The Housing Bubble

Obama will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of sweeping plan to ‘overhaul financial regulation’, NY TIMES reporting Sunday, newsroom sources tell DRUDGE… Developing…

IF this tip via Matt Drudge is true, hold onto your hats! It would be a frightening overreaction to the financial crisis. The nation is already flirting with fascism. This would tip it into that form of government, absolutely.

All this talk about “it’s a conspiracy”, “it’s the Republican”s fault”, “it’s the Democrats fault” is turning into a big waste of time and bandwidth, especially since it is becoming obvious that NOBODY IS GOING TO BE CALLED TO ACCOUNT AND/OR PROSECUTED FOR THEIR SCREWUPS/CRIMINAL ACTIVITY.

I hereby recommend that we get back to the more important stuff, like:

-Figuring where the market is going to be after the 2009-2010 resets, because the banks are going to continue to bleed until the house market (and their paper) stabilizes at some price/value.

-Helping X-GSfixer decide if it is too late to get into a different line of work.

-Find out why Meredith Whitney won’t answer my mail.

Credit Unions With $57 Billion in Assets Seized; 3 Banks Fail…
By Margaret Chadbourn and Ari Levy

March 21 (Bloomberg) — Two corporate credit unions, with combined assets of $57 billion, were seized by the National Credit Union Administration yesterday to stabilize a system used by 90 million customers amid a worldwide financial crisis. Three U.S. banks failed, bringing this year’s total to 20.

U.S. Central Corporate Federal Credit Union, in Lenexa, Kansas, and Western Corporate Federal Credit Union in San Dimas, California, were put into conservatorship, the regulator said in a statement. The credit unions failed so-called stress tests that found an “unacceptably high concentration of risk” from mortgage-backed securities, the agency said.

“Most of the bad assets that we’ve seen in the corporate world reside at these two institutions,” NCUA spokesman John McKechnie said in a telephone interview. “We will be able to resolve them in a more efficient way.”

The U.S. has 28 corporate credit unions, which make loans and provide other services for the retail credit unions that cater to the public. This is the first time a corporate credit union was seized since 1995, when NCUA took control of Capital Corporate, based in Landover, Maryland.

U.S. Central has about $34 billion in assets and serves 26 retail credit unions. Earlier this year, it was granted a $1 billion federal injection in an effort to shore up public confidence.

Western Corporate has $23 billion in assets and about 1,100 retail credit union members, the NCUA said. Yesterday’s two seizures may cost the agency’s insurance fund about $1.2 billion, McKechnie said.

Emergency Borrowing

The regulator is seeking $30 billion in emergency borrowing authority from the Treasury Department to combat mounting losses. The U.S. House of Representatives has already approved expanding credit to $6 billion from $100 million.

All this discussion on whose “fault” this mess is, is a waste of time, since it is becoming more and more evident that NO ONE is going to be brought to account for their defective judgement/criminal behavior.

I suggest we work on more important issues like:
-Should X-GSfixer look into a new line of work, and
-Why Meredith Whitney won’t answer my mail……..

I would have loved to see R.Paul as the U.S. president, of course it was not to be.

Ron Paul: Believer in small government predicts 15-year depression
By Phil Davis

Published: March 22 2009 09:07 | Last updated: March 22 2009 09:07

Pension trustees and insurance company portfolio managers look away now. Your increased commitment to government bond holdings in recent times is about to blow up spectacularly.

At least, that is the view of Ron Paul, the US congressman who ran against John McCain in last year’s Republican Party presidential nomination.

His is a minority view. Yields on government bonds worldwide have been falling fast over the past few months and in the UK, the commencement of “quantitative easing” this month sent bond prices soaring.

But the credibility of both western governments and their currencies is waning, and has been ever since the gold standard was abandoned in 1971, says Mr Paul. And that means even “safe” investments are far from safe, he claims.

“People will start to abandon the dollar as current and past economic policies create a steep rise in interest rates,” Mr Paul says.

“If you are in Treasuries, you will need to be watchful and nimble to time your escape.”

Unfortunately, cashing out will not protect the value of investments, he insists, because “fiat” currencies will all decline over the coming years as measures to try to haul the world economy out of recession fail. “The current stimulus measures are making things a lot worse,” says Mr Paul.

“The US government just won’t allow the correction the economy needs.” He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. “No one remembers that one. They’ll remember this one, because it will last 15 years.”

At some stage – Mr Paul estimates it will be between one and four years – the dollar will implode. “The dollar as a reserve standard is done,” he says. He sees little hope for other currencies where central banks have also created too much liquidity dating right back to the early 1970s.

