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
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...
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
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.
"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
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.
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
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.
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
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.
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.
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.
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
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
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.
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
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
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 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
Reality Has Become The Perception
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
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
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
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.
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
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
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?
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.
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.
The End Game is Near
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!
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.
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