The Housing Bubble

Good morning, boys and girls. I hope you all pledged allegiance to The Fed this morning. You don’t want to make them angry as they continue to consume more and more power.

Barney Frank was on Bloomberg last night. How can anybody be a staunch Democrat? That seems nearly as difficult as being a staunch Republican. I am going down to the Fed today to see if they will pay my rent. What are the odds?

The bailout may have ended the third inning. Looks like the financial industry crisis is the first part of the game.

The second part of the game will see housing prices returning to affordability, and regional banks getting crushed by construction loans in places where the bubble took the form of excess development rather than mind-numbing prices.

The third part of the game will see the elimination of the ability of the U.S. to consume more than it produces, as foreigners are unwilling to pay for the U.S. to go deeper and deeper into debt. The federal government seems desperate to postpone this adjustment, so people can keep buying SUVs. So it will be up to people overseas to decide when this ends.

What has been is what will be,
and what has been done is what will be done,
and there is nothing new under the sun.

Ecclesiastes 1:9

* SEPTEMBER 20, 2008

Government Bailouts: A U.S. Tradition Dating to Hamilton
By MICHAEL M. PHILLIPS

The bubble pops. Lenders freeze. Depositors lose faith. Panic spreads. And the government steps in because nobody else will.

Today it is Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke putting together the rescue package for a financial system rocked by falling home prices and a wave of defaults on subprime mortgages.

But a short walk through U.S. history demonstrates the point made by Alex J. Pollock of the American Enterprise Institute: “If you would like an empirical law of government behavior, it is that in a panic or threatened financial collapse, governments intervene — every government, every party, every country, every time.”

The end of denial, which is currently underway pretty much across the entire U.S., could prove quite painful. The most bizarre aspect of the whole thing is comedians like Jay Leno, Jon Steward and Stephen Colbert suddenly adding financial panic subject matter to their comedy routines, which I believe is a useful barometer of dawning awareness among the mass public on topics long discussed here.

Interestingly enough, a day or so ago I heard Paulson quoted in the media stating that the root cause of current financial problems was falling home prices. Rot on the balance sheet is quite another matter entirely, of which falling home prices are a mere symptom.

* CAPITAL
* SEPTEMBER 20, 2008

In Turmoil, Capitalism in U.S. Sets New Course
* By DAVID WESSEL

This past week marks a decisive turn in the evolution of American capitalism.

Black September, the biggest financial shock since the Great Depression, is prompting a Republican Treasury secretary and Federal Reserve chairman to devise the most muscular government intervention in the economy since the Great Depression in an effort to prevent the economic devastation of the Great Depression.

Abandoning its one-rescue-at-a-time strategy of recent months, the government suddenly has shifted to a broad attack on what Treasury Secretary Henry Paulson calls “the root cause of our financial system’s stresses,” the rot on the balance sheets of America’s financial system.

The German SEC (Bafin) announced a ban on short sales on financial stocks today.

After injecting 1.6 billion Euros and guaranteeing another 10 billion, the federal government sold the IKB to Lonestar for 110 million.

State owned banks are still exposed to Lehman, another 1.7 billion lost. And another state owned bank managed to transfer 300 million Euros to Lehman Brothers on Monday, when the entire world already knew that Lehman was broke.

No protests in the streets, though.

The efficient market theory — the updated version of laissez fare capitalism — is back into the academic genie’s bottle from which it escaped. And the Greenspan doctrine’s twenty-year reign (1987-2008) is over, given way to panic-driven socialism. R.I.P.

TOP TEN
MarketWatch’s top stories of the week
By Michelle Donley, MarketWatch
Last update: 7:37 p.m. EDT Sept. 19, 2008

A lot of questions were answered this week. Almost as many, in fact, as were raised.

For instance, we now know that free markets, hailed over the years as essential to the success and world dominance of the U.S. financial system, are neither as free nor as beneficial as some believed. It also seems fairly clear that the idea that markets could police themselves — peddled by a long list of government and institutional heavyweights for the past three decades — is farcical.

We know, too, that hundreds of billions of taxpayer dollars will now be used to help clean up a mess made by a few thousand overpaid, overconfident bankers. And we know this is less than the cleanup would have cost if the government had not stepped in this week to make a series of radical changes to the way U.S. capitalism works.

At least, we think we know that.

I am in Mount Sinai, NY (on Long Island). And, my wife wants to live in a better house. Does anybody have any suggestions for finding rentals? For our past two rentals, the best I could do is work through Realtors. I think the disadvantages of this approach are obvious.