“Europe and the US will both have to fundamentally change their money systems,” he adds.

New supply of ‘jumbo’ financing in pipeline…

Bank of America and others are stepping up the availability of high-value loans for low-risk borrowers.
By Kenneth R. Harney
March 22, 2009
Reporting from Washington — New money is about to flow into an area of the real estate market that has been hardest squeezed by the credit crisis: mortgages too large to be purchased or backed by Fannie Mae, Freddie Mac or the Federal Housing Administration.

Though the so-called jumbo mortgages are heavily concentrated in California, portions of Florida and the Northeast, higher-cost neighborhoods throughout the country traditionally have depended on their ready availability to finance houses. But with the collapse last year of the private mortgage bond market on Wall Street, home buyers, builders and refinancers who relied on jumbo financing were left with few sources — except at punitively high interest rates and huge down payments.

That’s about to change. Major banks are heading into the jumbo segment, originating big loans at affordable rates — not to then sell to Wall Street bond traders but to keep in their own investment portfolios.

Bank of America, the country’s largest mortgage lender, is rolling out a large program to finance loans between about $730,000 and $1.5 million, with fixed 30-year rates starting in the upper 5% range. The loans will be available through the bank’s retail network and through its Countrywide Home Loans subsidiary. After April 27, Countrywide will be re-branded — shedding the name it’s had since 1969 — and morph into Bank of America Home Loans. Bank of America acquired Countrywide in 2008.

An FB story, tailor-made for HBBers!

http://tampa.craigslist.org/hil/apa/1071965718.html

“The Fed has used up all its ammunition in the short-term T-bill market where the rate is only microscopically greater than zero, rendering the Fed helpless and impotent. A new bag of tricks is coming into play: the monetization of long-term government debt.”
~Antal Fekete

KANSAS CITY (Reuters) - Regulators worked on Saturday to assess troubles at the largest U.S. corporate credit union with the aim of keeping liquidity flowing through the nation’s 7,800 credit unions.

A new chief executive will take charge on Monday at U.S. Central Federal Credit Union following seizure by regulators on Friday. The institution, with $34 billion in assets, provides settlement services used by more than 90 percent of all U.S. credit unions, which are member-owned lending institutions.

The National Credit Union Administration, or NCUA, took control of U.S. Central as well as Western Corporate (WesCorp) Federal Credit Union of San Dimas, California, another corporate credit union with $23 billion in assets.

“We took action to protect the assets, the share insurance fund and its members,” NCUA regional director Keith Morton said in an interview from the Lenexa, Kansas, headquarters of U.S. Central, where he and other officials were working on Saturday.

NCUA officials cited declining values of mortgage- and other asset-backed securities as the core problem.

The action highlighted strains in the nonprofit banking sector that recently had been touted as a source of new lending even as many for-profit banks limit lending and receive billions of dollars of taxpayer-funded capital injections.

Corporate credit unions provide services such as lending and payment clearance services to retail credit unions.

NCUA officials would not disclose a specific loss figure for U.S. Central.

“They have a significant amount of risk … assets that are currently not marketable,” said Morton.

A NCUA risk analysis completed this month put potential credit losses throughout the credit union system as high as $16 billion, “with a most reasonable estimate in the current environment of $10.8 billion.”

SYSTEM BLINKING RED?

Warning signs had been mounting in recent months.

In February, U.S. Central said it replaced the executive who had been overseeing the credit union’s investment portfolio, putting the division under the direct supervision of then-CEO Francis Lee.

Lee himself will now be replaced on Monday by regulators with James

U.S. to introduce plan for troubled mortgages
IHT

“The U.S. Treasury Department is expected in the coming week to roll out its long-delayed plan to buy as much as $1 trillion in troubled mortgages and related assets from financial institutions, according to people close to the talks.

The plan is likely to offer generous subsidies, in the form of low-interest loans, to coax investors to form partnerships with the government to buy toxic assets from banks.

The plan to be announced in the coming week involves three separate approaches. In one, the Federal Deposit Insurance Corp. will set up special-purpose investment partnerships and lend about 85 percent of the money that those partnerships will need to buy up troubled assets that banks want to sell.

In the second, the Treasury will hire four or five investment management firms, matching the private money that each of the firms puts up on a dollar-for-dollar basis with government money.

In the third piece, the Treasury plans to expand lending through the Term Asset-Backed Secure Lending Facility, a joint venture with the Federal Reserve.”

