since Bernanke
is NOT an expert on that ugly event. Global central bankers
(under Bernanke leadership) are flooding the global economy
with money because they buy into Milton Friedman's theory that
economic contractions can be reversed by sufficient monetary
expansion. No proof exists. Rather,
proof does exist that a bigger crisis can be produced down the
road. They miscalculate risk of intervention,
superimposing policy over market capability to cleanse excess
and ruin failed risk taken. The US is interrupting the cleansing
process and instead supports failed risk heavily. The Freidman
theory of Monetarism is another bad iteration of the Keynesian
belief in the power of government intervention. Another
of the absurd Friedman notions is that floating currency exchange
rates would naturally over time bring global trade deficits
into balance. This justified the removal
of the gold standard, and has wrought global imbalances never
seen in history. Price intervention achieves stability?? Only
in the wayward mindset of American Economists.
As Daryll Schoon says, "When
exchange rates were allowed to float in 1974 as encouraged by
Friedman, who also encouraged Nixon to abandon the gold standard
in 1971, the US had a positive balance of trade. Thirty
five years later, the US trade deficit is well over $800 billion
and is growing over $20 billion each month.
Hey, Milton, how much more time will it take to balance the
trade deficit? Professor Antal Fekete warned several years ago
that Friedman would someday be proved wrong and that we would
collectively suffer the consequences; and, that just
as during the Great Depression when banks hoarded the government's
cheap money instead of lending it, they would do so again
when Friedman's theory of monetary expansion was tried during
another contraction. Professor Fekete's warnings have now come
true. Today, US bank lending growth has entered negative territory
at the same time cash reserves at US banks increased by 1460%."
The pillars of economic thought in
the United States have failed, and nobody seems willing to state
the case. The Jackass will. See the article by Daryll Schoon
entitled "The Coffin Shaped Recovery"
We are observing the failure of US Economist Experiments.
Shockingly little debate has
come on monetary policy and its principles. Bernanke
is grossly irresponsible in his monetary policy, a student who
follows Milton Friedman heretical principles, like the neutrality
He ignores the profound effects of induced bad investments,
flows of easy money into vast pits of malinvestment that produce
bubbles and wreckage. The concept of neutral money, never harmful,
is lunatic. Both Bernanke and Friedman overlook the real factors
of how money is invested within the United States, the giant
tranches of speculation. Calling the steep rise in the USFed
balance sheet and the US monetary base highly inflationary would
be greatly understating the situation.
◄$$$ FROM THE BLACK-SCHOLES
OPTION MODEL GENIUSES COME BLACK HOLES THAT SUCK ALL NATIONAL
WEALTH INTO THE COSMOS. THAT BLACK HOLE IS THE USGOVT DEFICIT
AND COSTS OF NATIONALIZING FAILED FINANCIAL FIRMS. COSTS ARE
HIDDEN TO THE PUBLIC, SINCE SO HUGE. $$$
The USFed is highly reluctant
to remove stimulus and raise rates, but for reasons not stated.
A hike of 50 basis points can easily wipe out a bank. If the
USFed in a full blown currency crisis were compelled to lift
the Fed Funds rate by 200 basis points or more, the damage would
be from the Black Hole tied to Credit Default Swap contracts,
which would suck the financial life out of the remaining big
banks. Since 3Q2007, credit default derivatives have generated
$28 billion in losses to banks. As of 2Q2009 still some $13.44
trillion in notional exposure hangs around, equal to 95% of
GDP. Banks that bet on the survival of other banks cannot be
redeemed of a wide swath of banks are ruined. From Black Scholes
to Black Holes indeed. See the Dharma Joint weblog (CLICK HERE).
◄$$$ THE I.M.F. WARNS OF
EXCESS LIQUIDITY TO BE MOPPED UP, ANOTHER WAY OF WARNING THAT
THE NEXT ROUND OF CRISIS COULD BE EITHER BUBBLE OUTBREAKS FROM
NO ACTION OR ELSE BANK/MARKET SYSTEM BREAKDOWN FROM TOO HARSH
ACTION. $$$ Extraordinary debt levels risk another crisis, the
Intl Monetary Fund warns. They point out staggering high levels
of government debt around the world, identifying it as the most
likely trigger of the next economic downturn. The former IMF
chief economist, now Harvard University economics professor,
Ken Rogoff said that the high official debt levels must not
go unnoticed. Rogoff openly warns that
countries hobbled by significant national debts like the United
States and other nations risk
a potential USTreasury default
sometime in the future. He cited the
debts as a proportion of their total economies, a factor used
in basic banking practices at the microcosm level. The most
current USGovt annual deficit of $1.84 trillion represents 13%
of estimated GDP, last seen at the end of World War II. Notice
how the total varies, impossible to pin down. The Rogoff warning
came as the G-20 leaders prepared to debate the Obama Plan to
stimulate global growth and coordinate their fiscal stimulus
Rogoff said, "There
is no question that the most
significant vulnerability as we emerge from recession is the
soaring government debt. It
is very likely that it will trigger the next crisis as governments
have been stretched so wide. Talk about a big bubble that really
affects the global economy! The huge run-up in government debt
has led to patently unsustainable fiscal policies across a number
of major countries. So far, the rest of the world has been willing
to finance it, primarily with savings from China and elsewhere.
But if investor confidence is shaken, we might see the interest
rates on long-term debt rising, and rising very sharply."
The only way sharply higher rates come
is if JPMorgan is put out of business, the primary agent for
monetizing the USTreasury debt and chief engineer in managing
the Interest Rate Swap machinery. Maybe this prudent Harvard
Professor is unaware of either factor. An echo came from IMF
director Dominique Strauss-Kahn, who stressed the need to manage
the mess of rampant liquidity (phony money flood). He said,
"Once the fire is out, there is
water everywhere. It has to be mopped up. In Pittsburgh, we
have to say, there are still fires to be put out. We will see
later how to do the mopping up."
Most bank officials deal not at all with the mopup phase, a
task for a later day. They create unfixable problems, and treat
the crises with supposed cures that offer no exit. See the UK
Telegraph article (CLICK HERE).
BANK CHAOS GROWS
◄$$$ A QUEER AND HIGHLY
PUNITIVE BANKER WELFARE TAX HAS BEEN LEVIED BY THE F.D.I.C.
AGAINST ALL SURVIVING BANKS. THE 14-FOLD
BANK FEE INCREASE WILL WEAKEN THE REGIONAL
AND MIDSIZED BANKS, AND READY THEM FOR ANY BIG BANK CONSOLIDATION
PLAN. A SEVERE CRIMP TO BANK PROFITS IS THE END RESULT, SURE
TO REDUCE THEIR WILLINGNESS AND ABILITY TO LEND. THE F.D.I.C.
IS RELUCTANT TO TAP THE DEPT TREASURY LINE OF CREDIT, AND PREFERS
TO WOUND MEMBER BANKS INSTEAD. $$$
The USGovt is looking to further
suck vitality from healthy banks in order to lend to the Federal
Deposit Insurance Corp. Despite sharp political criticism on
big bank bailouts, FDIC senior regulators will demand that banks
supply the FDIC bailout fund. The decision is not final, but
the winds tell of a plan well along. The nation's healthy banks
will supply $billions to rescue the insurance fund that protects
bank depositors. The plan is more like Fascist extortion without
recourse. The plan is supported by the big banks and their lobbyists,
part of the syndicate core, but not the midsized banks. The
FDIC is extremely reluctant to use its authority to borrow from
the USDept Treasury, its recognized safety valve. Under
current law, the FDIC would not need permission from the USDept
Treasury to tap the existing credit line of up to $100 billion.
The FDIC has a $500 billion line of
credit in all. Doing so is dreaded by FDIC head Sheila Bair,
whose is in constant bitter conflict with the Treasury Secy
Geithner. Camden Fine is president
of the Independent Community Bankers. He said, "Sheila
Bair would take bamboo shoots under her nails before going to
Tim Geithner and the Treasury for help. She would do just about
anything before going there."
Apparently she would prefer to contribute to the crippling of
the non-big banks. Bank profits will clearly be drained at a
time when profitability is severely challenging.
York Times wrote, "Bankers
worry that a special assessment of $5 billion to $10 billion
over the next six months would crimp their profits and could
push a handful of banks into deeper financial trouble or even
receivership. And any new borrowing
from the Treasury would be construed as a taxpayer bailout that
could open the industry to a political reaction, resulting in
a wave of restrictions like fresh limits on executive pay."
The FDIC is in a vise. Their actions
align with what my analysis has called a Grand Consolidation
Plan, wherein the biggest Zombie banks with USFed aid would
acquire regional and midsized banks, but only after permitting
them to weaken, or actually imposing fees to weaken them further.
The big banks would have available a mountain of reserves stored
at the USFed, whose release would enable the broad acquisition.
See the New York Times article (CLICK HERE).
Two stories come from the field.
Eric King of King World News (CLICK HERE)
in a personal email reported that a midsized bank whose name
he could not reveal offered details on the 'banker tax' levied.
The FDIC fee increase at one bank was
nearly 14-fold in two years, going from $600k in 2007 to $8.0
million in 2010 for that particular institution.
A second story comes a personal friend down South. He knows
a CEO of Meridian National bank in Mississippi with about 15
branches. He said that in the last year the
FDIC had increased their mandatory Insurance contibution from
$35k to $350k to now $1.35 million.
The bank executive was stunned, and claimed the fee hike will
hurt a lot of regional banks. Note the same ratio, a 14-fold
bank fee hike in two years.
