Eurozone Recession in Overdrive

Posted on June 1, 2012 by Neil Garfield

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Editor’s Comment:

France, Italy, Spain All at record lows in GDP

Mish Shedlock nails it in the article below. We are reminded again that where the banks get control of political policy, every avenue will be explored before Governments do the right thing — or the country explodes into chaos and a new Government is born. For those who have studied French history, these reports sound earily like the conditions that preceded the French Revolution and the bloodbath that followed. Rioting is commonplace. And the rioters are not just expressing outrage; they have lost faith in the their government, their currency and their prospects. Japanese seminars abound on how to store money and move to other countries. Malasia looks good to them.

And here in the United States, the steam keeps building under the lid while the banks, realtors and other groups try to convince us that the recession, and the mortgage crisis that brought it on, is over and will NOW recover. Despite years of such “prosperity is just around the corners’ spinning, and some people still believe it when they hear it, we know from history, including our own, that revolution of one sort or another, doesn’t take a majority of citizens to get involved. In fact, every major revolution in every major country occurred with a small band of “fringe” people leading the way until their sucesses attracted the mainstream people who thought they could ride the storm and survive the aftermath.

Over the next 60 days, long-term unemployment benefits are over in this country. GDP is in for another hit. That was money going into the hands of people who were spending it the moment they received it. The full multiplier effect has been keeping our economy floating and now THAT is going away.

Home prices are now at their lowest level since 2002 and all responsible analysts tell us that housing prices are going down another 15% and I think they are right. The economies of the world are crashing because the people have no money to spend. Even the employed are underemployed and can’t make enouogh money to pay for housing and other major purchases except on a much lower scale.

We are in a depression, not a recession and the fact that this Depression is not yet as bad as the Great Depression should not lull us into a false sense that this is just a cycle that will run its course. It isn’t. This is the end of modern commerce unless we do something about it. And the ONLY thing left to do is to provide a mechanism where the middle class is suddenly redeployed with cash in their hands to buy things and cause commerce to renew. Don’t look to China or India either which are experiencing sharp decines in GDP.

There is only one piece of currency that will restore the middle class . Iceland proved it as have other countries. FORCE BANKS TO REDUCE HOUSEHOLD DEBT. Between the mortgage chicanery and credit cards, government borrowing on terms they didn’t understand, and most banks that were “in the game” without knowing the rules, the money is gone. It isn’t the bank that has been robbed, nor government spending that is ripping the economies of the world apart. It is the banks themselves that siphoned off all our currency and our liquidity, and won’t put it back. They have lost their franchise through greed. It is time to nationalize the banks and then let them operate privately as utilities regulated as though they provide the lifeblood of the world.

The “anti-regulators” are mere apologists for the new aristoracy that has pulled off a coup d’etat and pulled the wool over the eyes of the media and the public.

Eurozone Retail Sales Crash: Record Declines in France and Italy, Overall Revenues Drop at Near Record Pace

by Mike “Mish” Shedlock

Retail sales in France, Italy, and the eurozone as a whole hit the skids according to Markit. Retail sales in Germany were positive, but barely.

Steepest Decline in French History

Further sharp fall in French retail sales during May

Key points:

Month-on-month decline in sales matches April’s survey-record

Steepest year-on-year decline in series history

Purchase price inflation eases to near-stagnation

Sales fell on an annual basis at the steepest pace recorded since the inception of the survey in January 2004. Margins continued to be squeezed amid an intense competitive environment, despite purchase price inflation easing to near-stagnation.

The headline Retail PMI® registered 41.4 in May, matching April’s survey-record low. French retailers indicated that actual sales came in well below previously set targets during May. The degree of undershoot was the greatest since February 2010.

Record Declines in Italy

Record year-on-year decrease in Italian retail sales in May

Key points:

High street spending down sharply, albeit at weaker monthly rate

Job shedding steepest in series history

Discounting and cost inflation reduce profitability

Summary:

The Italian retail sector remained in contraction during May, with sales again falling sharply in spite of widespread discounting. Cost pressures meanwhile grew from April’s recent low on the back of rising transport costs, thereby adding more pressure to margins. Consequently, firms shed staff at a marked and accelerated rate that was the steepest since data were first compiled in January 2004.

High street spending across Italy contracted sharply on the month during May, albeit at a slightly slower rate than that registered during April. This was signalled by the seasonally adjusted Italian Retail PMI® posting at 35.8, up from 32.8. Sales fell for the fifteenth month straight, and panellists continued to highlight low consumer confidence and falling disposable incomes as the main factors behind the decline.

German Sales Show Slight Growth

German retail sales return to growth in May

Key points:

Retail PMI points to marginal month-on-month rise in sales

Like-for-like sales higher than one year earlier

Wholesale price inflation eases markedly

The seasonally adjusted Germany Retail PMI rose from 47.4 in April to 50.7 in May, to indicate a marginal increase in sales on a month-on-month basis. That said, the rate of expansion was lower than those seen throughout the first quarter of 2012. Companies that reported a rise in sales since April generally noted that more favourable weather conditions had resulted in higher customer footfall.

Survey respondents indicated that actual sales fell short of initial targets for the second month running in May.

Sharp Drop in Overall Sales, Revenues Decline at Near Record Pace

Eurozone retail sales continue to fall sharply in May

Key points:

Retail PMI improves to 43.3, but still signals steep monthly drop in sales

Near-record annual fall in sales

Wholesale price inflation slows sharply

Summary of May findings:

The Eurozone retail sector remained firmly in contraction in May, according to PMI® data from Markit. Sales fell sharply on a month-on-month basis, and revenues compared with a year ago were down at a near-record rate. There were signs of easing pressure on retailer’s purchasing costs, however, as the rate of purchase price inflation slowed sharply to a 19-month low.

This should bury the notion the eurozone recession will be short and shallow.

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Unemployment Continues Downward Drag on Housing — And it was Housing that Caused the recession

Posted on March 28, 2011 by Neil Garfield

How Unemployment Is Dragging Down The Housing Market

The Huffington Post Lila Shapiro First Posted: 03/25/11 02:35 PM Updated: 03/25/11 02:35 PM

Although the United States population has grown by 120 million people in the past fifty-odd years, today’s new homes are selling at just half the pace they were in 1963.

Home sales are being dragged down by the weakness of the labor market and the number of Americans who have grown too discouraged to look for work, economists say. In previous recoveries, the housing market has sometimes buoyed the economy, creating new jobs and driving economic growth. This time, however, the housing market is now lagging behind.

Over at Mish’s Global Economic Trend Analysis, a new chart helps bring employment into the housing story by comparing the ratio of annual new home sales to the size of the civilian labor force. See the chart below.

The point is simple: while the working age population is steadily rising, the size of the labor force is actually shrinking. And those Americans who have grown so discouraged that they have given up looking for work — around 4.9 million as of last month — are unlikely to be in the market for a house.

With construction for new homes all but coming to a halt in February, Americans are on track to buy fewer new homes than in any year since the government began keeping data almost a half-century ago.

Mish lays out the problems, as he sees it:

• Those not in the labor force are not looking
• Those unemployed are not looking
• Those afraid of losing their job are not looking
• Those in a house and underwater are not looking
• Those just out of school and deep in school debt are not looking
• Those facing retirement may be looking to sell or downsize
• Mortgage standards are much tighter for those who are looking

Economists, however, are hard pressed to tie down the exact relationship between a slumping housing market and a weak labor market.

“It’s very hard to zero-in in that way,” said Bank of America-Merrill Lynch economist Michelle Meyer. “But one of the major components for why housing demand has remained very soft is because the labor market is very weak. And until we see that really changing, housing sales will continue to be soft.”

The more significant problem, for Meyer, is how these two factors taken together — housing and unemployment — indicate an economy still in trouble.

“When you think about new home sales, and housing specifically, that obviously ties to what share of Americans are participating in the labor force,” Meyer said. “But you can’t really say that because the labor force shrunk by X amount there is this many fewer homes needed. To me, it’s more of a signal that the fact that the labor force is weak. And that at this point in the recovery, people are still leaving the labor force — that signals to me that the fundamentals are soft.”

Federal Reserve Chairman Ben Bernanke has said that it will likely take five years for the unemployment rate to return to pre-recession levels, while a recent report from the Federal Reserve Bank of San Francisco concluded that the unemployment rate, now hovering around 9 percent, may never return to pre-recession levels.

Here is the chart from Mish’s Global Economic Trend Analysis, comparing annualized new home sales to the civilian labor force ratio, year over year. (Click image for more detail). More graphs over at Mish’s can be found here.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Bank of America, Ben Bernanke, Business News, Economists, Global Economic Trend, housing market, Labor Force, recession, Underemployment, Unemployment Market, UNITED STATES | 7 Comments »

Reverse the Federal Deficit without Taxation— PRIVATE TAXATION MUST GO !!!

Posted on April 27, 2008 by Neil Garfield

Every one of the facts stated here are verifiable from multiple sources and are NOT disputed. The only policy question that is relevant is WHETHER WE PUT PEOPLE OR BIG BUSINESS FIRST in our priorities. The rest is obvious. HERE ARE SOME EXAMPLES:

1. HEALTHCARE: (AT LEAST $1 TRILLION IN DIRECT AND HIDDEN FAT IN THE SYSTEM). The U.S. health care system is a wealth transfer scheme, which takes money from the pockets of ordinary citizens and puts it in the hands of a few people who do nothing to earn it. This is a PRIVATE TAX that only exists because the government has interfered on behalf of big business starting with Keiser Permanente.

a. We spend, on average anywhere from 5 to 40 times what other countries spend on drugs for two reasons (1) we are prescribed too many drugs and (2) we pay much higher prices from the same companies that sell the same drugs in other countries.

Instead of the money going through the government to the insurers, pharmaceutical companies and medical service providers, the government mandates the money go directly to these cartels.

These companies have applied a substantial portion of their excess profits towards placement of “news stories”, advertisements and other propaganda that have convinced most Americans that the U.S. health care system, while faulty, is still better than other countries. THIS IS A LIE. Check it out using any statistic you like.