Just a tiny bit on the economy:

My red headed feminine friend from Canada spent the week of spring break here in NY. This is normally a deliberate shopping expedition for foodstuffs and clothes. She spent less than $20, because of price. She noted a number of things that seemed way too expensive and yesterday double checked about ten things at her store back home. On average, 30% lower sticker price in Ontario. Add to that the 20% currency spread in our favor. This is a huge shift.

For those non-border crossers out there, shopping in the US is supposed to be a great money saver for Canadians. Now it is not. She’ll be buying 12 big cans of Maxwell house coffee for me at $5 CAD ($4 US).

This relates to what FPSS said to me a ways back regarding Single Malt and the US/British exchange rate: It doesn’t matter the cost, it’s what the market will bear.

My conclusion is that we have a lot of pent up deflation in retail prices. More pain to come for retailers and everyone else in the food chain already baked in the cake.

Author makes a case for deflation based on his observations that the economy is not a fiat economy, but rather, our economy is a credit economy.

____

The Roving Cavaliers of Credit
Steve Keen

“Their empirical conclusion was just the opposite: rather than fiat money being created first and credit money following with a lag, the sequence was reversed: credit money was created first, and fiat money was then created about a year later:

Thus rather than credit money being created with a lag after government money, the data shows that credit money is created first, up to a year before there are changes in base money. This contradicts the money multiplier model of how credit and debt are created: rather than fiat money being needed to “seed” the credit creation process, credit is created first and then after that, base money changes.”

Thusly,

“1. Banks won’t create more credit money as a result of the injections of Base Money. Instead, inactive reserves will rise;

2. Creating more credit money requires a matching increase in debt—even if the money multiplier model were correct, what would the odds be of the private sector taking on an additional US$7 trillion in debt in addition to the current US$42 trillion it already owes?;

3. Deflation will continue because the motive force behind it will still be there—distress selling by retailers and wholesalers who are desperately trying to avoid going bankrupt; and

4. The macroeconomic process of deleveraging will reduce real demand no matter what is done, as Microsoft CEO Steve Ballmer recently noted: “We’re certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to lower level of business and consumer spending based largely on the reduced leverage in economy”.[9]

The only way that Bernanke’s “printing press example” would work to cause inflation in our current debt-laden would be if simply Zimbabwean levels of money were printed—so that fiat money could substantially repay outstanding debt and effectively supplant credit-based money.

We’ve spoke about the lack of real borrower victims in news stories. Most of those going under turned out to be speculators or those who HELOCed and lived large. Many of the actual victims are stranded renters marooned by their landlords finances.

Well here are some real victims — people who put down real downpayments to buy NY area condos, had financing approved, had financing withdrawn, and had the developer seize their deposit.

http://www.nytimes.com/2009/03/22/realestate/22cov.html

They were victimized by the lack of a financing contingency clause in their contracts, which shows why almost everyone hires a lawyer for real estate transactions in NY. I guess they didn’t use lawyers. Big mistake.

While others put nothing down and are deciding to walk away, these folks don’t want to walk away and are being sent away.

I have several questions regarding “how this mess could have happened”:

1) Who was responsible for establishing this policy of free financial crisis insurance for firms that are deemed too-big-to-fail?

2) Which of the subprime mortgage lending kingpins wrote loans which they knew would blow up as a deliberate financial time bomb strategy, realizing that they would qualify for massive largess from the Treasury when the bad underwriting scheme blew up?

3) Were politicians like Dudd and Fwank in on the deal?

San Diego Union-Tribune
DEAN CALBREATH
Breaking up money-pit behemoths is necessary
2:00 a.m. March 22, 2009

Over the past two weeks, Americans have been increasingly outraged about the $165 million in bonuses that financial giant AIG paid its executives, many of whom helped create the financial debacle that has pushed the world economy to the brink of depression.

The public is right to be irate. AIG’s argument that these bonuses are somehow sacrosanct because they are contractual obligations comes at a time when autoworkers, state workers and even journalists have had their pay and benefits slashed despite previous contracts or assurances.

But the truly outrageous part of this affair is not the bonuses. Instead, it is the fact that we taxpayers have spent an estimated $170 billion – roughly a thousand times as much as those bonuses – to keep this ailing behemoth alive, as part of the $1 trillion or so that we’ve spent bailing out Wall Street.

We have spent this money because top regulators and politicians have determined that AIG, Citigroup and a coterie of other Wall Street financial firms are “too big to fail” – or 2B2F in Twitter-speak – meaning they are so big that if they collapsed, it could lead to financial Armageddon.

