Market Update

Voltron says: Foreign stocks took a hit along with the rest of the market. The dollar went up so foreign stocks got a double whammy. John Authers from the financial times explains why and why it may reverse (link here). Mike Shedlock punks out Wells Fargo for raising it's dividend and then turning around and raising money from new investors (link here). Bill Gross, PIMCO's chief bond investor is screaming for a bailout (link here) He'll probably get it and the dollar will get trashed.

Say goodby to TiPS

Voltron says: The Treasury Secretary wants to get rid of TiPS (Inflation Linked Treasurys)  They have not been a very good inflation hedge because the government fudges the inflation index (CPI).  Without TiPS the government will be free to inflate away debt by debasing the dollar.

 

http://www.bloomberg.com/apps/news?pid=20601109&sid=atKnQFruecww

Breaking News: Lehman To Be Acquired by Tooth Fairy

The market responded with enthusiasm to reports that the Tooth Fairy has agreed to acquire Lehman. The purchase price has not yet been determined and will be set by Dick Fuld wishing upon a star, clicking his heels three times, and being transported back to that magical place where Lehman still sells for over $70 per share.

In related news, Lehman has agreed to sell all of its level III capital, including CDOs, ABSs, pet rocks, baseball cards, slightly used condoms, and credit default swaps written by MBIA and Ambac. Lehman’s level III capital will be acquired for 150% of its face value by Tinkerbell, who will carry it off to Neverland to be fed to a crocodile. Lehman is financing 90% of the acquisition at an interest rate that has not been announced; Tinkerbell’s up-front payment consists of a handful of pixie dust, three crickets, and a bullfrog. Analyst Dick Bove estimates that the bullfrog could eventually be transformed into three princes and a pumpkin coach. The deal gives Lehman no recourse to any of Tinkerbell’s assets other than the Level III capital. If Tinkerbell defaults, Lehman’s successor entity will stick its hand down the crocodile’s throat and attempt to get it to regurgitate. The firm’s historical value-at-risk analysis shows that sticking your hand down a crocodile’s throat is completely safe.

Treasury Secretary Hank Paulson issued a statement: “I am delighted that SWFs (Sovereign Wealth Fairies) continue to express confidence in the terrific values represented by American financial institutions. As I have been saying since August of 2007, this shows that the crisis is now over.”

Meanwhile, the SEC has announced an investigation of mean, evil, bad short-seller David Einhorn. While out for a beer with a friend, Einhorn reportedly suggested that the Tooth Fairy does not exist and that wishing upon a star is not a wholly reliable price discovery mechanism. Christopher Cox, chairman of the SEC, said, “Vicious rumors attacking the Tooth Fairy will not be tolerated. Our entire financial system and indeed the American way of life depend on the Tooth Fairy and wishing upon a star. How else could one value level III capital appropriately?” The SEC is reportedly planning to set up re-education camps for short-sellers.

Below is Korea's response to Lehman's offer to sell itself for 150% of book value (oddly it's in chinese).



If you can't read chinese turn your head to the right and read it sideways. You'll get it.

On the Link between the Dollar and Oil

Voltron says: from my former colleagues, a more nuanced explanation of how the price of oil is linked to the dollar. The gist is that there are several factors that cause the price of oil to rise when the dollar goes down in value. This is bad but it will likely continue for some time.

By Stephen Jen & Spyros Andreopoulos | London

Summary and Conclusions

While it is difficult to establish statistical evidence of causality, we believe that the USD and oil will likely remain negatively correlated, for various reasons. Oil prices, therefore, will remain an important – though not the only – consideration for the dollar. Specifically, lower and stable oil prices should be positive for the USD, while rising oil prices should be negative for the USD.

The Oil-Dollar Link

The circle of rising oil prices and a falling dollar was vicious. In contrast, the recent reversal of these trends is virtuous and, all else equal, positive for the world. Not only will lower oil prices help to support global demand, they should also permit greater monetary flexibility to deal with lower economic growth. (There are two aspects of the nexus between oil and the dollar: their correlation and the direction of causality. We have conducted Granger Causality tests, and found that, in practice, and for the most recent period (1992-2008), the dollar tends to lead oil, rather than the other way around.)

Until around 2003, higher oil prices were correlated with a stronger dollar. This was primarily because petrodollars were not only recycled back in to the US through trade but also because of financial flows: the US was dominant in every way back then, in terms of the attractiveness of its exports and assets. However, since 2004, this correlation has evaporated, and since 2006, the correlation has turned intensely negative.

There are several possible explanations for this negative correlation between oil prices and the dollar, especially the EUR/USD bilateral cross. We have, in previous work, touched on some of these reasons (see The USD and Oil Prices: Some Conceptual Issues, August 9, 2007). We list them here, paying particular attention to the direction of causality.

There are primarily three channels through which oil prices could affect the dollar:

• Link 1. Petrodollar recycling less dollar-friendly. The economic reliance of oil exporters on the US has declined over the years. Specifically, petrodollar owners now have a higher marginal propensity to consume European-made products than before. (Back in the 1970s, around 18% of OPEC’s imports were from the US. Now, this ratio has fallen to 9%, and OPEC sources 26% of its imports from the EU.) Also, they are likely to have a lower marginal propensity to invest in USD assets, simply because the array of assets in the world available to the petrodollar investors is now much wider than before. This is also related to the issue of reserve diversification by oil exporters. The establishment of the EMU has enhanced the liquidity of EUR-denominated assets, and intra-Eurozone divergence has preserved the diversification benefits of investing in EUR assets. Petrodollar owners have responded to these changing global financial markets. Thus, the higher the oil price, the more diversification takes place, and the weaker the dollar is.

• Link 2. Different central bank responses to oil shocks. Investors have different opinions about how the Fed and the ECB may react to rising oil prices, one opinion being that the latter might act more aggressively than the former, because of their different mandates. Thus, higher oil prices tend to lead to general expectations of a more hawkish reaction from the ECB – an inflation targeter – than from the Fed, which has a ‘dual mandate’ on growth and inflation. In other words, rate hikes in response to oil price rises appear more ‘automatic’ for the ECB than for the Fed. This may help to explain why EUR/USD and oil are correlated on a real-time basis – a trend that cannot be satisfactorily explained by the diversification argument mentioned above. Thus, in general, a higher USD price of oil may have conveyed to the world the impression that there was more global inflation than there really was. Monetary tightening in response to this positive inflation shock had further depressed the dollar, thereby perpetuating the circle.

• Link 3. High oil prices hurt the US C/A deficit. The US C/A deficit has shrunk rapidly since 4Q05, especially the non-oil portion of the C/A. (The US C/A deficit reached a peak of 6.8% of GDP in 4Q05, and has just breached the 5.0% GDP mark in 4Q07. It is likely to decline to around 4.5% by end-2008.) Indeed, trends in non-oil and oil trade balances have diverged substantially since 2005. While the former improved from U$40 billion to around U$30 billion a month, the oil trade balance – reflecting the sharp move in the US terms of trade – deteriorated from around U$20 billion to U$30 billion a month. In short, high oil prices have offset the tremendous improvement in the US external imbalance that has and continues to take place, and have prevented the dollar from being rewarded for this improving trend.

And there are three links through which the dollar drives oil quotes, in addition to the numeraire effect:

• Link 4. Feedback through the de facto dollar zone. The de facto dollar zone could also help to explain the link between the dollar and oil, and the causality running from the former to the latter. While the de facto dollar zone is looser now than two years ago, many Asian and other EM currencies are still quite ‘sticky’ vis-à-vis the dollar. Dollar depreciation effectively makes Asian exporters even more competitive, and economic buoyancy in these dollar zone countries (i.e., Asia) has led to high consumption of energy products. Therefore, a weak dollar may, on balance, increase the world’s demand for energy products.

• Link 5. Financial investment in commodities. There are anecdotal signs that institutional funds may be starting to treat commodities as a separate asset class. To the extent that real commodities are treated as ‘anti-dollars’, there could be a negative relationship between these two variables. Similarly, if commodities are seen as a hedge against inflation, expectations of higher US inflation will drive the dollar down and oil prices up.

• Link 6. Weak dollar and the lack of oil demand destruction. Many countries have tried to let their currencies appreciate in the past quarters so as to offset the impact of oil price increases in USD. But what may make sense from an individual country’s perspective has in fact been inflationary from the world’s collective perspective. Essentially, strong currencies provided an implicit subsidy on oil, and rising oil prices have not caused the level of demand destruction they should have done. As a result, oil prices continue to march higher, the longer this strong currency policy is maintained.

