Ask not for whom the bell tolls....

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?

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

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.