AIG alone has a portfolio of derivatives nominally valued at $1.7 trillion, including hundreds of billions of dollars in risky mortgage-backed securities. And that’s after some intense slimming. When the bailout began last year, AIG’s derivatives totaled $2.7 trillion, roughly the equivalent of the gross domestic product of the United Kingdom, the fifth-largest economy in the world.

Imagine the financial earthquake that would happen if England declared bankruptcy and you’ve got a good picture of what would have happened if AIG suddenly went belly up. Even now, its derivatives are nominally worth more than the economies of Canada, Brazil or Russia, as measured by the World Bank.

How did AIG, Citigroup and the other derivatives-swollen monsters on Wall Street get so big?

So is it time to buy gold yet? What ought a guy be doing with his modest life savings at this point? Putting it under the mattress won’t work if there is massive devaluation of the dollar.

San Diego Union-Tribune
Not a banner year
Real estate downturn hurting sign company that caters to building industry
By Roger Showley
Union-Tribune Staff Writer
2:00 a.m. March 22, 2009

Tonantzi Cadena of Motivational Systems Inc. in National City worked on a project for an orthodontist. From a peak of 580 employees two years ago, the company’s staff is down to 160. (John Gibbins / Union-Tribune)

Jessie Gonzales (left) and Miguel Solario assembled a topographical display project at Motivational Systems’ National City complex. (John Gibbins / Union-Tribune)

It’s a sign of the times at Motivational Systems Inc.

The National City company is one of the nation’s leading sign makers for the building industry, working on architectural models, banners and sales-office complexes. But with real estate in the doldrums, the company is coping with a big drop-off in demand.

From a peak of 580 employees two years ago, the Motivational Systems staff is down to 160. Sales are off two-thirds from a high of $6 million per month, and replacement work includes jobs in China and Panama.

“Without a doubt, this (downturn) for my business and anybody associated with the building industry is probably the sharpest,” said President Bob Young, 62, who founded the company in a one-car garage in Mission Hills in 1975.

“If this was a 1,000-foot cliff, the first 850 feet were straight down. Now we seem to be catching our breath. Business is leveling out. I’d like to think we’ve reached the level of sales we can maintain for the next year, year and a half, and make it through this thing.”

I looked up open houses for 3 and 4 bed single family homes in the Palm Beach Post this AM for Jupiter, Tequesta, Palm Beach Gardens and Royal Palm Beach. I found one, yes one. I looked up houses for sale on Realtor.com using the same criteria and I found 2,966
2 years ago in the same area you couldn`t drive by 2 streets without seeing balloons and open house signs.

There has never been a better time to rent a foreclosure home!

New hotline for tenants caught up in foreclosure
By Emmet Pierce
Union-Tribune Staff Writer
2:00 a.m. March 22, 2009

Tenants Together, a nonprofit organization that advocates for renter rights, has launched a hotline to help people who face eviction because their rental units are in foreclosure.

The displacement of tenants from foreclosed properties without adequate time to find a new home is a growing problem in California, said Dean Preston, the group’s executive director. A single foreclosure filing on a rental building can affect dozens of households.

“Innocent tenants are paying a steep price for the mortgage mess,” said a statement released by the organization. “Tenants face evictions and poor housing conditions across the state as a result of foreclosures.”

Tenants Together is based in San Francisco. The hotline, (415) 495-8012, is staffed by trained volunteers, including a team of law students.

While foreclosures end most leases, tenants in California are generally entitled to a 60-day notice to vacate in foreclosure situations, said San Diego tenants rights attorney Steven Kellman.

Does this program sound to anyone else like a scheme to prop up the prices of high-end coastal housing? I keep hearing politicians talk about the problem of affordable housing provision, but as soon as Mr Market gets serious about delivering it, myriad behind-the-scenes efforts are mobilized to prevent economic gravity from having its natural effect on making home prices more affordable.

When will top leaders in gubmint make up their minds about whether or not they really want affordable housing? You can’t have it both ways — d’oh!

Local market observation.
Yesterday I went biking through my neighborhood. Still not that many houses for sale. One house had a “under contract” sub sign on the for sale sign. I looked at the literature box….”asking $300K”. At the height this house would have sold for $435k. It is a two story with 2 car garage, 45 year old, modernized, big lot, quiet, pretty street, well maintained.
We live in the adjacent 35 year old subivision. At the height our house model was selling for $385k..so now maybe for $250k. This area is commutable and MARC train, to DC and Baltimore. However it is in Prince Georges Co.

Guys, I need some advice.

My union local has been without a hall for a year. We previously paid about $600/mo rent PLUS $100/mo (or more) utilities PLUS over $100/mo telephone svcs. Obviously this was unsustainable.

