Wreckonomics

Are we having fun yet?

2011-03-02T22:18:00.000-05:00

As the tension in the Middle East reaches the boiling point and our collective intelligence plays "watch the birdie" with collective bargaining and the budget issues here at home, don't you just want to hop on over to the nearest amusement park and vomit off the top of the tallest coaster?

A replay of 2008 is here. Peak oil, banking issues, market at highs, budget woes, jobless issues and criminals running the prison.

Nice. Get ready. The Arab Nations are the catlyst. Europe is the fuel. We WILL light the fire. Please keep your hands in the coaster at all times.

Egypt

2011-02-10T13:22:00.000-05:00

These days anyone can pass themselves off as an expert in geopolitical events. Has the world become this predictable? Why yes... yes it has. I'm going to throw my hat in the ring here with the disclaimer that the only educational credential I have on commenting on this issue is that I'm a member of the human race and have watched the news for 30 years.

That being said... Mubarek is regarded as a "friend" to the United States. So was the Shah of Iran. What they both have in common is that they were dictators. Hands down. There was and never has been a democratic government in the Middle East as far as I'm concerned, and there will most likely never be. Hell, there's really not a democratic government here is the U.S., either... that's another debate for another day.

As I listen to a commentator on FOX News call this the beginning of "big changes" in the Middle East I cannot help myself but to think "REALLY??? - The real question is when will it STOP changing?" There is only one concern the Western World has with Egypt... OIL. We all know it. Sure, Egypt will become a net importer of oil soon, but the Suez Canal is the key.

The United States' concerns about who comes to power boils down to one thing... will they play nice with us or will they not? That's it. That's all. Oh... and the chances of that happening are pretty damn good considering half of our military lives in Iraq now.

As far as a power vacuum? There will never be one as long as we are there. Agree or disagree... I don't care. As long as we are there, militant factions will resist us, creating the illusion that we MUST stay. Oh, what a wicked web we weave...

Obama and the Chamber of Commerce

2011-02-07T22:28:00.002-05:00

Ok, I try not to pay much attention to what the latest Presidential offering in the form of a speech does... and lately (meaning like... oh the last 4 Presidents) they all sound the same anyway...

"Blah blah blah... what you can do for America... blah blah blah...." and that's EXACTLY what Obama's latest speechifying sounded like today before the Chamber of Commerce. I am so sick and tired of the "BLAH BLAH AMERICA BLAH BLAH ALL AMERICANS BLAH BLAH BLAH" bull shit from these poor excuses for corrupt politicians (pay attention... I really do mean what I just said)... I could just, well... swallow a paperclip. That sounds highly entertaining.

When are we going to get our arses off the couch and vote for a REAL American? This guy is like all the rest. Republican, Democrat, "Independant" (which really means... "I'm both")... all the same.

Thoughts for a Saturday

2011-02-05T11:58:00.001-05:00

Yesterday we witnessed spin. I know, I know... when don't we?? Really... creating 36,000 jobs is a BIG WIN?? The small number was weather related? Did anyone watch Jim Cramer last night? I mean sure... he's got a lot more $ than most of us so he's got to be right about something, right? Right? Hell, his cheerleading is just getting old now. How do you spin that BLS crap?

10 years ago a number like that would've pushed bond yields down all day long and stocks would've been pounded. Now, due to the Fed's distortions and our Government's willingness to participate in this fraud we get a "Now that ain't so bad" attitude.

Come on. Isn't this getting old, now?

Here's a fantastic perspective on the BLS and their Black Magic Box.

Global Unrest will be the Theme for 2011

2011-02-04T10:48:00.000-05:00

Tunisia, Egypt, Yeman, Jordan, Syria... oh yeah, Iran, Iraq, Pakistan. I wouldn't leave out Afghanistan, either. Bernanke's speech yesterday was full of distortions and platitudes to his own policies. We are exporting inflation, and it will not go lost on the Middle East. We turned on the printing press to cover the fraud which was our banking system. We are marching down a road often travelled, by failing governments. NO... I'm not predicting our government will fail... this year or next. However... get ready for the pain.

Democracy is a great idea. Greed is a bigger temptation. In the end... greed gets it all.

That's the way it's been... forever. That's the way it will be... forever.

The Return

2010-08-06T14:38:00.000-04:00

Well...

It's been a while. Lots of stuff has happened. Lots of stuff hasn't. Is that consistancy for you? Yep. Sure a hell is. While I've been taking some time to gather my thoughts, consolidate my feelings and prepare for armageddon... America has done... well... what?? Our government has certainly screwed the pooch... yeah, yeah... the Dow is over 10,000. I get it. But are YOU any richer? Is the world any better off? Is America "recovering" yet?

I think the answer to this is... well... you know. We are watching YOU, big brother. Look out.

Think this is over? Not by a long shot.

2009-07-02T23:52:00.004-04:00

It should be obvious to most now that the "green shoots"... and yes... that phrase is as exciting to me as... oh... painting a barn white... um... the "green shoots" are just a figment of the stimulus-loving media... CNBC .

Now I could go on and on quoting this "secondary indicator" and that "turning point" and this "still negative but not AS negative" garbage... or I could cut to the chase. Show of hands anyone??

I thought so. So let's sift through all the B.S. with one simple article...

United Western Bancorp, Inc. Reports Sale of Mortgaged-Backed Securities

Something this simple escapes the "brilliant" minds in Washington and Central Bankers' offices world-wide. I encourage you to read it, but basically it's a standard "this bank sold these securities for this amount" but what is astounding and absolutely frightening is the devil in the details:

"United Western Bancorp, Inc. (NASDAQ: UWBK - News) (the “Company”), a Denver-based holding company whose principal subsidiary, United Western Bank® (the “Bank”), is a community bank focused on expansion across Colorado’s Front Range market and selected mountain communities, today announced that the Bank sold mortgage-backed securities with an unpaid principal balance of $47.3 million of lower tranche mortgage backed securities secured primarily by “option-adjustable-rate” mortgage loans (the “Option ARM Securities”) to an unaffiliated third party. Total consideration received for the Option ARM Securities was $378,000. "

Hmmm... so let's see... This bank found an interested third party to buy $47,300,000 worth of Option ARM mortgages for.... drum roll please... $378,000. Yep... that's .08% of their face value.

What??? Reeeeallly??? Now... a quick recap of Chapter 1 on "How to Value a Pile of Crap"...

If you have a big pile of crap on your front lawn and you put a sign out that says:

CRAP FOR SALE - $100 or best offer

and after about 2 years someone offers you ONE PENNY for it.... what was it worth?

Now... let's think about this... this small unknown bank was able to find a buyer that would take their 47 MILLION dollars worth of crap for oh... a 99% haircut.

What was their crap really worth?

Now let's think about Bank of America, who has HUNDREDS OF BILLIONS OF DOLLARS of this same CRAP (Option ARM Mortgages) on their books thanks to the Countrywide purchase...

and...

Wells Fargo, who originated HUNDREDS OF BILLIONS OF DOLLARS of this SAME CRAP on their own before swallowing Wachovia, which origniated HUNDREDS OF BILLIONS OF DOLLARS of this SAME CRAP on THEIR own before SWALLOWING Golden West/World Savings, which proudly boasted for years that they ORIGINATED THE IDEA OF THIS CRAP as well as ORIGINATING HUNDREDS OF BILLIONS OF DOLLARS of this SAME CRAP

and....

IndyMac Bank, which LOVED THIS CRAP and then failed... and Washington Mutual, which LOVED THIS CRAP and then failed...

and....

well... HOLY CRAP.

I'd say the market just told us that Wells, BofA and anyone else with this CRAP on their books is pretty likely to take a 99% haircut.

Let's not forget that Option Arm Mortgage defaults are also rising at an exponential rate as foreclosures filed in the latest quarters set... oh... another record. It's getting better out their, isn't it?

And what do they say this crap is worth? Have you seen the earnings reports they cooked up? Hmmmm.... who's lying now????

WAKE UP AMERICA... OUR BANKS HAVE FAILED... OUR SYSTEM IS COMPROMISED.... IT'S TIME TO TAKE IT BACK.

Sign of the Economic Apocalypse

2009-02-10T23:41:00.004-05:00

Another sign of economic apocalypse is upon us:

CNN Money is reporting that Wal-Mart is cutting jobs from it's Bentonville, Arkansas headquarters. 800 total white-collar jobs down the drain at the world's biggest retailer. While it may seem like a drop in the bucket compared to the hundreds of thousands of jobs being shed by companies such as GM it does call for pause.

Wal-Mart... laying people off. Wal-Mart. Click your heals 3 times.... there's no place like home, there's no place like home, there's no place like home, there's no place like home...

Wag the Dog

2009-02-09T21:59:00.004-05:00

Take a look at this clip from C-Span of Rep. Paul Kanjorski (D-PA) discussing the initial $700 Billion TARP Program. At about 2:20 into the video, he reveals what the Federal Reserve and Hank Paulson told Congress on September 15, 2008. The banking system was hours away from a complete meltdown.

Gee. Thanks. Place a check in the "Things We Already Knew" column.

What is most disturbing is this... and you have to watch the entire video to pick it up... it's worth it...

The clip begins in the middle of a rant from a woman caller explaining she's paid $600 in utility bills, is out of money, and the $800 Billion "stimulus" package should put money directly in the hands of the people and we'd stimulate the economy ourselves (she actually says this)...

Kanjorski then eschews the virtues of the decisions they've made, the impending collapse of the system and why TARP changed. This takes most of the rest of the video... here's the kicker...

At the end he actually says... and I shudder at this... he actually suggests that we ask people like the caller at the beginning of the clip for their opinions because they may have better ideas. Because, as Kanjorski puts it... they are not financial geniuses and don't have all the answers. MY GOD... as if we didn't know.

People... this man is a CONGRESSIONAL CAPITAL MARKETS COMMITTEE MEMBER. Shouldn't he have a certain level of expertise? Shouldn't he have better ideas than the caller who can't pay her utility bills? Shouldn't he be able to come up with something better than "let's solicit ideas from everyday Americans because they know better than us"...??????

WAIT... oh.... maybe he's actually on to something. This is scary, folks. This is our government in action.

Think The Job Depression is Over? Think Again

2009-02-08T21:55:00.003-05:00

It's amazing what politicians can twist and how blind they can be. Take a look at the chart below. It compares job losses in the current recession (depression) to the 1990 and 2001 recessions.

Notice anything different? I'll spare the insult to your intelligence and just ask this simple question... does anyone really think a second half rebound is in the cards? Oh... and another question... does anyone really think spending another TRILLION DOLLARS of our grand children's money will do anything? Anything at all?