What local newspapers have good listings (on line)? Are there good management companies in the area?

Yes, I have lived here for nearly four years and I am still seeking advice.

I wish I could just concentrate on engineering and not worry about anything else (housing, stock investments for retirement, etc.) ;-(.

Press Releases
Pioneer Community Bank, Inc., and the Citizens Savings Bank Acquire All Deposits of Ameribank, Inc., Northfork, West Virginia
All Insured and Uninsured Deposits Transferred to Acquiring Banks

Ameribank, Inc., was closed today by the Office of the Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was named receiver. The FDIC entered into purchase and assumption agreements with Pioneer Community Bank, Inc., Iaeger, West Virginia, and The Citizens Savings Bank, Martins Ferry, Ohio to take over all of the deposits and certain assets of Ameribank, Inc., Northfork, West Virginia.

Ameribank has five branches located in West Virginia and three branches located in Ohio. Pioneer Community Bank, Inc., Iaeger, West Virginia will assume all deposits for the five branches located in West Virginia. The Citizens Savings Bank, Martins Ferry, Ohio will assume all deposits for the three branches located in Ohio.”

FDCI

Another one bites the dust

California’s jobless rate increases; county lower
Most losses reported in construction, real estate
By Mike Freeman
UNION-TRIBUNE STAFF WRITER

September 20, 2008

California’s jobless rate surged to 7.7 percent last month, the highest level since 1996, as the economic spasms from the housing bust continued.

More than 1.4 million workers were unemployed – up 61,000 from July and 413,000 from a year ago, the state Employment Development Department reported yesterday. Led by losses in construction and real estate, payrolls were down 72,700 jobs from a year earlier.

San Diego County performed better than the state. August unemployment locally dipped slightly to 6.4 percent, but the rate was significantly higher than last August’s 4.8 percent.

http://finance.yahoo.com/banking-budgeting/article/105802/Street-Scenes:-The-Players-Remaking-Financial-World?mod=weekend

“Mr. Paulson, 62 years old, has used this expanded power to set a precedent that’s now coming back to haunt him.”

To haunt him? What do these reporters smoke? This was the plan all along. These boys now have more money, more power and more ability to game the system. It seems like there are no ghosts haunting Bubblehead Paulson and the rest of these gangsters.

‘I hope you all pledged allegiance to The Fed this morning. You don’t want to make them angry as they continue to consume more and more power.’

This reminds me of a response I made to a post yesterday that was going on about a similar vein:

Me: The question that I struggled with a while back was, why do some posters here want so desperately to think bad things are happening to them, against their supposed will.

My favorite Calvin and Hobbs cartoon was one where they are sledding down a hill, and pondering the question, “Is ignorance bliss?” I don’t think the real question was one of knowing or not knowing, but where one puts a life’s focus.

My first bookkeeping job was for a surgeon. I did the payroll, and he made a lot and I didn’t. But I got to see the taxes he paid. One day as he signed a huge check to the IRS we talked about it. He said, “as long as you’re paying taxes you are making money.” That made me think, because I have known people consumed with the idea that they are being ripped off by the government, etc. But here was a guy paying much more than most, and he chose to get up each day, do good work for his patients, be content with the ample pay he got, and the happy life it afforded his family.

I don’t understand why some people purposefully decide to identify with a group like “taxpayer”, solely for the reason of putting themselves in a category of victim. I’ve known a lot of variations of this; people that are wrapped up in social or racial injustice. People that go on about corporate misdeeds or environmental wrongs. It seems to me this is a “pick your poison” question and I don’t see the advantage.

What has always interested me about the housing bubble, is it is possibly the biggest financial event of our lifetimes. I look at it as a bizarre mania that happened, for a lot of different circumstances and reasons.

I get asked almost every day, “why is this happening” or “what caused that.” And there are lots of different ways to view almost all of it. But in my opinion, at the end of the sled ride we all end up at the bottom of the hill. And our experience, or how we chose to spend our energies can be positive and constructive, or not.

SPECIAL REPORT: FINANCIAL SHAKE-UP
Collapses create nervous consumers, risking a deep recession
By RUSSELL GRANTHAM

The Atlanta Journal-Constitution

Sunday, September 21, 2008

Are we in a period more like the stock market crash of 1987 or — gulp — the crash of 1929?

That’s the impromptu debate that Jared Faellaci said developed during a recent business meeting with clients and colleagues.