Some history: originally, we were subletting the space to a small business owned by a co-worker’s spouse, but that business grew and had to find its own space. And before that we had a space for free in the Carpenter’s Hall, but some of our wonderful local members messed that up for us by abusing their privileges in the building.

Right now we are renting storage space for our records (non climate controlled–and this is Florida) for $85/mo. We are at the mercy of the public library to have a private meeting space. (In March they bumped us for a board meeting and then didn’t tell us … we ended up not having a meeting.) This runs us into a situation of violating international rules that we must have the records available for any member to view at any time AND to have monthly meetings.

I would like some commercial space pretty close to downtown. Heroic efforts since 1990’s have improved value of these spaces because they were once worth about zilch. There’s this one “ghetto-tastic” building that sells overpriced brand name clothes/shoes that has stayed in business while others churn and I’m convinced it’s because (now I don’t know this–never asked) they’ve owned that building since the early 1980’s. Basically, we could afford a building or condo in the $30-40k range. I think prices will return there. (Saw a screaming ad a little further out for office space at $200/mo this week.)

Problems: some union locals have lost their buildings due to malfeasance by elected officers. Would it be better to have a separate entity (set up as a charity) hold title to the building and use it as a pass through for the local’s mortgage payments?

Who will lend to the local? What if I bought the building, then wrote a sort of lease-to-buy hard money contract on the building… if local gets cruddy mgmt again and stops paying, then I take the building back, lose nothing… right?

Downpayment. Possible to save up for one but local needs to save up money in case of legal action first–we prolly need about $10k just for starters. No, seriously. (We are still in debt but I got it from $8500 to only $2100–go me.)

I want to do the right thing here, and I want to help the union out without giving them money in a way they will just waste it (as on cell phones for officers–RIDICULOUS) and without putting my own household at risk.

I don’t even know what a union (reg. non profit) must pay in prop taxes or what the comm prop taxes are like around here (except on MF rentals). I know churches pay nada–maybe I can incorporate as 1st Fla Ch of the Subgenius. Obviously I’ll hire a lawyer to set this up if I’m serious about it.

Oh, and dues income is $2100/mo, but must pay $700 to the international, so net is about $1400.

“In the end, they financed the purchase of eight smoke alarms for their single wide at a cost of $2,629″

http://www.tampabay.com/news/business/article985946.ece

apologies if already posted, but it’s a good detailed list of the shops that have closed along the Upper West Side Broadway in NYC -

http://www.tomdispatch.com/post/175049/a_second_9_11_in_slow_motion

Opinion: “The Obama administration should seriously consider granting resident status to foreigners who buy surplus houses in this country…Granting permanent resident status to foreigners who buy houses in this country will curtail a primary driver of the deepening recession and financial crises — excess house inventories and the resulting collapse of prices. Since the people who will buy these houses will tend to have money, education, skills and entrepreneurial talents, they will be substantial assets to America in both the short and long runs.” - LeFrak & Shilling

UPDATE 2-Moody’s may cut $241 billion jumbo mortgage debt
Thu Mar 19, 2009 2:58pm EDT
Market News
Wall St Week Ahead: Investors banking on toxic-asset plan
Dollar caps worst week in 24 years

* Moody’s calls credit deterioration unprecedented

* Junk ratings possible for some debt

* Shares of Hudson City Bancorp, a jumbo specialist, fall (Adds S&P downgrade, Freddie Mac mortgage rates)

By Jonathan Stempel

NEW YORK, March 19 (Reuters) - In a move reflecting widening stress in the U.S. housing market, Moody’s Investors Service said on Thursday it may downgrade $240.7 billion of securities backed by prime-quality “jumbo” U.S. residential mortgages because defaults will be higher than expected.

Jumbo mortgages are typically larger than $417,000, and go to borrowers with good credit. But Moody’s said in the last six months, there have been “substantial increases in serious delinquencies and decreases in prepayment rates, levels that are unprecedented in this asset class.”

Moody’s said it may downgrade 4,988 classes of jumbo residential mortgage-backed securities with an outstanding balance of $173.3 billion, versus the original $240.7 billion.

The securities under review are backed by U.S. home loans issued between 2005 and 2008. Moody’s had late last year downgraded $110 billion of securities issued in 2006 and 2007, almost all of which had originally been rated “Aaa.”

In a separate action Thursday, Standard & Poor’s downgraded 163 classes of jumbo mortgage debt issued in 2006 and 2007.

Moody’s said it now expects cumulative losses of 1.7 percent for 2005 securitizations, 3.55 percent for 2006, 5.05 percent for 2007 and 6.20 percent for 2008.

