China Didn't Buy IMF Gold

Voltron says: China did not want to spend it US dollar reserves for fear that the dollar would go down in value as a result. What is the point of having money if you can never spend it?

http://www.businessinsider.com/china-in-the-end-didnt-buy-gold-from-the-imf-because-it-has-better-ways-to-use-its-money-2010-3

Collapse Of The U.S. Dollar Paper Standard?

You Know Bailout Speculators Are Right Because The German Government Is Now Trying To Silence Them

Voltron says: This is absurd. Germany expects speculators to sit on their hands. I expect governments to trade capriciously and institute ad hoc new rules in order to shake out speculators. If you use too much leverage, you'll get shaken out.

Gov't punishes Greek bond buyers:
http://www.businessinsider.com/germany-hunting-down-debt-speculators-positioned-to-profit-from-any-bailout-2010-3

Gov't punishes Greek bond sellers:
http://www.businessinsider.com/you-know-the-euro-is-toast-because-now-even-the-us-is-cracking-down-on-its-speculators-2010-3

Exchanging your ticket on the Titanic for a ride on the Hindenburg

http://www.forbes.com/2010/03/02/dollar-euro-debt-personal-finance-pento-commodities_print.html

The Measuring Stick Illusion

http://www.safehaven.com/article-15952.htm

Why We Don't Have Hyperinflation Even Though The Fed Has Printed $1 Trillion

Voltron says: bottom line is the "money multiplier" has gone below 1.0, i.e., when the government spends a dollar into the economy, it creates LESS THAN one dollar of stimulus. It's a complete breakdown of the government's crackpot Keynesian stimulus policies.



http://www.businessinsider.com/why-we-dont-have-hyperinflation-even-though-the-fed-has-printed-1-trillion-2010-2

Head of IMF Proposes New Reserve Currency

Voltron says: The impending failure of the Euro should prove that monetary union cannot work without fiscal and political union (it's hard enough when you have all three: substitute California and the U.S. for Greece and Europe). So why would they think a global monetary union would work any better. Strange how it comes right on the heels of massive IMF gold sales. So it will be another fiat currency, which will could extend the system for another decade or so, before inevitable collapse.

Top story on drudgereport.

http://abcnews.go.com/Business/wireStory?id=9958995

How long can the U.S. dollar defy gravity?

Excerpt:

Some argue the dollar's recent rally against the euro and yen ... is less a vote of confidence than a realization that it's simply the best of a bad bunch.... a retired currency trader who worked at Chase in the late 1970s in London, called it a "reverse beauty pageant" in which investors pick the "least ugly" contestant.

... History suggests that a currency is supplanted the same way Ernest Hemingway said a man goes broke: gradually, then suddenly.

http://finance.yahoo.com/news/How-long-can-the-US-dollar-rb-4165978641.html?x=0

Economists blame "unexpected" bad news on the weather

Voltron says: Takin' a page out of the old Soviet Union playbook. Pathetic.

Excerpt:

I have a few simple questions for all the dim-bulb economists now blaming the weather:

• "Did you not know there was a snowstorm on the East coast?"
• "If you did, then why didn't you factor it in to your estimates?"
• "How can you be surprised by something you knew?"

http://globaleconomicanalysis.blogspot.com/2010/02/nacent-recovery-or-nacent-economic.html

How quickly collapse can happen

June 7, 1873:
"The Approaching Spanish Repudiation"

July 5, 1873:
"[Spain] Making Arrangements for the Payment of Current Coupon"

August 2, 1873:
"Spanish Interest Will Not Be Paid"

August 30, 1873:
"Anarchy in Spain"




July 18, 2001:
"Markets Laud Argentine Debt Accord - Calms Fears of Default"

August 3, 2001:
"Flurry of International Contacts to Prevent [Argentina] Default"

December 14-20, 2001:
"Angry Argentines Take Their Displeasure to the Streets"

"State of Siege"

"Looters Ravage Cities"



January 21, 2010:
"Investors are concerned that Greece won't be able to finance its budget deficit."

February 14, 2010:
"Years of unrestrained spending, cheap lending and failure to implement reform."

February 17, 2010:
"Greek Tragedy Averted, For Now"

February 24, 2010:
"Greek Police, Protesters Clash"

http://www.safehaven.com/article-15908.htm

11.3 million homeowners underwater on mortgage

Excerpts:

More than 10% of people with mortgages owe 25% more than their home is worth.

...In Nevada, 70% of mortgages were underwater. In California, more than a third of mortgages were underwater.

..."The rise in negative equity is closely tied to increases in pre-foreclosure activity," CoreLogic said. Once a homeowner owes 25% more than the house is worth, foreclosure rates rise sharply.