“I’m in the middle,” Faellaci, a 36-year-old business development manager with accounting firm Deloitte, said last week after a flight to Atlanta. He still sees some “positives” in the economy, but clients are cutting their spending and Wall Street is increasingly looking like “a house of cards that was overinflated,” said Faellaci, who lives in Dothan, Ala.

“This thing could get really ugly,” he fears.

Such fears are no longer idle water-cooler talk. If the seemingly nonstop pageant of takeovers and collapses of big financial institutions causes widespread anxiety, such pessimism could lead to a deeper recession, assuming the U.S. is already in one as some economists believe. By causing consumers, who represent more than two-thirds of the economy, to cut back spending, corporate profits would decline further. That, in turn, could aggravate an already skittish Wall Street.

Greenspan to Stephanopoulos: This is ‘By Far’ the Worst Economic Crisis He’s Seen in His Career

September 14, 2008 11:07 AM

ABC News’ George Stephanopoulos Reports: Former Federal Reserve Chair Alan Greenspan said this morning that this is “by far” the worst economic crisis he has ever seen. “There’s no question that this is in the process of outstripping anything I’ve seen, and it still is not resolved and it still has a way to go,” he said in an exclusive “This Week with George Stephanopoulos” interview.

Greenspan also noted, “let’s recognize that this is a once-in-a-half-century, probably once-in-a-century type of event.”

Looking ahead, Greenspan changed a previous prediction on whether the economy is headed towards a recession. When asked if the chances of escaping a recession were greater than 50 percent, Greenspan responded “no, I think it is less than 50 percent.”

Backlash Over Bailouts Grows in Congress, Wall Street (Update1)

By Matthew Benjamin and Brian Faler
More Photos/Details

Sept. 19 (Bloomberg) — As the U.S. government takes stronger measures to stabilize financial markets, some former Federal Reserve officials, lawmakers and Wall Street executives are saying too much has already been done.

“Every time they intervene, they do more harm than good,” said Peter Schiff, president of Euro Pacific Capital in Darien, Connecticut, a brokerage that manages $1 billion.

Critics of the rescues agree that government actions, such as those that prevented the failures of Fannie Mae, Freddie Mac and American International Group Inc., can’t postpone the inevitable worsening of housing and financial markets. They say the bailouts by the Fed and Treasury also encourage future reckless risk-taking by investors.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aIaOyCf.U_bU&refer=news

Yesterday, I posted a rather large article I wrote about short-selling, options and the like, etc.

Here’s a followup, this time from the MSM: SEC Considers Revising Shorting Ban in Options Market.

The U.S. Securities and Exchange Commission may revise its ban on short sales to add financial companies and carve out an exemption for brokerages that pair off brokers in the $1.6 trillion U.S. options market.

“If they don’t fix it, there just won’t be an options market on Monday,” Steve Claussen, chief investment strategist at OptionsHouse LLC.

Market-makers, accounting for about 40 percent of trades, are obliged to quote prices at which they’ll buy and sell securities so investors are able to complete trades.

“Either you had to change the rules or you had to halt options trading,” said Henry Schwartz, president of Trade Alert LLC, a New York-based provider of options market analytics. “This is the better choice. You couldn’t have left it as it is because options market makers were refusing to quote without the ability to hedge.”

Prices for options today show that market-makers were already seeking to compensate for the added risk by widening the difference between their bids and offers.

If you exempt the options-market, you’ve pretty much neutralized the rule. The rule simply doesn’t exist.

You just buy puts, and ask to be settled “in kind” rather “in cash”. There’s your short position right there.

The whole thing smacks of desperation. I’m not covering my shorts, and as I said, if you have the “balls of steel” and the confidence in your bets, neither should you.

Well said Ben.

Look what is bubbling up in the MSM; articles about barbarous relics! A few questions: why now, are people getting nervous? Why does the .gov spend so much time, money, and effort guarding useless buggy whips? Inquring minds want to know…

As stocks plummet and many realize they don’t understand how their money is invested, some on Wall Street are turning to gold as a haven.

Who can blame them? Gold is something you can see, hold and fully understand. In the last two days, the price of gold shot up $110 to $892.70 an ounce.

Just a few blocks away from all the turmoil and panic of the stock market sits the world’s largest stockpile of gold. Deep under the streets of Manhattan sits more gold than “James Bond” villain Goldfinger could ever imagine.

http://abcnews.go.com/Business/story?id=5835433&page=1

Ben,

Great post and good perspective.