We, The People

2009-02-07T22:56:00.003-05:00

It's time, folks. Time to consider the fact that our government is no longer "of the people, by the people and for the people". Time to consider the fact that we are swimming in a pool of s**t created by the wealthy ruling class of America. Time to consider the fact that our new President, while well-meaning and ground breaking, is a political pawn. Time to consider that the coming Depression... yes... I said it... could have been avoided.

The Founding Fathers were well aware of the corruption of money and power. It is what they feared most for our fledgling democracy. It has come to fruition. They would act. Shouldn't we?

"The people cannot be all, and always, well informed. The part which is wrong will be discontented, in proportion to the importance of the facts they misconceive. If they remain quiet under such misconceptions, it is lethargy, the forerunner of death to the public liberty. … What country before ever existed a century and half without a rebellion? And what country can preserve its liberties if their rulers are not warned from time to time that their people preserve the spirit of resistance? Let them take arms. The remedy is to set them right as to facts, pardon and pacify them. What signify a few lives lost in a century or two? The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants. It is its natural manure."

- Thomas Jefferson

The Mess That Greenspan Made: "End the Fed" legislation reintroduced

2009-02-05T12:08:00.000-05:00

The Mess That Greenspan Made: "End the Fed" legislation reintroduced

Reality Has Become The Perception

2008-10-10T14:51:00.005-04:00

In this scene from "Wall Street" Gordon Gekko reminds us that most of what we see in he financial world is an illusion. The perception has become reality. "I create nothing; I OWN."

I believe what we are witnessing in this historic time is that reality eventually wins. The problem, however, is that when reality IS the perception, the let-down is even greater than the original ruse. Why? Because we watch those that created the "reality" crumble under the perception that they have failed.

Calls for the bottom are overly optimistic. The reality here is that... sometimes, Reality Bites.

An Email to Friends

2008-10-05T23:09:00.001-04:00

Hey guys... I know, I know... another "doomsday" scenario from Chris, ever the pessismist... but I ask both of you, who know me so well... to ask yourselves a serious question... "Was Klein always such a pessismist?"

I think you know the answer to that. I'm not. I'm actually an optimist and an opportunity-taker... if you will.
We are on the precipice of the greatest financial catastrophe in modern history, and I think you are both beginning to realize that. As my father says... this is the time to find your opportunity and make the most of it. The more informed and realistic you are, the better off you will be.

Please read the following.... and take it to heart. I care about both of you very much and I don't see any way out of this mess (given what I know and what I've learned) for a few years. The government is doing everything they can to cover up the mess and protect those who took advantage of all of us... they will fall, as they stood atop the house of cards. The real question is... "Who will rise from the ashes?"

"Despite last summer’s collapse in private-label MBS and related markets, the faltering Wall Street Bubble nonetheless persevered up until the Lehman collapse. While it was problematic that overall system Credit growth had slowed markedly, there remained key sectors of Credit and risk intermediation that remained very much in expansionary mode. In particular, GSE-related obligations, bank Credit, and money market fund assets had expanded rapidly in spite of the subprime collapse. Importantly, the speculator community had maintained easy access to cheap finance. As I have noted often, despite the unfolding bust in mortgage and risk assets, market faith in “money” and the core of the system had held steadfast. This all ended abruptly three weeks ago with the Lehman filing.

Today, confidence has been shattered, and Wall Street finance is a complete and unsalvageable bust. The spigot for Trillions of finance - that for years fueled the asset markets and U.S. Bubble economy – has been essentially shut off and dismantled. In particular, Wall Street finance was a mechanism for intermediating higher-yielding riskier loans. This finance provided rocket fuel for both residential and commercial real estate markets – and the attendant wealth effects. Wall Street finance also grew into the key source of finance for auto purchases, student loans, Credit cards, municipal finance and various business enterprises. Many of these loans were of a risk profile unappealing to traditional bank lending – and, hence, provided the type of higher yields quite appealing to the speculator community.

And, importantly, as the stature of Wall Street finance grew its impact upon the real economy became embedded deep into the Economic Structure. Or, stated differently, risky loans came to play a major role in determining spending and investment patterns throughout the “Bubble” economy. Wall Street finance became a major direct and indirect generator of household incomes and corporate profits. Moreover, Wall Street finance came to dominate the flow of finance both in and out of the securities markets. Wall Street could create its own liquidity and funnel it into the U.S. and global markets – and earn unimaginable returns in the process.

It is today impossible to comprehend the full ramifications from The Bust in Wall Street Finance. Yet we can be rather certain that for the foreseeable future much less Credit and liquidity will be directed to the asset markets. And, at the same time, there will be significantly less Credit Availability for riskier loans of all varieties – for the household, business, financial and the government sectors. Few appreciate that these dynamics are extremely problematic for the U.S. Bubble Economy – an economic system that had come to a large extent to be governed by asset-based and high-risk lending. These dynamics are at the heart of today’s Acute Financial and Economic Fragility and the resulting imploding markets.

The leveraged speculating community played such an integral role in the overall Credit Bubble and, more specifically, to the Bubble in Wall Street Finance. They were instrumental in both spurring financial sector Credit creation/leveraging, while directing this Flood of Finance to the asset markets. And the more the leverage and the greater the Flow to inflating markets, the higher the returns generated by this expanding pool of speculative finance. And the greater the returns, the more robust the “investment” flows into the hedge fund community – spurring more leverage and more potent fuel for additional self-reinforcing asset inflation. Well, this historic speculative Bubble is now in the process of blowing up. One of the greatest manias ever – surely The World's Greatest Episode of “Ponzi Finance” – is absolutely coming apart. And the wreckage is accumulating in all markets – everywhere.

Here at home, our maladjusted economic system will only be sustained by somewhere in the neighborhood of $2.0 TN of new Credit. It’s simply not going to happen. The $700bn from Washington would seem like an enormous amount of support. In reality, it’s nowhere even close to the amount necessary for systemic stabilization. To the $2.0 TN or so of new Credit required this year (and next) add perhaps as much as several Trillion more necessary to accommodate speculative de-leveraging (liquidations forced by huge losses). Importantly, the Bust in Wall Street Finance has ensured that insufficient liquidity will be forthcoming to maintain inflated asset prices and sustain the Bubble economy – creating catastrophe for the leveraged speculating community.

The “Freidmanites” thought they understood the (post-crash) policy mistakes that led to The Great Depression. They believed the “Roaring Twenties” was the “Golden Age of Capitalism.” The great bust could have been avoided with a simple ($5bn or so) banking system recapitalization. As we are witnessing today, the issue is not some manageable amount of new “capital” to replenish banking system losses. Instead, the predicament is the massive and unmanageable amount of new Credit necessary to, on the one hand, sustain a mal-adjusted Bubble Economy and, on the other, the Trillions more required to accommodate a gigantic speculative de-leveraging. I have a very difficult time seeing a way out of this terrible mess."

The above quote is from Prudent Bear

The Day America Woke Up

2008-09-29T23:02:00.004-04:00

America opened it's eyes today. Yes, there is a positive side to the rejection of the largest fleecing of the American Citizen in history. While political pundits positioned themselves on either side of the aisle after the "stunning" defeat of this bailout package what was over-looked is...

They listened. Our government heard us. Protests, faxes, emails, phone calls... no amount of begging by the likes of Hank Paulson, George Bush, Ben Bernanke, Nancy Pelosi, Barney Frank, Christopher Dodd, et. al can change that fact. All the posturing in the world cannot and will not change the fact that we, the people, rose up, shouted, screamed, kicked and wailed "PLEASE DO NOT DO THIS!"

and... Congress blinked. So... bring on Armageddon. Let the apocolypse begin. Because Lord knows, Hank, Ben, G.W. and Nancy all told us it was going to happen if they didn't get to spend our money, so it must be so.

Are our problems solved? Not in the least. Are tough times ahead? Certainly. Will they try to ram another package down our throats? Probably. Will that pass? Who knows, but it shouldn't.

A crack addict has to hit rock bottom to recover. You can't hand him a rock every now and then and expect any change. However... cold turkey, no matter the pain, results in recovery and in recovery he gains strength. Think about it.

Credit is frozen or freezing over. Credit is what got us into this mess in the first place. Cold turkey might be the best thing.

A Request for Our Leaders

2008-09-23T10:42:00.003-04:00

Please do not allow this reckless legislation and obvious bailout of Wall Street to pass. The true cost of this is much more in terms of OUR money... the PEOPLE'S money and more importantly the CITIZENRY OF THE UNITED STATES' GOOD WILL.

For years, we have listened to those on Capitol Hill eschew the virtues of reigning in reckless spending and protecting the American people. Now that Wall Street has CLEARLY violated the public's trust through unwarranted leverage, spending and greed using taxpayer money and putting the long term security of this country at risk by borrowing from our future is downright criminal.

Let the markets correct themselves. What happened to the resiliency of the American people we so proudly put forth at every political convention and whenever those seeking office seek votes?

Have we become so very dependant on debt as a Nation that to allow the ponzi scheme that created this mess to fall is a BAD thing?

I beg of you, Sir, to stop the fleecing of America. Let the people rework this. Represent US. Do not do so would be a travesty of the American Idea.

Respectfully...

The People Of the United States

PLEASE...

EMAIL THIS TO ALL OF YOUR REPRESENTATIVES ON A LOCAL, STATE, AND NATIONAL LEVEL.

THIS IS A RECKLESS QUICK FIX TO AN ISSUE THAT MUST BE ALLOWED TO WORK ITSELF OUT. THE UNINTENDED CONSEQUENCES ARE FAR WORSE WITH GOVERNMENT INTERVENTION ON THIS SORT OF SCALE. If you believe the rhetoric of "this is better than the alternative"... ask yourself... "Why is no one allowed to even PRESENT an alternative... and if they are so right and so good at what they do, why has NOTHING worked in any way, shape or form up to this point?"

Ask yourself that.

Click this link for phone and fax numbers for Senators

Now What?

2008-09-22T23:50:00.003-04:00

The following is a reprint of my post for Wreconomic's sister blog: Foreclosure Statistics

OF COURSE the government is going to bail out Wall Street... what are friends for?

OF COURSE the government is going to pork up this bailout with some sort of foreclosure bailout package for homeowners.

OF COURSE this will not work, as NOTHING has worked since day one of this crisis. Why? Because values have not become remotely affordable and lending has contracted. No amount of bailout from anywhere will cause banks to loosen their lending standards to where they once were. As a matter of fact... this will most likely spark a huge sell-off in the Treasury Market, driving interest rates into the stratosphere.

You see.... our country is well past deficit spending... we are now spending our great-grand childrens' money. How can we do that? By borrowing it now. How do we borrow it? The Treasury sells more and more bonds to generate the cash now. As more bonds are generated, the supply swells, the price falls and the yields on those bonds rise. Interest rates rise. It's simple. And they know it. In effect, we will be printing money. They will argue that we aren't... but we are. Now combine falling asset values (housing prices, car prices, goods prices, stock prices) with an increased money supply (selling treasuries like mad to generate the cash to give to banks to buy the bad assets) and a lending contraction and...