THE U.S. SPENDS 15.4% OF ITS GDP on heath care plus capital expenditures for equipment and buildings which brings it to around 18.5%. The amount of money spent is therefore $2,400,000,000 ($2.4 trillion dollars).
U.S. patients take 65% more medication than any other country on earth because only our system allows access and payment for INTERVENTION and allows nothing for for PREVENTION and MAINTENANCE. Most of these medications eventually increase the risk of death and/or other diseases. The Food and Drug Administration is staffed by and funded by Pharmaceutical company employees (either past, present or future). Access to PREVENTATIVE protocols is denied by the FDA, insurance company and the propaganda disseminated by the medical industrial cartel.
Not only is there sufficient funding already in the system to provide health care to every man, woman and child, along with social services that would reduce living stress and increase productivity, hope and innovation in the U.S. economy, there is actually about $400 billion dollars left over to contribute to other social programs (education, police, fire) that would make it possible for every man, woman and child at any age to be educated and trained to be competitive in the global economy.
NO OTHER COUNTRY IN THE WORLD SPENDS MORE THAN 11% OF ITS GDP ON HEALTHCARE.
ALMOST EVERY OTHER WESTERN COUNTRY (INCLUDING THOSE WITH NATIONAL UNIVERSAL HEALTHCARE) HAS MORE PHYSICIANS AND MORE HOSPITAL BEDS PER PATIENT THAN THE U.S.
THE DEATH RATE, INFANT MORTALITY RATE, “UNNECESSARY” DEATH RATE, AND EVEN HEIGHT IS WORSE IN THE U.S. THAN, ON AVERAGE, 40 OTHER MODERN WESTERN COUNTRIES. (we have lost three years of longevity in the last 50 years and we have lost one inch of height).
NO OTHER COUNTRY ALLOWS PRIVATE INSURANCE AS THE MIDDLE MAN BECAUSE INSURANCE AND MANAGED HEALTHCARE PLANS ADD NO VALUE.
EVERY OTHER COUNTRY EMPHASIZES PREVENTATIVE HEALTHCARE AND GIVES BONUSES TO HEALTHCARE PROVIDERS WHO IMPROVE THE HEALTH OF THEIR PATIENTS.
The only rational conclusion is that by deleting private insurance as the middle man in providing access to a public need (like education, police, public libraries and fire) and enabling a single payer to negotiate reasonable prices, the problem, and the deficit caused by healthcare spending would be eliminated.

2. CREDIT AND DEBT: The U.S. credit and monetary system is a wealth transfer scheme, which takes money from the pockets of ordinary citizens and puts it in the hands of a few people who do nothing to earn it. This is a PRIVATE TAX that only exists because the government has interfered on behalf of big business starting with the credit card associations and companies that provide network access to credit imposing interest rates that have been known and understood for centuries to result in permanent debt.

It was once called USURY. Now it is called liquidity. The laws that made it illegal to charge rates of 35% on credit cards and 400% on payday advances were changed. So now it is still a crime under natural law but not under our legislative system. It’s government backed and therefore it is a PRIVATE TAX.

Government spending, government subsidies to big business, and government laws allowing big business, large unregulated, to charge exorbitant interest rates has resulted in unprecedented consumer and government debt — Federal, State, local and individual — requiring SOMEBODY (either us or our children, grandchildren and great children) to pay interest amounting currently to more than $3 trillion dollars per year plus the loss of social services and safety nets that have existed for more than 50 years.
All of this debt has been funded by issuing U.S. currency equivalents that are now held in foreign investment vehicles, foreign exchange reserve accounts in central banks concentrated in the hands of China, South Korea and other countries whose commitment to the sovereignty and nationals security of the United States is best questionable.
At least $1 trillion of interest, fees and costs associated with excess interest and/or excess debt could be eliminated from the expenditures of U.S. spenders, producing substantial capital for improvements to infrastructure, jobs, increased revenues from income taxes, sales taxes, excise taxes,etc., without raising the rate of taxation on any of these sources of revenue.
The Mortgage Meltdown could be stopped by a commitment to keep people in their homes, preventing abandonment of homes that are not maintained. This would stop an ever-decreasing spiral of housing prices caused by REO homes coming onto the market at rates that demand could not possibly meet, reinstate the balance sheet of lenders and thus improve their capital position, and reinstate the balance sheet of investors who were tricked into buying junk securities which, with a little help and cooperation from business, government and people could be converted into ratable securities.
Devaluation of the dollar and inflation caused by devaluation would be slowed, stopped or even reversed if the U..> showed its resolve to responsible economic policies and responsible monetary management and responsible regulation of “securitization” which is merely a unregulated method of increasing monetary supply despite declining demand for the U.S. dollar.
Reducing the debt service BY LAW to sustainable levels that would enable debtors to eliminate their debt. Banning advertisements that encourage consumers to buy goods and services they don’t need, or could wait to buy through savings, would convert a debt economy to a solid foundation of savings economy. like many other countries in the world.

3. OIL, COAL and GAS: The average American family spends more than $800 per month in direct costs on fuel related services and probably another $600 per month in indirect costs associated with delivery and production. This is apart from Federal, State and local spending related to various social services and maintaining government facilities. In other words, we can safely say that at $15,000 per year comes out of the pocket of each taxpayer. This means we are spending $1.5 trillion in fuel costs plus the cost of vacation and business travel and sundry other matters. OF THIS AMOUNT,WINDFALL PROFITS TO OIL COMPANIES AND OTHER MIDDLE MEN AMOUNTED LAST YEAR TO APPROXIMATELY $700 BILLION.

THAT OF COURSE IS JUST THE TIP OF THE ICEBERG. BECAUSE WE HAVE HAD THE TECHNOLOGY FOR 40 YEARS TO CONVERT TO ALTERNATIVE SOURCES OF ENERGY THAT ARE RENEWABLE AND LESS EXPENSIVE, AND WOULD NOT REQUIRE US TO MAINTAIN A FOREIGN MOLICY THAT MEDDLES IN THE AFFAIRS OF OTEHR COUNTRIES AND THUS LEADS TO PERIODIC WARS.
THE REAL SHAME ON US IS THAT MORE THAN 2 MILLION JOBS COULD HAVE BEEN CREATED IN PRODUCING AN MODERN INFRASTRUCTURE FOR THE POWER GRID AND TELECOMMUNICATIONS. TESE HIGH PAYING JOBS WOULD AND COULD INCREASE THE WEALTH OF THE MIDDLE CALSS, INCREASE TAX REVENUES WITHOUT RAISING RATES, AND RESTORE U.S. LEADERSHIP IN INNOVATION AND RESEARCH.

If the Clinton years showed us anything, it was that by encouraging entrepreneurship, which produces 80% of our jobs the entire country is lifted.
Another thing Clinton proved is that by increasing the number of people in social services (police, fire etc) we increase employment, tax revenues and economic activity.
The other thing Clinton proved unwittingly is that treaties like NAFTA are inherently unworkable because they are used by big business to side-step the advances in product safety, worker safety and benefits that America spent the better part of 100 years inventing and maintaining.
Thus we end up subsidizing slavery in other countries, and reducing the quality of products and services to American citizens.

The money is already there in the “budget” when you include the PRIVATE TAXATION items. There are many more examples. If we can stop tripping over our ideological divides, the graft paid by big business and elect people who start with the premise “first do no harm”, the country could be thriving again.

April 27, 2008

3 Candidates With 3 Financial Plans, but One Deficit

By LARRY ROHTER and MICHAEL COOPER

The Republican and Democratic presidential candidates differ strikingly in their approaches to taxes and spending, but their fiscal plans have at least one thing in common: each could significantly swell the budget deficit and increase the national debt by trillions of dollars, according to tax and budget experts.

The reasons reflect the ideological leanings of the candidates, with Senator John McCain proposing tax cuts that go beyond President Bush’s and the Democrats advocating programs costing hundreds of billions of dollars. But for fiscal experts concerned with the deficit, both approaches are worrisome.

With the national debt soaring to $9.1 trillion from $5.6 trillion at the start of 2001, in part because of the Iraq war and Mr. Bush’s tax cuts, a crucial question about the candidates to succeed him is “whether they are helping to fill the hole or make it deeper,” said Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan organization that advocates deficit reduction. “With the proposals they have on the table, it looks to me like all three would make it deeper.”

Representatives of all three campaigns disputed such assessments, questioning the accounting methods analysts used to calculate the growing debt and saying they could enact their plans without making matters worse.

Mr. McCain’s plan would appear to result in the biggest jump in the deficit, independent analyses based on Congressional Budget Office figures suggest. A calculation done by the nonpartisan Tax Policy Center in Washington found that his tax and budget plans, if enacted as proposed, would add at least $5.7 trillion to the national debt over the next decade.

Fiscal monitors say it is harder to compute the effect of the Democratic candidates’ measures because they are more intricate. They estimate that, even taking into account that there are some differences between the proposals by Senators Hillary Rodham Clinton and Barack Obama, the impact of either on the deficit would be less than one-third that of the McCain plan.

The centerpiece of Mr. McCain’s economic plan is a series of tax cuts that would largely benefit corporations and the wealthy. He is calling for cutting corporate taxes by $100 billion a year. Eliminating the alternative minimum tax, which was created to apply to wealthy taxpayers but now also affects some in the middle class, would reduce revenues by $60 billion annually. He also would double the exemption that can be claimed for dependents, which would cost the government $65 billion.

“High tax rates are driving many businesses and jobs overseas — and, of course, our foreign competitors wouldn’t mind if we kept it that way,” Mr. McCain said, laying out his economic plan this month in Pittsburgh. “We’re going to get rid of that drag on growth and job creation.”

On the expenditure side, Mr. McCain has called not only for continuing an open-ended deployment of troops in Iraq, but also for spending $15 billion annually to expand the Army and the Marine Corps and to improve health care for veterans, among other programs.

Mr. McCain’s advisers have said the new tax cuts would be paid for by eliminating earmarks and making large spending cuts, but they have not identified specifics. And they have spoken vaguely about making entitlement programs like Social Security and Medicare less costly for the government. Mr. McCain’s chief economic adviser, Douglas Holtz-Eakin, said the campaign had simply presented its vision of what the tax code should look like and noted that some of the proposals would be phased in.

“I think what they ought to do is remember that the proposals are going to engender economic growth, which is the best thing you can do for near-term budget improvement,” Mr. Holtz-Eakin said, adding that Mr. McCain believed spending restraint was possible.

That vision for the tax code includes making permanent the Bush tax cuts, set to expire in 2010, which Mr. McCain once opposed in part because they were not accompanied by sufficient spending cuts.

“I voted against the tax cuts because of the disproportionate amount that went to the wealthiest Americans,” Mr. McCain said in 2004. “I would clearly support not extending these tax cuts in order to help address the deficit.”

In 2001 and 2003, Mr. Bush pushed through Congress tax cuts totaling nearly $2 trillion. The first set lowered income and estate taxes, and the second focused mostly on capital gains and dividends.

The McCain campaign does not figure the costs of extending the tax cuts into its deficit projections, although the Congressional Budget Office estimates that it would cost an extra $2.2 trillion over the next decade.

When Mr. McCain outlined his tax cut plan, he backed away from his pledge to balance the budget during his first term, but said that he would do so by the end of his second term. And in an interview last Sunday on “This Week With George Stephanopoulos” on ABC, Mr. McCain said he would push ahead with his tax cuts even if Congress did not approve his spending cuts.

Some conservative economists say that increased deficits in the short run are an acceptable tradeoff for tax cuts that they say will promote economic growth in the long run. And many liberal economists say that some of the Democratic spending proposals, like addressing the affordability of health care or improving education, are long-overdue investments that pay off handsomely even if they entail more red ink.

Mr. Obama and Mrs. Clinton have acknowledged that their various new programs would be costly but have outlined how to pay for them. But some fiscal monitors say they may be relying on overly rosy projections of how much savings their proposals would actually yield.