Finally, here is a wrinkle not
thought of by many people, handed to me by an astute subscriber.
The US Fed might in many cases indirectly be paying the FDIC
bank fees. Since any prepayment of FDIC premiums is an asset
on the banks balance sheets, the banks are permitted to use
such assets as collateral for more loans from the USFed. So,
the USFed in reality is bailing out the FDIC. One can easily
argue that the USFed is attempting to play the role of the entire
US banking system, next insuring itself, even holding the garbage.
How out of control!
◄$$$ 1000 BANKS DUE TO
FAIL, MANY OF THEM SMALL. ONLY THE LARGE BANKS RECEIVE FEDERAL
ATTENTION, THE REST IGNORED AND LEFT TO DIE. $$$ John Kanas
is the former North Fork CEO. He predicts 1000 bank failures
will occur over the next two years. So far this 2009 calendar
year, a total of nearly 100 have occurred. He said, "Many
of these [failed] institutions nobody has ever heard of. They
are smaller companies spread around the country. Some of them
are private. It augurs poorly for smaller business mangers.
Small banks tend to lend money to Mom & Pop operations.
It exacerbates the problem for small business borrowers…
Government money has propped up the very large institutions
as a result of the stimulus package. There is really very little
lifeline available for the small institutions that are suffering."
Kanas is one of the few from
private equity firms to take control of a failed bank in an
FDIC deal. He is currently Chairman & CEO of BankUnited,
which he acquired in partnership with Blackstone, Carlyle, Centerbridge,
and WL Ross. The failure of BankUnited cost the FDIC $4.9 billion
in May. The FDIC announced new rules a month ago to encourage
similar private investments in trouble banks. But the three-year,
10% capital requirement might deter investments. See the Business
Insider article (CLICK HERE).
◄$$$ THE F.D.I.C MIGHT
BE HOBBLED BY THE FEDERAL DEBT LIMIT, AS THE USCONGRESS IS RELUCTANT
TO RUSH INTO INCREASING THAT LIMIT. DOING SO WOULD (WILL) UNLEASH
A STORM OF PROTEST. $$$ The FDIC might be unable to tap USTreasury
credit lines, since the extension would immediately send the
federal debt above the legal debt ceiling limit. The FDIC is
thus left to find innovative ways to replenish its nearly empty
Deposit Insurance Fund. So they turn to dictated draconian terms
for insurance hikes from member banks, who have no recourse.
Imagine your car insurance going from $1000 per year to $14
thousand! Many drivers would sell their cars and take public
transportation. Borrowing from the USGovt is out of the question,
it seems. Any new borrow would bring the outstanding USGovt
debt closer to the $12.1 trillion limit. Tapping the FDIC line
of credit or using the Federal Financing Bank would carry implications
for the debt limit, admitted the USDept Treasury spokesman Andrew
Williams. See the Zero Hedge article (CLICK HERE).
Despite political limitations,
the USCongress must raise the federal debt limit.
Before that happens, look for threats or actual temporary shutdown
of operations. The anger and resentment toward wasted funds
on big banks is an unspeakably loud tumult. Hidden usage of
TARP funds by Wall Street puppeteers has backfired, not for
forced disclosure, but at least for halted credit extension.
In time, the USCongress will raise the debt limit, but not before
a firestorm, hot pitched battles, or even a war that pries open
the USFed to formal audits. To be sure, a bank run not stemmed
by a cash strapped FDIC would have very serious economic and
political repercussions. The compromised legislative branch
is well-known to kick the can down the road, as the saying goes,
but this time, they are openly worried about an uprising at
the Grassroots level in the US population. The USCongress will
not give ground this time, not without major concessions from
either Wall Street or the USFed itself. In
my view, a MAJOR SHOWDOWN COMES. My
bet is the debt limit showdown will be used directly to threaten
a default on USTreasurys to kill the USFed, but at least to
pry open it accounting. Then come
personal death threats by the syndicate against Congressional
members, along with amplified bribery. The battle is for control
of the national governmental purse, which Wall Street stole.
◄$$$ THE FEDERAL HOUSING
ADMIN OVERSEES A GIGANTIC CESSPOOL OF MORTGAGES. THEY ARE THE
OFFICIAL NATIONAL SUBPRIME LENDER. NOTHING HAS CHANGED, EXCEPT
THE LOCATION OF DEAD MORTGAGES. THE USGOVT OWNS THEM, AND MANAGES
A CESSPOOL. A HUGE BAILOUT WILL BE NEEDED SOON. $$$ The FHA
insures mortgages held under the USGovt porous rooftop, under
which are mortgages in possession of Fannie Mae, Freddie Mac,
Ginnie Mae, and various smaller agencies. The
FHA shortfall is currently estimated at $54 billion, according
to an independent consultant who is very familiar with its toxic
sewage storage facilities. Edward Pinto
was the chief credit officer from 1987 to 1989 for Fannie Mae,
the quasi-USGovt mortgage finance company that is now fully
owned by the USGovt, lock, stock, and toxic barrel. In his estimation,
the Federal Housing Admin, which insures mortgages with low
down payments by FHA-approved lenders, might require a official
USGovt bailout. He estimates $54 billion more in losses than
the agency can withstand. He said, "It
appears destined for a taxpayer bailout in the next 24 to 36
months." By the time the next
crisis arrives on schedule, the amount will surely be much bigger.
The volume of FHA program loans has quadrupled since 2006, since
private lenders and insurers withdrew mortgage funding amidst
the US housing decline. The leap has left the FHA backing risky
loans and those exposed to widespread fraud in a market will
likely descend further. The in-house sewage treatment executive,
FHA Commissioner David Stevens claims the agency does not need
aid, due in part to new guarantees made at much lower housing
prices. See the Bloomberg article (CLICK HERE).
◄$$$ STRANGE EVENTS OCCUR
WITHIN THE MIX OF BANK ASSETS HELD ON BALANCE SHEETS. THEY ARE
STEERING AWAY FROM FANNIE MAE & FREDDIE MAC BONDS, AND TRYING
TO REPLACE WITH GINNIE MAE BONDS. THE MAIN ISSUE IS USGOVT GUARANTEE.
THE GINNIE BONDS REQUIRE NO RESERVES SET ASIDE FOR BANKS. THEY
ARE HIDING THEIR INSOLVENCY. $$$
The practice of shedding Fannie
Mae & Freddie Mac bonds since they are only implicitly guaranteed
has resulted in bigtime games. Banks that hold these securities
as assets on their balance sheets must divert funds to set aside
reserves, based on a 20% risk weighting assigned to the value
of those holdings. They are dumping from their assets the Govt
Sponsored Enterprise bonds onto the USFed balance sheet, and
replacing them with FHA-insured loans packaged into USGovt-insured
securities issued by Ginnie Mae. In doing so, the big banks
are not reducing their net assets. They are eagerly ridding
themselves the toxic mortgage bonds for other more guaranteed
mortgage bonds. The distinction is that
Ginnie Mae bondss are fully backed by the USGovt, just like
USTreasury Bonds. Their cousin bonds
are not. Banks thereby avoid setting aside reserves. They can
use the money they otherwise would have to set aside to actually
add leverage their balance sheets. They can borrow short term
and invest in long-term USTreasurys, the domestic banker carry
trade. With leverage, they can amplify profits 20-fold at least.
See the Commodity Online article (CLICK HERE).
One should conclude that the big banks are placing themselves
directly at risk for a second powerful credit market crunch,
with more bank failures. All it needs to begin the wreckage
is a spark, like a string of corporate failures or a rash of
new home foreclosures or a skein of commercial loan liquidations.
All three are not just possible, they are locked assured events.
◄$$$ BANK STRAIN GROWS
WORSE, NOT BETTER, WITH NON-PERFORMING LOANS THE VISIBLE CULPRIT.
BANKS WITH HIGH LEVEL OF DELINQUENT LOANS REMAIN IN THE MIX,
ALONG WITH THE FORMAL 'PROBLEM LIST' BY THE F.D.I.C. THAT ONLY
GROWS WORSE WITH TIME. LOAN MODIFICATIONS HAVE HAD ALMOST ZERO
The USEconomic recovery is a
fiction wrapped in nonsense founded in false hope. The
number of US lending institutions s unable to collect on at
least 20% of their loans has hit an 18-year high.
The advent of the second round for deep bank losses is near.
Such bank failures and losses could slow an economic recovery,
or better stated, render the concept an utter joke replete with
political motives. The FDIC had data compiled for Bloomberg
News by SNL Financial, a bank research firm. Units of Frontier
Financial, Towne Bancorp, and Steel Partners Holdings are among
26 firms with 90-day delinquencies above the 20% level, as of
June 30th. That level of distress is almost five times the national
average. Among banks on the list, three reported almost 50%
of their loans as delinquent. Bert Ely is CEO at a bank consulting
firm that bears his name. He said, "Their
are some zombie banks out there. Neither the banking industry
nor the economy benefits from keeping weak banks in business."
The list of bank shutdowns is near
100 this year, rendering empty the FDIC insurance fund.
The FDIC counted 416 companies
on its confidential Problem List banks at mid-year.
A fine point. In the calculations by FDIC for a problem bank
declaration, the scads of ineffectively restructured modified
loans were excluded. Lowering the interest rate a smidgeon or
tossing three months of unpaid interest into a fresh loan, without
reducing the loan balance, accomplishes nothing. It merely sends
the borrower with loan in hand through a revolving door of default.
The modified loans continue to suffer rapid fire 40% to 60%
default rates within a few months. Had such loans been included,
the list produced by SNL Financial would have swelled to 49
lenders holding $48.4 billion of assets.