PRESTO!

Lock up. Freeze. Bust. DEPRESSION. Call it whatever you want, but it ain't gonna get any better. Just how in the HELL is this going to help anyone? Really?

When the median home price is still WELL out of reach of the median income... just how is this going to help? Actually... no one in our pathetic excuse for a government has given us any reason that this will help. All they can say is that this is necessary and preferred over the "alternative." I ask you ... Senator Havalot... what, exactly, IS the alternative? And if that unspoken alternative is the big D word... why is it ALL OF A SUDDEN THE ONLY ALTERNATIVE? Where IN GOD'S NAME WERE YOU FOR THE LAST 2 YEARS WHILE THE WORLD CAUGHT ON FIRE?

HOLY COW, PEOPLE... IT'S TIME FOR A REVOLUTION. Remove the traitors. The Founding Fathers would have.

Hank Paulson's Plan

2008-09-22T22:59:00.003-04:00

Is it just me or does it seem like something else is going on around here?

The End Game is Near

2008-09-14T23:06:00.005-04:00

Imagine yourself on a pristine beach, watching the seagulls soaring above, the dolphins feeding in the distance all the while feeling that warm, comforting breeze blowing inland. Salt spray caresses your senses and the soft sand beneath your feet comforts your soul.

Gazing seaward, you notice a small vessel on the horizon. As you focus your eyes on the boat, you notice what seems to be a small wave working it's way from the back of your view towards the hapless craft. Thinking nothing of it, you blink, only to discover that the wave has swallowed the boat and nothing is left. You curl your toes in the sand and a slightly uneasy feeling drifts over you. Your concern is mostly for the souls lost when the sea took the vessel to the bottom.

But the smell of the sea and the light breeze soon settle your soul once more. Casting your eyes once again towards the sea, you notice the wave has grown to a small bump, nearer than the horizon. "Must've been a big one... glad it's not near the shore..." you think to yourself.

Sitting down on the sand, you begin to feel comforted again by the fact that you are so far away from this event that it could not possibly affect you. As the seconds pass, you begin to realize that the shore line has extended itself about 500 yards further down the beach. Remembering something you saw on TV a few years back, you come to the realization that this isn't good. Just as you begin to think you should leave the beach, you look up and........................................

Countrywide, Indymac, Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Wachovia, Washington Mutual, National City and over 280 mortgage companies... GONE or GOING TO BE GONE.

Who thinks this crisis is near bottom? Show of hands....

Let the games begin!

2008-09-10T15:10:00.003-04:00

The picture above is not for effect, folks. It's the face page from Fannie Mae's Prospectus. In case you have trouble seeing it, or are too lazy to look at it... allow me to help you:

"THE CERTIFICATES AND PAYMENTS OF PRINCIPAL AND INTEREST ON THE CERTIFICATES ARE NOT GUARANTEED BY THE UNITED STATES AND DO NOT CONSTITUTE A DEBT OR OBLIGATION OF THE UNITED STATES OR ANY OF ITS AGENCIES OR INSTRUMENTALITIES OTHER THAN FANNIE MAE" oh... may I add EXCEPT FOR YOU AND YOU AND YOU AND YOU AND YOU AND YOU AND....... ALL THE TAXPAYERS.

Of course... that doesn't appear anywhere, does it?

There. Does that help? Many thanks to The Market Ticker for that one. I've been waiting for the dust to settle on this before having at it, but it suffices to say that I'm absolutely stunned that a lowly mortgage guy such as myself could have predicted this before all the phonies on TV/Wall Street and the U.S. Government. As a matter of fact... we could all see this train wreck coming, couldn't we.

This isn't over by a long shot, people. There are SERIOUS implications to the "Nationalization" of both Fannie and Freddie. Legal, economic and moral. The robber barrons have resurfaced. The fleecing of America is almost complete. Now they've got our homes by the balls.

I encourage you to travel over to The Market Ticker and review. His opinion is a pretty close to mine. More later.

American Housing's Last Rites

2008-09-05T22:31:00.005-04:00

Funny how these things happen, isn't it? Hmmm... let's see... as pontificated on February 18th, March 3rd, 4th, 22nd and 29th, today, September 5th, there are reports that the Treasury is near a plan to backstop Fannie Mae and Freddie Mac, effectively wiping out the shareholders and placing the burden of these completely insolvent institutions on the American Taxpayers' backs.

Pathetic. No... incredibly pathetic. Will common sense ever return to the American Pysche? I think not. Not until we hit rock bottom. Crack addicts hit rock bottom and either slowly rebound or die. This is where we are, America. Don't believe it? Think again. Our Government continues to feed us lies we know are not true but cling to in an effort to deny the oncoming pain.

As I said on February 18th of this year in Are Fannie and Freddie The Next to Fall:

"Fannie and Freddie have already posted MULTI-BILLION DOLLLAR LOSSES. All due to the fact that foreclosures on their books are at record levels. Now, let's add mortgages that are almost THREE TIMES THE SIZE of the median home price in the country. Mortgages that are either in default or about to go into default. Let's burden the GSE's with these toxic buyers. Oh yeah, and add on a heavy dose of depreciating assets.

What do YOU think will happen. It's clear to me, as it should be clear to everyone out there, that the government has absolutley NO idea what to do with this crisis. It's also very clear that Wall Street is not running for cover, but DIVING for it.

The thought that we are about to dump this problem on Fannie Mae and Freddie Mac should be a very sobering one."

Gee... I guess Bernanke, Paulson and company didn't see THAT one coming.

Following up on March 1st with Pulling The Plug on Fannie Mae and Freddie Mac:

"Who's passing out the crack pipe at these "meetings"? These firms are both upside down and insolvent. Their loan pipes are spiraling towards mass foreclosure on the subprime, Alt-A and prime side.

Increasing the loan limits and encouraging them to take more risk is going to help?

Not a chance, folks. This is a big set up for a taxpayer funded bailout, and yet another brilliant example of Wreckonomics....

The goal here is for these companies to take the bad mortgages off the books of the big banks (that are all teetering on the edge of failure as we speak). Once this happens, it will be much easier for the sheeple to accept a taxpayer funded government bailout.

Once again... the wicked web is weaved, and we are the flies getting the juice sucked out of us."

And, on March 4 the lunacy continued, as outlined in Big Ben and the Fed - The Setup is Here:

"The bailout, however nuts, is in the works. Bernanke goes on to say:

"The government-sponsored enterprises (GSEs), Fannie Mae (FNM) and Freddie Mac (FRE), likewise could do a great deal to address the current problems in housing and the mortgage market," Bernanke said. "New capital-raising by the GSEs, together with congressional action to strengthen the supervision of these companies, would allow Fannie and Freddie to expand significantly the number of new mortgages that they securitize."

"I urge the Congress and the GSEs to take the steps necessary to allow more potential homebuyers access to mortgage credit at reasonable terms. "

The groundwork is being laid. The fix is in, and they know it. We are going to pay for this mess, folks. Better get used to the idea."

As not to overdue the obvious, it pays also to read This Storm Will Have Many Eyes and Here Comes the Bailout, both from March.

The point? I think you get the point. The real estate party is over, baby. For anyone who believes it isn't, get a life. NO... really... get a life. Or a job, but those are going to get increasingly harder to come by as well.

What's going to happen? Well for starters, you can bet your bottom dollar that down payment requirements are going to increase. By the end of this year, you can count on needing a minimum 10% down payment on any sort of conventional type mortgage. Don't believe it? Zero down is gone. 3% down is gone. 5% down is currently available only in "non-declining markets" of which there are few. FHA is increasing their down payment from 3% to 3.5% on October 1st.

Wasn't it just about a year ago there was talk of lowering FHA's minimum requirement to "help" homeowners? What happened to that?

Things got worse. That's what happened. The bottom is nowhere near. We've got another 20%to go. Foreclosures are at a 30 year high, deliquencies are almost 9% on PRIME mortages, Alt-A is getting worse and subprime (remember that term?) is still going bad at a 25% clip. The inventory of available homes for sale is rapidly rising.

Now throw in hundreds of thousands of job losses and a broadly weakening economy. You get the point.

Who Do YOU Believe?

2008-08-18T22:53:00.003-04:00

As part of my series on the Who, What, Why, When and Where of this tragic tale...

I present the WHO.

Today, we see that Fannie and Freddie are once again on the verge of collapse. But wait... here comes Uncle Sam to the rescue. You know... the government bailing them out.

Who let this happen? Who is going to fix it? Who is going to pay the price?

Easy. We did. We are. We are.

Why "We" and not the banks, brokers, agents, appraisers, financiers or the government? Really. Why not?

This is a question I've thought about over and over for the last 2 years. You see... I'm a mortgage professional. I've been helping people get mortgages for 19 years. I've been a broker and a banker. I've seen good credit and bad. I've watched thousands of people "over-buy" pushing for that sliver of the American Dream. All the while, lending standards slowly began to disappear ultimately, in my opinion, disappearing all together. When you can offer 100% financing on a NO DOCUMENT loan... there is no such thing as an underwriting standard. As a matter of fact, there was, if you will, no such thing as an actual underwriter during that time. Sure, there were people called underwriters, but essentially all they did was check to make sure applications and disclosures were signed and dated correctly but beyond that... well.. you can do the math.

There's a finger pointed in every direction on this one. The banks are pointing at the appraisers and the brokers. The brokers are pointing at the banks. The appraisers are pointing at the brokers and the banks. Analysts are pointing at the Government. Analysts are also pointing the finger at the banks, brokers, appraisers and the buyers.

My first inclination was to point the finger at the Government. After all, it's our Government who encourages things like spending our tax rebates. It's our Government who encourages us to borrow more and more. Just look at what they do... our National Debt is crushing us. We borrow.

Then it hit me. Our Government. We, the people. Sound familiar? We are the Government. We are the banks, the brokers, the appraisers, the financiers, the representatives, the agents and the buyers. We did it. We knew it wouldn't last. We did not want to believe it could end, so we turned the other cheek and ignored the problem. It's all of us. It's our fault. We have no one to blame but ourselves.

The real question here is "Who will fix it?"...

We will. How? Well, that is the 65 million dollar question, now isn't it. One thing I can tell you is that our current form of Government won't do it. They continue to lie to us on a daily basis about the severity of the problem.

Remember the subprime issue? That was a good one. According to Hank Paulson, Ben Bernanke and company, that was over oh... about a year ago. Remember the housing market? Didn't that bottom out 5 or 6 times now? Consider New Fears Of A Fannie and Freddie Bailout Hit Shares and Foreclosure Plague Widens, both recent articles from CNN on the ongoing and widening process.