Mrs. Clinton has calculated that her universal health care plan would cost about $110 billion a year, while Mr. Obama’s somewhat more modest proposal would cost up to $65 billion annually, his advisers say. Both candidates have also talked of new government incentives and investment to encourage the development of alternative sources of energy, which would cost about $15 billion a year.

The Democratic candidates have suggested that they could finance these and other programs by allowing parts of the Bush tax cuts to expire. That, however, ignores projections of the Congressional Budget Office, which has already assigned those savings to deficit reduction.

In other words, unlike Mr. McCain, both Democrats say they would revoke the Bush tax cuts for the wealthy. “At a time of war and economic hardship, the last thing we need is a permanent tax cut for Americans who don’t need them and weren’t even asking for them,” Mr. Obama said.

But they would retain those reductions meant to benefit poor and “middle-class” families, which they defined as the 97 percent or so of the population that lives on less than $250,000 a year, and they would count the estimated $50 billion generated by higher taxes on the wealthy as new revenue.

“Remember, you can only use this money once,” said Mr. Bixby of the Concord Coalition, “and with all the Bush tax cuts scheduled to expire, that money is already scheduled to come into the Treasury. But on the campaign trail, this has become a source of new spending.”

Mrs. Clinton’s aides have been perhaps the most specific in explaining how they would offset the costs of their proposals, and her campaign speaks of moving toward balanced budgets. “We’re not going into debt for the war in Iraq and tax cuts for the wealthiest of Americans,” Mrs. Clinton has said, “but instead we are taking care of the needs of our people at home.”

Regarding gas taxes, Mr. McCain has proposed a one-time “tax holiday” for the summer. Mrs. Clinton also calls for suspending it in a new advertisement in Indiana, while Mr. Obama says that is a “bad idea” but opposes any increase in the tax.

On the spending side, Mr. Obama has argued that ending the Iraq war is one way to pay for some of the new programs, including creating a national infrastructure investment bank and increasing the foreign aid budget. But such savings, which Mrs. Clinton does not count on, would not immediately make their way into the Treasury, and some experts say it is not clear whether they would be sufficient to finance all the programs Mr. Obama has enumerated.

Mr. Obama has talked of spending that money on a variety of initiatives whose costs amount to about one-third of the war’s estimated annual cost of $150 billion. “It is clear that there ought to be some distinction between a candidate who says a withdrawal should start immediately and a candidate who says let’s maintain the war at the highest level,” said Austan Goolsbee, Mr. Obama’s senior economic adviser.

The fiscal outlook has been made even murkier by the explicit “no new taxes for the middle class” pledge that both Democratic candidates made at their debate in Philadelphia this month, exempting taxpayers making $250,000 a year or less from new levies.

Hearing such a promise “makes you very sad,” said Len Burman, director of the Tax Policy Center. “First of all, we don’t have enough revenue coming in to pay our bills.” In addition, he said, the notion that all the revenue that would be lost in a middle-class tax freeze can be made up by higher taxes on the wealthy “is not tenable.”

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Mortgage Meltdown Still in Progress and Getting Worse

Posted on April 26, 2008 by Neil Garfield

Somehow, the housing trouble has to at least flatten out. As long as that is going on, I think the pressure on the credit system is going to persist. It is kind of the leading indicator. It is where the trouble started. We have to underpin the consumer. That is why this is different. That is why this is like nothing we have had before.

Here is a man who has “seen it all” and who doesn’t like what he sees. Echoing our continuous please for creating an atmosphere of safety or “amnesty”, Bernstein sees a long haul without much lift unless we address the etnire spectrum of risk-taking. Confidence levels are so low that it hard to imagine, each month, that they could go lower. But they they keep sinking. Bernstein’s vision is one of reality, encouraging us to “snap out of it” and hope, if we get our act together without tripping over ideological differences.



	April 26, 2008

One Guy Who Has Seen It All
Doesn’t Like What He Sees Now

By E.S. BROWNING
April 26, 2008; Page B1

Peter Bernstein has witnessed just about every financial crisis of the past century.

As a boy, he watched his father, a money manager, navigate the Depression. As a financial manager, consultant and financial historian, he personally dealt with the recession of 1958, the bear markets of the 1970s, the 1987 crash, the savings-and-loan crisis of the late 1980s and the 2000-2002 bear market that followed the tech-stock bubble.

One of Peter Bernstein’s worries: ‘If China goes into a recession, God knows.’

Today’s trouble, the 89-year-old Mr. Bernstein says, is worse than he has seen since the Depression and threatens to roil markets into 2009 and beyond — longer than many people expect.

Mr. Bernstein, whose books include “Against the Gods: The Remarkable Story of Risk,” sees two culprits. One is the abuse of securitization — the trend for banks to hold fewer loans on their books and instead turn them into securities that were sold to other investors. The other is simply years of overborrowing by financial institutions and consumers alike.

Mr. Bernstein is hopeful that Federal Reserve intervention will prevent deflation and depression, but he says there is no guarantee.

Excerpts of a recent interview:

WSJ: Aside from securitization, what were the main causes of the problem?

Mr. Bernstein: You don’t get into a mess without too much borrowing. It was sparked primarily by the hedge funds, which were both unregulated by government and in many ways unregulated by their owners, who gave their managers a very broad set of marching orders. It was a real delusion. It was like [former New York Gov. Eliot] Spitzer: “I am doing something dangerous, but because of who I am, and how smart I am, it is not going to come back to haunt me.”

When you think about how all of this will work out in the long run, we are going to have an extremely risk-averse economy for a long time. The lesson has painfully been learned. That’s part of the problem going forward. You don’t have a high-growth exit from this, as you’ve had from other kinds of crises. We won’t have a powerful start, where the business cycle looks like a V. Here, the shape of the business cycle is like an L, where it goes down and doesn’t turn up. Or like a U, a flat U. The reason for that is that people aren’t going to get caught in this bind again. They will tell themselves, “I’m too smart to do that again.” And everyone else is going to be saying the same thing. It is, in fact, going to be a wonderful environment in which to take risk, because there aren’t going to be any excesses.

I’m a child of the Depression, and I am thinking about what the early years were like after World War II. It took a very long time to get the memory of the Depression out of business decisions, and certainly banking decisions. I think this is going to be the same. The Fed, too, is going to be less decisive and is going to feel that what it should do is less clear. One of the things that gave people a sense that they could afford to take risks was the sense that the central bankers more or less know what they are doing. But I don’t think we are going to feel that way going forward.

WSJ: You said that it could turn out that the smart thing to do is to take more risk, because everyone will be so risk-averse. What kinds of investments do you see as the big winners coming out of this?

Mr. Bernstein: You could say: the things that have been beaten down the most, which would be real estate. But I think real estate is going to be under a cloud for so long, and you can’t buy real estate with cash, it is too much money. I think you should go with the stock market. If things are better, the stock market will go up, and if things are awful, the stock market is going to be way down. But it is a place where, if you want to take risks, you’ve got a wide range of choices. This is why I own stocks [in addition to other investments], because I don’t know where the bottom is going to come, and I want to be exposed to every kind of possibility I can think of. And, at least, if you pick the stock market and you are wrong, you can change your mind. There is some liquidity there. Stocks never became cheap, but they didn’t become crazy, the way other assets were.

WSJ: How long do you think this whole process will take, before we get back to normal?

Mr. Bernstein: Longer than people think. The people who think we will have turned in 2009 are wrong. There has to be a respite along the way. Nothing goes in one direction forever. But it will take longer than people think. If that weren’t the case, I would be talking entirely differently. I would be saying, “What an opportunity we have got.” And I just can’t believe that the opportunity is here yet. There is too much to unwind.

WSJ: Can you explain the reason you think it will take a long time?

Mr. Bernstein: We have to go back to a moment when people have the courage to borrow and lenders have the courage to lend. Until credit is going up instead of down, you can’t have growth. Housing has got to be a very important part of that; it always has been. You have to reach a point where somebody says, “This house is cheap, I am going to buy it,” or where some businessman says, “This is a great opportunity for us to expand our business. Everything is available to us.”

If China goes into a recession, God knows. The Iraq war and the whole situation with terrorism, we really don’t know where that is going to come out. There are so many things that have got to get buttoned down before you say that the future looks good enough to take a risk.

WSJ: What kind of indications are you looking for as signs that the economy is about to get better and that the stock market and the investment world are about to turn the corner?

Mr. Bernstein: Somehow, the housing trouble has to at least flatten out. As long as that is going on, I think the pressure on the credit system is going to persist. It is kind of the leading indicator. It is where the trouble started. We have to underpin the consumer. That is why this is different. That is why this is like nothing we have had before.

Before, it was investment that made the V at the bottom of the business cycle. I don’t see real investment turning enough without some sign from the consumer side. Maybe the foreign countries will do it for us. That is a substitute for consumption here. Maybe. But I think that they won’t do enough for us, and maybe will be too infected by us to do it. But maybe growth in Asia will help us. The Asian thing is tremendously exciting.

Write to E.S. Browning at jim.browning@wsj.com¹

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Choosing Recession: Well Written and Worth the Read

Posted on April 21, 2008 by Neil Garfield

Commentary
Choosing Recession
Lakshman Achuthan and Anirvan Banerji 04.21.08, 6:00 AM ET

The 2008 recession guarantees many months of job losses that will boost foreclosures and feed the credit crisis. But if fiscal stimulus had reached consumers quickly, it would have forestalled a recession, helping to stabilize the housing market. Such a soft landing would have bought some breathing room in which to resolve the credit crisis until the lagged effect of monetary policy kicked in.

There is a raging debate about how the economy got into recession, and who is to blame. Many have concluded that the housing and credit bubbles guaranteed recession. But because this debate will influence policy for the next economic cycle, the right lessons must be learned from this series of unfortunate events.

An essential point is being overlooked–that this recession was actually avoidable as recently as several weeks ago. How could that be?

The Fed has rightly been lauded for its bold actions this year, but they hardly make up for its initial delay in getting serious about averting recession. Because monetary policy affects the economy with a lag, the Fed must be preemptive, not reactive. But, as in the lead-up to the 2001 recession, inflation concerns based on backward-looking indicators needlessly inhibited the Fed’s actions for far too long. This implies a fundamentally flawed monetary policy approach because inflation typically keeps rising in the early months of recession. More importantly, forward-looking inflation indicators were already falling last summer. The Fed had a green light to slash rates that it failed to heed until January. The Fed cannot afford to act like a deer in the headlights frozen in the face of higher food and energy prices that it cannot control.

As the new year began, The Economist noted, “One of the most reliable gauges is [Economic Cycle Research Institute’s] weekly leading index [which] is now showing its weakest performance since the 2001 recession.” But it also cited our view that “prompt policy stimulus could still avert a formal downturn.”

Shortly thereafter, Chairman Bernanke not only began aggressive monetary stimulus, but also endorsed quick fiscal stimulus, emphasizing that “it would not be window dressing.” Apparently realizing that the economy was on the cusp of recession, he may have understood that only timely fiscal stimulus could save the day. Given the history of fiscal stimulus arriving too late to head off recession, how was that even possible?