Non-current loans averaged 4.35%
of the total loan portfolios at US banks as of June 30th. For
banks with 20% of loans overdue, clearly the FDIC lacks the
resources in staff and funds to deal with shutdowns. Recall
the FDIC is in business to avoid shutdowns, since their fund
is broke, and since they are devoted to feeding the giant New
York banks with free deposit fund raids (or deeply discounted)
in liquidation deals. The FDIC does some of its job with professionalism.
They issued civil penalties or enforcement orders to least 17
of the 26 banks, linked to demands for improved management and
more capital infusion. Funny, that should be the directed criticism
with formal orders given to the FDIC itself. Failure to comply
by the targeted banks can lead to seizure and shutdown. The
number of distressed banks maintained by the FDIC is much larger
than those suffering from acute delinquency and non-performance.
See the Bloomberg article (CLICK HERE).
◄$$$ THE WELLS FARGO MORTGAGE
PORTFOLIO IS A TICKING TIME BOMB. THIS IS THE COMMERCIAL MORTGAGE
ARENA KILL ZONE TO MAKE HEADLINES SOON. THEIR PORTFOLIO IS LACED
WITH TOXIC LEVERAGED CONTRACTS OBTAINED FROM WACHOVIA.
To say Wachovia lost control
of its commercial property portfolio before its collapse is
a gross understatement. They routinely underwrote ridiculously
cheap Credit Default Swaps against the same securitized mortgage
bonds they sold to clients. In doing so, they accepted risk
beyond huge that was transferred to Wells Fargo (WF) in the
acquisition buyout. Now the festering pit of CDSwaps sits in
the Wells Fargo balance sheet, ready to explode. They induced
the new bond investors to leverage their brains out, since the
yield on the bond was roughly equal to the cost of the CDSwap.
The hedging went haywire. WF still owns a large collection of
the commercial loans within its acquired portfolio. Instead
of selling the loans, or taking writedown losses against them,
they decided to alter the interest rate on many modified loans,
without loan balance reduction, and without lengthened maturity
dates. The practice is widely called 'Extend & Pretend'
so as to avoid stated accounting losses. The game is done with
both the Wachovia and their own portfolio. They
are virtually assuring substantial future losses. As the commercial
mortgages begin to fail, WF will realize staggering additional
The majority of large banks are
engaged in the same practice of holding reams of CDSwaps off
their balance sheets, of extending loans destined to default
in the near future. The Wells Fargo example is perhaps the most
visible, which can safely be extrapolated to the entire banking
industry. The commercial shoe has yet to fall and cause extreme
widespread damage. IT WILL IN TIME. Wells
Fargo has buried the Wachovia toxic waste, but it is seeping
to the surface. Here is another glimpse,
offered anonymously. One senior member of the WF commercial
loan business segment must deal directly with the dilemma. He
spoke on details, and said "One
third of this commercial portfolio we took on from Wachovia
is impaired and needs to be completely rewritten. I have just
hired five more guys and we cannot keep up with the volume of
defaults. Southeast Florida and Tampa are serious trouble spots."
The macrocosm of FDIC handling of
dead insolvent banks is identical to the microcosm like with
WF in handling dead delinquent loans. Not enough staff, not
enough money, and denial of the reality that losses must be
taken. One can be assured that a delayed day of reckoning comes,
cited numerous times over the past several months in the Hat
Trick Letter. See the Naked Capitalism article (CLICK HERE).
◄$$$ DERIVATIVES TRADING
PROFITS ARE DOWN FOR BIG COMMERCIAL BANKS, AS RISK LEVELS ARE
DEEMED MORE RELAXED. HIDDEN MONSTERS LURK THOUGH, AS DERIVATIVES
ONLY WRECK HAVOC WHEN LOANS DEFAULT AND COMPANIES FAIL. THEY
WILL DO EXACTLY THAT IN COMING MONTHS, SINCE THE CREDIT CRISIS
IS ENTERING A SECOND ROUND. $$$
US commercial banks earned $5.2
billion trading derivatives in 2Q2009, as the level of risk
eased in the global market for the complex financial instruments,
according to a report by the Office of the Comptroller of the
Currency, a Treasury Dept agency. Its report found that the
total value of derivatives held at US commercial banks rose
to $203.5 trillion, up by $1.5 trillion, a rise 1% percent from
the first quarter. The unregulated $600 trillion derivative
market was at the core of the banking system meltdown a year
ago. Derivatives trading is dominated by about 20 big banks
worldwide, most are which are dead but permitted to continue
operations. JPMorgan Chase, Goldman
Sachs, Bank of America, Citigroup, and Wells Fargo account for
97% of the total derivatives among US commercial banks.
A total of 1110 US commercial banks reported trading or holding
derivatives at the end of 2Q2009, up slightly from the first
The $5.2 billion in their trading
revenues in 2Q2009 was down from a record $9.8 billion in 1Q2009.
At the same time, the primary measure of credit risk in derivatives
trading, called net current credit exposure, fell $140 billion,
or 20% in Q2 to $555 billion. The risk measure has decreased
significantly over the first half of this year, although the
exposure remain very high. Credit default swaps, an insurance
contract against loan defaults, account for an estimated $60
trillion of the over-the-counter derivatives market. The industry
continues to work toward establishment of a national clearinghouse
to handle the massive unregulated pyramid of derivative contracts,
the first step toward creating a regulatory body to oversee
their activity. Last year as the credit
crisis raged, US banks recorded their first recorded loss on
derivatives trading. The $836 million loss compared with trading
revenue of $5.49 billion in 2007. See
the Yahoo Finance article (CLICK HERE).
◄$$$ BASEL RULES MARCH
ON, LARGELY IGNORED BY ROGUE US BANKS. THE US BANKS RISK GLOBAL
ISOLATION AT A TIME OF DEPENDENCE UPON MONETIZATION (A.K.A.
PRINTING PRESS) FOR CREDIT SUPPLY. $$$
A final comment about Basel 2
and Basel 3 Rules, issued by the Bank For Intl Settlements (BIS).
Admittedly this is not an area of great knowledge. My understanding
is that Basel Rules are to global banking, what Financial Accounting
Standards Board rules are to the United States banks. Basel
2 Rules required that banks bring impaired assets to the balance
sheet, record their value, declare their losses, and move forward.
The US banks thumbed their nose at such rules, in order to raise
stock valuation and invite investors to secondary stock issuance.
The US stock rally is founded on absurd corrupted FASB Rules
that permit the US banks to state their own asset values, utterly
ridiculous. Basel 2 is not enforced at all inside the United
States. The US banks in the process earned the anger of the
BIS. The Basel 3 Rules go further, in an attempt to isolate
banks that refuse compliance. On October 1st all banks doing
business outside of their country must meet Basel 2 and Basel
3 certification and compliance. The big banks on Wall Street
do not meet Basel 3 Rules due to their Wild West derivatives,
which not only have been responsible for keeping the US banks
afloat for a full decade, but remain a chief arena for deep
corruption. These banks can not do business with other Basel
2&3 compliant banks in their own country. Watch
the US continue their defiance and become isolated further.
Time will tell if the rogue Wall
Street banks and other big US banks are indeed isolated in global
banking processes. The USDept Treasury and USFed are saying
'FU' to the entire world, in particular to the Top Bank Cop
with grotesque monetization of USTreasurys, and with non-compliance
with banking accounting rules. The world will soon start pulling
the cords, yanking the levers, disrupting the US bank gears,
and if that fails, order some kills in a literal sense. A murder
spree has begun. The BIS is likely not involved in violence,
since their ranks are made up of choir boys. Most big billionaire
bankers attend church.
◄$$$ CITIGROUP CEO PANDIT
OF COULD RESIGN NEXT, FOLLOWING KEN LEWIS OF BANK OF AMERICA.
$$$ The Freedom of Information Act produced some FDIC documents
recently. Careful review reveals that Citigroup CEO Pandit was
absent in any individual meetings with FDIC head Sheila Bair.
That means that his future could promptly converge with BOA's
Ken Lewis. Bair met with with executives from other big banks
that have received assistance from the USGovt. Records show
that on June 30th, she met with Wells Fargo CEO John Stumpf
and CFO Howard Atkins. And on August 11th, she met with the
new chief risk officer at Bank of America, Gregory Curl. Lewis
has departed his CEO post at BOA, although filing of charges
against him by the SEC and various Attorneys General is forthcoming.
The fate of Pandit could be rolled out next, especially since
Citigroup is dead insolvent, and because it ceded control of
his company to the taxpayers. He could very likely lose his
throne. See the Zero Hedge article (CLICK HERE).
◄$$$ SINGAPORE CUTS CITIGROUP
OWNERSHIP. $$$ The Singapore Govt pared its stake in Citigroup
to under 5%. They realized a $1.6 billion profit as their investment,
part of a bigger initiative to reduce holdings in European and
US banks. The Govt Investment Corp (GIC) of Singapore sold the
stock after converting preferred shares in Citigroup into a
more than 9% common equity stake. The Singaporean manager of
more than $100 billion of foreign reserves also has a $1.6 billion
paper profit on its remaining holding unsold. The GIC fund exploited
the deeply discounted Citigroup shares that rose four-fold since
March. The other smaller Singaporean fund Temasek Holdings recently
sold its stakes in Bank of America and Barclays at a loss. The
Asians are wise as they shed their stakes in US banks and reduce
their USDollar risk. See the Bloomberg article (CLICK HERE).