Freddie Mac is continuing to assert the insane fact that they are adequately capitalized. Please. Stop lying to us. Our Government continues to attempt to artificially prop up already INSANE housing prices by passing meaningless bailout legislation like the Housing Bill just inked. PLEASE... STOP LYING TO US.

WAIT... If WE are the Government, aren't we STILL LYING TO OURSELVES??

Really, America... Who HAVE we become? WHO ARE WE?

Self respect has disappeared.

Coming Soon To A Digital Download Near You: The iTax

2008-08-12T17:06:00.006-04:00

My series on the WHO, WHAT, WHERE, WHEN, and WHY of the credit crunch steps aside briefly...

And on a humorous note (though not really, if you think about it), I've come across this little tidbit:

A Proposed Tax on Digital Downloads

Interesting read. The basics are simple... you download a 99 cent song from iTunes, you pay the state sales tax. I'm not going to bore you with the details... click the link above to read the article.

One thing I did think was funny, though, was that the guy from NetChoice, and industry tech group lobbying against the tax uses the argument that downloads are eco-friendly as opposed to all the pollution casued by transporting CD's to and from stores.

"With global warming and a world that's running out of oil, the last thing
governments should do is add taxes on something that uses no oil and produces no
carbon," said Steve DelBianco, executive director of NetChoice. "A digital
download is the greenest way to buy music, movies, and software, since it
requires no driving to the store, no delivery vans, and no plastics or
packaging."

Really. That's funny.

The dollars and sense of it, however, tell a consistant story. As you
can see from the article,

"Including Nebraska and Tennessee, there are 17 states, plus the District of Columbia, that tax digital downloads, according to our earlier research: Alabama, Arizona, Colorado, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Maine, New Jersey, New Mexico, South Dakota, Texas, Utah, and Washington."

Anyone in any of those states realize this? It would be interesting to know.

Anyway... look for this idea to gain support nationwide and even and attempt to push this to a congressional vote. Keep in mind I said attempt.

Regardless... states are hurting for tax dollars, as they, too, became serious consumers through this boom, and as foreclosures rise and employment falls, any thing that can generate significant revenue to shore up bleeeding budgets will be fast tracked....

Ask not for whom the bell tolls....

2008-06-13T10:30:00.006-04:00

It's been a few months since my last post, and a lot has happened. It isn't easy reporting on the downfall of the American Economic Tragedy every day, especially with a family the size of mine.

It also isn't easy watching the industry you've been a part of and dedicated your career to literally self-combust right in front of your eyes. In other words, it can get darned depressing at times.

Family and personal obligations have made it a little hard to keep Wreckonomics up-to-date, but let's give it a try...

Hmmm... since we last spoke...

Foreclosures continue to spike to all time records

FHA has reported a 4.6 Billion dollar loss

Lehman is ready to collapse

Consumer Sentiment is at a 25 year low

Unemployment is beginning to spike

Freddie Mac is insolvent

Fannie Mae is insolvent

The Government Bailed Out Fannie and Freddie with our money

GM is on the verge of Bankruptcy

IndyMac Bank has failed

Countrywide is being sued by multiple states

Yep...

Status quo for the great unwinding of American Capitalism.

What I find most intriguing is that our government continues to sugar-coat all of this as if there is an easy way out. Our government continues to spin this massive bailout as a good thing for all of us. I think I can sum it up with a little "Who, What, Where, When and Why?"

Who

Wall Street and The Federal Government

What

The American Citizens' financial well-being

Where

The entire world

When

The last 40 years up until this very second

Why

Greed.

The focus of my next few posts will be an expose on just that... the Who, What, Where, When and Why of the great fall of our American Empire. Make no bones about it, folks, that's what we are. Of course, History and God will be the ultimate judges of this great experiment...

What Happens When The Fed Runs out of Money?

2008-04-09T15:02:00.002-04:00

The easy answer would be they print more! Without getting into all of the implications of just printing money (as the Fed wouldn't actually do that) what most don't realize is that the Fed actually does have a finite amount of money to lend.

Once the balance sheet is cleared, they must petition congress for the ability to sell more Treasury Bills in order to keep themselves liquid.

This is precisely where the Federal Reserve is headed. And this is also precisely right up "bail out alley".

Consider the following from SafeHaven.com:

"Whoever believes that the most recent Fed/JP Morgan heist to acquire Bear Stearns, along with other simultaneous and preceding Fed actions, were "successful" had better check again.

The current crisis is so severe, and it has already forced the Fed to reach into its own balance sheet grab-bag so deeply, that a very legitimate question arises, and the question is this: when the Fed ploughs all the way through its own balance sheet and gets to the bottom of the barrel, who will bail it out?

Before boring you to tears with the gory details, I can give you the answer right now:

You will.

And so will I, and every other American. Isn't that nice of us?...

So, how will you bail out the Fed, then?

(I wish I had published this article earlier, because I have been playing around with a draft for over a week now. Had I done so, could have bragged about my "prescience." However, when it comes to the Fed and other corrupt power centers in today's world (or that of ant day and age), all you have to do is assume the worst case scenario, and you'll be pretty much on target.)

The point: You will bail out the Fed because, once the Fed burns through its balance sheet of US treasuries with its current Term Securities Lending Facility (TSLF), it can only get more treasuries onto its balance sheet by having Congress allow the Treasury to borrow more money from the Fed than the Treasury really needs."

A stunning revelation, but one that smacks of truth. Consider this Wall Street Journal article, which says:

"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."

Let's consider that for a moment.... ok, moment's gone. Having the treasury borrow more money that it needs is clearly a scary thought. But a consistant one, at that. Hasn't the government been encouraging ALL Americans to borrow more than they need for the sake of our red hot economy for the last 20 years?

It's times like these and "solutions" like those that betray the true intentions of our Wreckonomy. Congress will give the Fed the authority to lend on Congress's behalf. Keep the money pumping into the system. Money to prop up values on billions of dollars of worthless assets. Money to pour over insolvent institutions. So much money that we never really see the actual issues.

In the end, when all else fails and the true nature of the giant credit virus comes into full view... Congress's debt is OUR debt. Your debt. My debt. America's debt.

Thus, the bailout marches forward.

Here Comes The Bailout

2008-03-29T22:52:00.002-04:00

Are you ready, America? Ready for your tax dollars to bail out our crashing housing market? Ready for your hard-earned income to not only pay your rent or your mortgage... but all mortgages?

How conveniant (as usual) that a story as serious as this is broken on a weekend!

Insanity has become the norm. The Washington Post is reporting that the Bush Administration is finalizing a plan to use Federal Dollars (uh... our money) to back mortgages for the nearly 8.8 million homeowners with negative equity. The plan would force current lenders to forgive a significant portion of the mortgage (in effect this is a forced short-sale) and allow the homeowner to refinance into a loan guaranteed by FHA.

Can any of the absolute idiots in this administration (that's really what it's come to, hasn't it... they are just crazy about trying to stop the inevitable) see that this will only drive housing prices further down, and faster at that? These homes are already under water and asking a lender to just forget about what is owed, and another lender to pick up the pieces only reduces the value of the asset further... without natural market forces in action.

The plan also requires the homeowner to remain in the property for an unspecified amount of time... how do you do that without some sort of "prepayment penalty" either implied or actually assessed... how do you do that? Isn't that restricting their freedom to live wherever the hell they want whenever they want? Better yet, isn't that the sort of thing that helped to get us into this mess in the first place?

All the math in the world doesn't add up to this, folks. The government realizes how perilous the situation is and is unwilling to tell us. They also realize that if things continue to get worse, cracks in the armor will expose the truth that is already pretty obvious from an anecdotal standpoint.

God Bless us all... we're gonna need it.

All Hands On Deck!

2008-03-27T15:18:00.004-04:00

This should come as no suprise. Bloomberg is reporting today that Asset-Backed Commercial Paper Falls for Fourth Week . What does this mean to the rest of us?

Well... we've made it through one of this storm's many eyes, and the headwinds are picking up again. Simply put in the article:

"The market for short-term debt backed by assets including car loans, credit card receivables and mortgages shrank for a fourth consecutive week amid signs that credit quality is weakening."

Every wave of the credit crisis thus far has begun in a similar way. Asset backed short term paper demand dries up, funding for the long end wanes, and we have another failure.

Weren't we all done with this? Wasn't the Fed's Bailout of Bear Stearns and opening of a special discount window to the broker/dealers supposed to increase the liquidity in the markets?

From a separate Bloomberg Article:

"``The Fed is trying to drive a car with only slight control of the steering wheel and no control of the gas or the brakes,'' Clive Granger, the 2003 Nobel laureate in economics and professor emeritus at University of California, San Diego, said in an interview."

The coming days will see another wave of the credit crisis hit our shores. Look for a big failure or write-down in the wake of this part of the storm. Each wave gets bigger and bigger.

All-in-all it looks like the storm is once again picking up speed.

This Storm Will Have Many Eyes

2008-03-22T23:19:00.002-04:00

For anyone who thinks the latest Fed Action in the wake of the Bear Stearns collapse will help to stem the incoming perfect storm, think again.

Make no mistake, here. Bear Stearns collapsed. KaPOOOIE! Gone. An institution that claimed to have a book value of $80 dollars a share in just a week was forced by the Federal Government to dump itself into JP Morgan for $2 dollars a share. Hmmmm.

Within days, Fannie and Freddie announced that their capital reserve requirements had all but been eliminated, and they would immediately begin to take on more and more of the remaining mortgage market.

This is nationalization, folks. Get ready for it. As a matter of fact, Wreckonomics predicted this back on March 1st... Pulling The Plug On Fannie Mae and Freddie Mac , when I said:

"This is a big set up for a taxpayer funded bailout, and yet another brilliant example of Wreckonomics... The goal here is for these companies to take the bad mortgages off the books of the big banks (that are all teetering on the edge of failure as we speak). Once this happens, it will be much easier for the sheeple to accept a taxpayer funded government bailout."

Nationalization is a very innocuous term for THE TAXPAYER, IN OTHER WORDS YOU AND ME AND EVERYONE AROUND YOU WILL BE PAYING FOR THE INCREDIBLE UNBRIDLED RISKS TAKEN BY MORTGAGE LENDERS and WALL STREET FINANCIERS. We will all be paying for the lies and manipulation. We will be bailing out the very criminals who, at the end of this crisis... if it ever ends, will end up even richer than when they started. The big boy network is circling the wagons, again, and we are getting stuck with the bill. But I digress...

As Doug Noland from Prudent Bear says:

"I have fully expected the GSEs, at some point, to be taken over by the federal government. It may have been orchestrated subtly, but I can only presume that such a historic endeavor was accepted this week as the only means of averting financial dislocation. And for their regulator to suggest that the GSEs today have any handle whatsoever over their unfolding “risk management” challenge is wishful thinking - at best...