Negative equity exceeded 25% in six states and topped 20% in six others.

http://www.marketwatch.com/story/113-million-homeowners-underwater-on-mortgage-2010-02-23

Housing may have bottomed

Voltron says: The price vs rent ratio has been pretty close to even for about a year, but that does not mean that Wells Fargo has recognized all of their losses. It is likely the ratio will go below 1.0 due to the overhang of foreclosures, in which case it would be a good time to buy a house or invest in rental property on a cash flow basis.



http://www.calculatedriskblog.com/2010/02/housing-price-to-rent-ratio.html

Tim wins

Voltron says: Former Fed Chairman Paul Volker, the only sensible person on the president's economic team, has been completely marginalized.

The "Volker Plan" is officially dead:
http://www.nypost.com/p/news/business/volcker_fooled_iso6WHImNJiV1Vmk9FYm6L

The White House PR machine is working overtime to rehabilitate Treasury Secretary Tim Geithner's image including an interview in Vogue and cheesy photo ops with the first lady.
http://www.nakedcapitalism.com/2010/02/administration-ratchets-up-pr-campaign-for-beleaguered-emanuel-and-geithner.html

"It's like saying we're going to make some improvements in the Titanic after it's hit the iceberg"

Excerpt:

Former Federal Reserve Chairman Paul Volcker said the nation's home mortgage market is in trouble and will have to be "reconstructed."

"It's totally dependent, heavily dependent on government participation," Volcker said Friday in an interview with Bloomberg Television. "It shouldn't be that way. That's going to have to be reconstructed."

The federal government was responsible for up to 95 percent of all new home mortgages in the fourth quarter of 2009, said Guy Cecala, publisher of Inside Mortgage Finance, a leading industry publication.

"Anyone who looks at the numbers says, 'My God, look what it's come to,'" Cecala said in an interview Friday.

While Volcker hopes the nation's home mortgage finance system lessens its dependence on taxpayers, Cecala said it's going to be nearly impossible for a significant change to take place over the next year.

"We can't," Cecala said. "It certainly can't change in 2010. It's like saying we're going to make some improvements in the Titanic after it's hit the iceberg."

Voltron says: As I pointed out in the previous blog entry, there is no way anyone is going to lend money for houses at these low interest rates.

http://www.huffingtonpost.com/2010/02/19/paul-volcker-says-mortgag_n_469415.html

Mortgage Crunch Coming

Voltron says: Great article explains why mortgage rates are too low



http://seekingalpha.com/article/190000-mortgage-crunch-coming

Banks are still not lending

Voltron says: This graph shows how bank lending is cyclical and the booms and busts are getting larger.



http://www.businessinsider.com/chart-of-the-day-commercial-and-industrial-loans-at-all-commercial-banks-2010-2

Commercial Real Estate set to implode in Q2 2012

http://feedproxy.google.com/~r/MishsGlobalEconomicTrendAnalysis/~3/SeI85w6E87s/commercial-real-estate-apocalypse-in.html

Income distribution as skewed as in the '20s

Interest rate cycles

Voltron says: Banks make money by borrowing cheaply short term (from the Fed) and lending at a higher rate long term (to you). The larger the difference between the short term interest rate (2 year treasuries, for example) and the longer term interest rates (10 year), the more money banks make. This difference ("the spread") seems to run in cycles and may be approaching a peak.

July is D-day for Spain

Voltron says: Greece is imploding (because Goldman Sachs helped them hide their debt). Spain may be next.



http://www.businessinsider.com/if-you-think-greece-is-bad-here-is-what-you-have-to-know-about-spain-2010-2#property-boom-spain-experienced-a-property-boom-larger-than-the-us-and-uk-1

Jitters over China’s waning taste for T-bills

http://www.ft.com/cms/s/0/a9c5a39e-1cb5-11df-8d8e-00144feab49a.html

10 percent reportedly late on mortgages (in San Diego)

http://www.signonsandiego.com/news/2010/feb/18/10-percent-reportedly-are-late-mortgages/

Must Read: Wall Street's Bailout Hustle

By Matt Taibbi, Rolling Stone Magazine

http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/print

Humor: Money is an illusion

The Onion: U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion

http://www.theonion.com/content/news/u_s_economy_grinds_to_halt_as

Gold Stopped Being A Hedge In 2009

Excerpt:

The correlation between SPY and GLD has been nearly 0.95, compared to nearly zero historically. As shown in the chart below, GLD and SPY have moved in lock step through the first six weeks of 2010



Moreover, gold started to correlate with stocks sometime during 2009:



http://www.businessinsider.com/gold-stopped-being-a-hedge-in-2009-2010-2

American Idle

No bailout for commercial real estate

Voltron says: Apparently everyone is assuming that commercial real estate will get bailed out, but there is very little reason for the government to do that. If a mall owner goes bust, the mall will not close . . . the bank will continue to operate the mall, so unlike a home foreclosure, there is zero impact to the community.

http://www.mybudget360.com/commercial-real-estate-collapse-bigger-than-subprime-implosion-–-why-is-the-market-ignoring-the-3-5-trillion-commercial-real-estate-market-implosion-pricing-in-another-bailout/

Quadrophobia

Voltron says: It isn't an album by "The Who", it's the next Wall St scandal.