Ben
As you said yesterday I tried to warn people , you did and I consider one of the beneficiaries of your warning and your blog. After having been a home owner from 1984-2005 and a renter from 2006-2008 the stress that I have been able to avoid from declining home prices and the peace I have from being able to pay my bills and take care of my family has been worth much more than any home i will ever own.

When government officials surveyed the flailing American financial system this week, they didn’t see only a collapsed investment bank or the surrender of a giant insurance firm. They saw the circulatory system of the U.S. economy — credit markets — starting to fail.

Huddled in his office Wednesday with top advisers, Treasury Secretary Henry Paulson watched his financial-data terminal with alarm as one market after another began go haywire. Investors were fleeing money-market mutual funds, long considered ultra-safe. The market froze for the short-term loans that banks rely on to fund their day-to-day business. Without such mechanisms, the economy would grind to a halt. Companies would be unable to fund their daily operations. Soon, consumers would panic.

http://online.wsj.com/article/SB122186563104158747.html

Henniges Automotive
Farmington Hills, MI

“Henniges Automotive is shedding more than 200 jobs before the end of November and remaining unionized employees will face a three-week shutdown at Christmas time. “It’s just disgusting how bad it is getting. We’re turning into a Third World country before our eyes,” Joe Buote, president of United Steelworkers of America Local 455, said yesterday…”
Welland Tribune - September 17, 2008

The mythical Joe6Pack is well aware of what is happening.

Many of the traders who were used to receiving six-figure annual bonuses have started brown-bagging their lunches instead of ordering in sushi or eating out at local restaurants. “Dude, we already passed the recession,” one trader explained to the worker. “This is the Depression. Save your money.”…

One trading-floor denizen described how it happens: Your phone rings, and you’re told to report to human resources. You stand up and announce to the people in your row that it’s all over. If they like you, they hug you and maybe even applaud. In many cases, they’ll be the ones to clean out your desk. Right after you get fired, you’re marched out of the building by security.”…

When a financial journalist friend of mine asked a prominent executive how this would all end, he replied, “With riots in the streets.”

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/19/AR2008091902809.html

John McCain, Sept./Oct. issue of Contingencies:
“Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.”

And his plan is to tax workers on Health benefits. (Yes, raise taxes)

I’m edhopper and I approve this partisan post.

WASHINGTON - The Bush administration is asking Congress to let the government buy $700 billion in toxic mortgages in the largest financial bailout since the Great Depression, according to a draft of the plan obtained Saturday by The Associated Press.

http://news.yahoo.com/s/ap/20080920/ap_on_bi_ge/financial_meltdown

This is more than the defense budget, and a tad inflationary.

I’m moving full steam ahead with insanely low offers. When the realtors are refusing me access to sellers, I use the public records system and contact them directly via phone or mail. So far I’ve only managed to piss a lot of people off.

I insist that I am not lowballing, just informing people that they have a buyer at X price.

I’m all over a foreclosure in a very nice neighborhood and may be close to an inspection and formal written offer.

Also, I regret spending my house fund on outstnading, low-interest debt. Yes, I took advice from a stranger on the internet, and it was a dumb move. I had a pile off cash to dangle at FB’s and now I’m FHA at best for the next 6 months.

Sure, keep your powder dry, but be ready to unload when the time is right.

This is completely absurd. How could banksters have walked off with those seven-, eight- or nine-figure bonuses a couple of years ago if regulators had done their jobs?

Editorial
Hard Truths About the Bailout
Published: September 19, 2008

The fifth major federal bailout this year — after Bear Stearns, Fannie Mae, Freddie Mac and the American International Group — is now in the works. Taxpayers have every right to be alarmed and angry. The latest plan is not necessarily a bad one, and officials had to move quickly to prevent credit markets from seizing up.

But make no mistake, this crisis could have been avoided if regulators had enforced rules and officials had dared to question risky lending and other dubious practices.

We’ve talked about systemic risk, contagion and meltdown for some time. This week we witnessed them all. I’ve long said this thing was too big to bail. Some of our political leaders are probably learning what too big to bail means over this weekend. The best they can do now is triage the financial system. Home prices will continue falling. At least, they’ve gotten past the denial phase.

So as the Paulson ‘full employment for the struggling traders on Wall Street plan’ takes over Washington this weekend. (aka. Buying the illiquid paper at overpriced marks and hiring outside managers to run.) I think of China’s simplified system, f’k up and get taken behind the woodshed.

I am not opposed to RTC2, I believe it is necessary. The structures being discussed in the media are outrageous and evil.