CONTRADICTION OF ECONOMIC
◄$$$ DURABLE GOODS ORDERS
INDICATE NO ECONOMIC RECOVERY IS YET ON THE HORIZON IN THE UNITED
STATES. THIS STATISTIC IS ONE OF MY FAVORITES, PERHAPS THE BEST
FORWARD INDICATOR IN EXISTENCE, IGNORED BY ECONOMISTS. IN PARTICULAR
THE CAPEX STATISTIC SHOWS NO GROWTH AT ALL. IF BUSINESSES DO
NOT REVAMP, THEY DO NOT EXPAND AND DO NOT HIRE WORKERS. $$$
New orders for durable US manufactured
goods fell in August, raising fears that recovery from recession
would be anemic, or actually non-existent. A durable goods item
is defined as one to remain in service for at least three years,
like a refrigerator, a computer, a business air conditioning
unit, factory equipment, or a truck. Durable
goods orders tumbled 2.4% in August, the largest percentage
decline since January, after rising
4.8% in July, according to the the Commerce Dept. Again, hack
economists had forecasted a 0.5% durables rise. The July rise
was probably closely tied to the goony Clunker Car Program.
The broad concern of a waning effect from the absurd ineffective
Stimulus Plan could be at work, as in the end of an ineffective
stimulus. USFed Chairman Bernanke responded to the news by pointing
out that consumer and small business loans remained in great
need of US central bank support even as usage of official liquidity
backstop programs tapered off. Almost all leading indicators
of economic performance are lousy. Finally, recall that big
banks are ordered not to lend to Main Street, while most banks
generally see huge risk in lending at all, even as collateral
slowly continues to erode. See the sharp decline in Durables
More details and dissection reveal
the weak core. New durable goods orders excluding transportation
were flat in August, as in 0% growth, after rising for three
straight months. The CAPEX figure, non-defense
capital goods orders excluding aircraft, is a closely watched
proxy for business spending, the capital expenditure investment.
It is perhaps the most critical economic indicator in existence.
CAPEX fell 0.4% in August, thereby
confounding once more the hack economists, after falling by
1.3% in July. This all-important
CAPEX figure has yet to achieve positive ground, thus no sign
of economic recovery on the horizon, let alone next month. Consumer
sentiment and other fuzzy measures are preferred by hack economists,
who are either badly educated or compromised by their employer
paycheck. The Conference Board released its consumer confidence
index for September at 53.1 versus 54.5 in August. The Univ
Michigan consumer sentiment index for September shot up to 73.5
versus 65.7 in August. It stands at the highest level since
January 2008, and means nothing. They are both tied closely
to stock market indexes. The consumers have bought into the
false hope and propaganda. See the Yahoo Finance article (CLICK
◄$$$ OTHER LEADING ECONOMIC INDICATORS
HAVE BEEN SUPPRESSED. BERNANKE CLOSES DOORS ON DATA WHEN CLAIMING
GREATER TRANSPARENCY. $$$
ISI Carrie Butler comments, "The
Fed is no longer publishing MEW (Mortgage Equity Withdrawal).
This was one of the engines of the financial crisis. So much
for an early warning on the next housing crisis. ISI will estimate
the three main components of the Fed's report and like our estimate
for some, the old 'M' statistics [on money supply], it will
be there down the road when needed again."
Tyler Durden of Zero Hedge adds,
"While the traditional reference
to this data set has usually come from the Greenspan and Kennedy
paper 'Estimates of Home Mortgage Originations, Repayments,
and Debt On One-to-Four-Family Residences' the MEW,
in the housing bubble peak times, was simply the indicator of
the home equity ATM, and how
much money was being was coming out of [so-called] excess housing
value. We are not so sure if this was actually tracked previously
and will follow up on this. However, the Fed is going counter
to demands for increased transparency and in fact is removing
usable information would not surprise us."
Here is a strange leading indicator,
at a personal level. Savings Bonds are being cashed in. A note
from PaulH in Maryland, where he said "My
mother works for a small bank in my hometown just south of Baltimore.
In the past week she has seen almost half a million dollars
of savings bonds being cashed in by customers. This trend is
not new and has been increasing each week since October. I thought
I would throw that out there."
Either the public is strapped for cash or suspects UAGovt default
in the future, probably both.
◄$$$ OTHER CONCURRENT U.S.
KEY INDICATORS OF ACTIVITY ARE SLOWING SLIGHTLY. THE ECONOMY
IS CRAWLING ALONG. $$$ The Institute for Supply Mgmt factory
gauge slowed to 52.6 in September from 52.9 in August. The stimulus
is expiring while unemployment keeps climbing. Manufacturing
accounts for about 12% of the USEconomy. The ISM services gauge
rose to 50.9 in September, the highest since May 2008, a notable
lift from 48.4 last month. For both measures, the 50 level divides
between expansion and contraction. This rise marks growth in
the non-manufacturing sector after 11 consecutive months of
contraction. The New Orders Index increased 4.3% to 54.2 which
goes counter to the durable orders and CAPEX trend. Perhaps
the Clunker Car Program is at work here too. See the Bloomberg
article for the ISM Mfg (CLICK HERE).
See the Calculated Risk article for the ISM Services (CLICK
◄$$$ PERSONAL BANKRUPTCIES
SOAR, AGAIN DEFYING ANY CLAIM OF ECONOMIC RECOVERY. $$$ Consumer
bankruptcies soared 41% in September from a year ago in the
United States, as high unemployment and the housing market crash
took their toll, according to the American Bankruptcy Institute.
September filings totaled 124,790, the fourth highest month
since the bankruptcy law changed in 2005, as filings rose 4%
from August. The September filings pushed the total 2009 consumer
bankruptcies to about 1.05 million, the highest for the first
nine months of a year since 1.35 million in 2005. The Institute
expects consumer bankruptcies to climb to more than 1.4 million
this year. See the MSNBC article (CLICK HERE).
◄$$$ USTREASURY YIELDS
FALL AS ECONOMIC RECOVERY FIZZLES. THE CREDIT MARKET CONTRADICTS
CLOWNISH CLAIMS OF RECOVERY. $$$ USTreasury yields declined
to the lowest levels since May. Reports on unemployment, manufacturing,
and housing amplified doubts that the recovery from the worst
financial crisis in seven decades was real. So far in year 2009,
the US sold $1.517 trillion of USTreasury Notes & Bonds,
compared with $585 billion at the same point last year. That
is triple the volume. Primary dealer Barclays forecasts total
2009 issuance at $2.1 trillion, with $2.5 trillion projected
for 2010. The falling 10-year USTNote
yield, down to a level between 3.1% and 3.3%, sends a strong
message. Demand for credit to fuel an expansion is not visible.
That demand goes to USTreasurys instead, idle money. The USEconomic
recovery is a mirage. See the Bloomberg article (CLICK HERE).
◄$$$ RETAIL TROUBLE GLOWS
AND PROPAGANDA FLOWS. $$$ Howard Davidowitz is the dean of retail
analysts, a no nonsense fellow. He said you have to be retarded
to believe the August retail data published by the USGovt. He
said, "USGovt numbers are only
what an imbecile would believe. The consumer has lost a $trillion
of credit." Davidowitz, who has
a home in Tokyo, reminds Americans that the Japanese forced
through seven different stimulus plans, because they did not
work. See the Chris Grande article (CLICK HERE).
My view is that the US is much weaker than Japan in a number
◄$$$ CREDIT CARD DEFAULTS
WORSEN, WITH CITIGROUP & BANK OF AMERICA AT RISK. $$$ The
US credit card charge-off rate rose to a record high in August,
according to Moodys Investors Services. Americans continue to
lose their jobs, and consumers remain under stress. The talk
of recovery is a distraction and insult. The
Moodys credit card charge-off index rose to 11.49% in August
from 10.52% in July. Vanquished are
hopes of stabilization in the industry after record high credit
losses. Both Citigroup & Bank of America hold the highest
exposure to riskier credit card borrowers. They are already
both dead, but walk from USGovt permission and infusions of
federal money into their rotting corpses. See the Reuters article
◄$$$ AN UNUSUAL LIST WAS
CREATED OF LARGE FIRMS ON THE VERGE OF FAILURE. A BANKRUPT COMPANY
LIST WAS COMPILED. $$$ The independent research firm Audit Integrity
has released its list of the top 20 publicly traded companies
with over $1 billion market capitalization having the highest
probability of filing for bankruptcy. The list cuts across the
full spectrum, outside the financial sector. It includes: Advanced
Micro Devices (computer chips), Amkor Technology, AMR Corporation
(aka American Airlines), Apartment Investment & Mgmt, CBS
Corporation (television network), Continental Airlines, Federal
Mogul, Hertz Global Holdings (rental car), Interpublic Group
of Companies, Las Vegas Sands (gambling house), Liberty Media
Corporation (Capital group), Macys (department store), Mylan
(pharma), Oshkosh (clothing), Redwood Trust, Rite Aid (drug
stores), Sirius XM Radio (digital satellite radio), Sprint Nextel
(cellular phone), Textron, Goodyear Tire & Rubber. If even
one third on the list went belly up, it would be a national
disaster with powerful sewer drain momentum on banks, households,
and psychology. See the Reuters article (CLICK HERE).
◄$$$ CAR SALES RESUME NORMAL
LOW LEVELS. $$$ The tracking firm Edmunds predicts September
car sales of only 8.8 million units. That is a 28-year low and
a 38% plunge from the 14.1 million blowout in August induced
by the official CARS program. The 'Cash for Clunkers' Program
did not prime the pump. Demand has dropped off significantly
since the program ended. USGovt stimulus like that is typical.