Prominent pundits have been predicting a U.S. recession since 2005, when Hurricane Katrina hit an economy under assault from Fed rate hikes and oil price spikes, a combination that had triggered many a past recession. With the advent of the home price downturn, the gloomy chorus grew throughout 2006.

In early 2007, Wall Street analysts were predicting up to 100 basis points of Fed rate cuts by year end. By June, faced with accelerating economic growth, they abruptly switched their call to zero rate cuts. The economy’s unexpected resilience actually triggered the credit crisis by invalidating expectations of modest resets to subprime adjustable rate mortgages.

U.S. growth plunged following the credit crisis, but the economy grew stubbornly through year end. Still, persistent pessimism made the dollar swoon further, cementing an export-driven boost to manufacturing.

The constant drumbeat of downbeat commentary compelled CEOs to aggressively reduce inventories, cutting the inventory/sales ratio to a record low by late 2007. For the first time, premature pessimism had created a unique opportunity for a self-correcting recession prophecy. At that juncture, even if consumers had spent only a fraction of the stimulus on consumption, in the absence of inventories it would have forced businesses to boost production and hiring, thereby stabilizing the job market.

Typically, business managers, surprised by recession, face a Wile E. Coyote moment when they realize that demand has plummeted. Stuck with soaring inventories, they slash production and jobs, thereby reducing consumer income and spending, which in turn feeds back into lower sales, triggering further production cutbacks, perpetuating the vicious cycle that is the hallmark of recession.

In every recession, the manufacturing sector accounts for more than half of the job losses, largely due to this inventory cycle dynamic. But this time, with inventories cut to the bone, this key recession driver was absent. Prompt stimulus would have been unusually potent, quickly reversing the recessionary vicious cycle.

Policy makers seemed to get the urgency. In January, Treasury Secretary Hank Paulson declared that “time is of the essence.” House Speaker Nancy Pelosi spoke of “timely, targeted and temporary” stimulus, and the administration and Congress enacted a tax rebate package with exemplary speed. The fatal flaw was their willingness to allow a delayed delivery of the stimulus. It was as if the medics had arrived and taken a quick decision to administer CPR–but in a few months rather than a few seconds.

Given the magnitude of the housing and credit bubbles, there was no way to avoid paying the piper once they had popped. But in this instance, resolving those excesses did not require a recession, which could have been forestalled by quick stimulus. Just as the Fed has demonstrated out-of-the-box thinking in recent weeks, so too fiscal policy makers needed to have found innovative ways to get money to the consumer in weeks, not months. That would have made all the difference.

Arguably, in a market economy, recessions are cathartic. But choosing recession is causing unnecessary collateral damage to millions of innocent bystanders while making it politically expedient to throw far more money at the problem than was needed to avert recession in the first place. Moreover, recessionary job losses will worsen the housing downturn.

Alan Greenspan recently emphasized the abrupt shifts that occur at business cycle turning points, noting that “you don’t gradually fall into recession, you jump.” That is precisely why the timing of policy is so critical in the vicinity of turning points.

In February, ECRI’s leading index for the nonfinancial services sector, which accounts for five out of eight U.S. jobs, locked onto a recessionary trajectory. In effect, the 3 a.m. call on the economy had gone unanswered.

Lakshman Achuthan and Anirvan Banerji are the co-founders of the Economic Cycle Research Institute, and the co-authors of Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy, published by Currency Doubleday.

Filed under: bubble, CDO, currency, Eviction, foreclosure, GTC | Honor, inflation, Investor, Mortgage, politics | Tagged: Federal reserve, money, recession | 1 Comment »

MORTGAGE MELTDOWN: BRINGING DOWN THE FED?

Posted on April 9, 2008 by Neil Garfield

IN THIS STORY FROM THE WALL STREET JOURNAL, IT IS CLEAR THAT FLOUNDERING FEDERAL POLICY-MAKERS ARE AVOIDING THE ESSENTIAL ISSUE — WE HAVE TRILLIONS OF “DOLLARS” OF DERIVATIVES OUT THERE THAT ARE HUGELY OVERVALUED BECAUSE OF FRAUDULENT APPRAISALS SUPPORTING THE APPEARANCE OF A RISING HOUSING MARKET. And now many other securities and loan arrangements are endangered that have at least a passing involvement or basis in those faulty derivatives.

The mere thought of the Fed issuing more of the derivatives that caused this crisis is sending central bankers into their back rooms wringing their hands. We are leading the world to the final conclusion that we cannot be trusted with money.

I have said many times in this post that there is not enough money in the world to bail this thing out. The answer is “none of the above” in terms of the options the Fed is looking at. The bottom line is that houses and therefore mortgages were inflated beyond supportable fair market values. Thus the CMOs, the derivative market as a whole, the auction market and everyone else who holds an interest in these mortgages are dealing with over-valuation.

Our current regulatory system and FASB accounting policies have not anticipated this condition and thus we have no mechanism in place to effectively deal with the problem. The solution posed by Barney Frank is actually the answer — provide an opportunity to mark down these mortgages for the purposes of the borrowers payments, along with an opportunity for everyone to share the upside when the recovery begins. If we don’t do that we won’t see recovery for 10-20 years. If we adopt his plan, the recovery can start immediately. The Fed is rearranging deck chairs on the Titanic here. Neither they nor anyone else can cover the impact on the $500 trillion derivative market out there.

The fact that other central bankers are looking at alternatives validates our premise here that the dollar is not merely going to take a hit like it did before Volcker stepped in, it is headed toward extinction unless we act responsibly. We have undermined the governments of many countries around the world by allowing Wall Street to run wild. We couldn’t have done more harm to them if we had attacked them militarily. They can and must respond to protect their nations. Our arrogance is not going to stop them from disengaging from U.S> policy and economics. Only humility and responsible action will restore confidence in our economy and our currency.

Go to http://www.wsj.com and see this article and others examining current conditions.



	April 9, 2008

Fed Weighs Its Options in Easing Crunch

By GREG IP
April 9, 2008; Page A3

WASHINGTON — The Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.

Among the options: Having the Treasury borrow more money than it needs to fund the government and leave the proceeds on deposit at the Fed; issuing debt under the Fed’s name rather than the Treasury’s; and asking Congress for immediate authority for the Fed to pay interest on commercial-bank reserves instead of waiting until a previously enacted law permits it in 2011.

• The Issue: The Fed has sold or committed a lot of its Treasury portfolio to support markets. Some worry it will soon run out of room to do more.

• The News: The Fed is considering several contingency plans for getting more lending capacity so that won’t happen.

• The Bottom Line: The Fed has lots of firepower left before it has to turn to these contingencies.

No moves are imminent because the Fed still has plenty of balance sheet room for additional lending now. The internal discussions are part of a continuing effort at the Fed, similar to what is under way at foreign central banks, to determine its options if the credit crunch becomes even more severe. Fed officials believe the availability of such options largely eliminates the risk of exhausting its stockpile of Treasury bonds and thus losing its ability to backstop the financial system, as some on Wall Street fear.

British and Swiss central banks also are contemplating contingency plans. For now, the European Central Bank is reluctant to consider options that require substantial modifications of its standard tools.

The Fed, like any central bank, could print unlimited amounts of money, but that would push short-term interest rates lower than it believes would be wise. The contingency planning seeks ways to relieve strains in credit markets and restore liquidity without pushing down rates.

The Fed is reluctant to heed calls from some Wall Street participants and foreign officials for the Fed to directly purchase mortgage-backed securities to help a market that still is not functioning normally.

Before the credit crunch began in August, the Fed had $790 billion in Treasury securities on its balance sheet, about 87% of its total assets. Since then, it has sold or lent about $300 billion. In their place, the Fed has made loans to banks and securities firms to assist them in financing holdings of mortgage-backed and other securities. Some on Wall Street say the potential for further declines in Fed treasury holdings could leave it out of ammunition.

[Chart]

The Fed holds assets to manage the nation’s money supply and influence the federal-funds rate, which banks charge each other on overnight loans. When the Fed buys Treasurys or makes loans directly to banks, it supplies financial institutions with cash; in effect, it prints money. The cash ends up as currency in circulation or in banks’ reserve accounts at the Fed.

Since reserves earn no interest, banks lend cash that exceeds their required minimum. That puts downward pressure on the federal funds rate, currently targeted by the Fed at 2.25%. The Fed could purchase securities and make loans almost without limit, expanding its balance sheet. That would cause excess reserves to skyrocket and the federal funds rate to fall to zero. The Fed would contemplate such “quantitative easing” only in dire circumstances. The Bank of Japan took this step this decade after years of economic stagnation.

Weighing the Possibilities

So the Fed is seeking ways to expand its balance sheet without causing the federal funds rate to drop. The likeliest option, one the Fed and Treasury have discussed, is for the Treasury to issue more debt than it needs to fund government operations. The extra cash would be left on deposit at the Fed, where it would be separate from bank reserves on deposit and thus would have no impact on interest rates. The Fed would use the cash to purchase an offsetting amount of Treasurys in the open market; for legal reasons, it generally cannot buy them directly from Treasury.

Treasury’s principal constraint is the statutory limit debt. Treasury debt was $453 billion below the limit Monday. In the past, Congress always has responded to administration requests to raise the limit, sometimes only after political theatrics.

Fed officials also are investigating the feasibility of the Fed issuing its own debt and using the proceeds to purchase other assets or make loans. It has never done so; the legality is unclear. Some foreign central banks, such as the Bank of Japan, do so.

Another possibility is seeking congressional approval to pay interest on banks’ reserves immediately instead of waiting until a 2006 law permits that in 2011. If the Fed paid, say, 2% interest on reserves, banks would have no incentive to lend out excess reserves once the federal funds rate fell to that level.

Congress put off the effective date because paying interest on reserves reduces the Fed profits that are turned over to the Treasury each year, widening the budget deficit. Although preliminary explorations suggest Congress would be open to accelerating the date, the Fed is leery of depending on action by Congress.

The Fed is inclined to use any additional maneuvering room to lend through its existing and recently expanded avenues. Officials are reluctant to buy mortgage-backed securities directly. They worry that such purchases would hurt the market for MBS that the Fed is not permitted to buy: those backed by jumbo and subprime and alt-A mortgages, which are under the greatest strain.

Moreover, the Fed is not operationally equipped to hold MBS and would probably have to outsource their management. Such holdings wouldn’t help avert foreclosures much, since the Fed would have little control over the mortgages that comprise MBS.

Write to Greg Ip at greg.ip@wsj.com¹

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Filed under: ATM, bubble, Bush, CDO, community banks, CORRUPTION, credit unions, currency, Eviction, foreclosure, foreign relations, GTC | Honor, inflation, interest rates, Investor, Mortgage, Obama, politics | Tagged: Barney Frank, derivatives, Federal reserve, recession, Treasury | 4 Comments »

Mortgage Meltdown + Inflation + Dollar Devaluation

Posted on April 8, 2008 by Neil Garfield

Trouble for American Consumer is building and the perfect storm threatens our tenuous economy.