If I were a Dumbcratic congressman, I would want a $200B stimulus package for my constituents tacked on. Its only money that will never be repaid. Ooh lets throw in a $300B alt energy program. You want $700 B for the financial industry, we want $700B for the people, so lets have an additional $200B to US industry with $50B going to the Auto industry. Done.

Christmas bonuses for everyone.

Here is a link to the draft of the Toxic debt proposal.

http://www.cnbc.com/id/26803766

Take a gander at Section 8.

But hey, Section 3 (2), says that Hank has your back Mr. Taxpayer.

Couldn’t they have just shortened this to, “Buy Everything”?

Lol.

Response to FEDDup from yesterday - query on Everbank. I can’t really advise one way or another, other than just giving my experience with them. Overall I’ve been happy - they seem flexible with a pretty good array of foreign currency CD’s, and options for PMs. I haven’t used them for PMs though only for CD’s. I made a bunch a first when the dollar tanked, but have since gone in the red a little the last couple of months. I see it as a good way to divest - seems to be about the easiest way to invest in foreign currencies.

Not being an expert on banking, it’s hard for me to say how “safe” they are, other than just:
- They’re fairly small, so there’s some risk just in that.
- I haven’t heard any bad rumblings or news of risk with them, which is a good thing.

Hey Mr. Bear…I like your version of: “Hey! look over there…Wow!”

On the 8th Day… Mr. Paulson speaks:

“Good Morning America, well how is everyone today? Good? Great? Wonderful? See, that didn’t hurt so much right? I tell ya, we have some unbelievable “tools” at our “disposal” over here at the US Treasury, don’t we?. Yeah, well, now that the “dinner” table has been reset with a new table cloth & “clean” dishes and “silverware”, lets all get back to work so we can meet back here in just a little while and enjoy a real “feast”. It’ll be good to see some new faces…of course, we’ll miss some of our old “friends” that are no longer around, but we”ll reminisce & laugh…and this too shall pass.” Oh, due to unforeseen circumstances…it’ll be BYOB, cheers!”

“More than 20 years ago, Paul Cooper and Ed Graeber, both now retired from Sandia, created the original Mk 141 flash-bang diversionary device, which was intended for limited (and specialized) applications.”

This I edited as to how this item could be utilized by the US Treasury:

“The new flash-bang can be made into many styles appropriate for fielding by the US Treasury for a variety of applications. “Economical” and continuously “refillable” versions can be made for a variety of economic purposes. A heavier & more distributive version of the flash-bang could also allow it to be thrown at almost any financial “sit-u-ation” that might “suddenly” appear.”

Wyoming? Defense? America? …must be a connection to Cheney…maybe via Dubai Sovereign funds…Someone Get Maxwell Smart on the phone, I have a job for him.

“Sandia National Laboratories recently licensed its safer fuel air diversionary device technology to… Defense Technology Corporation of America, located in Casper, Wyo.”

http://www.sflorg.com/technews/tn041508_01.html

Yikes! Bush wants Congress to hike debt ceiling to $11.3 trillion!

WASHINGTON (AP) — The Bush administration is asking Congress to let the government buy $700 billion in toxic mortgages in the largest financial bailout since the Great Depression, according to a draft of the plan obtained Saturday by The Associated Press. The plan would give the government broad power to buy the bad debt of any U.S. financial institution for the next two years. It would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue. (If Congress approves this scheme count on your dollar-denominated assets to lose even more value. Start looking at assets denominated in the stronger foreign currencies. Also, beef up your stash of gold/silver.)

Well, I guess it’s not so bad to have a “do nothing” Congress…at least for next week.

I tried to buy some gold yesterday (physical coins) and the two dealers I spoke to didn’t have any but a US commemorative set priced $50 over spot. No silver bars or silver dollars either unless I wanted to pay 1.50 over spot.

Are you people watching the US Bond market crash? By this time next week this will be topic #1 I predict. If you want to short the long bond use ticker symbol TBL (Warning, this was a Leaman bond fund and I don’t know who will take it over now).

Bush rescue plan seeks $700B for to buy bad mortgages, would raise limit on national debt

http://biz.yahoo.com/ap/080920/financial_meltdown.html

Bush said he worried the financial troubles “could ripple throughout” the economy and affect average citizens. “The risk of doing nothing far outweighs the risk of the package, and over time we’re going to get a lot of the money back.”

He added, “People are beginning to doubt our system, people were losing confidence and I understand it’s important to have confidence in our financial system.”

“In my judgment, based upon the advice of a lot of people who know how markets work, this problem wasn’t going to be contained to just the financial community,” the president said. He said he was concerned about “Main Street” and that what happens on “Wall Street” affects “Main Street.”