◄$$$ ANECDOTE FROM THE
GROUND IN ATLANTA GEORGIA IS UNIFORMLY MISERABLE. DESCRIPTIONS
OF STOREFRONT AND RESTAURANT VACANCIES, HALTED URBAN CONSTRUCTION,
NEUTRON BOMBS WITHOUT REGENERATION. $$$ This story came from
a friend named AaronK without solicitation. He wrote, "Atlanta:
No Recovery On The Ground. I did a little bit of driving around
Atlanta today. I was startled by what I saw. The
storefront vacancies are scary high.
Even in mainstay 'trendy' areas like Virginia Highlands, every
other storefront seems to be closed. Recently opened restaurants
and retail in gentrifying areas are closed. New residences (all
condos, of course) are unsold. It
is all at obvious depression levels.
More marginal retail has been leveled or closed, but nothing
has come in in its place. The rental apartment market was dismal
for landlords everywhere, but even Midtown Atlanta was in exceeding
bad shape. All the new developments from the last few years
in this area are targetted towards the upscale luxury market,
ALL of them. The completed ones
have been are sitting with very high vacancies.
Many of those who did buy are already trying to sell, or rent
at depressed values. In the next year most of the luxury units
will get recycled into mid-tier apartments, possibly by subdividing
some of the units. Some luxury lots are simply fenced off without
completed construction, and the
sales office long ago shuttered.
Halted construction is sprinkled all over the city as well.
Altogether, it is a disaster. An economic neutron bomb has gone
off and nothing is regenerating. It
is painfully obvious there is no recovery."
GRAND THREATS OF JOB
◄$$$ MASS LAYOFF EVENTS
CONTINUE TO HIT, A VISIBLE SIDE TO JOB CUTS. THEY ARE RELENTLESS.
$$$ US-based mass layoffs rose in August, as manufacturing was
worst hit. The number of mass layoff events, defined as job
cuts involving at least 50 people from a single employer, rose
to 2690 last month. The events included 279 mass layoff events
in the manufacturing sector. They affected 259,307 workers,
bringing mass layoff total so far this year to 21,184. The
trend is upward, no sign of USEconomic recovery.
The number of mass layoff events rose by 533 in August from
July, a worsening trend. All such data is released by the USDept
Labor data, which apparently never reads their data, only the
political charged positive nonsensical bylines directed by their
Wall Street masters. In the 21 months since the official start
of the recession, the total number of mass layoff events was
44,669, accounting for over 4.56 million job losses. See the
Reuters article (CLICK HERE).
See the CIT story a few pages ahead for the ominous development
among small and medium businesses. The nation is facing a full
court press on the labor front.
◄$$$ UNEMPLOYMENT BENEFITS
NOW LAST LESS TIME THAN THE AVERAGE NUMBER OF MONTHS TO FIND
A NEW JOB. $$$ For the first time since records have been kept
by the USDept Labor, the average amount of time it takes departed
employees to secure a new job exceeds the length of their standard
state unemployment benefits. The average
duration of unemployment is currently 26.2 weeks, longer than
the 26 weeks of standard state benefits normally provided.
It is the first time for such an eclipse since 1948, when stuch
statistics began. The USCongress has extended benefits twice,
first in July 2008 and again within the Stimulus Bill in February
2009. Jobless benefits extend to the eligible for a total of
46 weeks, but only for those workers in states where the official
unemployment rate exceeds 6% they extend for 59 weeks. A staggering
5.4 million people have now been out of work for at least 27
weeks, representing 35.6% of the total number of unemployed,
the most on record. The audacity of leaders is acute to call
this a Jobless Recovery. The jobless are racking up big numbers,
but the recovery is nowhere to be seen. Stock market recovery
and lifts in big bank stock valuations is not a useful criterion.
See the Bloomberg article (CLICK HERE).
◄$$$ THE SEPTEMBER JOBS
REPORT WAS NOT PARTICULARLY BAD, NOR DID IT CITE A FLOOD OF
JOB LOSSES. HOWEVER, THE CONTINUED JOB LOSS PATTERN HAS BEEN
REGARDED AS EVIDENCE THAT THE USECONOMY IS MIRED IN A GRADUAL
DOWNWARD SPIRAL, WITH THE LAST USGOVT STIMULUS PLAN NOW DEEMED
A FAILURE. IMPACT POLITICALLY IS DEEP, WHILE IMPACT WITH THE
FINANCIAL MARKETS SEEMS TO MARK A TURNING POINT. $$$
The September Non-Farm Payroll
report was much worse than expected, measuring 263 thousand
job losses. The nonsensical propaganda and Wall Street hype
of a nascent USEconomic recovery has led to rather surprising
disappointment. False hope will do that! The jobless rate rose
to 9.8% from 9.7% the month before, highest since 1983. A hidden
factor to push down job loss with statistical chicanery has
faded away. The Birth-Death Model added a mere 34k for September,
after only 150k in July and August combined. Fear is legitimate
that without job growth, a weak labor market could undermine
economic recovery. The Labor Dept said the payrolls had now
dropped for 21 consecutive months. Normally,
forecasted job loss is not important, but this time it was,
since so much stock market rebound was based on shallow beliefs
widely held that economic prospects were improving.
A recovery in financial markets built upon a grand adoption
of falsifed bank accounting is not a solid foundation. Analysts
polled by Reuters had expected non-farm payrolls to drop 180k
in September. The official report revised job losses for July
and August to show 13k more jobs lost than previously reported.
Stubbornly high unemployment is viewed by the consensus collection
of hapless economists as the missing link in the national recovery
from its worst recession in 70 years. In
reality, this chronic job loss is more shattering proof of no
recovery at all, and contradiction of their propaganda and deception.
One minor statistic within the Jobs Report is revealing, and
patterned. The September average hourly work week fell to 33.0
hours from 33.1 hours in the previous month. In a recovery,
it rises. Some things are too utterly basis to be noticed by
highly paid economists.
Since the recognized start of
the recession in December 2007, the number of unemployed people
has risen by 7.6 million to 15.1 million. Manufacturing employment
fell by 51k in September, while construction industries payrolls
dropped by 64k. The service sector cut 147k workers, while goods
producing industries shed 116k positions. Education & health
services added a mere 3000 jobs, while government employment
fell 53k. The pattern of worker discouragement resurfaced, when
the USDept Labor reported that nearly 600 thousand people stopped
looking for jobs last month. This is part of their recovery
observations, one must assume. See the Yahoo Finance article
The USFed actually put forth
a lunatic notion, this time by Richmond Federal Reserve Bank
President Jeffrey Lacker, who attended a conference in Jerusalem.
The USFed wishes to inform the USEconomy
victimized by the USFed failure, that it might actually hike
interest rates before the unemployment rate falls. He
places more weight on the outlook for economic growth, and in
particular, consumer spending. He gives himself and his colleagues
far more credit for insight than they deserve or demonstrate.
Recall that this august cold corrupt
USFed institution has not correctly foreseen anything on the
economic horizon, not the mortgage
bust, not the recession,
not the steep housing decline,
not the bank system insolvency,
and certainly not the magnitude
of bank losses.
They will next be wrong on the economic
recovery and price inflation, with
rising risk of torpedoing even a period of stabilization. Some
other USFed officials, including Governor Kevin Warsh, have
argued that once it decides to tighten monetary policy, the
pace of interest rate hikes could also be rapid. It could reverse
the size of its ballooned bloated boatload of assets on its
balance sheet merely by ending big bank interest payouts on
reserves held at the USFed. These clowns still regard inflation
expectations as well-anchored, without benefit of monetary inflation
comprehension or USDollar risk to price structures. As a group,
the USFed governors consider the risk of double-dip recession,
in which the USEconomy would relapse into recession after a
brief recovery, has 'diminished quite substantially' in Lacker's
words. What a relief! See the Yahoo Finance article (CLICK HERE).
Fire the entire bunch and eliminate the US Federal Reserve!
◄$$$ THE JOBLESS RATE RISES
ACROSS THE U.S. LANDSCAPE. $$$ The USDept Labor completed a
research study to gauge year-over-year changes in the labor
market. The jobless rates rose in all cities across the US in
August from a year earlier. In all, 16 cities recorded jobless
rates of 15% or higher. For the eighth consecutive month, all
372 cities that within the scope of the survey suffered annual
increases. The largest rise was in Detroit, which has the highest
unemployment rate in the country at 17%. Its jobless rate increased
by 7.9% horribly. But Los Angeles lost the most jobs in August
from a year ago, followed by Chicago and Detroit. See the Reuters
article (CLICK HERE).
Also, the jobless rate for teens nationwide has reached an alarming
52% level. Younger adults tend to react by entering the world
of theft and drugs. A crime wave has come, and grows worse.
◄$$$ MEGATRENDS CAN BE
IDENTIFIED FOR DEMOGRAPHICS, ECONOMIC EXPERIMENT, AND INDUSTRIALIZATION.
ALL UNFORTUNATELY POINT TO DIFFICULT TIMES FOR THE LABOR FORCE.
THE MASS JOBLESSNESS CONFRONTS THE POLITICAL LEADERS, HEADING
OFF EMPTY RHETORIC. $$$
Charles Hugh Smith of OfTwoMinds
always offers astute editorial commentary. He describes The
Gathering Storm. As preface, the United States contains a total
of 26.3 million people unemployed or under-employed. The
USEconomy has entered a prolonged period of structural unemployment
in which an inadequate number of jobs for tens of millions of
citizens. The key factors pertain to
demographics, economic experiment, and industrialization (combined
with the globalization trend). Smith estimates that the United
States might enable only about 100 million jobs in a few years,
leaving on the order of 35 to 40 million people without formal
fulltime work. He identifies three long-term structural trends
to be firmly in place. 1) The end of the 60-year long 'Build
and Outfit Suburbia' economy that adorns the outskirts of cities.