As far as I’m concerned, much of the U.S. mortgage market was this week essentially Nationalized. I’ll take the dramatic narrowing in agency debt and MBS spreads as support for this view. Additional support arrived from comments from Mr. Lockhart, Mr. Paulson, and actions by the Federal Reserve. Having lived contently for years with the markets’ interpretation of the (grey-area) “implied” government backing of the GSEs, our policymakers are surely today satisfied with the inferred market acceptance of mortgage industry Nationalization. To be sure, the Fed’s Splashy “Sunday Night Special” bailout of Bear Stearns is rather trivial in both its implications and consequences when compared to Thursday’s Quiet Coup. "

Mike Shedlock of Global Economic Trend Analysis apparantly feels the same way...

"Fannie and Freddie are likely to get into further trouble but it will likely take some time as the housing market continues to deteriorate. Indeed, the actions by the Office of Federal Housing Enterprise Oversight (OFHEO) to give Fannie and Freddie more rope in which to hang themselves are "quiet" step that will play out over time. It's not a waterfall event. Down the road, should Fannie and Freddie blow up, expect to see shareholders brutally punished, just as happened with Bear Stearns."

The real question here is not whether we are right, but if it will do anything at all to help. Not likely. More evidence is surfacing that shows we are probably in headed for an even greater credit crisis. Subprime delinquencies are in the 30% range. This is absolutely amazing on it's own, but a recent report shows that Alt-A deliquencies are approaching 18%.

Alt-A loans, for those not sure, are loans where the borrower typically has a decent credit profile, but may be looking for 100% financing or cannot document their income in a traditional manner. Fannie and Freddie slurped up billions of dollars of these types of loans over the past 5 years, effectively tripling the amount of their loan book. These loans are starting to go bad an an alarming pace and according to Housing Wire,

"While non-industry media are incorrectly and inexplicably zeroing in on rate resets as the driver behind the recent spike of Alt-A borrower defaults, most industry experts that have spoken with Housing Wire have suggested that as many as 70 percent of Alt-A loans originated in recent years have been fraudulent.

“It’s fraud [that is] now coming home to roost, higher lending limits or not,” said one source, who asked not to be named. “Rate resets aren’t the problem here, and even if they were, LIBOR is low enough right now that it would ease payment shocks for most borrowers.”

That's right... 70% of these loans may be fraud. Really not that suprising and if true... another curveball. How do you help these "homeowners" save their homes? You don't. They probably don't want to anyway.

Is it any suprise that Fannie, Freddie Face “Severe” Capital Pressures? Nope. Not a bit. The bottom line still lies with the fact that a severe amount of fraud in an already loose credit system helped to perpetuate the largest housing bubble this nation, and in fact, the entire world has ever seen. Now the perpetrators of this fraud are attempting to cover it in every way possible. It's funny how the truth has it's own way of finding the light.

I will leave you with the following quote from Denninger at Market Ticker:

"Confidence is, at this point, basically gone."

"America is going broke and the rest of the world knows it."

2008-03-14T11:54:00.002-04:00

Thanks to CounterPunch.org for the headline above. The unfortunate thing is that while most headlines are designed to grab attention and don't always apply to the story below, this one is, I believe, right on.

Now we all know that Monday-Morning-Quarterbacking is the easiest thing in the world to do, and that most often the beer-laden couch potato rarely has any idea what the next play is really going to be. Funny thing in the game of Wreckonomics, however, is that all of us MM QBs seem to be ahead of every curve.

Today, Bear Stearns collapsed. Oh, I know... the headlines don't tell us that, but here's the headline from CNNMoney...

Bear Stearns Nose Dives On Rescue Plan

What else can you read into this? They collapsed on their own ridiculous ponzi mortgage bets.

This is on the heals of Carlyle Capital failing on the same insane bets.

The credit markets have been unwinding for over a year. Liquidity has evaporated, and the Federal Reserve has been propping up the banking system the entire time.

Of course, now that the prospects of a severe recession are evident not just to those being driven around in limosines and meeting in walnut or oak rimmed board rooms but the general publice, Martin Feldstein has this to say about it...

"The situation is very bad, the situation is getting worse, and the risks are that it could get very bad," Feldstein said in a speech at the Futures Industry Association meeting in Boca Raton, Florida.

Wake up, America. The "I want it all, I want it all and I want it now" mentality has crushed us. It's about time we admit it and prepare ourselves for tough times.

More to come.

Did the Fed Really Help?

2008-03-11T22:59:00.002-04:00

The Fed today announced that it is priming the credit bubble pump by lending banks another $200 Billion dollars (short term 28 day paper). Of course, the banks are using MBS (mortgage backed securities) as the collateral for these loans.

So... what does this all mean, and is it really a sign that the Fed is "helping" the markets? Consider this report from Housing Wire: (bold is my emphasis)

IndyMac Bancorp, Inc. said Tuesday morning that “panic market conditions” surrounding mortgages have turned the capital markets onto their head, and that as a result the thrift would likely miss its first quarter earnings guidance. The bank had originally forecast a net loss of $38 million for the quarter in an investor presentation on February 12.

In a filing with the Securities and Exchange Commission, IndyMac noted that “spreads on everything” had reached “near all-time historic levels,” and that the Pasadena-based thrift could not estimate the effect of market turmoil on its MBS portfolio.

“Spreads between Treasuries and other instruments, in particular, non-GSE mortgage assets, are difficult to ascertain, given the fact that there are virtually no new non-GSE mortgage securities issuances and the only resale activity is a handful of distressed sales,” the company said in its filing. “As a result, the financial impact of this spread widening on Indymac is difficult to estimate at this time, but it is expected to have a negative effect on the value of IMB’s MBS portfolio.”

Seventeen percent of IndyMac’s MBS portfolio is classifed as “trading” for accounting purposes, which means that write-downs to this portion of the portfolio will directly impact earnings for the quarter.

The thrift said 86 percent of its total MBS portfolio was comprised of Alt-A-backed securities; this securities class, in particular, has been roiled in the past week amid rumors that UBS AG dumped more than $24 billion of investment-grade Alt-A RMBS earlier this month.

For more information, visit http://www.indymac.com.

So... what exactly was going on here?

Easy... the markets have frozen solid. There is no value in MBS's because no one knows what they are really worth. The big issue, however, is that banks are out of money. Plain and simple. Margin calls are coming in left and right on leveraged assets with evaporating values. They have lots of toxic paper to sell (paper they've basically fabricated value for) and no takers. None. Zip. Zero. So.... in order to keep the markets liquid, the Fed has agreed to take this paper as collateral for loans to keep cash in the vault, so to speak.

This wasn't a move to stabilize, this was a panic move by the Fed to buy a little more time to see if their failed monetary policy (you know, lower rates and throw gasoline on the inflation fire... almost literally) will work.

And don't you just love the traders excuse to rally the Dow (JUST 30 STOCKS IN THE DOW FOLKS) over 400 points? Nice.

Won't work... liquidity isn't the issue. Insolvency is. They are pouring gasoline on a fire to put it out. Maybe they think they can douse it. That actually happens in the real world. If you have a fire and pour too much of anything on it, you smother it. Trouble is, they don't have enough to pour on it, and the little they do have continues to feed the fire.

They'll have to start issuing more bonds to keep the latest ponzi scheme going, and if they do that, watch out for real interest rates.... can you say SKY HIGH?

This train wreck keeps getting better and better.

Is a Depression On the Way?

2008-03-05T21:54:00.001-05:00

Who knows, but the talk is out there. Schiller, Williams and Roubini all think it's possible.

Blow Kisses To Citigroup

2008-03-05T21:33:00.002-05:00

You heard it here, folks. Kiss Citigroup goodbye. Sure, we'll be accused of rumor-mongering, but really now... is it that hard to see?

Citigroup annonced today that it is issuing a $2.5 Billion 30 year bond issue, 84% of which it is underwriting itself. The yield on this baby is a whopping 6.875%. This is pretty darn close to junk status, folks. They need capital so bad they're willing to take almost all the risk of underwriting the entire issue. Give the state of the credit markets, this is a do or die, in my opinion.

When the chief exectuive of sovereign wealth fund Dubai International Capital says your going to need "a lot more money" to weather the storm... you've got problems. Just what is "a lot more money" to the guy who back in November gave Citigroup $7.5 Billion?

Let's not forget the $12.5 Billion in stock issued and sold to the Kuwait Investment Authority and Prince Alwaleed Bin Talal Alsaud of Saudi Arabia.

They've also slashed their divident by a whopping 41%.

This is a fire sale, and it's not going to do any good. Citigroup is a sinking ship. Sure, they can make the argument that they have lots of business channels and lots of cash flow. Cash flowing right out the door on the heals of the billions of dollars of bad mortgages that leveraged billions more in exotic derivative investments.

Classic train wreck if I ever saw it.

Big Ben and the Fed - The Set Up Is Here

2008-03-04T22:54:00.002-05:00

There are those that say the Fed is behind the curve on the current financial crisis, and that may be true. Seems they are behind the curve on lots of things...

Recently, and I mean as recent as March 1, Wreckonomics stated that we felt that a large bank bailout was coming courtesy of Fannie Mae, Freddie Mac and FHA.

Today Fed Chairman Ben Bernake gave a speach in Orlando urging lenders to do more, like forgiving principal on loans to help ease the burden on homeowners (many of who never deserved the loans they recieved).

"This situation calls for a vigorous response," Bernanke said. "With low or negative equity, as I have mentioned, a stressed borrower has less ability and less financial incentive to try to remain in the home."

Bernanke actually thinks that giving away equity in a home will help the situation. I disagree completely. How much equity do you think a lender is willing to just walk away from? 10%? 20%? And when the values of the homes fall even further and owner's are back to less than 5% and perhaps even upside down again, how long until they walk away?

And let us not forget about the millions of responsible homeowners who qualified for their loans, put a little money down, and have been faithfully making their payments on time since day 1. Some for years and years. Don't they deserve even a little more of this gift?

Honestly... I don't have a PhD from Harvard and I'm not considered the world's foremost economist (yet)... but this is an amazingly insane idea and worse than that, it shows that our chief central banker now has no viable solution in mind. Do you really think this would happen? Lets get serious. They'll never do it because they know it's ludicrous.

The bailout, however nuts, is in the works. Bernanke goes on to say:

"The government-sponsored enterprises (GSEs), Fannie Mae (FNM) and Freddie Mac (FRE), likewise could do a great deal to address the current problems in housing and the mortgage market," Bernanke said. "New capital-raising by the GSEs, together with congressional action to strengthen the supervision of these companies, would allow Fannie and Freddie to expand significantly the number of new mortgages that they securitize."

"I urge the Congress and the GSEs to take the steps necessary to allow more potential homebuyers access to mortgage credit at reasonable terms. "

The groundwork is being laid. The fix is in, and they know it. We are going to pay for this mess, folks. Better get used to the idea.

As for the market itself... they really don't care. The banks are the number 1 priority.