These are some explanations for why oil and the dollar have been so negatively linked since 2006. However, a further theory we have is that oil and the dollar could appear correlated only because they are driven by the same factor. We see this thesis as particularly relevant for the recent episode of oil price correction and the rise in the dollar. The dollar could have risen in the past month due to the ‘Dollar Smile’ effect. At the same time, a broad-based deceleration in global growth, on top of the oil demand-destruction that had already begun in many developed countries, should driver oil prices lower. As a result, the dollar rose at the same time as oil prices fell, not because one ‘caused’ the other, but because they were both driven by the same factor: a deteriorating global economic outlook.

Our Outlook for the Dollar, Conditional on Oil Price

We have two thoughts:

1. A strong dollar helps the world to rationalise on oil consumption. The vicious circle between a weak dollar and high oil prices was bad for the global economy. The contraction in Germany’s GDP was due to weak domestic demand, rather than exports. This raises the whole concept of ‘de-coupling’ and ‘re-coupling’, that Germany has not weakened because of a weak US or a weak world. Rather, it has weakened due, possibly, to the sharp energy shock and the credit crunch. As we argued under ‘Link 6’, a stronger dollar would force the rest of the world to rationalise energy consumption. A currency-based policy reaction to the oil price rise – such as the strong EUR policy adopted by the ECB – never made sense from a global perspective, in our view. This was a ‘negative-sum’ solution, due to the lack of oil demand-destruction. We believe that a virtuous circle of a stronger dollar and lower oil prices is what the world needs now.

2. Inflation-targeting central banks to become more dovish. Calmer commodity prices make sense if the global economy is decelerating. This should help anchor inflation expectations and permit inflation-targeting central banks to ensure that two-year forward inflation does not fall below their targets. The speed with which the RBA may make a U-turn (it last tightened in March, and may ease on September 2) on its policy and the market’s positive reaction to the RBA’s flexibility are a good example of what other inflation-targeting central banks (ECB, BoE, Sweden’s Riksbank, RBI, BoK, SARB and RBNZ) could do – though such a policy reversal may not come as soon as the case of the RBA, further supporting the dollar.

Bottom Line

The USD and oil are likely to remain negatively correlated for some time; the performance of the USD will in part be determined by the evolution of oil prices. For the global economy, a strong dollar/low oil price combination is much better than a cheap dollar/high oil price combination. Calmer commodity prices should also temper the hawkish bias that some inflation-targeting central banks have had.

Veterans Administration Loans

Voltron says: When VA and FHA loans are the only ones available, house prices will plummet and vets will be able to get great deals (i.e. mortgage payments at a steep discount to equivalent rent)

The Best Mortgage Deals Around

By Terry Savage

It's tough to get a mortgage today. But that's not news. Every financial institution is tightening lending standards, requiring a higher down payment and raising interest rates. Well, almost every lender is doing that.

If you're a veteran who has been honorably discharged from the military, you can get a great deal on a home loan.

The Veterans Administration (VA) has a mortgage guarantee program that is available to the more than 23.8 million U.S. veterans who were honorably discharged from service. But fewer than 2.1 million have taken advantage of VA loans. And they're missing out on a very good deal.

With a VA loan, veterans can get 100% financing without private mortgage insurance (PMI) and a 30-year fixed rate of 6.5%. There is a small origination fee paid to the VA, typically 2.4%, which is rolled into the mortgage itself.

The mechanics of the loan are relatively simple. Essentially, the U.S. Government guarantees 25% of a veteran's loan for a lender. So from the lender's point of view, the borrower is putting up a 25% down payment at the time of purchase. Thus, the borrower needs no cash to get the mortgage.

Very few mortgage brokers know about this type of loan, or work for companies that are registered to make them. I'm indebted to Daniel Chookaszian, vice president of sales at American Street Mortgage Company, for bringing this program to my attention. He specializes in making these VA loans to veterans, as well as FHA (Federal Housing Administration) loans to other homebuyers.

Chookaszian, who in addition to being a mortgage broker has a Master of Divinity degree from Moody Bible Institute and serves as a volunteer chaplain at a VA nursing home, says the program is a true benefit for our veterans. In fact, he teaches other mortgage brokers how to help vets apply.

Getting a VA mortgage starts, he explains, with making a call to the VA's Certificate of Eligibility Center at 888-244-6711 to secure the certificate authorizing the mortgage. The center keeps track of whether the veteran used all or part of his or her eligibility in the past.

Previously used eligibility must be deducted from total lifetime eligibility. Those limits may have expanded since a veteran's previous use of the program, which has been in effect since World War II, so that even older vets who previously used the program may be eligible for another loan guarantee.

The government will guarantee as much as $104,250 toward an owner-occupied purchase. That is 25% of the government-sponsored enterprises' (GSE) loan limit of $417,000. Under the recently passed Housing Bill, from July 30 to Dec. 31 of this year, some areas qualify for even higher government guarantee limits. Go to the FHA Lending Limits Web page to check for the limits in your state. The VA uses the same limits as FHA loans.

There are additional benefits to using a VA loan, if you qualify. Veterans may be required to pay for the following fees: credit report, origination, discount points, the Funding Fee, recording and title insurance, all of which are typically rolled into the loan. But veterans cannot pay for the inspection, document preparation, underwriting, processing, attorney, tax service or escrow. These costs can be paid by either the seller or the lender. This may save the veteran $1,000 to $1,300 in closing costs!

After qualifying a prospective borrower, Chookaszian funds the loan through a bank. And he assures me that most banks are still more than willing to make these loans because of the government guarantee. Plus, VA loans are made with more lenient income and credit standards than banks are currently demanding of conventional borrowers.

He points out that these VA loans are not as beneficial for those seeking to refinance, because in a "refi" the loan-to-value ratio is not 100%, but only 90%. And there is a slightly larger up-front VA fee than with a purchase.

For more information about VA mortgage loans, you can speak to the VA Loan Center at 800-827-0611, although they are not brokers and do not make loans. Or contact Chookaszian at 312-376-3760 or dchooks@americanstreetmortgage.com.

Not a Vet? Don't Forget FHA

Even if you're not a vet, Chookaszian says there may be an FHA solution to your mortgage problem. He's helped homeowners refinance out of adjustable rate mortgages and into fixed-rate FHA loans, currently fixed for 30 years at 6.5%, plus private mortgage insurance (PMI), which is part of the monthly payment. With an FHA loan, there is also a requirement that property taxes and insurance be escrowed every month as part of the payment.

Despite falling home prices, the FHA mortgage might be available to many homeowners, since it requires only a 97% loan-to-value ratio (3% equity) to make the loan. Because of the government guarantee on these mortgages, some lenders will make loans to those with credit scores as low as 500.

These FHA loans fell out of favor in recent years when banks started offering low-rate, no-money-down subprime loans. But in today's market a 30-year mortgage fixed at 6.5% looks like a real bargain, even with the private mortgage insurance payment.

So, while many complain that the government isn't doing enough to alleviate the mortgage crisis, the smart money is taking advantage of some relatively good deals that still remain. And that's The Savage Truth!

Cracks appearing in U.S. commercial real estate market

Voltron: more news about Lehman and good news for SRS:

http://www.iht.com/articles/2008/08/22/business/commercial.php


Voltron also says: don't worry about the gyrations of LEH. CFC did the same thing before the final swan dive into the abyss.

Moody's: U.S. Commercial Real Estate Prices Down for Fourth Straight Month

More "good" news for SRS:

http://www.economicnews.ca/cepnews/wire/article/110155

voltron says: why is this not already reflected in the price of SRS? Because those companies do not need to constantly revalue their real estate portfolio. It'll all come out in the end . . .

Market Update

Voltron says: The market has been very volatile the last two weeks with no clear trend. I think it's indicative of an inflection point and a breakout is coming.

Here is an article that explains the current market psychology and why you should not give up on foreign stocks and gold: http://www.europac.net/externalframeset.asp?from=home&id=13709

Here's a great article on Wells Fargo and why it's still a great shorting opportunity: http://mrmortgage.ml-implode.com/2008/08/14/wsj-wells-fargo-cheated-on-earnings-again/

Why DKA, DBN and DBU are down

Voltron says:  Looks like wisdom tree has some competition for foreign sector funds.  State Street’s new funds have slightly lower fees so people may be switching from the wisdom tree ETFs.  If that’s the case, it’s over done.  The fees are less than 1/10 of 1% lower.  Besides, wisdom tree’s funds are dividend weighted which is more in keeping with Peter Schiff’s philosophy of earning foreign dividends.