2) The end of the 80-year long Keynesian experiment in stimulating
growth and employment but at the heavy cost of ever-higher deficits
and exponential expansion of debt. 3) The continuing trend to
replace high cost human labor with automation, software, and
fundamental inventory efficiencies, in concert with global arbitrage
of wages (moving production to nations with lower wages). See
the OfTwoMinds article (CLICK HERE).
The nation's Orwellian economists
have changed the definition of full employment. It had been
equivalent to about a 5% unemployment rate since the mid-1990
decade. They take into account the time required to switch jobs,
and the chronically less capable. Nobel Prize winner Edmund
Phelps and PIMCO CEO Mohamed El-Erian argue the fallout from
the deepest recession in more than five decades has pushed the
so-called natural unemployment rate higher to 7% approximately.
They expect at least two years before unemployment will fall
back to the 7% range, which will render the federal budget deficit
near a record $1.6 trillion into next year. Elevated unemployment
will tend to dampen consumption and economic growth, El-Erian
expects. On the other hand, Bruce Kasman, chief economist at
JPMorgan Chase, does not anticipate the US Federal Reserve to
raise interest rates in 2010. He links
a rise in the full employment rate to the permanent destruction
of hundreds of thousands of jobs in industries from housing
to finance. These were the primary boasted job sectors during
the poorly architected and ill-fated housing boom and mortgage
finance wave. Give some credit to Greenspan,
who was that wrecked trend's principal cheerleader, earning
him icon status. President Barack Obama has stressed job creation
as the ultimate measure of the economy's health, indicating
his own failing grade. His Stimulus Bill was an utter joke,
a travesty and betrayal to the working class, both white collar
and blue collar. The Bill followed the unfettered generosity
and carte blanche issued to the Elite bankers. See the Bloomberg
article (CLICK HERE).
◄$$$ THE SMALL BUSINESS
LENDER & INSURER C.I.T. FAILS AGAIN AFTER RUNNING THROUGH
A 3-MONTH REVOLVING DOOR. LIKE ALL ELSE, NO FIXES, ONLY BAND-AIDS
APPLIED. REALITY IS OF SYSTEMIC FAILURE, WITH THIS ONE MORE
EXMAPLE. EVENTUALLY THEY FACE LIQUIDATION AND EXIT FROM THEIR
SMALL BUSINESS ROLE ENTIRELY. THE USGOVT DEEMS THEM NON-ESSENTIAL.
CIT has declared bankruptcy again,
as a Version2.0 in sequence. This is a serial nightmare story,
whose wounds might actually receive more bandages and patches
for a few more months before total liquidation. The bond holders
are alone struggling. In June they cobbled a half-baked plan
for a big bridge loan, financed by the bond holders themselves,
but with a time limit. That limit has expired. Since shutdown
and liquidation is so onerous an option, with outsized implications
on small businesses, the system will strive to push CIT in &
out of a revolving restructure door until it collapses on its
own weight. The Wall Street Journal
last week wrote, "The fate of CIT
Group Inc was hanging in the balance Tuesday, as the large commercial
lender readied a plan that would likely hand control of the
company to its bondholders. CIT
is preparing a sweeping exchange offer that would eliminate
30% to 40% of its more than $30 billion in outstanding debt,
said a person familiar with the matter.
Even in case the company manages to finalize its exchange out
of court, the resulting company will be much, much smaller.
The resulting impact on the millions
of small business operators will be dramatic,
as during its death throes CIT was still servicing existing
contracts. In bankruptcy those will be the first to go."
See the Zero Hedge article (CLICK
Word has it that CIT junior bond holders
are not so eager to enter into writedowns as part of the restructure
plan, while senior bond holders are more willing. Let it be
known that their haste to cut a restructure deal again, motivated
publicly to preserve value, will result in another episode down
the road with the Grim Reaper. Fast deals are ineffective solutions
typically. CIT is planning to offer its unsecured debt holders
an option to either exchange their debt voluntarily or face
a pre-packaged bankruptcy. Stock holders are lowest on the totem
pole, first to be wiped out. No viable large firm exists to
replace the important role played by CIT in the small and midsized
business arena. The demise of CIT will be the next shoe to drop
for further job losses and business shutdowns. The impact on
many small and medium sized businesses will be enormous, not
easily gauged at this time. It will become a news item at a
later date. The commercial banks will obviously do what they
have done to date, sit on the sidelines and permit small businesses
to die like flies trapped in windows during wicked summer heat.
Watch in parallel the macrocosm story in this same arena. Later
the giant conglomerate AIG will enter seizure, an event on the
horizon too. Their shell game cannot last much longer. They
move assets from one subsidiary to another before state audits,
with gargantuan debts still accumulating and insolvency rampant
within their entire structure. One might imagine AIG insures
100 times more firms than CIT, and much larger firms.
The impact of a CIT failure and
liquidation would be great, much worse than hack economists
and corrupted USGovt finance officials estimate. If the struggling
commercial lender CIT Group were to collapse, it would be a
'drastic mistake' as the small businesses that rely on it would
have few alternate sources of funding, according to turnaround
experts at the Reuters Restructuring Summit last week. Lynn
Tilton is CEO of distressed investment firm Patriarch Partners.
She believed any collapse would result in millions of job losses
at smaller US companies. Tilton said "I
have a great fear of the collapse of CIT and that people do
not understand the ramifications of what that can be. I think
it would be a very, very drastic mistake in this country to
allow CIT to go under. Over 80% of our workforce lies in small
and mid-size companies, and yet there is absolutely no credit
available to these companies. Large
banks, who have been able to find their way back from the abyss,
are not making these loans, and the regulators on the ground
are telling them not to make these kinds of loans.
It is not the best use of their capital. They are high risk.
They are small. It takes a lot of energy. And our smaller regional
and community banks are on the cusp of failure."
See the Yahoo Finance article (CLICK HERE).
An argument can be made that Big Business wants to orchestrate
an economic collapse and a banking collapse, wishes to attempt
to control it, and urges the Grand Bank Consolitation Plan in
A debated CIT debt swap could
cost the USGovt more than $1.8 billion. If
the CIT Group exchanges its debt under an offer aimed at averting
a bankruptcy filing, the USGovt stands to lose nearly 80% of
its $2.33 billion investment in the teetering commercial lender
& insurer. It bought CIT preferred
shares in December 2008. The hefty quick loss would be another
shameless chapter for the official TARProgram. The TARP is loaded
with losses, but political leaders summarize its success by
only pointing out the gains. Under the exchange offer in the
CIT debt negotiation, the USGovt would end up with 2.4% of CIT
equity, equal to 386.4 million shares. At current prices, its
value would be $490 million, or about $1.84 billion less than
its initial purchase cost. Other official investments are set
to generate losses also, in the judgment of Neil Barofsky, special
inspector general of the TARP program. See the Reuters article
◄$$$ AMERICAN POOR HAVE
RECORD NUMBERS RECEIVING FOOD STAMPS. $$$ In the US population,
a shocking 35 million Americans are on the Food Stamps Program.
That is 12% of the entire US population on food assistance,
the highest since records began in 1969. The top five states
are Texas (3.068 million), California (2.99M), New York (2.57M),
Florida (1.77M), and Illinois (1.71M). See the Feed Burner article
HIDDEN HOUSING FORECLOSURE
◄$$$ HOUSING PRICES IN
THE U.S. WILL CONTINUE TO LANGUISH. PROSPECTS FOR A RECOVERY
ARE WORST IN REGIONS THAT ABUSED THE MORTGAGE PROCESS THE MOST,
AND WHERE THE ECONOMIC FALLOUT IS GREATEST. $$$
Home prices will not regain the peak
this decade, according to Moodys. Optimistic projections of
a V-shaped recovery in the battered US housing market are without
basis. The debt ratings agency Moodys predicted at least 10
years would be required to reach previous peak prices. My forecast
is for never, unless a hyper-inflation episode strikes. They
expect the rebound to be be disproportionately small compared
to the decline. The housing market is in the third year of the
current decline, the worst correction in modern US history,
a result of economic recession, the backfire of mortgage industry
laxity and fraud, and direct interference in remedy by Wall
Street dirty hands.
Moodys wrote, "The
scars that this downturn will leave on the economy and the housing
market will be long lasting and persist in nearly all facets
of the housing industry, including the demand for homes, ownership
patterns, homebuilding, and house price appreciation. It will
take more than a decade for many measures of housing activity
to regain ground that has been lost as a result of the correction.
The intense downturn will over-correct for the excesses in the
housing market generated by the boom years. [The home building
industry will rebound,] but a lingering overhang of inventories,
combined with consolidation in the industry, and caution on
the part of both home builders and lenders to builders, will
keep the pace of construction from reaching the peak it achieved
at the end of 2006."
According to the S&P/Case-Shiller
home price indexes, the prices of single family homes in 20
major cities rose in June for the second month in a row, but
minimally so. Without withheld housing inventory from bank balance
sheets, the prices would have continued down. This is a false
stability seen. On a regional basis, Moodys expects the hardest
hit states such as Florida and California will be among the
last to recover, well beyond the rest of the nation. Celia Chen
is senior director of housing economics at Economy.com, a subsidiary
of Moodys. She said, "In general,
the length of the downturn and the length of recovery in a region
will depend on the degree of aggressive lending or over-investment
in housing that occurred during the boom. On the recovery side,
states with weaker job growth will also take longer to return
to peak." See the MarketWatch
article (CLICK HERE).