Change. Is it Possible?

2008-03-02T23:40:00.009-05:00

It's almost sickening to hear Wreckonomists and financial analysts talk about the current financial breakdown. Predictions of a bottom not far away abound. Even as the news gets worse, their are those applying a heavy dose of sugar.

Moody's Economy.com is now using a 20% decline in housing value as the benchmark for it' economic forecasts for the current business year. All the while they are really using a figure of 20% to 40%. According to Moody's:

"Our weaker scenario...is a 25 percent decline in prices," says Celia Chen, Moody's director of housing economics. "That would be in the case of a housing and credit crash and still a moderate recession." There are new worst-case whispers as well. "You want the darkest? Forty percent," she says. "There's your apocalypse."

Hmmm... then aren't you saying that your best case is really 25% and you believe that a 40% drop is not impossible? That's what I read into this. Of course, last year prices declined by about 9% by year end, after climbing in the first part of the year. So another 25% would bring the total to just shy of 35% and if your worst case of 40% hits that it would be darn close to 50% total. Yep. Sounds about right. Oh... and the fact that even the worst "estimates" over the last year have so far been dusted... well... I'm going with the bigger numbers here.

Mind boggling, isn't it? It's been said that a picture is worth a thousand words... so I submit to you the following:

So let's see... Housing starts down by over 50%.... median existing price down by 12.6% ... number of months of unsold homes for sale (based on current home sale volume) up by 180%.

Sound like a 20% decline in value to you? Not a chance in you-know-where.

Next picture...

This sums up the upcoming problem pretty well. No household savings.... incredibly it dips briefly into negative territory right around 2004-2005. Any guess why? You bet... people were using their homes as a savings account. Imagine slowly watching your $10,000 savings account waste away to $8000? Of course, with a savings account doing that you'd pull the money out probably around $9500. When all of your savings is in your home, as the value plunges because of lack of demand for housing, you are forced to ride the wave down unless you can move, and not many people can do that on a dime. So you watch your savings disappear into thin air without much control. Now lets say you were one of the many who used 100% financing or are paying on an interest-only mortgage and, god forbid, and option arm with negative amortization... why any mortgage professional would ever recommend a loan like this is a mystery to me... well... you're in big trouble.

Your savings account isn't leveraged, but your house is. This is clearly one of the biggest "bubbles" ... and one of the most preventable that there has ever been.

SO.... let's all listen to Lawrence Yun, the chief Wreckonomist for the National Association of Realtors and his expert "forecasts". Here's one from 2005.

"The chance of a housing price decline in the DC area is close to zero, in my view. I anticipate that prices in DC will outpace the national average price growth. DC prices will rise at close to a 7 to 10 % rate of appreciation. That's not the 20 to 25% rate we've seen in the past, but it's still very respectful. "

Here's one from last week.

“There is no chance of a large price decline in Rockford (Illinois),” Lawrence Yun told a crowd of more than 400 at Cliffbreakers, 700 W. Riverside Blvd. “There is not a price bubble in Rockford.”

“The only thing I fear,” Yun told the crowd, “and I’m paraphrasing Franklin Delano Roosevelt here, is fear itself.”

This is what the NAR's Wreckonomics guru has to say? This is the best he can come up with? Please. Pinch me. I'm not hearing this.

The facts are plain and simple. The sooner we face them, the sooner we'll all be serious on an individual level about doing what's right. It seems that right now, in this upcoming election season, we hear partisan bickering about the war, taxes, special interst groups... you know, the usual. The Wreckonomy is only now just starting to bleed in... like the subprime crisis. One thing is consistant, however, throughout the McCain, Obama and Clinton camps... they are all for change.... let's hope one of them... the one that wins the Presidency, actually means it.

Pulling The Plug On Fannie Mae and Freddie Mac

2008-03-01T21:51:00.004-05:00

Glug glug glug.... can you hear that? It's the sound of Fannie and Freddie's liquidity slowly going down the drain. And that's the sound we heard BEFORE the OFHEO. Now it's just one big FLUSH.

The OFHEO (Office of Federal Housing Enterprise and Oversight) announced this past week that they will be lifting the capital restrictions (in other words, the 30% extra capital reserve requirement) on both GSEs in an attempt to free up more credit so Fannie and Freddie can help "ease" the unstable housing situation. Funny. No, absolutely hysterical.

Let us summarize...

In 2004 (near the height of housing and mortgage hysteria in this country) the OFHEO instituted higher capital reserve requirements (Fannie and Freddie had to keep 30% more "cash on hand") because it was discovered that there were accounting irregularities on their books. Irregularities that allowed their executives to literally make millions of dollars of profits by overstating earnings to hit basic productivity goals, as we understand it.

Yes, you read that right. Fannie and Freddie were lying about their earnings. Anyone suprised? But wait...

Fast forward to 2008. The United States is in what will become the worst housing crisis of our history and quite possibly the worst recession if not depression we have ever seen.

Both Fannie and Freddie have just posted MULTI-BILLION DOLLAR LOSSES. Losses that were 2-3 times what analysts predicted. They are cash strapped, if not damn near insolvent.

So let's remove any restrictions on the flow of credit from them. Let's increase their ability to take on risk and add even riskier loans to their portfolio. The following graph shows the percentage of subprime loans ALREADY on Freddie's books that are deliquent:

Who's passing out the crack pipe at these "meetings"? These firms are both upside down and insolvent. Their loan pipes are spiraling towards mass foreclosure on the subprime, Alt-A and prime side.

Increasing the loan limits and encouraging them to take more risk is going to help?

Not a chance, folks. This is a big set up for a taxpayer funded bailout, and yet another brilliant example of Wreckonomics.

Fannie was created by the government during the Great Depression, and Freddie was created in 1970. They are both what are know as "Quasi-Governmental" agencies. In other words... semi-private companies. You can buy stock. They report earnings. They have a board of directors, CEO, CFO, etc. BUT... they are basically controlled by the Federal Government. The OFHEO.

The goal here is for these companies to take the bad mortgages off the books of the big banks (that are all teetering on the edge of failure as we speak). Once this happens, it will be much easier for the sheeple to accept a taxpayer funded government bailout.

Once again... the wicked web is weaved, and we are the flies getting the juice sucked out of us.

Bank America Asks Government for a Bailout

2008-02-24T22:19:00.002-05:00

The New York Times has reported that Bank of America recently circulated a confidential proposal to select members of Congress warning that the losses from mortgage related writedowns could exceed 789 billion dollars.

From the article: Bold my emphasis, Italics my add.

"To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates." Is it just me, or are we rewarding people for having bad credit or lying about their ability to repay by forgiving debt and giving them lower rates? Why doesn't EVERYONE deserve this?

"“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market,” the financial institution noted." Ok, now this one just makes me laugh.

Ok, people, the real point here is in the number -- 789 Billion Dollars-- that Bank of America floated in Washington. Could it be that the insiders have known all along that this crisis will result in over a HALF TRILLION dollars in losses? Why would they float this number privately, but continue to publically support the notion that the worst is behind us?

Because the worst is not behind us. Not by a long shot. We've got 3 more years of this, at a minimum. Housing values on a national level are going to come down 50 to 60 percent before you even begin to sniff the bottom. The real question is who is going to be dragged under this bus and how long will the bottom last.

Stay tuned.

What Are the Banks Really Doing?

2008-02-23T23:23:00.004-05:00

Many thanks to Housing Doom for the post that spawned this comment:

"About one year ago, I read an article that stated the lenders don’t want to sell because that would translate into a loss on paper. However, as long as they hold the property, it is an ASSET! I suspected this a long time ago, even though the press and realtors told me that the banks don’t want to hold the properties….blah, blah, blah. It’s all about perception, not reality. They don’t care it the place falls down, just as long as they look good on paper."

It's an interesting point, and one that seems to make some sense (even though it's evil).

Most of the large mortgage providing banks such as Bank of America, Washington Mutual and Countrywide, Wachovia, Chase, Citigroup and smaller regional banks like National City are insolvent or very close to it because of the multi-billion dollar mortgage writedowns, the explosion of loan-loss reserves on their books and the billions more writedowns to come.

Couple this with the plethora of stories about entire blocks of foreclosed properties not on the market yet and properties where the banks are "sitting" on offers for 3 months or more, and you can see the value of that statement. They need to hold assets on their books and this is an easy way to do it.

But it's not the right thing to do. Not by a long shot. It only adds to the problem. The longer they keep homes on the books, the longer those homes remain vacant. The longer they remain vacant, the higher to probability that the homes fall victim to vandalism, squatting, drug dealing and disrepair. I don't need to tell anyone what that does to the values of the surrounding areas not to mention the bad karma. This also greatly decreases the chance that the home or any of the homes in the area will ever sell, and if they do... for pennies on the dollar. Add to this the 1 million homes that builders are already on pace to build this year (but in 2007 new homes sold at a 600K pace, so they are currently STILL building 40% more new housing than they need), the foreclosures that do hit the market and the existing level of inventory... throw in the credit crunch for good measure and see what happens.

This is frightening, folks. The banks are perfectly willing, if you believe this theory, to perpetuate the spiraling housing market to keep assets on their books to stay solvent. At the same time, they are petitioning the government to take their bad assets. Fed short term borrowing is at record levels and leveraged buyout deals are falling apart due to lack of funding.

Believable? You do the math.

Slipping Deeper into Doo-Doo

2008-02-22T11:30:00.004-05:00

Ok, so the title of my post is a little childish. I get it. But when you think about it, so is the ever upbeat reporting of the current financial crisis.

Take this article from Reuters, quoting Ara Hovnanian as saying that housing values should stabilize in the second quarter, with a rebound in sales by Spring of 2009.

"The head of the Red Bank, New Jersey-based home builder said he sees U.S. home prices stabilizing in the first half of this year and that prices likely remain constant for a "couple of quarters." But where will they go after that, oh great one?

"He said sales will sharply rebound once the excess inventory of new homes is sold."

"At the end of 2007, the supply of new homes for sale stood at 9.6 months, according to the U.S. Commerce Department, more than double what is considered a healthy supply."

Ok, so does anyone see the contradiction here? We've got darn near a 10 month supply of new homes available and builders haven't stopped building. Couple that with the supply of existing homes, foreclosures that are soon to be on the market, natural relocation statistics, the contraction of credit and the fact that we have a wildly overpriced housing market, even with the current decline and ... well... I guess it's easy to make predictions when you're already a billionaire.

Ara Hovnanian

I want some of whatever the hell this guy is smoking.

So let's move on...

The Philadelphia Fed Index declined yesterday from -20 to -24. As expected, "Wreconomists" got it all wrong. Expecting a rise to -10 (and that would be better?), many wreconomists were rather dismayed by the report.

"As far as this indicator is concerned, a recession, and a severe one at that, is already underway," said Paul Ashworth, at Capital Economics."