DEEP RECESSION LOOMS WITHOUT FUNDAMENTAL CHANGE IN OUR POLITICS AND ECONOMIC POLICIES

The inevitable outcome was always the same: eventually we would hit the the top, like in any Ponzi scheme.

Consumers, who maxed out their credit cards, and maxed out their borrowing on their homes, and maxed out on their purchasing power which has declined significantly over the same 25 year period, and who are vastly unemployed or underemployed (further decreasing their wages and purchasing power), and maxed out their borrowing from consumer finance, and even maxed out their short-term borrowing through pay day lending and overdraft privileges and eliminated their savings plans, have reached the point where (1) they can’t buy anymore “stuff” and (2) they don’t want to.

The strength of the Euro, the movement amongst the oil producing countries to create a unitary currency for the Gulf countries and other trends around the globe all spell the same thing: everyone is looking for an alternative to the U.S. dollar and an alternative to the U.S. altogether. We have brought ourselves and the world to neither peace nor prosperity, and neither security nor safety.

Asian inflation which is gearing up to be as bad as we have seen in any emerging economy is starting to hit wholesale prices. Rising costs due to rampant and growing inflation in countries that had before been “cheap” producers is hitting hard on products purchased here in the U.S.

Add to that the more or less daily devaluation of the dollar and the effect is multiplied. Add to that mixture the further devaluation of the dollar caused by the mortgage meltdown where central bankers are converting their dollar reserves to Euros and the effect is further increased.

The headlines in most papers is the end of the free ride we had for a long time where the dollar was king and we could purchase imports more cheaply because dollars were in great demand.

Our headline here is that we are headed for the deepest recession since the greatest depression.

The reasons are many but all fairly simple. The United States converted from being a nation of production to a nation of consumption. The final nail in the coffin of this unfortunate conversion was the advent of credit cards — not at their inception — and the high interest rates that were institutionalized during the double digit prime rate days 25 years ago. The theory was that the credit card companies were under hardship because it cost them more to get capital to lend than they could get under usury laws, once you factored in defaults and the extremely high interest rates that the issuers had to pay. But when rates went back down to modest figures of around 7% prime rate from highs of 22% credit card companies were allowed to keep their rates at 21-22% and eventually raised those rates to as high as 35%. Adding insult, the issuers now have fee schedules that add to the absurd payments.

This “free money” craze coupled with stupendous profits earned by credit card issuers caused a huge but temporary surge in consumer sending encouraged by government, business and lenders. Everyone liked it because for consumers they were getting more “stuff”, for government they could claim better economic performance, and for credit card companies, they had a stranglehold on an economy that was now addicted to credit card and home equity loan consumer spending. As with the mortgage meltdown, nobody thought it through.

Our economy became addicted to, dependent on and under the control of consumer spending, which up till now has accounted for around 70% of our entire economy.

The inevitable outcome was always the same: eventually we would hit the the top, like in any Ponzi scheme. Consumers, who maxed out their credit cards, and maxed out their borrowing on their homes, and maxed out on their purchasing power which has declined significantly over the same 25 year period, and who are vastly unemployed or underemployed further decreasing their wages and purchasing power, and maxed out their borrowing from consumer finance, and even maxed out their short-term borrowing through pay day lending and overdraft privileges and eliminated their savings plans, have reached the point where (1) they can’t buy anymore “stuff” and (2) they don’t want to.

Alan Greenspan is now defending his record of relying on the marketplace to work things out. Free market ideologies, like the one Greenspan relied on, are like all other theories in economics. They seem to work for a while and then they don’t. Ideology does not govern how people act. People act as they choose to and the way they choose is based upon mostly subjective factors at the time of their decision. That is a lot messier than the neat and clean theories and policies, indexes and measurements that have been used in determining economic policy, foreign policy, and domestic agendas for decades.

The underlying flaw in all currently used economic theory is that people are not theoretical. They are real and they are complex.

This is not a new observation. Plenty of brilliant analysts and thinkers have known this for thousands of years. Just look at some of the most recent contributions from Rothbard and von Mises and you’ll see that the idea that human motivation and human thought process as the real issue has been around for a very long time, well understood, and pointing toward policy mechanisms that were based in reality rather than the mythical world where everyone behaves according to the “plan.”

The problem is that economics and politics are inseparable — like time and space. You cannot define one without reference to the other. And in politics, the goal is to get elected and stay in power. You are playing to an audience with precious little time to get the finer points of economics, personal finance and monetary policy.

People are too busy trying to make ends meet, getting the kids off to school and after-school activities, and working a two-income family schedule with increasingly longer working hours. Up until now, buying “stuff” has been a recreational outlet and they had the “free money” to do it. Now they can’t even pay the “minimum payment” without borrowing more and they can’t borrow more.

You don’t get elected giving people bad news — especially the news that things will get worse before they get better. So politicians create agencies to give them reports, indexes, median incomes, and unemployment data that provides them a reference point from which to pontificate about things these “leaders” actually know nothing about. They create slogans and “programs” that will never happen to give the potential voter a reason for putting them or keeping them in office.

The end result is that we have spent ourselves and our country into a hole, diminished our standing in the world, and we continue to insult the world by asserting a dominance that was once real, but isn’t anymore. And the world is telling us as politely as possible to shove it. The strength of the Euro, the movement amongst the oil producing countries to create a unitary currency for the Gulf countries and other trends around the globe all spell the same thing: everyone is looking for an alternative to the U.S. dollar and an alternative to the U.S. altogether. We have brought ourselves and the world to neither peace nor prosperity, and neither security nor safety.

WHAT DO WE DO? BITE THE BULLET, GIVE UP IDEOLOGY AND GET REAL

If you want to stop the mortgage and credit crisis, go with Barney Frank’s plan which takes blame out of the equation and simply stops the worst from happening. It gives everyone an opportunity to recover and it is the only way to do it — taking everyone’s interest into account rather than one group over another.

If you want to stop foreclosures and evictions, change the rules of civil procedure in each state and in federal bankruptcy court that enables cram-down procedures and mediated results that allow for the same outcome as Barney Frank’s plan. Home values were inflated far beyond fair market value. Everyone should share in the loss and everyone should share in the potential recovery.

If you want to stop the health care crisis and the economic nightmare created for our citizens, take insurance out of the equation, wind down the current system and move relentlessly toward a single payer system that pays medical service providers well, does not subject them to liability for bad results, and gives them incentives to get their patients healthier. That is what other countries do and what we should do here.

Eliminate the restrictions on so-called “alternative care.” Those protocols have been around a lot longer than allopathic medicine. End the hegemony of allopathic medicine, provide incentives for preventative lifestyles and care, and the costs of health care will drop like a stone while the prospects for a longer, productive, happier life will rise. Reinstate the basic pledge “First do no harm.”

If you want to create a country with solid economic foundation, we need savings. To create savings, people must have the financial resources to cover their expenses and set aside money for the future. Take credit card debt and other forms of predatory lending off the table. Change the “no end in sight” vision to a light at the end of the tunnel. Stop telling people to spend money when you know they don’t have it. All you are doing is making things worse when you could be leading them out of the darkness.

If you want an economy that has solid prospects and good earnings potential for its citizens and the country as a whole, change the direction of innovation from getting our own people to part with their money to buy “Stuff” and make innovation work to produce things the rest of the world values. In other words shift back from the consumer driven economy to production. The products might be the same, similar or entirely different as before.

BRING BACK UNIONS: Stop trying to minimize costs and start working to maximize revenues. Anyone can eliminate their costs by simply going out of business. A business is worthless without growth and strength in the marketplace. By eliminating our production capacity, we have effectively relinquished our sovereignty. Have government intervene wherever necessary to prevent dominance that results in imbalance — encourage the start-up of new small businesses and create a level playing field for them to compete.

If you want to reassert America’s place in the world give the world a reason to respect and honor us besides our military power. Raw power is a transient commodity. Eventually it ends. If you want to retain sovereignty over our economic affairs and avoid becoming a satellite of China or a junior member of the European Union then demonstrate the power of the American worker and the attractiveness of living and working here.

If you want communities to prosper allow community banks and credit unions the same access to providing financial services as the megabanks, where centralization has shifted local deposits into faraway investments of dubious value to anyone. State and Federal programs should be deposited into local banks rather than national or international combines. The infrastructure already exists without any changes required to enable this to happen. What is necessary is for State regulatory authority to become more active and more focussed on their own State’s economy.

As the song goes, these are a few of my favorite things. What are yours?

Filed under: alternative medicine, bubble, CDO, Chelation, community banks, CORRUPTION, credit unions, currency, education, Eviction, foreclosure, foreign relations, GTC | Honor, healthcare, inflation, interest rates, Investor, medical insurance, Medical Treatment, Mortgage, Obama, politics, securities fraud | Tagged: Asian inflation, credit cards, credit crisis, dollar, euro, innovation, recession, Rothbard, Von Mises | 5 Comments »

Mortgage Meltdown and Credit Crisis: News and Comment 4-4-08

Posted on April 4, 2008 by Neil Garfield

Collateral damage and contributing damage

From CNN and NY Times: Loss of jobs means loss of income, loss of tax revenue, increased defaults on home loans, credit cards etc. The downward spiral of economics and the upward spiral of inflation are here. They will continue to feed off of each other. It is political cowardice to avoid the obvious — stop the foreclosures, stop the evictions, restore the value of CDOs, and initiate a single payer healthcare system that will save us all money, emphasize better health through fitness and diet, and decrease the wild race for riches in credit, oil, and drugs.

It was an act of political cowardice for the senate to jettison the one form of relief that would force mediated settlements from which all parties to the frivolous mortgages would get the most benefit — the ability of bankruptcy judges to modify the mortgages. Just leaving that provision in there would have caused a stampede of settlements that were governed by the free market forces that the critics of the plan so ardently advocate. 80,000 jobs lost, unemployment spikes

Employers slash jobs for third straight month while unemployment jumps to 5.1%, a nearly three-year high.

By Chris Isidore, CNNMoney.com senior writer

Last Updated: April 4, 2008: 12:37 PM EDT

Bernanke: recession possible

Mortgage Meltdown: A New Perception of Risk Changes American Economics

Posted on March 27, 2008 by Neil Garfield

Whether Krugman is right in today’s New York Times, predicting a massive bailout between $450 billion and $3 trillion at taxpayer expenses, or the “free marketers” have their way and let everyone collapse, or some people finally get it and move toward a consensus of policy that forgives everyone their transgressions but keeps them in the game as we have suggested repeatedly in these posts, it is clear that perception of risk, trust, confidence and integrity has been changed. This change will be reflected in world and domestic financial markets rights down to a car loan, credit card, home equity loan or business loan.