Investor's Business Daily
State Street Launches Foreign Sector SPDRs
Friday July 25, 6:13 pm ET
Trang Ho

State Street Global Advisors has unleashed a cluster of SPDRs that track the 10 sectors of the S&P World ex-U.S. Broad Market indexes. The new ETFs in the SPDR S&P International family are:

Consumer Discretionary (AMEX:IPD - News)

Consumer Staples (AMEX:IPS - News)

Energy (AMEX:IPW - News)

Financial (AMEX:IPF - News)

Health CareI (AMEX:IRY - News)

Industrial (AMEX:IPN - News)

Materials (AMEX:IRV - News)

Technology (AMEX:IPK - News)

Telecommunications (AMEX:IST - News)

Utilities (AMEX:IPU - News)

These compete with the iShares and WisdomTree international sector ETFs. The SPDRs charge 0.50% each in annual expenses, while their iShares counterparts charge 0.48% and WisdomTree 0.58%.

SPDRs Vs. IShares

The main differences between these and iShares S&P Global sector indexes: Unlike the iShares, the SPDRs don't include U.S. stocks. But they're much broader in scope.

They're a subset of the entire world index and hold companies with market caps of at least $100 million. The iShares family subdivides the narrower S&P Global 1200 index, though its offerings include companies with even less than $1 million in market cap.

The largest one by holdings, SPDR S&P International Industrial Sector, includes 1,200 stocks; iShares S&P Global Industrials (NYSEArca:EXI - News) has just 180 holdings.

SPDR S&P International Financial Sector includes more than 1,000 names. SPDR S&P International Telecommunications , with just 70 stocks, has the fewest holdings.

The iShares ETFs offer small exposure to emerging markets stocks, while the SPDRs includes only developed markets.

SPDRs Vs. WisdomTree

WisdomTree international sector ETFs also exclude U.S. stocks. The main difference is they're dividend weighted, while the SPDRs are market-cap weighted.

ETF experts expect these to perform similarly. Which you choose is just a matter of preference, says Gary Gordon, president, Pacific Park Financial.

"One person might be a stickler for fees," Gordon said. "That person should go with a State Street version over WisdomTree's. On the flip side, a long-term holder may prefer the higher dividend reward from the WisdomTree approach."

The worst hit U.S. sector as represented by iShares Dow Jones U.S. Financial (NYSEArca:IYF - News) plunged 35% in the past 12 months and 25% year to date. Foreign financials, as represented by WisdomTree International Financials (CDNX:DRK.V - News), sank 24% in the past year and 19% year to date.

Few U.S. sectors have outpaced foreign. But iShares Dow Jones U.S. Basic Materials (NYSEArca:IYM - News) returned 8% in the past year while WisdomTree International Basic Materials (NYSEArca:DBN - News) shed 5%. These are down 3% and 8%, respectively, year to date.

These additions bring State Street's total number of ETFs to 80.

 

Meredith Whitney speaks the truth on CNBC

from mr. mortgage,com:

I have stated many times, I do not care whether stocks go up or down but I do care when free markets are not free to trade under their own devices and moral hazard litters the landscape. I also care when the press, on a minutely basis, paints a rosier picture than reality.

Enter Meredith Whitney to set everyone straight and perhaps save some gamblers some hard earned money over the next ‘couple of months’. -Best Mr Mortgage

Video source CNBC: http://www.cnbc.com/id/15840232?video=808357964

Whitney says (loosely transcribed):

• Fed knows there is no quick fix. Every time they open window they lose fire power for next crisis. There is not much capital out there that wants to rescue brokers.
• I keep saying we are less than 50% done with this crisis and are still there.
• All capital raised by banks so far ($450 billion) was only to plug holes and not to grow business.
• All banks ‘assets’ marked at unrealistic levels
• Creditors have cut mortgages and credit lines to the areas with the worst house prices depreciation. That will hurt consumers even more.
• Corporate loan market will get hit soon as well.
• Maria was prodding to find out how quickly the stock prices going back to the highs. Pump Pump Pump! Whitney says: There is no way the bank stocks will return to the highs in next 3-years. No comment on 5-years out. (Whitney seemed frustrated with the question being so shallow)
• The brokers are not growing capital and diluting the share holder. They can’t grow earnings that way.
• Merrill raised tremendous amount of capital just to plug holes. They still have to shed asset and are not out of woods yet.
• Most every bank has to write down assets like Merrill and raise capital.
• Banks who got in bed with housing assets such as C, UBS, MER, BAC, WB will be in the market ’soon’ to do another capital raise.
• Everyone was involved in mortgages. All of these banks are in trouble now.
• 25 institutions will have to raise capital in next two months.
• Banks will cut dividend’s. I don’t understand why banks raise capital and then still pay a dividend. It is not prudent for board members to keep paying when they are so capital restrained.
• Fannie Freddie in same situation as every other institution. All banks are betting on house price assumptions that are far too optimistic. No banks are close to Case-Shiller.
• Due to bank’s bath math, losses will apply to everyone across the board.
• In 2006-07 $2.5 trillion was securitized. Nobody can replace this mortgage money and housing prices will continue to suffer as a result.
• When Maria asked if Lehman will survive, she said “huh huh huh huh huh huh I don’t know.”
• I am very opinionated on the short selling rule. If you want to have faith in the capital market there has to be two sides to every trade and people have to be able to hedge. Restricting free trade will have the opposite effect and endanger the markets.
• Jamie Dimon and Goldman are ‘pros’ and very cautious and aware of risks.

Moody's profit tumbles, to be sued by Connecticut

By Jonathan Stempel

NEW YORK (Reuters) - Moody's Corp (NYSE:MCO - News), the parent of Moody's Investors Service, said quarterly profit fell 48 percent, as the global credit crisis caused demand to shrink for mortgage bonds and collateralized debt obligations.

Though results topped forecasts, Moody's shares gave up some early gains after Connecticut Attorney General Richard Blumenthal said he plans to sue Moody's and its main rivals, McGraw-Hill Cos (NYSE:MHP - News) Standard & Poor's, and Fimalac SA's (Paris:LBCP.PA - News) Fitch Ratings, for alleged "deceptive and unfair practices costing taxpayers millions of dollars."

Second-quarter net income for New York-based Moody's, whose largest investor is Warren Buffett's Berkshire Hathaway Inc (NYSE:BRK-A - News; NYSE:BRK-B - News), fell to $135.2 million, or 54 cents per share, from $261.9 million, or 95 cents, a year earlier.

Moody's said profit excluding items was 51 cents per share. On that basis, analysts on average expected 47 cents per share, according to Reuters Estimates. Revenue fell 25 percent to $487.6 million, topping the average $465.7 million forecast.

"They beat the numbers in pretty much all categories," said Edward Atorino, an analyst at Benchmark Co in New York. "I think we're bouncing along the bottom. The third quarter is starting pretty slow, but we're at the bottom of a trough."

Results were weakened by a 56 percent plunge in revenue from CDOs and other structured products, including such asset classes as residential mortgage-backed securities, commercial real estate finance and credit derivatives. In the United States alone, structured finance revenue fell 67 percent.

Expenses declined 10 percent as Moody's cut jobs and reduced incentives and stock-based compensation.

CRITICISM

Moody's and its rivals have faced criticism from investors, politicians, regulators and smaller rivals for feeding the housing boom and crisis by assigning high ratings to risky debt in the pursuit of fees, only to downgrade those ratings later.

The company's ratings are nevertheless still often necessary because many investors won't buy unrated debt.

Revenue rose 13 percent in the municipal debt rating unit and held steady in financial institutions ratings. Moody's Analytics, which helps investors value their holdings, had a 14 percent revenue increase.

Moody's still expects 2008 profit of $1.90 to $2.00 per share, with revenue down by a mid- to high-teens percentage. Analysts expected profit of $1.92 per share for the year.

On Tuesday, McGraw-Hill posted a smaller-than-expected 23 percent decline in quarterly profit, and also affirmed its 2008 earnings forecast.

In morning trading, Moody's shares were up 58 cents at $36.73. They traded as high as $38.50, but fell back after Blumenthal announced the planned lawsuit.

PROBES

Moody's, S&P and Fitch have suffered as the housing slump and credit crisis caused demand to disappear for a wide variety of debt, and thus ratings.

Financial companies have absorbed well over $400 billion of write-downs and credit losses since the credit crunch began.

Moody's in May announced a probe into whether it wrongly assigned "triple-A" ratings to complex European products known as constant proportion debt obligations (CPDOs), and failed to change the ratings for nearly a year after finding the error.