Downgrades can force some investors to sell the debt, and increase capital strains on banks and insurers that own it.

In the fourth quarter, the top 50 U.S. banks added $109 billion of mortgage debt, although most was not jumbo mortgage debt, Barclays Capital said. Falling mortgage rates could spur an increased supply of jumbo mortgage securities, it said.

The average 30-year mortgage rate this week fell below 5 percent for the first time since January, mortgage financier Freddie Mac (FRE.P) said.

JUNK POSSIBLE
…

the fed now buying long term treasuries to drive rates low, sounds like a repeat on a much larger scale than what greenspan did! and, now 1 trillion more to buy up the toxic assests in the public/private deal. there is so much cash being spent on this and that, I am sure although we are in deflation soon enough inflation will take off! is is smart to keep all ones assets in dollars, what to do with cash?? i’m waiting to hear from the bank on my 77k offer on the house! i expect they will take a few days to see if others offer more.

Wife & I attended our son’s annual middle school auction (fundraiser) last night. For a school with upwards of 1000 students, there were maybe 30 couples in attendance. As a representative example of how the auction went, one of the items auctioned live was a Baja Mexico luxury resort vacation package “valued at $3000.” It sold to the highest bidder for $700.

Got vacation deflation?

It’s a sign of the times?:

More women needing cash go from jobless to topless
Sunday March 22, 2:07 pm ET
By Karen Hawkins, Associated Press Writer
From jobless to topless: As economy worsens, more women give strip clubs, adult films a try.

CHICAGO (AP) — As a bartender and trainer at a national restaurant chain, Rebecca Brown earned a couple thousand dollars in a really good week. Now, as a dancer at Chicago’s Pink Monkey gentleman’s club, she makes almost that much in one good night.

The tough job market is prompting a growing number of women across the country to dance in strip clubs, appear in adult movies or pose for magazines like Hustler.

Employers across the adult entertainment industry say they’re seeing an influx of applications from women who, like Brown, are attracted by the promise of flexible schedules and fast cash. Many have college degrees and held white-collar jobs until the economy soured.

“You’re seeing a lot more beautiful women who are eligible to do so many other things,” said Gus Poulos, general manager of New York City’s Sin City gentleman’s club. He said he got 85 responses in just one day to a recent job posting on Craigslist.

The transition to the nightclub scene isn’t always a smooth one — from learning to dance in five-inch heels to dealing with the jeers of some customers.

Some performers said they were initially so nervous that only alcohol could calm their nerves.

“It is like giving a speech, but instead of imagining everyone naked, you’re the one who’s naked,” Brown, 29, said.

Eva Stone, a 25-year-old dancer at the Pink Monkey, said dealing with occasional verbal abuse from patrons requires “a thick skin.”

PAUL KRUGMAN BLOGS ON THE TOXIC-ASSET PROGRAM to be announced early this week: “The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won. The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. … And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved. To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad … assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.

“But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem. Or to put it another way, Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard. This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work. What an awful mess.”

It’s a good thing that stock prices and housing prices are not factored into official inflation statistics — otherwise a 50+ percent drop in stock prices and a 40+ percent drop in housing prices (at least in CA) would be a big cause for deflation concern.

Wall Street Journal
* MARCH 20, 2009, 11:49 A.M. ET

Fed’s Bullard: Deflation Is ‘Real Risk’ In Current Econ
By Michael S. Derby
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Federal Reserve Bank of St. Louis President James Bullard on Friday warned that deflation is a “real risk” in the current economy.

Deflation is a broad-based retreat in prices that weighs on economic growth and makes debts harder to repay, and it was a defining characteristic of the Great Depression.

Bullard’s warning comes just days after the Fed met in a policy meeting that authorized massive interventions into financial markets to lower borrowing costs and stimuluate (SIC) economic activity. The Fed doesn’t expect deflation to occur, but policy makers are worried that the current level of price increases has become lower than they are comfortable with.

The central banker’s comments came from a slide show prepared to accompany remarks given at a conference on monetary policy held in Paris by the Banque de France, Aix-Marseille University and Toulouse School of Economics. The event is closed to the press and there is no advance prepared text of his remarks.

Wall Street Journal
* CAPITAL
* MARCH 21, 2009

Rescuing the Economy Just Got Harder
By DAVID WESSEL

Rescuing the economy from the worst financial crisis in 75 years just got harder. Thank those bonuses at American International Group.