The recent rise of ankle biting between home equity lenders (many of whom have frozen home equity loan accounts making the credit limit unavailable to borrowers), borrowers and fist mortgage lien holders on short and long sales and refinancing, shows what has happened: Nobody trusts anybody anymore and credit is going to decline not only because of availability of money, not only because of viability of short-term credit instruments and the auction markets that drive them, but because rising borrower distrust of all lenders for all reasons is going to lower demand for credit.
Just as there isn’t enough money in the world to bailout everyone in this mess, there isn’t enough equity, income or assets to cover the credit that exists, much less putting on more. But more is what we are getting in the form of inflation fueled by the Fed churning out money supply like it was candy from a machine.
Borrowers seem to have learned that what lenders tell them can’t be trusted. It is a valuable lesson. They are realizing that lenders have a vested interest in keeping borrowers in debt and to maximize the debt of every man, woman and child in the United States.
The number of homes going upside down either because of overvaluation of the home for purposes of the purchase money mortgage or over valuation for purposes of home equity loans is increasing daily. Sorry to hit a sore point but the chickens are coming home to roost. The motivation of change lifestyle from home owner to renter has never been greater. It seems likely that people will do just that.
This might be a paradigm change that could forever change the landscape of the American economy. retail buying sprees of things that nobody needs, and that nobody wants after they make their purchase, are on the decline. They might be on their way out as a way of life. That accounts for 70% of the U.S. economy.
This new perception of risk and the new distrust, have taken on the same dynamics as the politics of division which was bound to be reflected in the marketplace eventually. Basic assumptions and formulas currently used in economics are now cast under a cloud of doubt, as are the policies based on current assumptions and current measurements of things that might not matter as much in the future as they did in the past.
Doubt and uncertainty create bad environments for doing business, investing and living. We might be in for some hard times, but it is probably high time for the AMerican economy to “get real.”

Filed under: bubble, CDO, community banks, credit unions, currency, education, Eviction, foreclosure, foreign relations, GTC | Honor, inflation, interest rates, Investor, Mortgage, Obama, politics | Tagged: borrowers, debt, depression, equity, lenders, recession, risk | 1 Comment »

MORTGAGE MELTDOWN REMEDY: SEND THIS NOW TO YOUR STATE SUPREME COURT AND LOCAL COURT SYSTEM

Posted on March 8, 2008 by Neil Garfield

The problem for homeowners is that however many ideas are put forward they won’t be effective in time to save most people, they won’t be in time to save the economy, and they won’t be in time to save our currency from further wrenching devaluation. It is the fierce urgency of now that cannot even wait to the election or January 20, 2009. There is only one place where immediate relief can be achieved — the Court System. There are constitutional impediments to interference with the mortgage foreclosure process. Yet there is authority in the judicial system to change the rules as long as it does not significantly impede or in this case, it should enhance access to the courts and the ability to mount a credible defense to foreclosures on predatory or fraudulent loans.

These are the rules that could be enacted by each court in the land that would [a] slow down the process and [b] protect borrowers from the steamroller of lender foreclosures and [c] protect lenders, investment bankers and investors from themselves. These rules preserve and enhance due process so that the unsophisticated borrower is not wiped out again by his or her lack of knowledge.

Emergency Provisional Rules

Mortgage Foreclosures

These emergency rules of civil procedure apply to all foreclosures on all property, real or personal, initiated on or before January 1, 2007. No Judgment shall be executed, or if already executed, enforced, and no order of removal or eviction or seizure related to foreclosure shall be executed, or if already executed, enforced unless a Court of competent jurisdiction shall have executed an order finding as a matter of law and fact that the foreclosing party(ies) have complied with each and every provision contained herein.

1. Every Petition for Foreclosure and/or every action undertaken by a foreclosing party prior to seeking recovery or seizure, or occupancy of property, shall require the foreclosing party(ies) to file a verified complaint or affidavit alleging the facts supporting the claim for relief, executed by a person with actual knowledge of all facts alleged. The executing party on said verified Petition or affidavit shall affirmatively allege and actually be available for the taking of testimony by deposition or at an evidentiary hearing in the jurisdiction in which the property is located.

2. Each such Petition or Affidavit shall state the names and addresses of all parties involved in the loan transaction and shall be served under the rules governing service of process upon each of said parties as third party non-party litigants, if such parties were not the lender or borrower.

3. Each such Petition or Affidavit shall account for all funds that were passed through or to each party named in the action, the disposition thereof, and the manner and time in which the passage of said funds were dispersed, together with a citation to the mortgage documentation, including a quote of the relevant passages in the body of the Petition or Affidavit wherein said funds are disclosed and wherein said funds are authorized.

4. Each such Petition or Affidavit shall state with particularity whether any changes occurred after the closing of the subject loan transaction in which parties or persons were changed including the names and addresses of all parties and persons related to the transactions subject to the mortgage.

5. With respect to sale or assignment or any joint or sharing arrangements concerning ownership, distribution of risk, or securitization in which the subject loan was referenced as collateral or otherwise, each such Petition shall state with particularity the details of each such transaction, the distribution or re-distribution of funds, and the documents employed by said parties after said closing.

6. Each and every such Petition or Affidavit shall affirmatively state that the foreclosing party(ies) have standing and authority to bring the action, defend counterclaims and answer affirmative defenses. The signature of the attorney on said pleading shall be mandatory and shall constitute a representation to the COURT that the filing attorney has performed proper due diligence to ascertain the truth of the allegations of legal standing and all other allegations.

7. Each such Petitioner or Affidavit shall be accompanied by attachments of the referenced documents to be included with the first service of such Petition or Affidavit.

8. Each such Petition or Affidavit shall state with particularity and specificity each disclosure made to the borrower and any third parties involved in the transaction under the Truth in Lending Act and the corresponding provision of the mortgage documents executed by the borrower which supports said disclosure.

9. Each such Petition or Affidavit shall state with particularity and specificity each disclosure made to the borrower and any third parties involved in the transaction under the Truth in Lending Act and the corresponding provision of the mortgage documents executed by the borrower which does not support said disclosure. If any allegation other than “none” is made under this paragraph, the foreclosing party(ies) shall state with specificity the law or fact upon which they should be excused from compliance.

10. Each such Petition or Affidavit shall attach a full and complete accounting of all money, value or funds transmitted, paid or or promised between all parties involved in the loan transaction before or after the loan transaction. In the event the borrower has been overcharged, undercharged, or charged correctly, the Petition or Affidavit shall so state affirmatively, providing a full accounting of said funds.

11. No answer or response from the borrower shall be due unless and until the foreclosing party(ies) are in complete and full compliance with the provisions of these rules. Any prior answer or response may be amended by the borrower after a determination is made that the foreclosing party(ies) are in full compliance. No prior Judgement, order or other document or rule shall prevent the borrower from filing a response or answer after the foreclosing party(ies) are found to be in compliance with these rules.

12. In the event that the foreclosing party(ies) fails or refuses to comply with these rules, the foreclosure shall be barred with prejudice and until the terms of the mortgage are determined with certainty by the Court by clear and convincing evidence, no payments to the mortgagee shall be due. This provision that not apply to payment to taxing authorities. In such event of delay caused by the the foreclosing party(ies) the court may fashion such equitable remedies as the Court deems fit in its discretion. for example, the Court could apply delinquent payments to the end of the mortgage, thus extending the terms.

13. In the event of non-compliance with these rules wherein the foreclosing party(ies) demonstrate to the Court the probability that they could amend their filing to conform to the requirements herein, the foreclosing party(ies) shall file an amended Petition or Affidavit on or before thirty (30) days from the date of the order of the Court allowing the amendment. Failure to file within said thirty period shall be grounds for a mandatory immediate dismissal with prejudice.

14. In the event of the filing of a verified amended Petition or Affidavit, Borrower shall have sixty (60) days in which to answer or respond. Failure to answer or respond shall not relieve the burden of proof of the foreclosing party(ies) in compliance with state, local and Federal law, and in compliance with these rules.

15. The Court may grant attorney fees and costs to the prevailing party in each case where a motion or other filing occurs, wherein a determination is made in an adversary proceeding that the filing is in or out of compliance.

16. In the event a foreclosure has already been completed and all subsequent and customary actions have occurred and no bona fide third party has taken control or occupancy of the property, these rules may applied retroactively.

17. Once compliance has been established and the issues are joined, the Court shall enter an order requiring the parties to enter into a process of mediation. The purpose of the mediation shall be to fashion a settlement which provides relief and incentives to all affected parties, including non-party litigants. Mediation shall take place no earlier than thirty (30) days after the entry of the mediation order, and not later than is reasonably possibly given the volume of cases and the availability of competent mediators.

These rules are subject to review by the Court but are effective immediately. Comments and applications to be heard shall be available in keeping with the usual and customary methods of proposed rule changes. Said rules shall be effective unless and until stated otherwise by the Court.

Filed under: bubble, CDO, community banks, credit unions, currency, Eviction, foreclosure, foreign relations, GTC | Honor, inflation, Investor, Mortgage, Obama, politics, securities fraud, Uncategorized | Tagged: Clinton, depression, Eleanor Roosevelt, jobs, judiciary, McCain, Obama, Pelosi, recession, State Courts, Supreme Court | 2 Comments »

Mortgage Meltdown Movement: Start Now, Obama

Posted on March 8, 2008 by Neil Garfield

OBAMA MOVEMENT IS LAST CHANCE FOR ECONOMY AND HOMEOWNERS.

CHANGE THE RULES OF CIVIL PROCEDURE REGARDING FORECLOSURES OF ALL TYPES.

As we have have repeatedly pointed out, there is no time for stimulus packages, legislative bailouts, or executive orders.

The evidence is mounting because [a] the situation is as bad as it looks and it is getting worse and [b] the administration ran out of places to hide the mounting losses to the economy.

The dollar continues its slide which will create devastating inflation within 6 months. Consumer buying power is now the lowest it is had been since 1945. Job losses are at record levels and more people, especially men are starting to simply walk away from their jobs because the pay does nothing for them. People are also getting ready to walk away from their homes and just leave the keys with banks who will try to dump their real estate inventory, perhaps with some new derivative security plan.

The financial industry cannot bail us out, the U.S. Treasury can’t bail us out, China can’t bail us out, the congress cannot bail us out, the President won’t or can’t bail us out, and the candidates for President will inherit the second Great Depression (GDII) unless something is done right now. The plain truth is that if you do the arithmetic, there isn’t enough money in the world to buy our way out of this. Leadership, agreements, cooperation and sharing are the commodities that will settle the financial claims and avert a general collapse.

Start with the obvious — 900,000 foreclosures and mounting. At the center of this meltdown is the mean fact that prices were artificially inflated and, as in every Ponzi scheme, eventually collapsed. The debt was as fake as the prices. But we are still pretending it is real. The monthly payments were in many cases procured by fraud and numerous violations of the Truth in Lending Act.

Change the procedure, not the substance of the law.

The change needed is to enumerate the requirements for initiating foreclosures such that Ponzi operators are deterred from filing foreclosures, the entire foreclosure process is slowed down, and the loans are reinstated, re- negotiated, or modified on some basis that will result in continued occupancy of homes, restoring capital to balance sheets of financial institutions, restoring some degree of quality to CDO’s that were sold, and adding liquidity to the economy without pumping more funny money into it — thus adding value to the dollar, and adding purchasing power to consumers and industry. We encourage immunity from criminal prosecution those players who are still in the chain and assist in the process of recovery. Those actions and investigations by State attorney generals will at best provide an empty victory in an empty marketplace.