The same month, Moody's replaced ChIef Operating Officer Brian Clarkson, who drove its expansion in structured finance. In July, Moody's removed structured finance chief Noel Kirnon.

Also in July, the U.S. Securities and Exchange Commission said evidence showed that one rating agency let analysts take part in fee discussions with issuers, and another let analysts weigh whether their ratings could trigger client defections.

Berkshire had a 19.6 percent stake in Moody's as of March 31, according to Thomson ShareWatch.

Through Tuesday, Moody's shares had fallen 52 percent from a peak of $76.09 in February 2007.

 

America's house price time bomb

By Michael Robinson BBC World Service

With the American housing market in its worst crisis since the Great Depression of the 1930s, President Bush is authorizing new legislation to pave the way for massive new government intervention designed to slow the slide.

The intervention would come as a little known quirk of US law threatens to drive down house prices even faster.

Faced with seemingly never-ending falls in the value of their properties, some American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages.

In May 2006, at the height of the housing boom, Karen Trainer bought a $500,000 apartment in California - with money borrowed from her bank.

By this year, Karen still owed $500,000 on her mortgage, but her apartment was worth $200,000 less.

So she was deep in negative equity and, to make matters worse, the interest rate on her loan was about to increase.

"I thought 'this is crazy'," Ms Trainer says. "It just does not make financial sense."

Take the hit

“Is the bank going to pay for my retirement because I was a good girl and paid my mortgage” -Karen Trainer

As a successful professional, Karen could comfortably have managed the higher mortgage payments her bank demanded.

Instead, she decided to stop her mortgage payments altogether and let her bank repossess her apartment.

Her credit record will be badly damaged by the decision, but Ms Trainer expects this to recover soon.

"Generally speaking, within 5 years you are about back where you were, so my husband and I decided we'll take the hit and live with it."

Over to the bank

In California and much of the rest of America, there is a powerful incentive for homeowners such as Ms Trainer to walk away from their mortgage obligations.

“The dangers are extraordinary” -Professor Susan Wachter, Wharton School of Business

Though banks can repossess and sell the homes of borrowers who stop paying their mortgages, under a legal quirk originating in the Great Depression of the 1930s, banks cannot easily pursue borrowers for any balance outstanding on the main mortgage on their homes.

Consequently, by walking away from her apartment, Ms Trainer has also walked away from the loss on her property.

Her bank gets stuck with that.

Unthinkable option

Traditionally in America there is a social stigma attached to those who default on their debts, which should be a deterrent to walking away from your home.

But according to Susan Wachter, professor of real estate and finance at Wharton School of Business, in the depth of this crisis the social attitudes to such actions are changing.

"This is the kind of conversation that's going on at cocktail parties, at swimming pools," Professor Wachter says. "And suddenly this option which was truly unthinkable in the past becomes thinkable."

Worrying development

Ms Trainer says she feels no moral obligation to go on paying a loan on a property that is going to go on losing her money. She says her friends support her decision.

“It's a business decision for their family that the smartest thing they can do is walk away from their home” -Kevin Morgan, estate agent

"I think people are taking a more cold-hearted look at it," she says.

"Is the bank going to pay for my retirement because I was a good girl and paid my mortgage, even though legally I didn't have to?"

Professor Wachter believes that, to date, most people have had their homes repossessed because they could not manage the repayments.

The trend of people now positively choosing to walk away because it makes financial sense to do so is a worrying new development.

"The dangers are extraordinary," Professor Wachter says.

"If all that is needed is that the house value is less than the mortgage value, there is a large number of homeowners in the United States who are in that situation".

No renegotiation

In the city of Stockton - the foreclosure, or repossession, capital of the US for 2007 - estate agent Kevin Morgan sells repossessed houses on behalf of the banks that now own them.

“This is becoming a tsunami of voluntary defaults” -Professor Nouriel Roubini, New York University

According to him, walking away has become commonplace.

"I would say it's probably 70% of the volume of our foreclosures right now," he says.

"It's a business decision for their family that the smartest thing they can do is walk away from their home."

As a sign of the changing times, some 60% of borrowers do not even bother to contact their banks to attempt a renegotiation of their loan, Mr Moran explains.

"They stop paying and they stop talking," he says. "They just plain walk away."

Total disaster

It is impossible to know for sure how many of the people who are now walking away from their homes could have gone on paying their mortgages.

But Professor Nouriel Roubini of New York University, one of the first economists to warn of the dangers of the American house price boom, believes the number of people positively choosing to walk away is growing rapidly.

"This is becoming a tsunami of voluntary defaults," Professor Roubini says.

"The losses for the financial system from people walking away could be of the order of one trillion dollars when the entire capital of the US banking system is only $1.3 trillion.

"You could have most of the US banking system wiped out, so this is a total disaster."

Which is why it is not just US policymakers who are hoping America's new, multi-billion dollar initiative to stabilise the housing market will succeed in its aims and thus make walking away less attractive.

Because if it fails, the economic fallout could be felt far beyond America's shores.

 

What's up with the covered bond push?

Voltron says: This article explains how large investment banks can legally rape and pillage smaller failing banks and corporations, and are in fact being encouraged to do so by the FDIC.

 

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 London Banker | Jul 25, 2008

I've been particularly busy this week, nonetheless, I hope to convey enough background on the topic of covered bonds to start a discussion that I think may lead to interesting ideas.

Whenever Henry Paulson at Treasury, Ben Bernanke at the Fed and Shiela Bair at FDIC agree on anything, American taxpayers should check for their wallets to see if they are being mugged. As a result, my eyebrows rose a bit when these three started pressing in concert for covered bond issuance in US markets some weeks ago.

Covered bonds are a huge market of over $3 trillion in Europe, but have never been popular in the USA where securitisation was the preferred model for financing banks. They are perfectly legal and raise no issues, they just haven't been as profitable as securitisation so haven't been supported by the US markets. Covered bonds allow for extension of credit to a bank SIV or trust that will be serviced by income from hypothecated assets on the bank's balance sheet. The assets stay on the bank's balance sheet unless there is a default on the bonds, at which time the assets are forfeit as collateral to the trust vehicle servicing the covered bond.

Last week the FDIC released a policy statement on covered bonds that provides for "expedited release of collateral" if an issuing bank is taken into FDIC receivership or liquidation. The Treasury is expected to release a protocol on best practices for covered bond issuance in a high profile event next week. Hmmmm. What could be up?

If I had to guess, I suspect what we will soon see is something near to the following scenario:

Lists will circulate of troubled banks likely to go into FDIC receivership. Blogs have been full of such lists as of this week, quite suddenly, as it happens. The FDIC has to have a list because there are so many banks approaching insolvency that they are queued for FDIC receivership rather like planes circling Heathrow waiting for runway clearance to land.

Several of the central players in the recent market dramas - particularly those investment banks and hedge funds on close terms with Mr Paulson (naming no names, but initials GS comes to mind) - will go strong and aggressive for the covered bond market. They will go around to their list of troubled banks, which of course they will have compiled independently using Texas Ratio maybe, rather than having any foreknowledge of FDIC concerns. They will issue covered bonds to these trouble banks against any assets with real, proveable value left on the banks' balance sheets. They will be praised to the heavens by their friends in Washington as providing timely and necessary liquidity to a troubled banking system, proving the efficiency of the free market, bravely bearing the risk of new credit in exchange for troubled bank assets.
When the troubled bank nonetheless fails, our golden circle creditors get the good collateral in an expedited release from FDIC under its new policy statement. The FDIC is left with all the toxic waste assets and liability for depositor insurance claims, with no prospect of recovery of any value from the insolvent bank liquidation.

When the FDIC itself becomes insolvent, which it surely must do as this game gets played to its obvious outcome, then the FDIC gets a GSE-style bailout via Treasury finance and the poor taxpayers get reamed again.

In the corporate sector, we could see the same kind of issuance. Covered bonds will be used to render profitable assets off soon-to-be-bankrupt corporates, leaving pensioners and other creditors with the stripped carcass in the liquidation.
Am I too cynical? Is this a genuine attempt to realistically help improve liquidity and prosperity for America's banks? Or are the banks already destined to fail going to be looted and pillaged by the insiders before being burnt, leaving smouldering ruins for taxpayers to contemplate?

I'm not sure on this one, so I'm looking forward to views from those more expert here.