"The headline index is now consistent with a deep recession, if sustained at this level," said Ian Shepherdson, chief economist at High Frequency Economics in a note."

"It is one of the earliest readings on the U.S. economy in the month and has had a solid track record at predicting national manufacturing and future trends in actual output."

"The collapse in the outlook for activity six months out was particularly worrisome Merrill Lynch said. It posted the steepest decline in the 40-year history of this report, suggesting the United States is facing a recession on par with the early 1990s downturn rather than the milder 2001 contraction." Might I go out on a limb here and say on par with an even deeper recession... one that many of us don't remember?

Benjamin Tal, senior economist at CIBC World Markets "estimates 30% of below-prime mortgages taken out in 2006, including subprime and other exotic mortgages, are already in a negative equity position and that figure could climb to 50%. The urge to walk away from their homes will be high." Yep. Short lived this recession will be. Housing prices... no problem. They're gonna rebound in July this year!

Are Fannie and Freddie the next to fall?

2008-02-18T16:00:00.002-05:00

As the credit crisis continues, a couple of thoughts come to mind. Sobering thoughts.

Fannie Mae and Freddie Mac have all but been completely cleared to start taking on much larger mortgages. As high as $700,000 in some areas. FHA has been cleared to do the same. All of this is done under the guise of "helping" distressed home owners in default of their current mortgages.

Conventional wisdom (or the government) is telling us that these higher loan limits will enable those in default or close to default to refinance their loans into "safe" and lower fixed rate mortgages. Of course, this should help to stem the tide of foreclosure, shore up the beleaguered housing market and help to end the subprime crisis all the while keeping the U.S. from falling into a recession.

Now... wouldn't that be nice. Unfortunately... conventional wisdom does not apply here.

Fannie and Freddie have already posted MULTI-BILLION DOLLLAR LOSSES. All due to the fact that foreclosures on their books are at record levels. Now, let's add mortgages that are almost THREE TIMES THE SIZE of the median home price in the country. Mortgages that are either in default or about to go into default. Let's burden the GSE's with these toxic buyers. Oh yeah, and add on a heavy dose of depreciating assets.

What do YOU think will happen. It's clear to me, as it should be clear to everyone out there, that the government has absolutley NO idea what to do with this crisis. It's also very clear that Wall Street is not running for cover, but DIVING for it.

The thought that we are about to dump this problem on Fannie Mae and Freddie Mac should be a very sobering one.

The Big 'D' Word - If it's not likely, than why are we using it so much?

2008-02-13T15:10:00.003-05:00

It's the 800 lb. gorilla in the room. No... not your retirement nest egg and the fact that you're not contributing near enough to your IRA... the other gorilla, the Depression one.

You see, it seems that every CEO, Politician and Economist out there is going out of their way to note that even though the similarities exist between today's Wreck-Onomics and the Wreck-onomics of past crises, we will avoid a depression and most likely only have a minor recession.

Let's recap:

Subprime Crisis - Only contained to subprime

Ooops... well what we meant to say was that hybrid option arm and negative amortization loans to borrowers with prime credit are lumped into that, so it may spread, but no further.

Home Prices - apprecation will slow to a more normal level, but not go negative.

Oooops... well... of course in areas where the appreciation was abnormal the resulting depreciation will look negative, but the homes will remain above their original value and will most likely be contained to small geographical areas.

Ooops... well.... what we didn't realize at the time is that almost 50% of the new homes built were speculative buys, and once those people exited the market it would drag new construction down like a body in the Hudson chained to cinder blocks.

Ooops... looks like this is spreading into the prime sector... now we need help.

Ok... I could go on and on (and usually do), but I think you get the picture.

Here we have another article from a global economist touting the possibility of a depression. This being the most bearish so far... but the shoes are still dropping...

Bold is my emphasis, italics my add.

"Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.

That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.

"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday. In other words, we've got a tremendous bubble that has burst, and the only way we can save ourselves from depression is to either skyrocket our already volcanic deficit, or artificially inflate our markets, creating another asset bubble. Isn't this how we got into trouble in the first place?

"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said. The government may have to play the market? This is a horrifying thought.

While Connolly already sees some parallels with the 1930s, he expects that a more pro-active central bank and government will probably help avert a repeat of that scenario today. Here's the "feel-good denial phrase".

The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said. Sound familiar?

Then, investors were very optimistic about new technologies, and stocks rose against a backdrop of low inflation, and a trend toward globalization. There was even an equivalent of the modern day subprime mortgage debt meltdown in the form of U.S. loans to Latin American countries which had to be written off.

"The big difference is the attitude of central banks and specifically the attitude of the Fed," Connolly said.

However, Fed rate cuts alone are unlikely to avert a prolonged period of economic weakness because the danger still exists that a burdened banking sector will choke off credit to consumers and households. This is already happening, and in a big way.

"The Fed probably can't fix it all on its own now," Connolly said. "There is a chance the Fed gets forced into unconventional cooperation with government," which could involve buying a range of assets to reflate their value. That's right, folks. Let's artificially inflate assets once again. My god... if there was ever a case for Wreck-Onomics, this is it.

That would be reminiscent of some steps the U.S. government took in the 1930s when the economy was mired in deflation and high unemployment.

Either way, investors face bleak prospects now without some kind of further government intervention, he said.

Those steps might offer clues to investors in stocks and commodities, which Connolly expects the government might be ultimately force to step in and buy to stabilize markets. He expects that a depression may be averted, but only by the state and the Fed reinflating the price of such assets.

Beleaguered housing, non-government fixed-income securities and even the now overvalued Treasury market have little hope of generating substantial returns for investors over the next few years, he said.

"If we don't avoid depression, the only thing worth holding is cash," he added."

My point, exactly.

Monetary Disorder - Yep, That's What It Is.

2008-02-11T12:55:00.000-05:00

Now, we don't want to jump on the "the world is finished" band-wagon too quickly, but truth-be-told, there are some significantly compelling arguments out there that are and have been warning us of the down side risks out there. Most notably, the banking system. Not just here at home in America, but world-wide.

Seems that the Fed is fighting a systemic virus with antibiotics like TAF and lowering the discount rate as quickly as possible. Problem is... antibiotics don't kill viruses. The only way to survive a viral attack is to wait it out and hope the damage isn't too great.

Of course, this kind of announcement from the Federal Reserve would spark darn near a riot in the credit markets and the stock markets here and abroad. Traders want the market propped up. As "Fernando" said "It is always better to loook goood than to feeeel good", and that's what the markets want. It's quite apparant they don't feel good.

For now, the media will continue to splash headlines touting the expertise and fundamental prowess of those who would make our "Subprime Headache" go away, but I leave you with the following excerpt from Prudent Bear... one which is both compelling, factual, believable and frightening. You can view the entire article here.

Bold is my emphasis, italics my add:

"Well, I believe the dam broke in January. The leveraged players were hit with losses from all directions. Their long positions were immediately slammed with simultaneous bursting Bubbles round the globe. Meanwhile, a rush to unwind positions led to upward pressure on the heavily shorted sectors, only compounding the leverage speculating community’s predicament. Last year fostered an extraordinary dynamic of ballooning “crowded trades,” and January saw the bursting of this multifaceted Bubble. In other words, traders are betting heavily against this market, but over-speculation on the dips is killing them. They are getting caught with their hands in the cookie jar.

The leveraged speculating community has suffered the occasional tough month – last August providing a recent case in point. Each time, however, performance quickly bounced back. In true Bubble fashion, each quick recovery from a setback emboldened all involved; industry fund inflows not only never missed a beat – they accelerated. Yet a strong case can be made today that this (historic) Bubble has now burst – that last year was the “last gasp” before succumbing to New Post-Credit Bubble Realities. I don’t expect performance to bounce back, while I do foresee a flight away from the leveraged speculating now beginning in earnest. With “crowded trades” unraveling virtually across the board, marketplace risk is now escalating significantly for leveraged strategies in general. Systemic liquidity issues and dislocated market conditions have created an environment where there is seemingly no place to hide. The bubble has burst in earnest, and there is no trade out there that is a comfortable place. Hedging and even arbitrage are not effective, no one "trusts" the market.

Importantly, a leveraged speculating community “unraveling” would prove a death blow for myriad sophisticated trading strategies and risk models, with enormous ramifications for systemic stability. There are unmistakable “Ponzi Dynamics” involved here worthy of a few Bulletins.

Going forward, I expect a foundering leveraged speculating community to be At The Heart of Deepening Monetary Disorder. The initial victims appear the fragile global equities market Bubbles and the U.S. Corporate Credit market. Forced deleveraging of hedge fund corporate debt and derivatives is in the process of creating a massive overhang of securities to sell, (see... market crash) in the process profoundly curtailing Credit Availability and Marketplace Liquidity throughout. The ramifications for our finance-based Bubble Economy are momentous. As an economic and financial analyst (as opposed to “fear-monger”), I feel it is imperative to highlight that it is more “technically” accurate to categorize the unfolding scenario in the historical context of an economic “depression” rather than “recession.” This is certainly not shaping up as a short-term inventory-led economic adjustment or “mid-cycle” slowdown. Instead, we have now entered the very initial stages of what will likely prove a deep, prolonged and arduous adjustment to the underlying structure of our Credit and economic systems. "

Yep... you read that correct. The observation has been made that this all smells of severe depression. Something Main Street either won't tell you, or is afraid to.

Recession - Who Knew?

2008-02-05T14:00:00.000-05:00

CNN.Money is posting that the Recession is finally here.

Oh, the suprise. A recession. No way! Couldn't happen. Not to America. Not in the land of:

"Homes for Sale! Homes for Sale! Step right up and get your No Money Down Home For Sale! Never mind your income, we don't need to see it! Never mind that you have no savings, 2 car payments, 5 credit cards, a personal line of credit and you make $45,000 dollars a year! 'Wink' - boy do we have the loan for you! What's that you say? You actually make $125,000 a year? GREAT. Sign here. It's yours. Hey, whataya say about buying another one, or even 3 more like it, cuz housing NEVER goes down, you know. It's the best investment EVER. Yep, this baby here, for a paltry $450,000 has 1100 square feet, 1 and 1/2 baths, 2 bedrooms and a postage stamp lot, both in size and shape! I'm telling you, these are FLYING out of the plan. Sold 4 yesterday to that guy over there. He works at 7-Eleven. No, he doesn't own it... sign here, here, here, here, here, here and oh yeah... here. He's the clerk! You'll probably be able to sell this a week after you close for $525,000. MINIMUM. Bought 2 myself and flipped 'em in a month. If you promise to keep it a secret, the builder is gonna raise the prices in the next phase by 15%... how's THAT for a guaranteed money-maker? Ok... I'll just take your $500 hand money check and turn this in to my Sales Manager. What's that... oh, sure... we'll wait 3 days to cash it. Payday comin' up Friday... yeah... I did that too."