CHANGE THE RULES OF CIVIL PROCEDURE REGARDING FORECLOSURES OF ALL TYPES.

The only hope is the judiciary, which handles the foreclosures. Everyone agrees, including the parties initiating the foreclosures and evictions, that the goal is slowing down the process, giving everyone a little hope and incentive, and creating a process where these cases are settled equitably by agreement or by the equitable powers of every court in which an eviction or foreclosure matter is pending. Foreclosure is an equitable remedy which grants wide latitude to the Judge. Procedures should be in place that force the initiators of foreclosure proceedings to slow down, force everyone into mediation and give some breathing room so the marketplace, the financial sector, and government has time to catch up with events that have overtaken them.

In order to accomplish this, the authority is usually vested in the State Supreme Court of each state. The State Supreme Court is usually the authority that creates, amends or changes rules of civil procedure. This plan is not sexy but it is quick and it will work. Change the rules as we have suggested in our recent posting “Send this to Your State Supreme Court”.

As for the PRESIDENTIAL candidates it is a dismal picture. The candidates for all other public offices don’t look any better in any of the State, local or Federal elections.

While we applaud McCain for his honesty in admitting he doesn’t know much about economics, that is hardly the person we want making executive decisions during a deep recession or depression.

While Clinton is good at creating four point plans, ten point plans etc., she has not demonstrated any understanding of the economics at work here. Her husband didn’t have any experience in economics beyond a small state with niche industries. Her “experience” might sell but it isn’t true. She was a tea and cookies first lady in Arkansas and in the White House. This is no Eleanor Roosevelt. We can only hope that, like her Husband, if she is the candidate, she will be lucky enough to have people around like Alan Greenspan, Robert Rubin and others who not only understood the economy but knew how to grow it and that her personal political ambitions for a second term don’t get in the way of good judgment.

While Obama does have a close-up understanding of the economics of poverty, because he gave up Wall Street to work on Main Street, he also lacks experience in the macro-economic events that are in the process of burying our economy. He also is an academic, having taught constitutional law for 10 years, and brilliant analyst and fast learner. He also energizes people to out-perform which is exactly what we are going to need in the White House if we get through this in one piece.

Obama is about leadership while Clinton is about tactical maneuvering. Both are valuable talents. But the truth is that Clinton would probably be one of the best Senate Majority leaders in history and at best a mediocre President for precisely those reasons. With Obama in the White House and Clinton and Pelosi in charge of Congress, it is hard to imagine a scenario where we can’t emerge from all this a little smarter and rebounding from the worst economic times in our lives.

There are no guarantees. Yet it seems like an Obama presidency will be a populist presidency directed by the people and for the people, while a Clinton presidency will be a Hillary presidency. McCain appears best suited to go to war and least suited to deal with any domestic issues. But none of them will like what is delivered to them on “Day One” unless something is done now. Obama too is at least as likely to attract energized geniuses in their respective fields to manage the difficult terrain ahead of us.

What Obama should do is what Obama does best — create a movement that moves the Supreme Courts of every state into action. All candidates for public office should sign on and all present office holders should introduce and pass remedial legislation in support of the movement. Obama is best suited to initiate this movement because his core constituency is the sector hardest hit by predatory lending practices, job losses, and NAFTA failures.

The Obama Presidency should, as much as possible, start now.

It is highly unlikely that Clinton’s last gasp pf political maneuvering and attack ads is going to change the math — Obama ends up with more popular vote, more states won, and more delegates one. Unless the convention turns to a compromise candidate like Gore, who probably won’t take the job, Obama is the only candidate that can be the nominee without tearing the Democratic party apart.

Filed under: bubble, Bush, community banks, CORRUPTION, currency, Eviction, foreclosure, foreign relations, GTC | Honor, inflation, interest rates, Investor, Mortgage, Obama, politics, securities fraud | Tagged: Clinton, depression, Eleanor Roosevelt, jobs, judiciary, McCain, Obama, Pelosi, recession, State Courts, Supreme Court | Leave a comment »

Mortgage-Currency Meltdown: Keep Your House as Long as You Can

Posted on March 3, 2008 by Neil Garfield

The continuing decline of the U.S. dollar will only hurt you if you are holding U.S. dollars — NOT so much if you are holding real estate — i.e, your home. Before you go overboard in panic mode, consider this, and hope….

The mortgage meltdown free money craze may have pulled the trigger, but the gun was decades of profligate spending on everything from congressional pork barrel to unnecessary “upgrades” to cell phones. Greenspan admits he missed the relevance of the housing boom in which prices rose at non-credible rates, but in his Republican ideology he believes that market forces will sort everything out. This is no better than evangelical rejection of science and no better than progressive spending programs.

The U.S. dollar has been going down in value on world markets along with U.S. prestige and a precipitous decline in the trust of foreign investors in our financial markets and the players who perpetrated the largest fraud, so far, in currency, credit, and securities.

Obviously foreclosures, defaults in all types of credit instruments and declines in consumer spending is going to slow the U.S. economy. Just as obviously, the dollar will continue its decline. Nobody knows where it will end up but it has already long since passed the point where a tidal wave of inflation will be felt here of such magnitude that it will receive attention in the economics textbooks, law books, and accounting standards. Yes, housing prices will have considerable downward pressure. And yes, those who point to the benefit to our “exports” from a weakening dollar sound like empty rhetoric.

Yet there is a grain of truth in what they say and it has a direct relevance to those sitting in houses that are lower in value, even upside down in equity. Buying has commenced from foreign investors. They are using currencies that did not decline, at least as much as the dollar has declined. So their buying power increased while our buying power has decreased. And the effect is magnified by the actual dollar decline in housing prices. But don’t expect housing prices to stay down —unless inflation magically disappears. Right now all indications are that the Fed and the Bush administration are pushing dollars into the the U.S. economy. Like any other commodity, the more dollars are out there, the cheaper they become.

This translates for the lay person in an interesting turnabout. It if takes more dollars to buy milk and eggs than it did a month ago, so too will it take more dollars to buy real estate. So if your only major asset is your house, it might surprise you both as a hedge against inflation and as an investment. Put in simpler terms, the dollar cost of your home is going to go up as the value of the dollar declines.

Let’s take an example. Suppose you bought a house for $400,000 in 2005. For the sake of argument, you put nothing down, so today in round numbers, you still owe $400,000. The fair market value of your home in our example here has declined by 20%, which means if you sold it you would get $320,000 less broker’s fees etc, leaving you with perhaps $300,000 in value. Thus you have a $300,000 asset with a $400,000 debt. This is the classic “upside down” reference — your equity is minus $100,000.

And the situation seems even more bleak with projections of perhaps another 15% drop, which will bring you into the range of perhaps $250,000 on that $400,000 house. This leaves you with negative equity of $150,000. In other words, if you sold the house, you would have to come to the table with $150,000 to pay off the mortgage, just to be able to convey clear title. That’s pretty bleak. You could get some relief if your lender allowed a “short sale” and accepted the $250,000 as full payment and now under the new rules, that forgiveness of debt would no longer be income upon which you would be taxed, so that is good news. But how many lenders are going to accept the full $150,000 damage caused by this market.

You might also ask, how any of this could have happened? The answer is simple, you were sold a $250,000 home for $400,000. And a whole bunch of people were involved in a tacit conspiracy to defraud you and the eventual buyer of your mortgage note. And of course you lost whatever money you put into your new house when you moved in — landscaping, furnishings, improvements etc. You did get screwed, and there is nothing I can say that will change that. But the scenery might change and you might be sitting in a better position than you think — if you have the staying power.

The reason is that in round numbers, people in other countries have seen the value of their currency rise. A deposit of $1,000 worth of Euro or other currency a couple of years ago is worth 50% more than it was then. Our loss is their gain. So that house that cost $400,000 in 2005 might only cost them $275,000 in their own currency. Let’s go further. That house that is now worth only $320,000 dollars in U.S. dollars, will cost the foreign investor around $225,000 in his own currency. it doesn’t get much better than that. But it will get better for these foreign buyers of U.S. real estate. The U.S. dollar will continue its decline. So these prices which are temporarily depressed, will get into “sillyville” when you factor in foreign exchange.

This will result in at least a flattening of the decline in declining demand for U.S. real estate. And the continuing decline of the U.S. dollar will only hurt you if you are holding U.S. dollar — NOT if you are holding real estate.

The likelihood is that foreign exchange induced inflation alone will increase the dollar price of your house at least another 15% over the next year. Add to that a modest increase in prices caused by increasing demand both from foreign investors picking up bargains and domestic buyers who still have cash and need to place the cash in some asset that will hedge against dollar inflation and you have a better picture than what is appearing from the pundits. It might not be all roses and good times. But the bleak picture might change to break-even or better, given 2-5 years.

This opens up the very real opportunity for lenders to get together with the buyers they screwed, the investment bankers that created the fraud, and the investors who got screwed holding collateralized debt obligations (CDO’s). If instead of foreclosing, they reach an agreement on sharing the losses and sharing the potential benefits, the inventory of foreclosed properties will cease to expand, thus providing a more stable marketplace for real estate sales and investment.

This in turn will magnify the effects outlined above and quite possibly provide a profit to all concerned.

Unfortunately the likelihood is that the players who caused this mess are more interested in blaming the victims and overing their tracks than in fixing the problem.

But the fact remains, that the undercutting of the U.S. economy and the U.S. dollar might produce results that [a] allow your personal financial situation to recover and [b] give you a decided advantage in paying off a mortgage later which far cheaper dollars than the ones you borrowed. You could still end up ahead of the game.

Filed under: bubble, CDO, community banks, credit unions, currency, Eviction, foreclosure, foreign relations, GTC | Honor, inflation, Mortgage, politics, securities fraud | Tagged: foreign exchange, funny money, housing prices, inflation, mortgage meltdown, negative equity, recession | 1 Comment »

Economic Status report

Posted on February 26, 2008 by Neil Garfield

Back from a cross country trip for 6 weeks accumulating data “on the ground.” I am have discovered that the ripple effects of the economic mismanagement, the mortgage meltdown, the credit crisis, the housing crash, and many other factors are playing havoc not only with our current status but with our prospects. These are the things that the next President will face.

They are also the issues that the current administration adn the current congress face but are slow to admit, fully appreciate or address. There is nothing on the horizon that seems to indicate that these issues will be tackled any time soon.

The following article is at least as good as anyting I could have wirtten. Pay Special attention to the assertion that commodities are becoming the new currency. It heralds a return to an advanced hybrid barter system that can be gamed if you spend the time, but that will threaten the way of life for millions of Americans who cannot spend the time, or who don’t know where to turn for sound, truthful financial advice in the coming crash.

While the publications of the Handbooks is still in the works, I have decided to take a proactive role in approaching local, state and federal officials who are now concerned with inflation, large scale currency devaluation, social services, real estate and other tax revenues, and bank failures.