Bush seems clueless about what is happening. These freaks want to rush through a $700 billion package to rescue the entire US financial system in less than a week? This reminds me of Patriot Act games and the details of the law won’t be known until they are enforced. Most of our moronic congress creatures didn’t even have time to read the Patriot Act before they overwhelmingly agreed to it. This financial act will undoubtedly take away more liberties in the name of saving the free market and democracy. I don’t trust these elected thieves to look out for the constitution or democracy, but I trust they will look out for themselves and their lobby money for reelection.

“…As job seekers across the nation outnumber job openings by more than 2 to 1, the biggest mismatch since 2004, the Bureau of Labor Statistics reports…”

FinFacts
http://www.finfacts.ie/irishfinancenews/article_1014762.shtml
A useful source for European views on the US economy.

My revised view on how much the government will pay for the “impaired assets”:

From this:

“In a session with House Democrats, they described a plan where the government would in essence set up reverse auctions, putting up money for a class of distressed assets — such as loans that are delinquent but not in default — and financial institutions would compete for how little they would accept for the investments”

I see a reverse auction as working like this. Suppose that there are a “type” of security that bank “A” is willing to sell off at 70 cents on the dollar, bank “B” is willing to sell off at 60 cents on the dollar, and bank “C” is willing to sell off at 50 cents on the dollar.

There are no buyers for this security until you discount down to 25 cents on the dollar.

Good ‘ol Uncle Sam holds the reverse auction, and bank “C” wins, selling the bundle to US for 50 cents on the dollar, takes any remaining write-down, takes the cash, and moves on with life (and possibly STILL doesn’t want to lend to anyone!)

The US government takes the 50 cents on the dollar ‘bundle’, and either sits on them until the next “spring selling season” (or the next next, or the next next NEXT) hoping that rising home values will increase the value of the ‘bundle’ it just bought, or it liquidates them and sends the loss to the taxpayers.

It doesn’t make banks lend, and it doesn’t liquidate securities at market clearing prices…it DOES liquidate them at the lowest prices that banks are willing to let them go at.

Thoughts?

“… Do more benign outcomes support the rationale for continued inaction? Suppose we consider a more likely outcome in which investors merely slow their acquisition of U.S. Treasuries, or state actors such as the People’s Bank of China choose to diversify their reserve currency holdings, away from dollars and toward other currencies. That is, they do not actually “dump” the dollar holdings, but acquire them at a slower pace.

In this scenario, the premium necessary to induce investors to hold U.S. Treasuries will rise gradually but inexorably, slowing the economy. Because of the large and increasing budget deficits set in place, expansionary fiscal policy will be off the table. The role of monetary policy will also be circumscribed. Lowering interest rates further would alarm holders of U.S. Treasuries, an alarm that would be well founded given the tremendous incentives the Fed would have to inflate away the government’s debt held by foreign residents. So America will be trapped in slow growth, with no viable policy options. In such a state, policymakers may be even more tempted than they are now to impose tariffs and sanctions, increasing further the possibility of trade wars…”
caution 47 pg pdf
THE BERNARD AND IRENE SCHWARTZ SERIES
ON THE FUTURE OF AMERICAN COMPETITIVENESS
Getting Serious about the Twin Deficits
Menzie D. Chinn
CSR NO. 10, SEPTEMBER 2005
COUNCIL ON FOREIGN RELATIONS

Peter Schiff was on CNN last night, and advised getting cash positions out the US dollar given the printing presses will be running day & night to fund the bailout. His sense is this will turn the dollar to confetti.

He mentioned gold and Swiss francs.

What do y’all think? How do we protect our cash as the dollar weakens?

World War 1 was called “The Great War” until World War 2 came along…

What will the “Great Depression” be called, now that the 2nd Depression is upon us?

I love it! Human behavior is awesome to watch. It is amazing to see the disconnects in people who consider themselves educated and free thinking following the herd mentality. Man’s ability to think allows him to forego reason, caution and common sense and thereby allows a means for his own destruction.