Excerpt:

The WSJ reports today on a study that confirms what everyone has known for years: That many firms manage their earnings, pulling all manner of shenanigans to beat the street.

The way this form of fraud was detected was rather ingenious: The lower than mathematically expected incidences of the digit "4″ in corporate earnings releases. ("X.4″ to be precise) This simple statistical insight was due to an analysis of normal random distribution. "When the authors ran the earnings-per-share numbers down to a 10th of a cent, they found that the number "4″ appeared less often in the 10ths place than any other digit, and significantly less often than would be expected by chance."

Why?

By finagling the 0.4 to a 0.5, accountants then get to round up to the next higher number. Hence, 12.4 cents is "managed" to 12.5, which then becomes rounded to 13 cents per share.

They dub the effect "quadrophobia" — fear of fours.

http://www.ritholtz.com/blog/2010/02/proof-companies-manage-earnings/

Serious pain in Commercial Real Estate just starting

Excerpt:

Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at presently "underwater" that is, the borrower owes more than the underlying property is currently worth. Commercial property values have fallen more than 40 percent since the beginning of 2007. Increased vacancy rates, which now range from eight percent for multifamily housing to 18 percent for office buildings, and falling rents, which have declined 40 percent for office space and 33 percent for retail space, have exerted a powerful downward pressure on the value of commercial properties.

The largest commercial real estate loan losses are projected for 2011 and beyond; losses at banks alone could range as high as $200-$300 billion. The stress tests conducted last year for 19 major financial institutions examined their capital reserves only through the end of 2010. Even more significantly, small and mid-sized banks were never subjected to any exercise comparable to the stress tests, despite the fact that small and mid-sized banks are proportionately even more exposed than their larger counterparts to commercial real estate loan losses.

A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American. Empty office complexes, hotels, and retail stores could lead directly to lost jobs. Foreclosures on apartment complexes could push families out of their residences, even if they had never missed a rent payment. Banks that suffer, or are afraid of suffering, commercial mortgage losses could grow even more reluctant to lend, which could in turn further reduce access to credit for more businesses and families and accelerate a negative economic cycle.

It is difficult to predict either the number of foreclosures to come or who will be most immediately affected. In the worst case scenario, hundreds more community and mid-sized banks could face insolvency. Because these banks play a critical role in financing the small businesses that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery, and extend an already painful recession.

There are no easy solutions to these problems.



http://www.nakedcapitalism.com/2010/02/congressional-oversight-panel-serious-pain-in-commercial-real-estate-just-starting.html

Banks' sweetheart deals with FDIC are encouraging foreclosures

UPDATE: The FDIC has made a press release regarding this story: http://www.fdic.gov/news/news/press/2010/onewest_lossshareb.html

Excerpt:

IndyMac was taken over by the FDIC and sold to OneWest Bank in March/2009. Guess who the investors are behind OneWest? George Soros, Michael Dell, Steve Mnuchin (former Goldman Sachs executive), and John Paulson (hedge-fund billionaire).

Now, listen to the deal they got from the FDIC....

Basically, they purchased all current residential mortgages at 70% of par value (70% of the outstanding loan amounts). They purchased all current HELOCS at 58% of Par Value!!!

Next, in order to "sweeten the pot", the FDIC stepped in and guaranteed the following: For any residential mortgages where OneWest experiences a loss, the FDIC will step in and cover anywhere from 80%-95% of the loss. The loss is calculated using the ORIGINAL LOAN BALANCE, not the amount that OneWest paid for the loan.

http://activerain.com/blogsview/1243528/is-the-fdic-killing-short-sales-

Peter Schiff: Why the Meltdown Should Have Surprised No One

Audio Version: http://media.mises.org/mp3/ASC2009/ASC09_Schiff.mp3

Transcript: http://mises.org/story/3493

Treasury Selloff

http://www.businessinsider.com/the-much-awaited-treasury-selloff-it-not-a-manner-of-if-anymore-its-here-2010-2

Youth against the banks party

Voltron says: again, how come I never get invited to these parties?

Excerpt:

A "youth against the banks" Facebook party at a Mayfair mansion in London was broken up by officers in riot gear last night after revellers pelted police with bricks and bottles. The teenage organisers of the party conceded that the event "got out of hand" when thousands more people than expected attended the five-storey squat in Park Lane.
...
The [organizers] started a Facebook group last Sunday urging people to "come and live the high life in a mansion on Park Lane". The party was billed as a "youth against the banks" event as the organisers believed the home was partly owned by HSBC. The bank has yet to confirm this.