 

Bear Market Phases

Voltron says:  As a bull market is peaking, the market will tend to trend upwards slowly, but have periodic sharp downward spikes.  In a bear market, which we seem to be entering now, the market will trend downwards but have periodic sharp up spikes, like we had last week.  Human psychology is completely ill suited to financial markets.  Please read and heed the following article from Mish's Global Economic Trend Analysis by Michael Shedlock.

 

Bear Market Phases

 

In a bull market, everyone ignores the greed and fraud that running rampant. No one wants to take away the spiked punch, even after it is perfectly clear that everyone is drunk. The party continues long after any reasonable person might have expected the party to end. Eventually the party goers all pass out on the floor and the pool of greater fools exhausts itself.

 

In a bear market, there are more distinct, readily observable phases.

 

Ten Bear Market Phases

 

1. A huge buy the dip mentality sets in during the initial decline. Most party goes cannot fathom that party has ended.

2. Moderate concern sets in when buy the dip stops working.

3. Initial panic.

4. Numerous bottom calls are made, all wrong.

5. Search for the guilty.

6. Punishment of the innocent.

7. More panic.

8. Lawsuits fly.

9. Regulatory power is given to those most responsible for spiking the punch bowl.

10. Congress gets in the act and makes things worse

 

Steps 4-10 are repetitive, may overlap, and may occur in any order during repetition. Certainly there have been numerous bottom calls for months now, but each rally has failed.

 

Search For The Guilty

 

In regards to number 5 it is ironic that Sheila Bair, FDIC chairman, is blaming bloggers for bank problems instead of herself. Please see FDIC Chairman Sheila Bair Is Out Of Control for more on how and why the FDIC is partly responsible for the bank mess we are in.

 

Regulatory Power Grab

 

Number 9 is in strict accordance with the Fed Uncertainty Principle.

 

Uncertainty Principle Corollary Number Two

 

The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

 

Congress Makes Things Worse

 

Congress already passed a $150 billion "stimulus package" that failed. Now there are plans for another. More importantly, House passes housing bill after Bush says he will sign it.

 

The House on Wednesday approved far-reaching government assistance for the housing market, including broad authority for the Treasury Department to protect the nation's two largest mortgage finance companies and an aggressive plan to help troubled borrowers avoid foreclosure by refinancing their mortgages.

 

"We are at a time of considerable turmoil in the private financial markets, and that is a traditional time when government support is needed and called upon," said Thomas Stanton, an author and expert on the mortgage financing industry.

Thomas Stanton is preaching socialist claptrap. Government support is not needed and is in fact the problem. There never should have been government sponsorship of GSEs in the first place. Which leads us to. ...

 

Punishment Of The Innocent

 

Taxpayers are on the hook. The Fed has already assumed a $29.5 billion responsibility in the take-under of Bear Stearns by JPMorgan (JPM). Now the Congressional Budget Office says Fannie, Freddie Rescue May Cost $25 Billion.

 

Rest assured the Fannie bailout will be $200 billion (if not far more), after Congress is done meddling.

 

Innocent taxpayers who sat this bubble out now are on the hook for hundreds of billions of dollars to bail out the drunken party goers. Losses are socialized. Profits go to the already wealthy. Sadly, this is how our corrupt system works.

 

Lawsuits Fly

 

In the last few days there has been a pair of ridiculous lawsuits that are no doubt a waste of time and money for all involved. The two lawsuits I am talking about are "San Diego sues Bank of America to halt foreclosures" and "Los Angeles Sues MBIA, Ambac, Others Over Bond Insurance".

 

Please see Ridiculous Lawsuits Fly At Taxpayer Expense for more information.

 

Short Squeeze Over?

 

There was a stunning reversal in the stock market today. Financials were solidly in the red. Fannie Mae and Freddie Mac gapped up again, but both failed in spectacular fashion.

 

It's too early to say if this was the end of the short squeeze, but as of now, Fannie Mae and Freddie Mac appear poised to fall now that they have to depend on genuine buying interest rather than bureaucratic meddling in the not-so-free markets.

 

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com

You Know The Banking System Is Unsound When....

from Mish's Global Economic Trend Analysis by Michael Shedlock

You Know The Banking System Is Unsound When....

1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

2. Paulson says the list of troubled banks "is a very manageable situation". The reality is there are 90 banks on the list of problem banks. Indymac was not one of them until a month before it collapsed. How many other banks will magically appear on the list a month before they collapse?

3. In a Northern Rock moment, depositors at Indymac pull out their cash. Police had to be called in to ensure order.

4. Washington Mutual (WM), another troubled bank, refused to honor Indymac cashier's checks. The irony is it makes no sense for customers to pull insured deposits out of Indymac after it went into receivership. The second irony is the last place one would want to put those funds would be Washington Mutual. Eventually Washington Mutual decided it would take those checks but with an 8 week hold. Will Washington Mutual even be around 8 weeks from now?

5. Paulson asked for "Congressional authority to buy unlimited stakes in and lend to Fannie Mae (FNM) and Freddie Mac (FRE)" just days after he said "Financial Institutions Must Be Allowed To Fail". Obviously Paulson is reporting from the 5th dimension. In some alternate universe, his statements just might make sense.

6. Former Fed Governor William Poole says "Fannie Mae, Freddie Losses Makes Them Insolvent".

7. Paulson says Fannie Mae and Freddie Mac are "essential" because they represent the only "functioning" part of the home loan market. The firms own or guarantee about half of the $12 trillion in U.S. mortgages. Is it possible to have a sound banking system when the only "functioning" part of the mortgage market is insolvent?

8. Bernanke testified before Congress on monetary policy but did not comment on either money supply or interest rates. The word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates. How can you have any reasonable economic policy when the Fed chairman is scared half to death to discuss interest rates and money supply?

9. The SEC issued a protective order to protect those most responsible for naked short selling. As long as the investment banks and brokers were making money engaging in naked shorting of stocks, there was no problem. However, when the bears began using the tactic against the big financials, it became time to selectively enforce the existing regulation.

10. The Fed takes emergency actions twice during options expirations week in regards to the discount window and rate cuts.

11. The SEC takes emergency action during options expirations week regarding short sales.

12. The Fed has implemented an alphabet soup of pawn shop lending facilities whereby the Fed accepts garbage as collateral in exchange for treasuries. Those new Fed lending facilities are called the Term Auction Facility (TAF), the Term Security Lending Facility (TSLF), and the Primary Dealer Credit Facility (PDCF).

13. Citigroup (C), Lehman (LEH), Morgan Stanley(MS), Goldman Sachs (GS) and Merrill Lynch (MER) all have a huge percentage of level 3 assets. Level 3 assets are commonly known as "marked to fantasy" assets. In other words, the value of those assets is significantly if not ridiculously overvalued in comparison to what those assets would fetch on the open market. It is debatable if any of the above firms survive in their present firm. Some may not survive in any form.

14. Bernanke openly solicits private equity firms to invest in banks. Is this even close to a remotely normal action for Fed chairman to take?

15. Bear Stearns was taken over by JPMorgan (JPM) days after insuring investors it had plenty of capital. Fears are high that Lehman will suffer the same fate. Worse yet, the Fed had to guarantee the shotgun marriage between Bear Stearns and JP Morgan by providing as much as $30 billion in capital. JPMorgan is responsible for only the first 1/2 billion. Taxpayers are on the hook for all the rest. Was this a legal action for the Fed to take? Does the Fed care?

16. Citigroup needed a cash injection from Abu Dhabi and a second one elsewhere. Then after announcing it would not need more capital is raising still more. The latest news is Citigroup will sell $500 billion in assets. To who? At what price?

17. Merrill Lynch raised $6.6 billion in capital from Kuwait Mizuho, announced it did not need to raise more capital, then raised more capital a few week later.

18. Morgan Stanley sold a 9.9% equity stake to China International Corp. CEO John Mack compensated by not taking his bonus. . .

19. Bank of America (BAC) agreed to take over Countywide Financial (CFC) and twice announced Countrywide will add profits to B of A. Inquiring minds were asking "How the hell can Countrywide add to Bank of America earnings?" Here's how. Bank of America just announced it will not guarantee $38.1 billion in Countrywide debt. Questions over "Fraudulent Conveyance" are now surfacing.

20. Washington Mutual agreed to a death spiral cash infusion of $7 billion accepting an offer at $7.85 when the stock was over $13 at the time. Washington Mutual has since fallen in waterfall fashion from $40 and is now trading near $5.00 after a huge rally.

21. Shares of Ambac (ABK) fell from $90 to $2.50. Shared of MBIA (MBI) fell from $70 to $5. Sadly, the top three rating agencies kept their rating on the pair at AAA nearly all the way down. No one can believe anything the government sponsored rating agencies say.