We live in a world where people believe that ‘if you motives are pure’ then it’s ok if everything goes awry. Home ownership went from a privilege to a right even if the buyer couldn’t afford it; all with the combined weight of Congress. No longer do you have to produce, you just have to utter the words and like magic, you are credited with the act. This week we watched as Congress, who by the way meets monthly with Mr. B for a little personel air (face) time on which they know absolutely nothing, waited in dire mood for the Fed’s (Mr.P/Mr.B/others) to bail them out. Magic words were spoken, ‘the Fed has your back’, and the market roars once again. Kudlow is happy. Cramer is happy. Why, the whole world is happy! Why then can’t I feel their euphoria? Maybe it’s because I’m just one of the little people, one who has worked for a living, saved and been responsible and just removing blue sky from the banking sheets relating to the home mortgage crises still ignores the huge amount of CC debt, and the rest of the how-amuch-amonth-it-agonna-cost-me debt is lingering out in lala land.

Test…blog is eating all of my posts these last few days. Typically, they would show up a little later. Not anymore.

test

Overheard at the office:

Co-worker looking into options of a short-sale on their property due to neighborhood comps driving price per sq ft down significantly. My co-worker spoke to their agent regarding any options available, and learned some interesting news. From the RE agent: Banks are no longer forgiving debt on short sales, making sellers sign promissory note agreeing to pay back balance owed. If amount is not payed back, they will seek recovery (lawsuit I assume). Two other “homeowners” on the same block (million $ neighborhood), left keys to house on granite counter. Walk aways.

Co-worker payed 1.x million for house, which given the comp, is now worth 700k. They are convinced house will not sell, been on market for at least 2 years. Co-worker is now in the planning stages of walk away, including moving money around, also mentioned buying a new car.

So is the FDIC officially dead with this new bailout? Noticed that nothing happened yesterday in FDIC land.

When the Soviet Union fell apart in the early 1990’s, interesting things came out of the woodwork…

One of the more historical artifacts to come up for sale was hordes of USA 1922 Series $20, $50, $100 and $500 Gold Certificate Banknotes(about 40% larger than current size banknotes), which were held in lieu of the real thing (Gold ETF’s of their era).

I saw one hoard of 200 pieces of 1922 $100’s, all in decent condition.

At the time in the early 90’s, a 1922 Series $100 Gold Certificate was worth around $175-300, based upon collector demand.

One of the top 10 ways the world can end: A mishap at a particle accelerator.

CERN: Damage to new collider forces 2-month halt

“…”It’s too early to say precisely what happened, but it seems to be a faulty electrical connection between two magnets that stopped superconducting, melted and led to a mechanical failure and let the helium out,” Gillies told The Associated Press….”
Yahoo
BS, typical CYA and the MSM bought it.
Halting it is no big deal, but not being able to determine how or why the electrics fried is very troubling.

As the anger grows in this country I have a feeling republicans are going to be a minority party for a long time, just like they were after the caused the first great depression. I would strongly support higher taxes for anyone making more than $250k, as well as for any registered republicans.

Republicans caused this mess. They can squirm all they want, try to blame Dodd, Frank, etc. Even the dumbest people in this country now realize this was a massive failure to regulate, and DEREGULATION is republican religion.

Republicans own this disaster. I hope they stay a minority party for the rest of my life.

Good riddance.

Anybody else keep a barf-bag handy?

When I think of Hank @ the helm of a stuttering economy, I tend to get the dry heaves…

Rochester (NY)-area existing home sales fall 23 percent

http://www.democratandchronicle.com/article/20080920/BUSINESS/809200326/1001

Mortgage rates are the lowest since February, so that could spur sales, brokers said.

The 23 percent decline in sales mirrored the August experience at Realty USA’s Pittsford office, said manager Larry Mastrella. But he doesn’t think it is a true reflection of the current market because many people tend to look for homes after Labor Day.

“In my career, August and December have been the slowest months,” he said, acknowledging that “confidence is waning right now.”

The garbage that this paper spews out isn’t worth reading, but it’s the only daily rag in town. August to August sales are down 23%, but that isn’t a true reflection??? “No, honey, let’s not buy a place in August, we’ll wait till September when things pick up in the real estate market.” Mortgage rates have been low for months and that hasn’t spurred sales here and it won’t matter if rates go to 1% if you can’t get a loan, if you are losing your job, if taxes are killing your wallet; you aren’t going to buy a house. The rose colored glasses are still being passed out and worn in upstate NY.

Battered Galveston Ready To Rebuild After Ike:
http://news.yahoo.com/s/ap/20080920/ap_on_re_us/ike_galveston_s_future

Small excerpt of the article which I read for the local news. My wife and I loved visiting Galveston when we lived in Dallas. Now that we live 30 miles away, our two weekends out while getting our new house set up have been spent there. We were looking forward to celebrate NASA’s 50th aniversity at a party in Galveston next weekend. So sad.