"We wanted to shake things up because the banks are kind of running the worldwhich isn't fair," said Fox, a sixth-former from north London.

"We didn't break in, we got in through an open window. It's not illegal, that's just how squatting works," he said.

Members of the Facebook group, which has since been deleted, grew rapidly. "The idea was to invite a large number of friends not the whole of London youth . . . we personally only invited about 200 each. We then watched the group grow, it didn't seem real."
...The police estimated that "in excess of 2,000 people" attended the party.

http://www.guardian.co.uk/technology/2010/feb/12/facebook-party-mayfair-riot-police

Strategic Non-Foreclosure Becomes Official Policy

http://www.ritholtz.com/blog/2010/02/strategic-non-foreclosure-becomes-official-policy/

Home Price Rally Fading

Schadenfreude and Hypocrisy

http://www.guardian.co.uk/business/2010/feb/09/mortgage-bankers-association-property-debacle

S&P Rejects 'Too Big to Fail'

Standard and Poor's revised their credit outlook on Citigroup and Bank of America to Negative from Stable.

Traders noting that Standard and Poor's is attempting to remove the Too Big To Fail premium that has been enjoyed by these large banks, which has been a major help to their credit ratings.

They are concerned the government may not step in should another crisis occur

http://www.cnbc.com/id/35314800/site/14081545

Chinese Generals propose selling US Bonds

http://www.reuters.com/article/idUSTRE6183KG20100209

The strategy is straight from "Unrestricted Warfare"

http://en.wikipedia.org/wiki/Unrestricted_Warfare

How Goldman Sachs Helped Greece to Mask its True Debt

http://www.spiegel.de/international/europe/0,1518,676634,00.html

Branson warns that oil crunch is coming within five years

http://www.guardian.co.uk/business/2010/feb/07/branson-warns-peak-oil-close

Trillion-Dollar Tab Awaits Debtors

Excerpt:

$1.4 trillion in [corporate debt] needs to be repaid or refinanced by 2014.

Companies with the weakest credit and the heaviest debts will have to pick up $800 billion of that tab. The rating agency Moody's calls the maturing debt an "avalanche."

http://www.forbes.com/2010/02/08/debt-bonds-banks-loans-markets-bonds-finance.html

Is it currently illegal to regulate wall street?

The U.S. signed the World Trade Organization’s Financial Services Agreement which severely restricts financial regulation; however, it has not been ratified by congress.

http://www.nakedcapitalism.com/2010/02/guest-post-the-other-reason-that-the-u-s-is-not-regulating-wall-street.html

It Is Now Mathematically Impossible To Pay Off The U.S. National Debt

http://theeconomiccollapseblog.com/archives/it-is-now-mathematically-impossible-to-pay-off-the-u-s-national-debt

Voltron says: If you don't believe it, watch "money as debt":

http://video.google.com/videoplay?docid=-2550156453790090544#

CourtTV program on Crazy Eddie

Voltron says: The documentary skips over how they skimmed sales tax (this is common practice) and how they used the money they skimmed when they were privately held to inflate their profits after they sold shares in the company to the public.

My previous post goes over all that, if you are interested:

http://cfcsux.blogspot.com/2009/08/lessons-from-crazy-eddie.html

Peter Schiff explains the business cycle:

The Classical and Correct View of Business Cycles

According to the classical economists, like Ludwig von Mises and Friedrich A. von Hayek of the Austrian school, recessions should not be resisted but embraced. Not that recessions are any fun, but they are necessary to correct conditions caused by the real problem, which is the artificial booms that precede them.

Such booms, created by inflation, send false signals to the capital markets that there are additional savings in the economy to support higher levels of investment. These higher levels of investment, however, are not authentically funded because there has been no actual increase in savings. Ultimately, when the mistakes are revealed, the malinvestments, as Mises called them, are liquidated, creating the bust. Legitimate economic expansions, financed by actual savings, do not need busts. It is only the inflation-induced varieties that sow the seeds of their own destruction.

This flies in the face of modern economic thinking that regards the business cycle as the inevitable result of some flaw in the capitalist system and sees the government’s role as mitigating or preventing recessions. Nothing could be further from the truth. Boom/bust cycles are not inevitable and would not occur were it not for the inflationary monetary policies that always precede recessions.

Economists today view the apparent overinvestment occurring during booms as mistakes made by businesses, but they don’t examine why those mistakes were made. As Mises saw it, businesses were not recklessly overinvesting, but were simply responding to false economic signals being sent as a result of inflation. For that reason Mises called such mistakes malinvestments rather than overinvestments. One of my pet anecdotes makes the point clearly.