22. In a panic set of moves, the Fed slashed interest rates from 5.25% to 2%. This was the fastest, steepest drop on record. Ironically, the Fed chairman spoke of inflation concerns the entire drop down. Bernanke clearly cannot tell the truth. He does not have to. Actions speak louder than words.

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

2. Paulson says the list of troubled banks "is a very manageable situation". The reality is there are 90 banks on the list of problem banks. Indymac was not one of them until a month before it collapsed. How many other banks will magically appear on the list a month before they collapse?

3. In a Northern Rock moment, depositors at Indymac pull out their cash. Police had to be called in to ensure order.

4. Washington Mutual (WM), another troubled bank, refused to honor Indymac cashier's checks. The irony is it makes no sense for customers to pull insured deposits out of Indymac after it went into receivership. The second irony is the last place one would want to put those funds would be Washington Mutual. Eventually Washington Mutual decided it would take those checks but with an 8 week hold. Will Washington Mutual even be around 8 weeks from now?

5. Paulson asked for "Congressional authority to buy unlimited stakes in and lend to Fannie Mae (FNM) and Freddie Mac (FRE)" just days after he said "Financial Institutions Must Be Allowed To Fail". Obviously Paulson is reporting from the 5th dimension. In some alternate universe, his statements just might make sense.

6. Former Fed Governor William Poole says "Fannie Mae, Freddie Losses Makes Them Insolvent".

7. Paulson says Fannie Mae and Freddie Mac are "essential" because they represent the only "functioning" part of the home loan market. The firms own or guarantee about half of the $12 trillion in U.S. mortgages. Is it possible to have a sound banking system when the only "functioning" part of the mortgage market is insolvent?

8. Bernanke testified before Congress on monetary policy but did not comment on either money supply or interest rates. The word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates. How can you have any reasonable economic policy when the Fed chairman is scared half to death to discuss interest rates and money supply?

9. The SEC issued a protective order to protect those most responsible for naked short selling. As long as the investment banks and brokers were making money engaging in naked shorting of stocks, there was no problem. However, when the bears began using the tactic against the big financials, it became time to selectively enforce the existing regulation.

10. The Fed takes emergency actions twice during options expirations week in regards to the discount window and rate cuts.

11. The SEC takes emergency action during options expirations week regarding short sales.

12. The Fed has implemented an alphabet soup of pawn shop lending facilities whereby the Fed accepts garbage as collateral in exchange for treasuries. Those new Fed lending facilities are called the Term Auction Facility (TAF), the Term Security Lending Facility (TSLF), and the Primary Dealer Credit Facility (PDCF).

13. Citigroup (C), Lehman (LEH), Morgan Stanley(MS), Goldman Sachs (GS) and Merrill Lynch (MER) all have a huge percentage of level 3 assets. Level 3 assets are commonly known as "marked to fantasy" assets. In other words, the value of those assets is significantly if not ridiculously overvalued in comparison to what those assets would fetch on the open market. It is debatable if any of the above firms survive in their present firm. Some may not survive in any form.

14. Bernanke openly solicits private equity firms to invest in banks. Is this even close to a remotely normal action for Fed chairman to take?

15. Bear Stearns was taken over by JPMorgan (JPM) days after insuring investors it had plenty of capital. Fears are high that Lehman will suffer the same fate. Worse yet, the Fed had to guarantee the shotgun marriage between Bear Stearns and JP Morgan by providing as much as $30 billion in capital. JPMorgan is responsible for only the first 1/2 billion. Taxpayers are on the hook for all the rest. Was this a legal action for the Fed to take? Does the Fed care?

16. Citigroup needed a cash injection from Abu Dhabi and a second one elsewhere. Then after announcing it would not need more capital is raising still more. The latest news is Citigroup will sell $500 billion in assets. To who? At what price?

17. Merrill Lynch raised $6.6 billion in capital from Kuwait Mizuho, announced it did not need to raise more capital, then raised more capital a few week later.

18. Morgan Stanley sold a 9.9% equity stake to China International Corp. CEO John Mack compensated by not taking his bonus. How generous. Morgan Stanley fell from $72 to $37. Did CEO John Mack deserve a paycheck at all?

19. Bank of America (BAC) agreed to take over Countywide Financial (CFC) and twice announced Countrywide will add profits to B of A. Inquiring minds were asking "How the hell can Countrywide add to Bank of America earnings?" Here's how. Bank of America just announced it will not guarantee $38.1 billion in Countrywide debt. Questions over "Fraudulent Conveyance" are now surfacing.

20. Washington Mutual agreed to a death spiral cash infusion of $7 billion accepting an offer at $7.85 when the stock was over $13 at the time. Washington Mutual has since fallen in waterfall fashion from $40 and is now trading near $5.00 after a huge rally.

21. Shares of Ambac (ABK) fell from $90 to $2.50. Shared of MBIA (MBI) fell from $70 to $5. Sadly, the top three rating agencies kept their rating on the pair at AAA nearly all the way down. No one can believe anything the government sponsored rating agencies say.

22. In a panic set of moves, the Fed slashed interest rates from 5.25% to 2%. This was the fastest, steepest drop on record. Ironically, the Fed chairman spoke of inflation concerns the entire drop down. Bernanke clearly cannot tell the truth. He does not have to. Actions speak louder than words.

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

2. Paulson says the list of troubled banks "is a very manageable situation". The reality is there are 90 banks on the list of problem banks. Indymac was not one of them until a month before it collapsed. How many other banks will magically appear on the list a month before they collapse?

3. In a Northern Rock moment, depositors at Indymac pull out their cash. Police had to be called in to ensure order.

4. Washington Mutual (WM), another troubled bank, refused to honor Indymac cashier's checks. The irony is it makes no sense for customers to pull insured deposits out of Indymac after it went into receivership. The second irony is the last place one would want to put those funds would be Washington Mutual. Eventually Washington Mutual decided it would take those checks but with an 8 week hold. Will Washington Mutual even be around 8 weeks from now?

5. Paulson asked for "Congressional authority to buy unlimited stakes in and lend to Fannie Mae (FNM) and Freddie Mac (FRE)" just days after he said "Financial Institutions Must Be Allowed To Fail". Obviously Paulson is reporting from the 5th dimension. In some alternate universe, his statements just might make sense.

6. Former Fed Governor William Poole says "Fannie Mae, Freddie Losses Makes Them Insolvent".

7. Paulson says Fannie Mae and Freddie Mac are "essential" because they represent the only "functioning" part of the home loan market. The firms own or guarantee about half of the $12 trillion in U.S. mortgages. Is it possible to have a sound banking system when the only "functioning" part of the mortgage market is insolvent?

8. Bernanke testified before Congress on monetary policy but did not comment on either money supply or interest rates. The word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates. How can you have any reasonable economic policy when the Fed chairman is scared half to death to discuss interest rates and money supply?

9. The SEC issued a protective order to protect those most responsible for naked short selling. As long as the investment banks and brokers were making money engaging in naked shorting of stocks, there was no problem. However, when the bears began using the tactic against the big financials, it became time to selectively enforce the existing regulation.

10. The Fed takes emergency actions twice during options expirations week in regards to the discount window and rate cuts.

11. The SEC takes emergency action during options expirations week regarding short sales.

12. The Fed has implemented an alphabet soup of pawn shop lending facilities whereby the Fed accepts garbage as collateral in exchange for treasuries. Those new Fed lending facilities are called the Term Auction Facility (TAF), the Term Security Lending Facility (TSLF), and the Primary Dealer Credit Facility (PDCF).

13. Citigroup (C), Lehman (LEH), Morgan Stanley(MS), Goldman Sachs (GS) and Merrill Lynch (MER) all have a huge percentage of level 3 assets. Level 3 assets are commonly known as "marked to fantasy" assets. In other words, the value of those assets is significantly if not ridiculously overvalued in comparison to what those assets would fetch on the open market. It is debatable if any of the above firms survive in their present firm. Some may not survive in any form.

14. Bernanke openly solicits private equity firms to invest in banks. Is this even close to a remotely normal action for Fed chairman to take?

15. Bear Stearns was taken over by JPMorgan (JPM) days after insuring investors it had plenty of capital. Fears are high that Lehman will suffer the same fate. Worse yet, the Fed had to guarantee the shotgun marriage between Bear Stearns and JP Morgan by providing as much as $30 billion in capital. JPMorgan is responsible for only the first 1/2 billion. Taxpayers are on the hook for all the rest. Was this a legal action for the Fed to take? Does the Fed care?