◄$$$ HOME FORECLOSURES
TO RESUME AS USFED PLANS TO CUT MORTGAGE BOND PURCHASES. THE
HIDDEN INVENTORY HAS A PIPELINE READY TO INCREASE ITS VOLUME
OF UNSOLD HOMES. AS THE USGOVT ATTEMPTS TO AVOID A PERMANENT
PROP OF THE MORTGAGE MARKET, THEY WILL SOON REALIZE THEY CANNOT.
THEY ARE PLAYING A DANGEROUS GAME, WITH POLITICAL MOTIVE AND
DECEPTION ON A RECOVERY. USGOVT INITIATIVES TO HALT FORECLOSURES
ARE WINDING DOWN. $$$
A US housing market crash should
soon resume, as at least seven million homes await eventual
sale from bank ownership, according to Amherst Securities Group.
Widely called the 'Shadow Inventory'
by analysts, it reflects mortgages already being foreclosed
upon or now delinquent, in addition to already foreclosed properties
that banks refuse to sell into the current dreadful market.
The current total foreclosures and delinquencies of 7.0 million
compares with 1.27 million in 2005. This makes up 1.35 years
of supply, based on the current pace of existing home sales,
they said. After the favorable summer season comes to an end,
the reality of this tremendous housing overhang will set in.
The Amherst analysis did not regard the home loan modification
initiatives to make much of any difference, in confirmation
by my analysis. They dispute the optimistic assumptions leading
to a one million reduction in inventory hidden overhang. They
pointed to the negative equity position, and expect later defaults.
That is the revolving door from benign neglect and active protection
of bank bond fraud. See the Bloomberg article (CLICK HERE).
The Federal Reserve intends to
reduce the pace of its purchases of USAgency Mortgage Bonds.
While they state a desire to avoid disrupting the housing market
as an economic recovery takes hold, they actually are testing
their ability to withdraw support. They are delusional. "The
Committee will gradually slow the pace of these purchases in
order to promote a smooth transition in markets, and anticipates
that they will be executed by the end of the first quarter of
2010," the Federal Open Market
Committee said in a late September statement. Their $1.45 trillion
program to monetize mortgage debt was scheduled to terminate
by the end of 2009. It cannot stop. USFed Chairman Bernanke
and his policy makers display delusion, as they indicated for
the first time since August 2008 that the USEconomy is growing
again. They will nevertheless remain committed to keep their
benchmark interest rate near 0% for an extended period. Doing
so is a direct contradiction of any recovery forecast or actuality.
In past cycles, the USFed would begin to raise interest rates
in anticipation. Their policy actions mean that they have such
anticipation. The USFed must not read the home foreclosure data,
and instead stick with the Wall Street instruction manual. See
the Bloomberg article (CLICK HERE).
Further waves of foreclosures
are on the pathway to ruin. Political pressures, well meaning
programs, and banker reactions are temporarily and artificially
slowing the flow of properties headed toward foreclosure sales.
Legal snarls, bureaucracy, and active
banker decisions are preventing foreclosure sales.
The constant in the equation is a broad slice of society in
deep distress, from inability to make payments as well as sporting
negative equity in home loans. The shadow inventory of pent-up
supply will eventually hit the market. The Bank of America issued
a formal statement, saying "We
are going to see a spike from now to the end of the year in
foreclosures as we take people out of the running [for a loan
modification or other alternatives.]"
Official USGovt efforts to stem foreclosures had stalled the
foreclosure process nationwide. Foreclosures will continue to
spike in Q4 as the year comes to an end. See the Calculated
Risk article (CLICK HERE).
◄$$$ A SHADOW HOUSING INVENTORY
IS HUGE AND GROWING, MAINTAINED BY BANKERS RELUCTANT TO DUMP
AN AVALANCHE ON A WEAK HOUSING MARKET. THE R.E.O. PROPERTY LISTS
ARE ROTATED ITEMS ON BANK BALANCE SHEETS, HIDING INEFFECTIVELY
THE MASSIVE GLUT. THE EFFECT IS A CONSTANT SURPLUS OF SUPPLY
WEIGHING DOWN THE MARKET, MAKING HOME PRICE RISES IMPOSSIBLE
FOR STILL MORE YEARS. THIS HIDDEN INVENTORY GLUT IS A HUGE EXTREMELY
IMPORTANT FACTOR, A HEEL ON THE NECK OF ANY U.S. RECOVERY. $$$
It is called 'The Shadow Foreclosure
Inventory' maintained by banks, mainly the biggest banks, the
same banks that abused badly the mortgage bonds and leveraged
derivative contracts. They find themselves stuck with a mountain
of foreclosed homes. Some come to market for sale, others withdrawn
when prices offered are pathetic, still others never leave the
list behind closed bank doors. These
banks masquerade as improving their condition, a lie. They are
dying a horrible death quietly, drowning in a sea of massive
home loan losses, as they put off the day of reckoning on a
monthly basis. Losses per foreclosed
home are between $70k and $80k, but more for the larger jumbo
properties. The landscapes in the sand bubble states (California,
Arizona, Nevada, Florida) are changing toward eyesores rapidly,
as unsold vacant and dilapidated properties crop up like weeds
in cities. Actually they contain plenty of weeds and uncut overgrown
grass and trash. They hang signs 'For Sale' and 'For Rent' and
It is my belief that the rotating
Shadow Inventory will remain a phenomenon for at least two years.
The properties will NOT suddenly hit
the market in a flood, but rather smother
the market in a constant overhang of supply
that never goes away. The Shadow Inventory
of foreclosures is real, and its severity will grow. It poses
a danger to the real estate market recovery without a doubt.
The fact that a debilitating effect is being debated is proof
of its growing debilitating effect.
Street Journal had an article about
this shadow inventory two weeks ago. It explains the consequences
of the bust of the housing bubble, now two to three years along.
Recall the USFed and USGovt officials thought it would be over
in a year, when my forecast was an endless string of decline
two years more, followed by two years more. The WSJ wrote, "Legal
snarls, bureaucracy, and well-meaning efforts to keep families
in their homes are slowing the flow of properties headed toward
foreclosure sales, even when borrowers are in deep distress.
While that buys time for families to work out their problems,
some analysts believe the delays
are prolonging the mortgage crisis and creating a growing 'shadow'
inventory of pent-up supply
that will eventually hit the market."
The homeowners are not working
out their problems, are not receiving meaningful home loan modification,
cannot avoid the revolving door of serial defaults.
The reason has to do with the unspeakable degree of mortgage
bond fraud that prevents the system from reducing loan balances.
To modify with lowered loan balances would reveal the bond fraud,
reveal how the majority of home loans were written into multiple
mortgage bonds, like between 3 and 10 times according to the
forensic analysts. Until the real estate market recognizes all
its losses, including full accounting for all the foreclosures,
it will not be able to regain true stability. Of course, that
has implications for the broader economy as well. Enormous impacts
to both banks and households will result in a much deeper recession.
The micro dynamics dictate to the macro dynamics. This housing
factor will ensure the USEconomic recession will be drawn out
and lingering for at least two years more.
Street Journal quoted John Burns,
a real-estate consultant based in Irvine California. He said,
"There is going to be a flood [of
bank-owned homes] listed for sale at some point." When
that happens, Burns believes home prices will fall further.
Overall, he forecasts home prices will decline 6% in year 2010.
Then the WSJ quoted Ivy Zelman, chief executive of Zelman &
Assoc, a research firm based in Cleveland Ohio. They wrote,
"[Ivy] believes three million to
four million foreclosed homes will be put up for sale in the
next few years. The question is whether the flow of these homes
onto the market will resemble 'a fire hose or a garden hose
or a drip' she says." Vote for
the drip, an endless drip, a mindnumbing drip, a major torture
of a drip. Expect no home price recovery.
◄$$$ THE SHADOW HOUSING
INVENTORY CONTAINS COUNTLESS HOMES STUCK IN PROCESS, OVER A
YEAR DELINQUENT. THE OVERHANG IS ACTUALLY BACKED UP. $$$ Some
data on this Shadow Inventory of foreclosures is provided. Given
the nature of the problem, these foreclosures have not yet been
completed, stuck in a process. The WSJ shed some light as they
wrote, "As of July, mortgage companies
had not begun the foreclosure process on 1.2 million loans that
were at least 90 days past due, according to estimates prepared
for The Wall Street Journal by LPS Applied Analytics, which
collects and analyzes mortgage data. An additional 1.5 million
seriously delinquent loans were somewhere in the foreclosure
process, though the lender had not yet acquired the property.
The figures do not include home equity loans and other second
mortgages. Moreover, there were 217,000 loans in July where
the borrower had not made a payment in at least a year but the
lender had not begun the foreclosure process. In
other words, 17% of home mortgages that are at least 12 months
overdue are not in foreclosure, up from 8% a year earlier."
These are shocking numbers, testifying
to banker reluctance to foreclose even home loans a year in
delinquency. No more is the limit for bank action 90 days. See
the reference to 2.7 million foreclosures that have yet to hit
the market. A few such loans might
be modified, but the vast majority probably will not, and half
of modified loans end up defaulting anyway in future months.
Note the trend of the problem is growing
much worse. The portion of homes not
in foreclosure despite its borrowers not making a payment in
a year has more than doubled compared to last year.