The Circus Comes to Town: How Inflation Causes Business Cycles

Let’s suppose a circus comes to a small town, temporarily increasing the population and bringing a surge of business to local merchants. One restaurant owner, however, mistakes the upturn in his business for a permanent increase in demand and proceeds to hire more workers and add a new wing. This is the boom.

All is well until the circus pulls up stakes and moves to another town, leaving our restaurant owner with surplus staff and capacity and exposing a malinvestment that must now be unwound. This is the bust.

So the bust had to occur to correct for the malinvestments of the false boom that preceded it. Had the increased patronage been the result of a real increase in the town’s population, the expansion would have been economically justified and the bust unnecessary. It is only because the owner misinterpreted the economic signals that there had to be a false boom and a corrective bust. Had the owner tried to prevent the recession by keeping the additional workers on and the new wing open, he would have been looking at bankruptcy. The recession was necessary to restore balance and maintain the viability of the business.

This analogy describes perfectly the false boom of the 1990s; just put the circus in place of the dot-com bubble. As a result of the inflation of the 1990s, start-ups flush with cash from their initial public offerings (IPOs) spent money without regard to profitability. This sent false economic signals to technology and telecommunications companies with respect to demand for their products. A wave of malinvestments ensued, which needed to be liquidated once the dot-com boom went bust.

Absent inflation, it is still possible for individual entrepreneurs to misread economic signals and make bad investments that need subsequently to be liquidated. But it is only with inflation that malinvestments are made on a national scale and result in economy-wide recessions. That is why inflation is such a destructive force in a market economy, even if its effects are not immediately reflected in rising consumer prices.

Why $15,000 Gold is Possible

Schadenfreude

Even the pros are taking a beating. The Mortgage Bankers Association, its membership expert in real estate, sold its $90 million headquarters in downtown Washington on Friday for $41 million.

Voltron says: Bwa ha ha ha ha!!

http://www.washingtonpost.com/wp-dyn/content/article/2010/02/05/AR2010020503413.html

The second lien sticking-point

Excerpt:

When mortgage modifications like Hamp come into play, that traditional priority order is reversed. The borrower is paying the Hamp-modified (i.e. lower) first lien amount, and the full second lien amount, so the second lien effectively becomes senior to the first.

When principal reduction comes into play, the problem becomes even starker. Current rules say that first lien mortgages can't be written down before the second.

http://ftalphaville.ft.com/blog/2010/02/05/143036/the-second-lien-sticking-point/

Taleb: "Every Single Human Being" Should Short Treasuries

http://www.businessinsider.com/taleb-every-single-human-being-should-short-treasuries-2010-2

20 Reasons Why The U.S. Economy Is Dying And Is Simply Not Going To Recover

http://www.businessinsider.com/20-reasons-why-the-us-economy-is-dying-and-is-simply-not-going-to-recover-2010-2

Next in Line for a Bailout: Social Security

Voltron says: $28 billion in the hole this year.

http://finance.yahoo.com/focus-retirement/article/108747/next-in-line-for-a-bailout-social-security

Vacant Houses hit record

Bailout of second liens

Excerpt:

If you thought all the bank bailouts were over, take a look at what is happening with lenders' large holdings of junior, or "second-lien," mortgages.

These loans stand behind the first mortgage and, in theory, should take a loss before first mortgages in any workout aimed at keeping a borrower in a house. However, government programs aimed at making first mortgages less burdensome have left the junior loans largely unmodified, meaning in some cases the junior lender is basically getting bailed out for free.

http://online.wsj.com/article/SB10001424052748704259304575043564083113290.html?ru=yahoo&mod=yahoo_hs#articleTabs%3Darticle

Zombie bank party gets interesting

"The wave of loan repurchase demands on securitization sponsors is the next area of fun in the zombie dance party, namely the part where different zombies start to eat each other," Whalen wrote in a note to clients Tuesday.

http://www.marketwatch.com/story/banks-10-billion-problem-loan-repurchases-2010-02-03

824,000 jobs will vanish of 5 Feb

Voltron says: because they never existed.

http://www.bloomberg.com/insight/birth-death-model.html

SEC asks Paulson & Co for fund information

Voltron says: John Paulson basically invented synthetic CDOs so he could short them. My hat is off to him. They even wrote a whole book about it called: "the greatest trade"

http://www.ft.com/cms/s/0/a0bc0e48-105b-11df-a8e8-00144feab49a.html?referrer_id=yahoofinance&ft_ref=yahoo1&segid=03058

Next!

Voltron says: Countrywide: bankrupt, Washington Mutual: bankrupt, who's next?



http://www.doctorhousingbubble.com/banking-solution-to-financial-crisis-is-to-ignore-distress-inventory-california-had-1200-foreclosure-filings-per-day-in-2009-–-the-california-real-estate-foreclosure-machine-countrywide-f/

Interest payments = production?!?