Luckily, (according to the quote below), Galveston will be saved by the construction of storm proof luxury condos. :)
Oh well, good thing we have the photographs.

—

This March, the 15-story tower Emerald by the Sea — with green-tinted windows and unit prices ranging from $375,000 to $1.5 million — opened where Jack Tar once stood, and survived Ike almost unscathed.

Galveston was slow to follow its Gulf Coast neighbors in embracing the high-rise luxury condominium boom, but it’s making up for lost time. “It’s inevitable,” Jim Gaines, research economist for the Real Estate Center at Texas A&M University, told the local newspaper. “You can see it coming.”

The well-off and the poor coexist in Galveston, which has a poverty rate of 22 percent, just behind that of New Orleans.

For many years now, my wife and I viewed a home purchase as the one absolute goal in our lives, everything else is secondary. I mean we have a 2 year old son, we need the “stability” of a house, and our son needs a yard to play in. Right? I’m not so sure anymore. With the exception of our cars, we have no debt. What part of taking on hundreds of thousands of dollars worth of debt, is essential to our happiness? I’ve realized lately what truly makes me happy, being in debt isn’t one of them.

We’ve decided to forgo the home purchase indefinitely, and look for a long term rental. My son is happy that his parents are here with him, and that’s all that matters. He doesn’t care that we rent, he cares about fire trucks.

I know that it wasn’t directed at me specifically, but thank you all for your advice. And thanks for your hard work Ben, I will make a contribution as soon as I can.

The Bernanke Fed is living by a revised version of pottery barn rules:

“You bought it, you run it.”

Close-up
Federal Reserve in increasingly contradictory position

The Federal Reserve is being stretched to its limits, in the range of problems it is being asked to fix and in its financial firepower.

By EDMUND L. ANDREWS

The New York Times

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Federal Reserve Board Chairman Ben Bernanke

Federal Reserve Board Chairman Ben Bernanke

Rep. Barney Frank

Rep. Barney Frank

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* Earthquake strikes capitalism: Free market isn’t so free

WASHINGTON — The Federal Reserve is being stretched to its limits, in the range of problems it is being asked to fix and in its financial firepower.

The central bank has also transformed itself almost overnight into The Fed Inc. by essentially taking over American International Group (AIG), after already taking on hundreds of billions of dollars in mortgage securities to help ailing financial institutions.

Instead of setting monetary policy, the Fed now must wear several hats, those of insurance conglomerate, investment banker and hedge-fund manager.

“This is unique, and the Fed has never done something like this before,” said Allan Meltzer, a professor of economics at Carnegie Mellon University and author of a history of the Federal Reserve. “If you go all the way back to 1921, when farms were failing and Congress was leaning on the Fed to bail them out, the Fed always said, ‘It’s not our business.’ It never regarded itself as an all-purpose agency.”

If my math is right , and this bail out is going to cost one trillion dollars , instead of bailing anyone out , the government could just give every man , woman and child three-hundred thousand dollars each and problem solved for the same amount of money. The people who can`t make their mortgage payment can for the most part pay off their house , there would be plenty of money for deposits in the cash strapped banks , problem solved.

U.S. population 305 million

one trillion = one million million

P.S. sorry China

Dear Main Street: A Letter of Explanation From Wall Street

http://finance.yahoo.com/banking-budgeting/article/105780/Dear-Main-Street:-A-Letter-of-Explanation-From-Wall-Street

did anyone see this? with the technology we have today, it sure would be nice to see the burden of this bailout get placed where it belongs. but of course, it wont.

Now some of Wall Streets biggest players are trying to get into the deal and offering their assistance for free ……he he he

Gross just said he will manage the toxic assets for free ,if they get the bail out . Others private parties are trying to interject influence . What a joke .I will save you 50 million if you give me 700 trillion I don’t deserve and will cheat the public out of . Not only are these people from Wall Street cheap, they are thieves .

First , so many of the CEO’s that created the mess have already retired
or have been let go ,or they are working in new jobs like Paulson . So, the CEO’s that are left are not the ones that caused the melt down by faulty lending ,but enough are left that they could do damage . I have never seen people go on and on about something that does not address the players that made a bee-line for the exists already .Some one ought to do a paper on what would of happened if the free markets were left to deal with the housing crash . No doubt many matters would of ended up in a Court of law and major class action suites would of brought down the Wall Street lender sector and would of been punitive .

Like any criminal that gets off the hook , or a liar loan borrower that gets off the hook ,they start demanding more money .

No more waste of money ….Please …….