HOLY CRAP people, why are we suprised about this? Why do we glue ourselves to cable vision every night and listen to "economists" and politicians and business "experts" tell us that we are going to "narrowly miss" a recession. That the labor market is still good, inflation is still low, and that the Fed will make us all better. Right.

WAKE UP, America. You are smarter that that! Debt is bad, any way you look at it, it's bad. I'm 37 years old. My father is 65. The difference between his generation and mine is that they believed it. Mine was taught to leverage leverage leverage. Want a car... borrow the money. You MUST get a credit card in college to establish your credit. What?!? I've got to go into debt to show I'm responsible? BAAAA-LONEY.

This country has been borrowing short to live long for 40+ years. We've been told that we can do it because the good 'ole U.S. of A's credit rating is second to none. Top notch. A+++ (that's AAA if youre a rating agency). And now that we've passed along our toxic and criminal way of investing on to our "friends" in.. oh let me see... China, Britain, Spain, Germany, Scotland, Canada, Mexico and more... how's that credit rating, America? Of course, with every new political and business cycle, we "refinance" the debt and push it off to "future generations." Our pundits and politicians cry at the podium about how much they "care" about delivering a "Better America for our children" by borrowing more now to live large. RIGHT. Unfortunately, folks, my generation is paying for it. The cards have dropped.

Now I'm not saying that we're screwed across the board, and I'm not saying that it's over by any means. But the rhetoric isn't working anymore, and our economics have become "Wreck-Onomics".

The medicine we are taking is absolutely the wrong kind. Let's lower rates while lenders tighten credit more than in the last 50 years and at the same time raise "energy efficiency" standards to the point where our raw materials prices soar through the roof. All the while, the value of the very backbone of our economy, the housing market (think of it... 70% of the economy is fueled by consumer spending... what did George Carlin say... "you got all this stuff, you buy all this stuff, and then you need to buy a house to put all your stuff in" or something like that)is dramatically declining in value and volume. So.... do the math.

Keep you cash, pay off your car if you can, buy canned goods and go ham sandwiches, America... this is gonna be a long one.

Housing Bubble? What Housing Bubble?

2008-02-04T23:09:00.000-05:00

The following quote was penned in July of 2005 by Carl Steidtmann, chief economist and director, Consumer Business, Deloitte Research.

Bold is my emphasis. (Italicized, Wreck-Onomics comments.)

"Everywhere you turn these days the buzz is about soaring real estate prices. If you are lucky enough to be a homeowner in one of the hot markets like South Florida or New York City, owning real estate is almost as good as winning the lottery. The increase in household wealth is seen by many analysts, who can’t stand the thought that someone somewhere might be doing well in this economy, as a sign of some future catastrophe to come. All the hype about a housing bubble is an excellent illustration of Benjamin Disraeli’s lament that there were ‘liars, damned liars and statisticians.’ (You mean no-one lied about their income Carl? Or the fact that they were going to occupy the residence when they were actually going to flip it?)

While many of the housing price indexes that are published by both government and industry trade groups show prices spiraling higher, you really need to be a statistician to understand what they are saying. (Apparantly you were correct about this, because no-one else understood it either. We all saw what was coming, but you, the expert... well... according to Mr. Disraeli above, statisticians were liars to. Oh, and it turns out he was right.)

When you strip away all of the white noise around a housing bubble, what you find is a robust market for housing that is undergoing several profound changes all of which manifest themselves in higher home price indexes, none of which adds up to a housing price bubble." (Just how much do they pay you for this amazing revelation, Carl?)

Ok... so were off to the races and nothing about it seems unordinary. Mr. Steidtmann goes on to say:

"A financial bubble is first and foremost a monetary phenomenon. (This seems almost impossible to comprehend, but is he actually in denial about this?)

If you look at money growth in the US in the late-1920s or in the late-1990s you will see a sharp acceleration in the growth of the monetary aggregates. The same was true in Japan in the late-1980s during the Nikkei bubble. In the late-1990s, the Fed greatly expanded the amount of money in the banking system in part out of fear of Y2K related financial market disruptions. While those fears fortunately never came to pass, the money the Fed pumped into the banking system found its way to Wall Street where it sent internet related stocks soaring. Since the breaking of the internet bubble in 2001-2002, liquidity has expanded at a much more moderate pace with current growth in the monetary base running at just above 4%, a fraction of the 1999 bubble inducing levels. (Utterly amazing... this hack mentions the great depression, the 15 year stagnation of the Japanese economy and the Dot.com bubble as if they were merely "phenomenom" that really didn't happen. And he seems to completely ingore the fact that one of the conditions of the acceleration of each bubble's bursting was the unabashed and brazen liquidity pump by the Bank of Japan and the Federal Reserve. Sound a little familiar? If not, you will find that the similarities between today's economy and the Great Depression are scary.)

"The psychology of market participants in a bubble is also different from normal times. As a bubble reaches its peak the market participants are in search of the greater fool. Buyers buy only in the expectation that there is a greater fool out there who will pay a higher price. Eventually the greater fool is found and the price falls. As the market searches for the greater fool, the rising price brings out extra and sometimes unexpected sources of supply. It is this combination of increased supply (overbuilding) and narrowing demand (rising defaults creating a credit crunch) that results in the breaking of a market bubble and a fairly rapid descent in price. While there is some anecdotal evidence of market speculation, (Hmmm... here's an exerpt from an arctile in the Idaho Statesman in 2005 touting the fact that the Homebuilders were worried about speculation and that it comprised 50% of the local market. Where in the HELL did this guy get his information from? Some speculation? How about 50% of all new homes sold in 2005 were estimated to be speculative buys. How about the fact that some of the large homebuilders reported nearly a 50% drop in new home sales in 2007? This wasn't speculation? This wasn't a bubble? Good god.) most participants are buying houses because they still represent a very good long term value. "

Later on he mentions the supply of available homes:

"Financial bubbles come to a crashing end when the sky high prices lure a wave of supply onto the market that crushes demand. Were housing a bubble, the high price of existing housing should be fostering a boom in home building. (I guess the never-ending wave of 'McMansion' neighborhoods covering the hills in California, Arizona, Florida, New Jersey, Ohio, Georgia, Nevada, Virginia, Maryland, et. al. were no indication of oversupply. Nor were the ever ballooning profits of the McMansion builders who couldn't wait to raise prices by 10-15% per phase in each plan they built. NAAAWWWW.... no oversupply here, Carl.)

While new housing starts have risen steadily over the past couple of years, when adjusted for population, new home building is no where near the heights of building activity set back in the 1970s." (You mean when there was actually DEMAND for housing, and lenders required that you put money down and could demostrate your ability to repay the loan?)

"And finally, as interest rates have come down, the affordability of home ownership has gone up. Asset prices are high, but the actual cash flow cost of housing is near record lows due to low interest rates. (Ummm.... you mean record low TEASER interst rates on MTA Option Arms, 2/28 ARMS and No Income Verification loans) The share of an average American household income going to finance a new median priced house today is lower then it was at any time in the past two decades. Interest rates are going to have to rise more than a little to increase the cash flow cost of housing back to the levels seen in previous decades." (This is just nonsense. It was then and it is now. The median home price in this country has far outpaced the growth in income for over 5 years. Any "economist" with half a brain has access to these statistics.)

Of course, it's easy to Monday-Morning-Quarterback this. However, these were the experts that ignored the fundamentals. Can one economist get it wrong... sure. Interesting to note that it seems the link to his "employee" page at Deloitte Research yields... nothing.

Don't take our word for it... watch this and see what the other "experts" had to say, both past and present. Of note are the Realtors... hmmm....

The "Shill" voice of Panic

2008-02-03T17:11:00.000-05:00

Interesting enough, Robert Shiller is considered by many to be one voice of reality amongst many dreamers and kool-aid drinkers. What I find very compelling, however, is his need in this video to repeatedly mention the fact that we are NOT headed for a depression, that a depression is what the U.S. WILL, according to him, avoid. However, he points out the similarities in consumer confidence figures and housing price declines while mentioning that this time around the latter is much larger, both in asset value run-up to the bust, and potential decline.

Another commment of note is that he states that the $150 Billion stimulus package, which has yet to see the actual light of day, is approximately a 1% boost to GDP. Of course, what he doesn't mention is that that would be if those that receive the cash actually spend every penny of it buying something.

Again, here we have another world-renowned expert touting Wreck-onomics.

While in general we agree with Mr. Shiller's views on the housing crash and the impending further deflation of the asset bubble, it is clear to us that he is either denying the inevitable, or sugar-coating his fear. Most likely a little of both.

Stash The Cash

2008-02-01T23:50:00.000-05:00

The following is an excerpt from SafeHaven.com

Bold is my emphasis

Printing Money to Avoid Immediate Banking Collapse

"According to the Federal Reserve Board website, U.S. non-borrowed bank reserves have gone from $37B to $199M (nope, that's not a typo) in the last month. We have been discussing this with Sitka Pacific Capital's Mike 'Mish' Shedlock for the last two weeks. He concludes: "Banks in aggregate have now burnt through all of their capital and are forced to borrow reserves from the Fed in order to keep lending." Simply put, the U.S. banking system has no reserves. In addition, the FDIC has recently begun modernizing large-bank insurance rules. We hope this is a wake-up call to everyone as to the extent of the credit crisis. Bank account balances should be used only for transactions. Instead cash should be held in the form of U.S. Treasury Bills at a conservative brokerage or trust. Under the mattress is also perfectly acceptable (your parents or grandparents had to do it!). For investors, we advised last year to sell the banks. Banks will be soon forced to sell assets (yes, even 10 year Treasury Bonds) at deeply discounted prices to pay depositors."

These guys are actually recommending that you keep all your money in either CASH in your house, or by short term treasuries. Only use a bank account to pay your bills, i.e. checks or card transactions.

Also, pay attention to the first part...

"U.S. non-borrowed bank reserves have gone from $37B to $199M (nope, that's not a typo) in the last month."

This is an actual Federal Reserve statistic, and is quite alarming. What this means is that in the entire federal banking system, according to the Federal Reserve, banks ONLY HAVE 199 MILLION of "cash". Banks are required to keep a percentage of their assets as "reserves" which used to mean actual cash in the vault so that in the event of a run on the bank they have money to hand out to their depositors. The Fed regulates this percentage and it varies (slightly) day to day. If a bank does not have the required reserves, it must borrow them by either going to another bank (the overnite, or fed funds rate) or borrowing directly from the Fed. (the discount rate).

The fact that the entire banking system has now borrowed over 90 percent of it's reserve requirements from the Fed or other banks is absolutely Orwellian. It signifies more than a credit crunch. What it means is that the banking system is currently damn near out of money.

This is NOT a good sign. This is bad bad bad. I am seriously considering the mattress cash.