...how can U.S. GDP be up by a robust 5% when oil imports and rail traffic are down and unemployment is still rising? The answer, in a nutshell, is that once again we're being conned. Get this: Washington defines interest on credit card debt as "consumer spending" and adds it to GDP. So as debt soars, the gap between what we spend and what we actually receive grows, but the economy appears to improve. Eliminate that accounting trick and the numbers look like most people feel, very bad and getting worse.

Voltron says: up is down, black is white, good is bad . . .

http://www.safehaven.com/article-15688.htm

More Homeowners Walk Away

Excerpt:

“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.”

Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are turning into a full-throated barrage. Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment.

http://www.nytimes.com/2010/02/03/business/03walk.html

The Deficit

Tim is back in

President Obama literally embraced the (failed, tax dodging) Treasury Secretary before last week's State of the Union address (and did not kiss him on both cheeks - "Godfather" style)

http://www.businessinsider.com/capitol-hill-insiders-say-obama-hugging-geithner-changed-everything-2010-2

Treasury Department Is Already Saying "Volcker Rule" Won't Change Goldman Sachs

http://www.businessinsider.com/treasury-department-is-already-saying-volcker-rule-wont-change-goldman-sachs-2010-2

Fannie, Freddie Get Tough With Banks

voltron asks: how long before our Treasury Secretary asks them to stop doing this?

Excerpt:

Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower's income or outright lies.

The result: Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Fannie Mae won't disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.

http://online.wsj.com/article/SB10001424052748704343104575033543886200942.html

Non paywall version: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=46076124

Wells Fargo Hedges Misbehave

http://www.bloomberg.com/apps/news?pid=20601039&sid=a1ofiqq94oBc

Wells Fargo, earnings, forensic research

http://boombustblog.com/Reggie-Middleton/1293-The-Wells-Fargo-4th-Quarter-Review-is-Available-and-Its-a-Doozy.html

Wells Fargo: Worse Than Enron?

http://www.thedailybeast.com/blogs-and-stories/2009-12-01/worse-than-enron/full/

Forbes: Short Wells Fargo

Voltron says: Hat tip to "Jeep". Wells Fargo has since repaid the TARP money (just in time to pay themselves bonuses), even though they could not afford it because they did not want to be the only large bank that did not repay.

http://www.forbes.com/forbes/2009/1228/investing-wells-fargo-rf-micro-devices-makers-breakers.html

Is the FED propping up the stock market?

"Fear the Boom and Bust" a Hayek vs Keynes Rap

Transcript: http://www.econstories.tv/home.html

SEC mulled national security status for AIG details

NEW YORK (Reuters) - U.S. securities regulators originally treated the New York Federal Reserve's bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.

http://www.reuters.com/article/idUSTRE60N1S220100124?dbk

White House Is Confident Bernanke Will Be Confirmed

Voltron says: The White House remains behind the fed chairman (for
now) and it looks like he will be reappointed next week.

http://www.nytimes.com/2010/01/24/us/politics/24bernanke.html

Will More Borrowers Walk Away From Their Mortgages?

http://www.nytimes.com/2010/01/24/business/economy/24view.html

Bonds Are Too Hot

By Matthew Craft - Forbes.com

The flow of money into bond funds has had many welcome knock-on effects. As bond prices rise and yields fall, borrowing costs have dropped, helping companies tap the flood of cash to pay off other more expensive debts. But market watchers at Citigroup are beginning to worry about bonds' newfound popularity.

In a note to clients this week, Citigroup strategists compared the current trend to the craze for technology stocks more than a decade ago. "Such conditions were evident for aggressive growth equity mutual funds during the late 1990s at the apex of the Internet bubble and a similar trend appears to be forming now," wrote Tobias Levkovich and Lorraine Schmitt. They liken the paltry yield on Treasury bills - 6-month bills currently pay 0.13% -- to the high valuations given technology stocks in late 1999.

http://www.forbes.com/2010/01/22/debt-banks-morgan-markets-bonds-investment.html

Many are rejecting loan modifications

Homeowners are opting to flee rather than accept loan modifications that might still leave them underwater on their mortgages.

Desperate homeowners scrambling to get a loan modification through federal foreclosure relief programs are beginning to shun the offer, opting for a strictly business approach to the dilemma -- walking away.

Because the majority of modifications don't reduce the principal payment on loans made during the overpriced boom years, people with underwater mortgages could still be drowning 10 years out.

The better option for those borrowers, some say, is to take the hit now and attempt a short sale, deed in lieu, or even allow their home to go into foreclosure.

http://www.miamiherald.com/business/story/1438896.html

Rep. Frank to Recommend Replacing Fannie Mae, Freddie Mac

Jan. 22 (Bloomberg) -- Representative Barney Frank said his committee will push to replace Fannie Mae and Freddie Mac, seized by regulators almost 17 months ago, with a different model for U.S. mortgage financing.