16. Citigroup needed a cash injection from Abu Dhabi and a second one elsewhere. Then after announcing it would not need more capital is raising still more. The latest news is Citigroup will sell $500 billion in assets. To who? At what price?

17. Merrill Lynch raised $6.6 billion in capital from Kuwait Mizuho, announced it did not need to raise more capital, then raised more capital a few week later.

18. Morgan Stanley sold a 9.9% equity stake to China International Corp. CEO John Mack compensated by not taking his bonus. How generous. Morgan Stanley fell from $72 to $37. Did CEO John Mack deserve a paycheck at all?

19. Bank of America (BAC) agreed to take over Countywide Financial (CFC) and twice announced Countrywide will add profits to B of A. Inquiring minds were asking "How the hell can Countrywide add to Bank of America earnings?" Here's how. Bank of America just announced it will not guarantee $38.1 billion in Countrywide debt. Questions over "Fraudulent Conveyance" are now surfacing.

20. Washington Mutual agreed to a death spiral cash infusion of $7 billion accepting an offer at $7.85 when the stock was over $13 at the time. Washington Mutual has since fallen in waterfall fashion from $40 and is now trading near $5.00 after a huge rally.

21. Shares of Ambac (ABK) fell from $90 to $2.50. Shared of MBIA (MBI) fell from $70 to $5. Sadly, the top three rating agencies kept their rating on the pair at AAA nearly all the way down. No one can believe anything the government sponsored rating agencies say.

22. In a panic set of moves, the Fed slashed interest rates from 5.25% to 2%. This was the fastest, steepest drop on record. Ironically, the Fed chairman spoke of inflation concerns the entire drop down. Bernanke clearly cannot tell the truth. He does not have to. Actions speak louder than words.

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.You Know The Banking System Is Unsound When....

from Mish's Global Economic Trend Analysis by Michael Shedlock

1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

2. Paulson says the list of troubled banks "is a very manageable situation". The reality is there are 90 banks on the list of problem banks. Indymac was not one of them until a month before it collapsed. How many other banks will magically appear on the list a month before they collapse?

3. In a Northern Rock moment, depositors at Indymac pull out their cash. Police had to be called in to ensure order.

4. Washington Mutual (WM), another troubled bank, refused to honor Indymac cashier's checks. The irony is it makes no sense for customers to pull insured deposits out of Indymac after it went into receivership. The second irony is the last place one would want to put those funds would be Washington Mutual. Eventually Washington Mutual decided it would take those checks but with an 8 week hold. Will Washington Mutual even be around 8 weeks from now?

5. Paulson asked for "Congressional authority to buy unlimited stakes in and lend to Fannie Mae (FNM) and Freddie Mac (FRE)" just days after he said "Financial Institutions Must Be Allowed To Fail". Obviously Paulson is reporting from the 5th dimension. In some alternate universe, his statements just might make sense.

6. Former Fed Governor William Poole says "Fannie Mae, Freddie Losses Makes Them Insolvent".

7. Paulson says Fannie Mae and Freddie Mac are "essential" because they represent the only "functioning" part of the home loan market. The firms own or guarantee about half of the $12 trillion in U.S. mortgages. Is it possible to have a sound banking system when the only "functioning" part of the mortgage market is insolvent?

8. Bernanke testified before Congress on monetary policy but did not comment on either money supply or interest rates. The word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates. How can you have any reasonable economic policy when the Fed chairman is scared half to death to discuss interest rates and money supply?

9. The SEC issued a protective order to protect those most responsible for naked short selling. As long as the investment banks and brokers were making money engaging in naked shorting of stocks, there was no problem. However, when the bears began using the tactic against the big financials, it became time to selectively enforce the existing regulation.

10. The Fed takes emergency actions twice during options expirations week in regards to the discount window and rate cuts.

11. The SEC takes emergency action during options expirations week regarding short sales.

12. The Fed has implemented an alphabet soup of pawn shop lending facilities whereby the Fed accepts garbage as collateral in exchange for treasuries. Those new Fed lending facilities are called the Term Auction Facility (TAF), the Term Security Lending Facility (TSLF), and the Primary Dealer Credit Facility (PDCF).

13. Citigroup (C), Lehman (LEH), Morgan Stanley(MS), Goldman Sachs (GS) and Merrill Lynch (MER) all have a huge percentage of level 3 assets. Level 3 assets are commonly known as "marked to fantasy" assets. In other words, the value of those assets is significantly if not ridiculously overvalued in comparison to what those assets would fetch on the open market. It is debatable if any of the above firms survive in their present firm. Some may not survive in any form.

14. Bernanke openly solicits private equity firms to invest in banks. Is this even close to a remotely normal action for Fed chairman to take?

15. Bear Stearns was taken over by JPMorgan (JPM) days after insuring investors it had plenty of capital. Fears are high that Lehman will suffer the same fate. Worse yet, the Fed had to guarantee the shotgun marriage between Bear Stearns and JP Morgan by providing as much as $30 billion in capital. JPMorgan is responsible for only the first 1/2 billion. Taxpayers are on the hook for all the rest. Was this a legal action for the Fed to take? Does the Fed care?

16. Citigroup needed a cash injection from Abu Dhabi and a second one elsewhere. Then after announcing it would not need more capital is raising still more. The latest news is Citigroup will sell $500 billion in assets. To who? At what price?

17. Merrill Lynch raised $6.6 billion in capital from Kuwait Mizuho, announced it did not need to raise more capital, then raised more capital a few week later.

18. Morgan Stanley sold a 9.9% equity stake to China International Corp. CEO John Mack compensated by not taking his bonus. How generous. Morgan Stanley fell from $72 to $37. Did CEO John Mack deserve a paycheck at all?

19. Bank of America (BAC) agreed to take over Countywide Financial (CFC) and twice announced Countrywide will add profits to B of A. Inquiring minds were asking "How the hell can Countrywide add to Bank of America earnings?" Here's how. Bank of America just announced it will not guarantee $38.1 billion in Countrywide debt. Questions over "Fraudulent Conveyance" are now surfacing.

20. Washington Mutual agreed to a death spiral cash infusion of $7 billion accepting an offer at $7.85 when the stock was over $13 at the time. Washington Mutual has since fallen in waterfall fashion from $40 and is now trading near $5.00 after a huge rally.

21. Shares of Ambac (ABK) fell from $90 to $2.50. Shared of MBIA (MBI) fell from $70 to $5. Sadly, the top three rating agencies kept their rating on the pair at AAA nearly all the way down. No one can believe anything the government sponsored rating agencies say.

22. In a panic set of moves, the Fed slashed interest rates from 5.25% to 2%. This was the fastest, steepest drop on record. Ironically, the Fed chairman spoke of inflation concerns the entire drop down. Bernanke clearly cannot tell the truth. He does not have to. Actions speak louder than words.

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

You Know The Banking System Is Unsound When....

from Mish's Global Economic Trend Analysis by Michael Shedlock

1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

2. Paulson says the list of troubled banks "is a very manageable situation". The reality is there are 90 banks on the list of problem banks. Indymac was not one of them until a month before it collapsed. How many other banks will magically appear on the list a month before they collapse?

3. In a Northern Rock moment, depositors at Indymac pull out their cash. Police had to be called in to ensure order.

4. Washington Mutual (WM), another troubled bank, refused to honor Indymac cashier's checks. The irony is it makes no sense for customers to pull insured deposits out of Indymac after it went into receivership. The second irony is the last place one would want to put those funds would be Washington Mutual. Eventually Washington Mutual decided it would take those checks but with an 8 week hold. Will Washington Mutual even be around 8 weeks from now?

5. Paulson asked for "Congressional authority to buy unlimited stakes in and lend to Fannie Mae (FNM) and Freddie Mac (FRE)" just days after he said "Financial Institutions Must Be Allowed To Fail". Obviously Paulson is reporting from the 5th dimension. In some alternate universe, his statements just might make sense.

6. Former Fed Governor William Poole says "Fannie Mae, Freddie Losses Makes Them Insolvent".

7. Paulson says Fannie Mae and Freddie Mac are "essential" because they represent the only "functioning" part of the home loan market. The firms own or guarantee about half of the $12 trillion in U.S. mortgages. Is it possible to have a sound banking system when the only "functioning" part of the mortgage market is insolvent?

8. Bernanke testified before Congress on monetary policy but did not comment on either money supply or interest rates. The word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates. How can you have any reasonable economic policy when the Fed chairman is scared half to death to discuss interest rates and money supply?