The WSJ points out three possible
causes for this shadow inventory. They all make sense. 1) Much
time is spent to determine which borrowers qualify
for the Obama Admin mortgage modification program. It takes
much time to process the deluge of applications. Many do not
qualify and will ultimately face the foreclosure process. Banks
are stuck in the middle. 2) Banks have
burdensome logistical issues to process all the properties in
a timely manner. A pile of paperwork
and red tape is involved within foreclosures. Banks are not
equipped to handle this flood. 3) Banks
clearly choose not to foreclose on all of the defaulted homes
immediately. The WSJ article referred
to a source who described the huge inventory, and the buyer's
market, where the prices of many homes can easily be driven
down. Bankers plan to spread out the foreclosures over a longer
amount of time, allowing potential new buyers to enter the market
over that lengthened period. This Florida person knows the real
estate market there, and claims that banks are purposely holding
back foreclosures for exactly this reason. Think drip, not flood!
See the Atlantic Business article (CLICK HERE).
◄$$$ HOUSING TRIPLE WHAMMY
DEAD AHEAD, DUE TO INFLICT FURTHER EXTENSIVE DAMAGE TO THE HOUSING
MARKET. RECOVERY TALK IS ABSURD, WHEN THE REALITY IS LIKE THREE
POWERFUL VILLAINS APPROACHING A DARK ALLEY. COMMUNISM CREEP
IS OCCURRING IN THE UNITED STATES, AS STATE CONTROL WIDENS AND
PRIVATE OWNERSHIP DWINDLES. THE SUBPRIME PROBLEM HAS RETURNED
UNDER F.H.A. STEWARDSHIP AND MISMANAGEMENT. $$$
The Obama Admin is considering
to permit the lapse of the first-time home buyer tax credit
due to expire at its scheduled end on December 1st. The USFed
has talked repeatedly the winddown of purchased mortgage bond
securities. Ending such efforts might not simply stifle the
housing rebound by depressing sales of homes. Curtailed policy
support might expose the only pillar of support in USGovt initiatives.
Without them, the housing market would collapse in my view.
Bond monetization props keep down the mortgage bond yields and
keep down interest rates on home loans. A much weaker housing
market would crush the USEconomic stability that appears through
the mirage mist. It would lead to resumed powerful recession.
Thomas Lawler is an independent consultant who spent 22 years
at Fannie Mae. He
could get ugly. We could be facing a triple whammy at the end
of the year: the expiration of the tax credit, the end of the
Fed mortgage-buying program, and rising foreclosures."
update. The USGovt is
tinkering with the idea of increasing the first-time credit
of $8000 to $15k, but extending it to all buyers. The provision
would be contained in the Second Stimulus Bill, not so-named
since that would be an admission of failure for the first bill.
Again, props must be permanent, and likely will grow.
My view is that removed USGovt
giant props of support is not possible, and a state controlled
national system is firmly rooted, leading toward a combination
of fascism and communism. The fascist element is seen with large
corporations running the USGovt, and large scale criminal activity
unprosecuted. The communism element is the pack of czars assembled
in the new Politburo in conjuction with lost property. When
a significant portion of people lose their homes and many lose
significant portions of life savings, when the USGovt nationalizes
enormous financial firms and Fannie Mae collects foreclosed
properties, the end result is a very pernicious form of concealed
communism. The collectivism initiatives continue. Watch
for Fannie Mae home rentals soon, a disguised form of government
ownership of property. It will pay
big dividends, while credit derivative losses will continue
to be hidden. See the Bloomberg article (CLICK HERE).
Here is more evidence. The USFed
purchase of USAgency Mortgage Bonds so far this year have dwarfed
net bond issuance by Fannie Mae, Freddie Mac, and Ginnie Mae.
The total GSE issuance has totaled $440 billion through the
end of August, according to Walt Schmidt, a mortgage bond strategist
at FTN Financial. Worse, Fannie Mae & Freddie Mac are virtual
wards of the state. The USFed is the ONLY buyer for their debt
paper. One can conclude that the USGovt IS
the mortgage market. A thorough check shows the USFed IS
the banking industry. The USGovt
is basically replicating the high risk and unstable subprime
mortgage market, but under the government roof located at the
Federal Housing Admin. The lending
lax standards are back. The defaults are back. The foreclosures
will be back. The bailout costs will be assuredly back. The
underwriter just changed, as unsound officially sponsored loans
take over along with a skein of homebuyer bribes in the form
of tax credits. See the Dr Housing Bubble article (CLICK HERE).
◄$$$ ANOTHER EXPLOSION
OF MORTGAGE LOSSES IS SOON TO ARRIVE, IF NOT ALREADY. IOWA FROM
THE HEARTLAND AND ARIZONA FROM THE SAND BUBBLES REPORT IMMINENT
The USGovt and many states are
girding themselves for the next foreclosure crisis in the housing
downturn. This threat has been mentioned for a full year in
several Hat Trick Letter reports. The absurdly flexible Option
Adjustable Rate Mortgages (Option ARM) have begun to reset,
often with at least double or triple in monthly payments, sometimes
more. The gimmick of paying less than the interest and permitting
the loan balance to rise was stupid from the start. Since home
prices fell when loan balances rose, the homeowners were quickly
cast into an insolvent state where they hold negative home equity.
Triggers were built into contracts if the loan balance grew
too high. The triggers essentially began a foreclosure since
default became the norm. Refinance of the loan is impossible
in almost all cases. Underwater homes drive default and foreclosure.
They were a major part of the 'Ownership Society' sham trumpeted
by President Bush Jr in order to cover the deep Wall Street
bond fraud, still not prosecuted. Iowa Attorney General Thomas
Miller met last month with members of the Obama Sdmin to discuss
ways to halt the widespread mortgage scams. He said, "Payment
Option ARMs are about to explode. That is the next round of
potential foreclosures in our country."
The Option ARM threat is here
and now in Arizona. The state's Attorney General Terry Goddard
said, "It is the other shoe. I
cannot say it is waiting to drop. It is dropping now. [They]
threaten a much greater hit to the consumer than the subprimes."
The Go-Go sand bubble state of Arizona
has 128 thousand Option ARMortgages that will reset over the
next year. Many have started to adjust
in September, and delinquencies are fast on the rise. In fact,
these Prime Option ARMs are performing much worse than the conventional
mortgages to prime borrowers, indicating a deep flaw in the
loan contracts themselves. These mortgages
tend to be Jumbos, with significantly loan balances and home
values. The high end of the housing market has suffered disproportionately
high valuation declines, high percentage loss, more ruin. The
delinquency rate is on par with Subprime loans!!! The majority
of such borrowers are unable to sidestep foreclosure. See the
Reuters article (CLICK HERE).
◄$$$ THE SUNBELT STATES
WILL CONTINUE TO BE WRECKED BY MORTGAGE WOES. THE PRIME OPTION
ARMS WILL DEAL BLOW AFTER BLOW, WHEN THE STATE FINANCES ARE
ALREADY REELING. GOOD WEATHER AND RUIN GO HAND IN HAND WHEN
HOUSING BUBBLES BUST. MEASURE FALLOUT IN YEARS. $$$
The latest Office of the Comptroller
of the Currency Option reported in August that 900 thousand
Option ARMs are active in the United States. Many of these distressed
loans are located in the states of California and Florida, each
with severe record breaking budget problems. These loans will
again destabilize the housing markets in these regions, and
cuase more job loss, thereby damaging the local economies. Fully
25% of the Option ARMs are either in foreclosure or in serious
delinquency. The great majority of such loans will not hit recast
dates until 2010, yet the performance of these loans is already
a disaster. See the MyBudget360 article (CLICK HERE).
◄$$$ LIKE MATCHING BOOKENDS,
THE COMMERCIAL MORTGAGE MARKET CONTINUES ITS COLLAPSE, WITH
EXTREME BANK LOSSES SOON TO HIT. PRICES ARE WAY DOWN, AND SALES
VOLUME IS WAY DOWN. THE LOSSES ARE INEVITABLE SINCE LOAN REFINANCE
IS IMPOSSIBLE. TOO MUCH VALUE HAS BEEN LOST. REBOUND TO EQUITY
IS NOT OCCURRING. $$$
Commercial property prices in
the United States resumed a steep decline in July after showing
signs of leveling off in June, according to Moodys Investors
Service. Tighter credit standards curtail lending and have pushed
landlords toward default. The Moodys/REAL
Commercial Property Price Index
fell by a hefty 5.1% in July
from the previous month. The decline
in June was a mere 1%. The index has declined around 40% from
its October 2007 peak. Actual sales of commercial property this
year are on track to fall to an 18-year low. See the sharp dropoff
in commercial real estate (CRE) sales this year.
Neal Elkin is president of Real
Estate Analytics in New York, which partners with Moodys to
produce the report. He said, "We
are still vulnerable to moves on the downside. As time passes,
the distress and the stress among those who need to sell is
growing." Elkin cited data
for sales classified as 'Troubled' (close to default) as having
doubled to 23% in July from March, never witnessed before.
Commercial sales in year 2009 through July are running at one
third the pace of the same period last year. Office sale prices
fell 23% from a year ago in New York, 27% in San Francisco,
and 22% in WashingtonDC. Prices of apartment
buildings in the South have seen record setting steepest value
declines. They have dropped 44% in
the 12 months through June, almost twice the nationwide decline
of 24%. See the Bloomberg article (CLICK HERE).
Thanks to the following for charts StockCharts,
Financial Times, Wall Street Journal, Contrary Investors, Business
Week, Merrill Lynch, Shadow Govt Statistics.