"The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance," Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said at a hearing in Washington today. "That's the approach, rather than a piecemeal one."

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEmQPgp95F_g

New off-balance sheet rule: Little impact on Wells

Excerpt:

The new accounting standard requiring banks to bring assets back on balance sheet had a negligible impact on Wells Fargo. Despite having over $2.0 trillion of off-balance sheet assets, Wells consolidated just $10 billion of risk-weighted assets when the new standard took effect January 1.

http://blogs.reuters.com/rolfe-winkler/2010/01/21/fas-1667-big-bark-but-no-bite-for-wells/

Political pivot point

Wisely Listening to Volcker, Obama Proposes Restrictions on Banks
By Don Bauder - San Diego Reader

Finally showing some backbone and taking advice from former Federal Reserve Chairman Paul Volcker, President Obama today (Jan. 21) proposed restriction on large banks' abusive practices. Obama's proposal would prohibit commercial banks from owning or investing in hedge funds or private equity funds. Most significantly, the proposal would put restrictions on proprietary trading by the big financial institutions that today can borrow from the Federal Reserve at zero percent and gamble in various markets. The president's proposal would place restrictions on banks using federally-insured deposits for gambling activities. The proposal has to pass Congress, and financial institutions will find loopholes, but initial response is positive -- that is, stocks of these big banks are tanking. At least initially, the market fears that the proposals could stick. That's good.

Voltron says: President Obama is calling this the "Volker Plan". This is significant because according to former bank regulator, Prof. William Black, limiting bank size will cause the ponzi schemes to collapse because all ponzi schemes must continuously grow. This marks the ascendency of former federal reserve bank chairman Paul Volker and the marginalization of President Obama's soon-to-be-former economic team: Treasury Secretary Tim Geithner and Larry Summers. Tim and Larry were responsible for the big bank bailouts that have backfired politically and, as we will soon see, have only delayed the crisis. Paul Volker raised interest rates aggressively in the early 80s to combat inflation, the this could pre-sage a change in interest rate policy. Also Federal Reserve Chairman Ben Bernanke's re-appointment is now in doubt.

http://finance.yahoo.com/tech-ticker/article/409143/Is-It-Just-Us%2C-Or-Did-Tim-Geithner-Get-Fired-Yesterday

http://www.businessinsider.com/look-whos-smiling-now-2010-1

http://www.reuters.com/article/idUSTRE60K6NV20100121

http://www.calculatedriskblog.com/2010/01/abc-news-senate-leadership-uncertain-if.html

Wells Fargo reports unexpected 4Q profit

Excerpt:

Wells Fargo set aside $5.91 billion for loan losses during the quarter, a 30 percent decline from the same period a year earlier. Bank of America Corp., which also reported quarterly results Wednesday, actually increased its loan-loss reserves by 18 percent during the final three months of 2009.

http://finance.yahoo.com/news/Wells-Fargo-reports-apf-300479987.html?x=0&.v=5

WSJ: Bad Loans Are Reason to Leave Wells Alone

Excerpt:

Is Wells Fargo going to be dealing with bad-loan problems after its rivals are in the clear? Fourth-quarter results, reported Wednesday, point to such a scenario.

Wells's nonperforming assets—past-due loans and repossessed collateral—rose 18% from the third quarter. Meanwhile, J.P. Morgan Chase's fell 3.1%, Citigroup's were more or less flat, and Bank of America's rose 5.7%.

Investors watch this credit metric closely. As nonperformers start to fall, banks can slash bad-loan expenses, causing earnings to soar. Nearly all bank stocks have rallied as investors factor in such an earnings boost. But, after the rally, there could be upsets if credit metrics fail to improve in line with expectations. And that is why Wells is interesting. It trades at 1.4 times its book value, compared with J.P. Morgan's 1.08 times. If credit disappoints, the stock could fall to close that gap.

Wells's defenders might say the bank has adequate reserves for its loans. But Wells's nonperforming loans are now 3.12% of outstanding loans, compared with 2.77% at J.P. Morgan. Yet J.P. Morgan's reserve is 74% larger than its past-due loan total, whereas Wells's reserve is the same size.

http://online.wsj.com/article/SB10001424052748704320104575015411860812160.html?ru=yahoo&mod=yahoo_hs

R U Unemployed?