9. The SEC issued a protective order to protect those most responsible for naked short selling. As long as the investment banks and brokers were making money engaging in naked shorting of stocks, there was no problem. However, when the bears began using the tactic against the big financials, it became time to selectively enforce the existing regulation.

10. The Fed takes emergency actions twice during options expirations week in regards to the discount window and rate cuts.

11. The SEC takes emergency action during options expirations week regarding short sales.

12. The Fed has implemented an alphabet soup of pawn shop lending facilities whereby the Fed accepts garbage as collateral in exchange for treasuries. Those new Fed lending facilities are called the Term Auction Facility (TAF), the Term Security Lending Facility (TSLF), and the Primary Dealer Credit Facility (PDCF).

13. Citigroup (C), Lehman (LEH), Morgan Stanley(MS), Goldman Sachs (GS) and Merrill Lynch (MER) all have a huge percentage of level 3 assets. Level 3 assets are commonly known as "marked to fantasy" assets. In other words, the value of those assets is significantly if not ridiculously overvalued in comparison to what those assets would fetch on the open market. It is debatable if any of the above firms survive in their present firm. Some may not survive in any form.

14. Bernanke openly solicits private equity firms to invest in banks. Is this even close to a remotely normal action for Fed chairman to take?

15. Bear Stearns was taken over by JPMorgan (JPM) days after insuring investors it had plenty of capital. Fears are high that Lehman will suffer the same fate. Worse yet, the Fed had to guarantee the shotgun marriage between Bear Stearns and JP Morgan by providing as much as $30 billion in capital. JPMorgan is responsible for only the first 1/2 billion. Taxpayers are on the hook for all the rest. Was this a legal action for the Fed to take? Does the Fed care?

16. Citigroup needed a cash injection from Abu Dhabi and a second one elsewhere. Then after announcing it would not need more capital is raising still more. The latest news is Citigroup will sell $500 billion in assets. To who? At what price?

17. Merrill Lynch raised $6.6 billion in capital from Kuwait Mizuho, announced it did not need to raise more capital, then raised more capital a few week later.

18. Morgan Stanley sold a 9.9% equity stake to China International Corp. CEO John Mack compensated by not taking his bonus. How generous. Morgan Stanley fell from $72 to $37. Did CEO John Mack deserve a paycheck at all?

19. Bank of America (BAC) agreed to take over Countywide Financial (CFC) and twice announced Countrywide will add profits to B of A. Inquiring minds were asking "How the hell can Countrywide add to Bank of America earnings?" Here's how. Bank of America just announced it will not guarantee $38.1 billion in Countrywide debt. Questions over "Fraudulent Conveyance" are now surfacing.

20. Washington Mutual agreed to a death spiral cash infusion of $7 billion accepting an offer at $7.85 when the stock was over $13 at the time. Washington Mutual has since fallen in waterfall fashion from $40 and is now trading near $5.00 after a huge rally.

21. Shares of Ambac (ABK) fell from $90 to $2.50. Shared of MBIA (MBI) fell from $70 to $5. Sadly, the top three rating agencies kept their rating on the pair at AAA nearly all the way down. No one can believe anything the government sponsored rating agencies say.

22. In a panic set of moves, the Fed slashed interest rates from 5.25% to 2%. This was the fastest, steepest drop on record. Ironically, the Fed chairman spoke of inflation concerns the entire drop down. Bernanke clearly cannot tell the truth. He does not have to. Actions speak louder than words.

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

You Know The Banking System Is Unsound When....

from Mish's Global Economic Trend Analysis by Michael Shedlock

1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

2. Paulson says the list of troubled banks "is a very manageable situation". The reality is there are 90 banks on the list of problem banks. Indymac was not one of them until a month before it collapsed. How many other banks will magically appear on the list a month before they collapse?

3. In a Northern Rock moment, depositors at Indymac pull out their cash. Police had to be called in to ensure order.

4. Washington Mutual (WM), another troubled bank, refused to honor Indymac cashier's checks. The irony is it makes no sense for customers to pull insured deposits out of Indymac after it went into receivership. The second irony is the last place one would want to put those funds would be Washington Mutual. Eventually Washington Mutual decided it would take those checks but with an 8 week hold. Will Washington Mutual even be around 8 weeks from now?

5. Paulson asked for "Congressional authority to buy unlimited stakes in and lend to Fannie Mae (FNM) and Freddie Mac (FRE)" just days after he said "Financial Institutions Must Be Allowed To Fail". Obviously Paulson is reporting from the 5th dimension. In some alternate universe, his statements just might make sense.

6. Former Fed Governor William Poole says "Fannie Mae, Freddie Losses Makes Them Insolvent".

7. Paulson says Fannie Mae and Freddie Mac are "essential" because they represent the only "functioning" part of the home loan market. The firms own or guarantee about half of the $12 trillion in U.S. mortgages. Is it possible to have a sound banking system when the only "functioning" part of the mortgage market is insolvent?

8. Bernanke testified before Congress on monetary policy but did not comment on either money supply or interest rates. The word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates. How can you have any reasonable economic policy when the Fed chairman is scared half to death to discuss interest rates and money supply?

9. The SEC issued a protective order to protect those most responsible for naked short selling. As long as the investment banks and brokers were making money engaging in naked shorting of stocks, there was no problem. However, when the bears began using the tactic against the big financials, it became time to selectively enforce the existing regulation.

10. The Fed takes emergency actions twice during options expirations week in regards to the discount window and rate cuts.

11. The SEC takes emergency action during options expirations week regarding short sales.

12. The Fed has implemented an alphabet soup of pawn shop lending facilities whereby the Fed accepts garbage as collateral in exchange for treasuries. Those new Fed lending facilities are called the Term Auction Facility (TAF), the Term Security Lending Facility (TSLF), and the Primary Dealer Credit Facility (PDCF).

13. Citigroup (C), Lehman (LEH), Morgan Stanley(MS), Goldman Sachs (GS) and Merrill Lynch (MER) all have a huge percentage of level 3 assets. Level 3 assets are commonly known as "marked to fantasy" assets. In other words, the value of those assets is significantly if not ridiculously overvalued in comparison to what those assets would fetch on the open market. It is debatable if any of the above firms survive in their present firm. Some may not survive in any form.

14. Bernanke openly solicits private equity firms to invest in banks. Is this even close to a remotely normal action for Fed chairman to take?

15. Bear Stearns was taken over by JPMorgan (JPM) days after insuring investors it had plenty of capital. Fears are high that Lehman will suffer the same fate. Worse yet, the Fed had to guarantee the shotgun marriage between Bear Stearns and JP Morgan by providing as much as $30 billion in capital. JPMorgan is responsible for only the first 1/2 billion. Taxpayers are on the hook for all the rest. Was this a legal action for the Fed to take? Does the Fed care?

16. Citigroup needed a cash injection from Abu Dhabi and a second one elsewhere. Then after announcing it would not need more capital is raising still more. The latest news is Citigroup will sell $500 billion in assets. To who? At what price?

17. Merrill Lynch raised $6.6 billion in capital from Kuwait Mizuho, announced it did not need to raise more capital, then raised more capital a few week later.

18. Morgan Stanley sold a 9.9% equity stake to China International Corp. CEO John Mack compensated by not taking his bonus. How generous. Morgan Stanley fell from $72 to $37. Did CEO John Mack deserve a paycheck at all?

19. Bank of America (BAC) agreed to take over Countywide Financial (CFC) and twice announced Countrywide will add profits to B of A. Inquiring minds were asking "How the hell can Countrywide add to Bank of America earnings?" Here's how. Bank of America just announced it will not guarantee $38.1 billion in Countrywide debt. Questions over "Fraudulent Conveyance" are now surfacing.

20. Washington Mutual agreed to a death spiral cash infusion of $7 billion accepting an offer at $7.85 when the stock was over $13 at the time. Washington Mutual has since fallen in waterfall fashion from $40 and is now trading near $5.00 after a huge rally.

21. Shares of Ambac (ABK) fell from $90 to $2.50. Shared of MBIA (MBI) fell from $70 to $5. Sadly, the top three rating agencies kept their rating on the pair at AAA nearly all the way down. No one can believe anything the government sponsored rating agencies say.

22. In a panic set of moves, the Fed slashed interest rates from 5.25% to 2%. This was the fastest, steepest drop on record. Ironically, the Fed chairman spoke of inflation concerns the entire drop down. Bernanke clearly cannot tell the truth. He does not have to. Actions speak louder than words.

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com