The uproar over six- and seven-figure payouts by a company propped up with $173 billion of government cash complicates President Barack Obama’s already formidable task: To bolster the political courage of voter-fearing lawmakers to spend unfathomable sums of taxpayer money in order to avoid a decade of stagnation or a repeat of the Great Depression.

Federal Reserve Chairman Ben Bernanke, the nation’s most prominent student of the Depression, was asked by a television interviewer the other day: What keeps you up at night? His answer wasn’t Citigroup or inflation. “The biggest risk is that we don’t have the political will,” he said. “That we don’t have the commitment to solve this problem, and that we let it just continue. In which case, we can’t count on recovery.”

Worries Voiced Over Global Economy
By BLOOMBERG NEWS
Published: March 21, 2009

The global economy is on pace to shrink by 1 percent to 2 percent this year, the head of the World Bank said Saturday.

Speaking at the Brussels Forum on geopolitical problems, the bank’s president, Robert B. Zoellick, said that 2009 would be a “dangerous year” as the global economy wrestles with its first recession in more than 60 years.

“We haven’t seen a figure like that globally since World War II, which really means since the Great Depression,” he said.

Global trade is set to slide the most in 80 years as demand dries up, with East Asia being the hardest-hit region. The World Bank has forecast a 2.1 percent decline in global exports this year, which would be the first such drop since 1982.

Mr. Zoellick’s remarks came less than two weeks before heads of state from the Group of 20 industrialized and developing economies are to gather in London to discuss a coordinated response to the economic slump. Mr. Zoellick urged G-20 leaders to use the meeting on April 2 to create a review process to determine whether further stimulus measures are needed.

“There is a legitimate debate about how the stimulus will be used,” he said at the forum.

What no top banker has acknowledged (yet): Until asset prices come back in line with household incomes, the credit system will not work again.

CNN dot com
updated 2 hours, 24 minutes ago
World Bank: Global downturn is WWII-like

* Story Highlights
* Global economy will shrink up to 2 percent, World Bank chief says
* Nations need to focus on credit, capitalizing banks, Bob Zoellick says
* IMF predicts global economic recovery won’t come until 2010

WASHINGTON (CNN) — The global economy will shrink up to 2 percent, and rapidly approved stimulus plans worldwide could spark another crash in financial markets, World Bank President Bob Zoellick projected at a forum in Belgium Saturday.

Zoellick: Nations need to focus on long-term economic fixes.

Zoellick said the World Bank, an international institution that offers aid to developing nations, projects a global economic decline between 1 percent and 2 percent.
…
Global economic recovery won’t come until 2010, according to the IMF report. The world’s economic powers will struggle to break even in the new year, while developing nations’ economies will surge by up to 4.5 percent, the IMF said.

The world has not seen a 2 percent drop since World War II or the Great Depression, according to the World Bank.

Two of the world’s largest economies, the United States and China, are struggling with recession and have recently implemented stimulus packages worth hundreds of billions of dollars.

However, Zoellick likened such stimulus plans to a “sugar high,” saying they would likely lead to another crash.

“The issue now that is most important are the bad assets, and recapitalizing the banks,” he said in a statement. “The reason I use ’sugar high’ is that it’s like if you have to have stimulus, it gives you a boost, but unless you get the credit system working again, it will drop off.”

Time / CNN
Business & Tech
How AIG Became Too Big to Fail
By Bill Saporito Thursday, Mar. 19, 2009

Treasury Secretary Tim Geithner had every reason to think he had seen all of AIG’s dirty laundry. The government owned 80% of the company, and Geithner had just orchestrated AIG’s most recent handout — its fourth, if you are keeping score, for $30 billion on March 2 — to prevent the teetering insurance giant from going over the cliff and taking the rest of the global financial system with it. AIG had already cost the taxpayers some $170 billion, mostly to repair the damage done by one of its units, AIG Financial Products (AIG FP), which last year alone piled up $40 billion in losses related to its dealings in complex mortgage bond derivatives.

Then Geithner’s staff made the discovery that would infuriate nearly everyone in Washington. On March 10, the Secretary learned, 10 days after his staff first got wind of it, that AIG had paid out $165 million in retention bonuses to executives at the unit that compelled the U.S. to bail out the company in the first place. It took Geithner until 7:40 the next night to place what must have been a tense phone call to AIG’s newish CEO, Ed Liddy. The bonuses were not tenable; they had to be canceled, he demanded. Liddy, a dollar-a-year man who took over the company after the bonuses had been promised, replied that AIG’s lawyers had decided that the contracts could not be broken without even bigger costs to taxpayers. Geithner sent Treasury’s lawyers searching for a way out, but they couldn’t find one. (See 25 people to blame for the financial crisis.)