Visualizing a Trillion

Wells Fargo earnings conference call

Voltron says: all softball questions.

http://seekingalpha.com/article/183514-wells-fargo-amp-company-q4-2009-earnings-call-transcript

More home equity loan drama

Voltron says: How this shakes out will be critical to Wells Fargo.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aF5WM0c7D8Og

Wells Fargo will answer questions

Voltron says: Wells Fargo, for the first time ever, will answer analysts' questions during their earnings conference call on Wednesday. Hopefully they will let Meredith Whitney ask a question. Should be interesting.

http://online.wsj.com/article/SB10001424052748704381604575005532294411268.html?ru=yahoo&mod=yahoo_hs

Yes, It's Okay To Walk Away From Your Mortgage

http://finance.yahoo.com/tech-ticker/yes-it%27s-okay-to-walk-away-from-your-mortgage-403924.html

Yes, Minister: A Conflict of Interest

Voltron says: This video is almost 25 years old, and it lays out (tongue-in-cheek) pretty much what is happening in America now.

Colbert: Honor Bound

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
The Word - Honor Bound
www.colbertnation.com
Colbert Report Full Episodes Political Humor Economy

Short Wells Fargo and give to Haiti

Voltron says: If everybody shorts Wells Fargo and gives 10% of the profits to Haiti, that'll be over $10 Billion in aid.

Big Banks Accused of Short Sale Fraud

excerpt:

In order for a short sale with two loans to happen, the second lien holder has to drop the lien.

If they don't, and there's no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.

In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn't have to agree, but more and more are doing so.

That's all legal.

But here's what's not legal and what's apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say "on the side," I mean in cash, off the HUD settlement statements, so the first lien holder doesn't see it.

http://www.cnbc.com/id/34877347/

Banks: The Best Short for 2010

http://seekingalpha.com/article/182696-banks-the-best-short-for-2010?source=yahoo

Banning Chinese Imports Would Make The U.S. Trade Deficit WORSE

If you ban Chinese imports, then Americans will be forced to import products from other non-China sources that are more expensive than China, but still far less expensive than what can be produced within the U.S..

http://www.businessinsider.com/world-bank-the-us-trade-deficit-would-explode-higher-if-you-banned-chinese-imports-2010-1

What happens to a second mortgage in a modification?

Voltron says: This is a huge question for the $800 billion on second lien mortgages (mostly home equity loans) of which Wells Fargo has about $85 billion.

excerpt:

Normally second lien mortgages (which are simply second mortgages taken out on a property) rank subordinate to the first loan. In principle, that means if the property is sold or the borrower defaults, the first lien lender is first in line to get the resulting money, followed by the second lien lender.

But it seems an interesting thing happens when mortgage modifications come into play.

Because the borrower is paying the Hamp-modified first lien amount, and the full second lien amount, the second lien effectively becomes senior to the first. In fact, second lien lenders might even be thought of as benefiting from the first lien mortgage since they have a better chance of getting more of their money back from the borrower.

http://ftalphaville.ft.com/blog/2010/01/08/122331/a-second-lien-helping-of-hamp/

How is this efficient?

NY Times: Walk Away From Your Mortgage!

"HUD-approved housing counselors are supposed to counsel people against foreclosure. In many cases, this means counseling people to throw away money."

Voltron says: Here's how I look at it: If you live in a non-recourse state (i.e. where they can only repossess the house and cannot go after other non-mortgaged assets) then you will pay a higher interest rate because the banks know that they can't sue you for any shortfall should you default for any reason. You are FORCED to pay a higher interest rate, whether or not you would intentionally default. This is the same as saying you are FORCED to pay for an put option on the house. If you are forced to pay for this option, why wouldn't you use it?

http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html

Manufacturing Jobs vs Government Jobs

Political backlash

http://globaleconomicanalysis.blogspot.com/2010/01/taylor-ny-times-dean-baker-call-out.html

http://blogs.reuters.com/james-pethokoukis/2010/01/06/the-campaign-against-larry-summers/

http://www.businessweek.com/news/2010-01-06/senator-dodd-said-to-not-seek-re-election-in-november-update4-.html

Why America's Retiring Boomers Doom Us To Bubble, After Bubble, After Bubble...

Voltron says: until they retire

http://www.businessinsider.com/why-americas-retiring-boomers-doom-us-to-bubble-after-bubble-after-bubble-2010-1?

Political backlash

http://globaleconomicanalysis.blogspot.com/2010/01/taylor-ny-times-dean-baker-call-out.html

http://blogs.reuters.com/james-pethokoukis/2010/01/06/the-campaign-against-larry-summers/

http://www.businessweek.com/news/2010-01-06/senator-dodd-said-to-not-seek-re-election-in-november-update4-.html

China Property Bubble May Lead to U.S.-Style Real Estate Slump

http://www.bloomberg.com/apps/news?pid=20601109&sid=arp0XyPoRxW0&pos=14

U.S. Loan Effort Is Seen as Adding to Housing Woes

“We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

http://www.nytimes.com/2010/01/02/business/economy/02modify.html

Experts: Get Out of Bonds Now Before the Bubble Bursts

http://moneynews.com/Headline/Experts-GetOut-Bonds-Bubble/2009/12/31/id/345127