PAUL B. FARRELL

11 reasons Bernanke’s recession lasts till 2011

Timing the next bull: Kick-start it in 2008? Or is it a long secular bear?

By Paul B. Farrell, MarketWatch

11 reasons Bernanke’s recession lasts till 2011

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ARROYO GRANDE, Calif. (MarketWatch) — Remember that hot 1973 Stealer’s Wheel song marking the end of the Nixon era? “‘Cause I don’t think that I can take anymore. Clowns to the left of me, jokers to the right, here I am stuck in the middle with you!”

It’s still a perfect metaphor. Testifying before Congress: Fed Chairman Ben Bernanke on the left. Treasury Secretary Henry Paulson on the right. The American public stuck in the middle.

Last summer they assured us the subprime-credit crisis was “contained.” We now know that was a big lie. They knew, had the facts, early warnings, lied and are still lying. More proof? They just told Congress: “America will avoid a recession.” New data tells a different story.

Clowns to the left … jokers right … stuck in the middle … can’t take it anymore.

But we have to, we have to hang on at least 10 months more, praying they won’t do too much more damage. But I’m afraid they will: more lies, blunders and incompetence will drag out this bear. Like the song says: “Got a feeling something ain’t right.”

Read the new InvestmentNews, a professional journal for financial advisers. The lead headline grabs you: “Bad times for stocks could last many years.” A long secular bear.

Do you believe it? That’s the big question today: When’s the next bull? How long will the bear last? And forget Washington’s rhetoric about “no recession.” The truth is, you can call it a “bear,” “slow growth,” a “downturn,” a “recession” — call it whatever you want. Timing’s the real question. How long will it last? When will it bottom? 2008? 2011?

Test your timing skill. You tell us, what’ll drag this out 30 months, like in 2000-2002? Or shorten it? Here are 11 critical factors for your timing equation, things that could make this bear-recession shorter or longer. You tell us. Add a comment. What’s your prediction: How long before the next bull?

1. Stagflation: Bernanke’s no-win Achilles heel

Reading Fed-watcher William Fleckenstein’s new book, “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve,” you get the feeling that for 18 years America’s banking system was run like a “new age” hippy commune, by a Ayn Rand free spirit who believed “anything goes.”

Now the Fed’s run by a college professor and Fleckenstein says he’s “in over his head.” Except this is the real world, a $13 trillion economy in a $48 trillion world, not a college seminar on economic theory.

In the 1970s Nixon faced a similar problem, convinced then by Fed Chairman Arthur Burns: “No one ever lost an election on account of inflation.” Wrong! Low rates generated inflation not growth. That stagflation triggered a bear/recession. Is Professor Ben trapped, repeating history?

2. Housing-credit meltdown: We’ve got a long way to go!

It’s far from over folks and still spreading: Years of inventory, foreclosures, building slowdown, risky bond insurers, weak rating agencies, funds holding bad debt, freezing exits and fuzzy math on values. Yet Bernanke and Paulson still live in a Washington bubble of wishful-thinking fantasies.

Economic realists say what’s needed is a massive $1.6 trillion demand-driven program (that’s the record cash Corporate America’s hoarding) not a dinky $160 billion supply-side “appease the voters” giveaway that ends up increasing the odds of a lengthy Nixon/Burns style bear-recession.

3. Commodities: World’s new reserve ‘currency,’ not dollars

Forget paper money and IOUs. Commodities are the world’s new “currency:” Hard stuff like oil, grains, metals, gold. And that means America is financing the growth of our enemies, surrendering our long-term economic power for short-term oil-guzzlers and plastic toys. We are responsible for making Russia and China into threatening world powers. Buffett warned us. We’re selling the farm, piece by piece.

4. Toxic derivatives: World’s $516 trillion ticking time bomb

Derivatives are great for deal-by-deal risk management in a $48 trillion GDP world. But leverage them 10 times over across the globe and we got a financial “weapon of mass economic destruction.”

Bill Gross warns that the world’s new unregulated “shadow banking system” is printing new money, now at $516 trillion, out of thin air, with no “central banks of last resort” backing up the “Frankenstein” monsters they’ve created.

5. Massive debt: Everywhere, trade, federal, states, local

America’s Comptroller General David Walker, Congress’s head accountant who is leaving his position next month, warns our government is “bankrupting America.” Using unethical accounting worse than Enron’s. Fiscal responsibility lost. He sees “striking similarities” with Rome. Both parties are gluttons in a spending orgy.

We spend-spend, load debt on future generations, then use accounting gimmicks to hide our greedy excesses: Hidden earmarks. Supplemental war appropriations. Meaningless IOUs after stealing from Social Security.

6. America’s new ‘pushers:’ Banks feeding consumer addicts

Trader’s Daily captured it perfectly: “Never underestimate the power of the superpsycho, hyper-spending American consumer. Where there is no cash, they will sell their soul. Or just charge it. Let’s just not think about what it all means for credit-card debt down the road.”

Meanwhile, the credit meltdown is making banks desperate for money. A recent Chase credit-card commercial fuels consumer addictions: Wife wants bigger television. Husband smiles. They shop to the pounding drumbeat of Queen’s hit 80s song: “I want it all, I want it all, I want it all … and I want it now!” Tag line: “Chase what matters!” Yes, Chase debt, all you addicts. Forget saving, spend like there’s no tomorrow.

7. More wars: Pentagon predicts bigger, costlier conflicts

The Pentagon’s internal studies see a perfect storm accelerating wars worldwide: Global population growth, limited natural resources and global warming. Our war machine is exploding. The Pentagon gets over 50% in the new federal budget. We’re only 21% of the world’s GDP, yet spend 47% of the world’s total military expenditures.

Our power-hungry mindset is becoming self-destructive, suicidal. Remember Nixon strategist Kevin Phillips’ warning: “Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out.”

8. Greed: Wall Street and Corporate America’s defining ‘value’

Values start at the top. But the top won’t change for 10 months. Leadership, statesmanship and character are vanishing. Five short years ago Corporate America and the mutual fund industry were consumed by greed. How quickly we forget.

It’s worse today. We see greed consuming not just Wall Street’s clueless CEOs, but the entire industry: Outrageous bonuses of $38 billion amid mega-billion write-offs. Fire sales of billions more American equity to sovereign nations.

From the top down, greed is driving America from bubble to bubble. Wall Street’s already fueling the next bubble, trading on a volatile market.

9. Democracy failing: America now run by 35,000 lobbyists!

Forget government “of the people, by the people, and for the people.” Adam Smith’s “invisible hand” is now a small group of 35,000 highly paid, greedy lobbyists demanding handouts. They run America from the shadows, for those at the top of the economic food chain and vastly outnumber Washington’s 537 elected officials.

Nationally there’s an estimated quarter million lobbyists, with hundreds of millions of dollars to buy favors in campaign contributions. Politicians talk “change,” but America’s lobbyists will still be working for their special interest clients in 2009. And they’ll fight all “changes.”

10. America’s already in a recession, and in denial

This year’s elections will be a huge factor in lengthening the recession. Our lame-duck government will delay action on critical issues. It reminds me of my days counseling addicts and alcoholics. Change never happens until they admit they have a problem. Same here.

Paulson and Bernanke cannot admit there’s a recession. They’d have to take blame for America’s failed policies. And congressional Democrats are weak co-conspirators in this meltdown. Nobody has the guts to take responsibility. They’re all like addicts and alcoholics, in denial, giving lip-service to “change,” while they blame the other guys and support ineffectual stimulus plans.

Vote for whomever, but this lame-duck mindset plus lingering partisan rancor will push any recovery at least into 2009, probably delay the next bull till 2010 or 2011.

11. Class warfare: Superrich vs. Main Street America

No matter who wins, the presidential campaign is warning us: A major battle’s coming between “the rich and the rest;” over taxes, benefits, cuts, power.

For years the media collaborated with Wall Street and Corporate America, hyping “Ownership, the New American Dream,” where everyone benefits, shares the wealth, gains a piece-of-the-action, ownership in “The Dream” through the magic of housing, stocks, growth, profits, retirement plans. But the housing-credit contagion killed the dream.

Yes, the superrich did get richer. But “the rest” didn’t. And they’re waking up to a widening gap. A backlash is brewing and will explode … delaying a recovery and a new bull.

Clowns to the left, jokers right, we’re stuck in the middle. Can’t take it anymore? Add a timing comment. Tell us: When’s the recovery? Next bull? Late 2008? Not till 2011?

Filed under: Bush, CDO, credit unions, currency, Eviction, foreclosure, GTC | Honor, inflation, interest rates, Investor, Mortgage, Obama, politics, securities fraud | Tagged: commodities, currency, economics, political backlash, recession | 1 Comment »

Mortgage Meltdown Produces Vapor: Recession Inevitable

Posted on November 30, 2007 by Neil Garfield

The fraud perpetrated on the world by mortgage creativity emanating from Wall Street amounts to the unregulated creation of proprietary currency leveraging off of the U.S. dollar. By creating this free money, the giddy co-conspirators went nuts and now have all sorts of rationalizations about how their behavior was not illegal, unfair, or immoral. The fact remains that we are headed for unprecedented declines in sectors of the U.S. economy, some of which will be permanent. The fact also remains that the effect of the “free money” markets, combined with free Washington spending, and the diminishment of our leadership in world affairs has produced a meltdown of the U.S. dollar, so much so, that most countries who have pegged their currencies to the dollar for decades or longer, are now about to cut free because they must.

The ultimate bloat caused by the creation of funny money amounts to more than $3.5 trillion.
The loss of value of the U.S. dollar amounts so far to around $12 trillion — which is inflation about to hit the U.S. consumers and companies.
The cutting of ties to the U.S. dollar will have an immediate effect of creating $1.3 trillion in additional U.S. debt.
The U.S. economy has been fueled by consumer spending (70% of GDP).
Consumer spending has been fueled by credit. Consumers are maxed out on credit cards, and have borrowed heavily on the inflated value of homes, the value of which is declining and will continue to decline. Consumers have virtually no savings of any significance to the economy in terms of buying consumer goods and services. Most workers are suffering with a real decline in discretionary income caused by stagnation of wages and inflation that is under-reported. In short, consumer spending is not going to save our economy.
The Fed is pumping even more currency into the system to stave off collapse, which is exacerbating the decline in value of the U.S. dollar and worsening the incoming inflation, which cannot be anything less than the worst third world country. It is something we have not seen in our lifetimes or our grandparents’ lifetimes.

Bottom Line: Big Bad recession, perhaps depression. Reality dictates, now that the truth is out, that we correct the bloat and excess in our economy. That means taking a huge hit — unless we bring in leadership from the private sector that defers the loss over years and saves not only the appearance of our control over our own economy, but the immediate demands from other Governments and foreign companies for payments we cannot afford.

Filed under: CDO, CORRUPTION, Eviction, foreclosure, Investor | Tagged: funny money, inflation, mortgage meltdown, recession | 1 Comment »

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