On the balance sheet of debacles caused by this economic crisis — the $700 billion Troubled Asset Relief Program (TARP), the stock-market swoon, the credit crunch and the ongoing global recession — $165 million is small change. But the revelations of the AIG bonuses, like nothing else, seemed to finally tip the mounting public furor over corporate malpractice into a full-scale rebellion. Yet Geithner, embarrassed for discovering the bonuses so late, plans to dock AIG that much out of the next $30 billion in bailout funding when it is delivered — which amounts to a mere 0.1% of the total AIG has received.
…
Related
* 25 People to Blame for the Financial Crisis
* The Dangers of Printing Money
* Treasury Learned of AIG Bonuses Earlier Than Claimed
* The AIG Bonuses: Getting Mad and Getting Even
* Obama’s Challenge: Containing the AIG Bonus Outrage
* Will AIG Get a Government Bailout?
* AIG: Paying Taxpayers Back with Taxpayer Money

Today I’m not going to tease or provoke anyone for their stupid views and/or statements. This is going to be a struggle, but I can do it.
*puts on serious, mature, vastly responsible face that I’ve been practicing *

So, I guess I’m stuck with telling you all about the batch of bread I just started, instead. Ummm, lessee…cashews are in it, and dark cocoa baking powder. This is one of my favorite recipes, I came up with it whilst experimenting. It’s a really good one, savory and rich, that goes well with hearty soups but also makes good toast for breakfast with eggs.
Wow, huh? Also, I found my blue sock I was looking for. It was under the bed. I picked a daffodil and put it in a vase.

…Jeeze, man, this ‘only posting non-aggravating things’ is harder than it looks. I hope I don’t blow!

A Recession Only Steinbeck Could Love

http://tinyurl.com/cm7doo

The Gainesville Sun
News
Home > Business
Paul B. Blanch : The Federal Reserve is the problem
Published: Friday, March 20, 2009 at 9:09 p.m.

Americans are angry about the bailouts; they’re not angry enough because they continue, with no end in sight. It’s important to consider why “we” selected bailouts over other options. The Federal Reserve (Fed) is not a constitutional branch of our government. It’s a corporation, driven by profits, and owned by shareholders who are all banks (some foreign). Supposedly, the Fed works for the U.S. government; yet no government representative is permitted to attend any Fed meeting.

Furthermore, the Fed refuses to disclose how they’ve used our bailout dollars. Many of the same banks and bankers, responsible for the current mess, are likely ranking members of the Fed cabal. Talk about “letting the fox guard the hen house.” These same banks wish us to believe some enterprises are “too big to fail.” Nothing could be further from the truth, since no company starts out too big to fail. The consumer branches of most banks remain profitable; it’s their investment and financial products divisions that are failing.

BUST THE TRUSTS!
BUST THE TRUSTS!

Wall Street Journal
* HEARD ON THE STREET
* MARCH 20, 2009, 8:32 P.M. ET

Too Much Bark, Not Enough Bite
By PETER EAVIS

Federal Reserve Chairman Ben Bernanke realizes he can’t solve everything by dropping billions of dollars out of his helicopter. Deep reforms also are needed to fix the system, he said in a speech Friday.

Any moves are welcome. But Mr. Bernanke’s prescriptions look too timid.

Take the too-big-to-fail problem. Firms like Bear Stearns Cos. and American International Group Inc. were rescued because authorities believed their failure would imperil the financial system. Mr. Bernanke suggests five measures: better regulation, better compensation incentives to avoid excessive risk-taking, regulation of nonbank financial firms, strengthening market structures so one firm’s problems don’t spill over, and procedures allowing for the orderly wind down of nonbank financial firms.

Conspicuously absent: Any explicit measure to stop financial firms getting too big. The need for size limits is pressing, due to recent consolidation. The top-five lenders in the U.S. now account for 70% of the assets at the top-50 banks, based on SNL Financial data. Regulators may need stronger banks to take over weak ones right now, but bankers shouldn’t be surprised if authorities demand break-ups in the future.

WASHINGTON – The top Republican on the Senate Budget Committee says the Obama administration is on the right course to save the nation’s financial system.

But Sen. Judd Gregg of New Hampshire also says President Barack Obama’s massive budget proposal will bankrupt the country.

Gregg says he has no regrets in withdrawing his nomination to become commerce secretary. He pulled out after deciding he could not fully back the administration’s economic policies.

The senator said Obama’s spending plan in the midst of a prolonged recession would leave the next generation with a country too expensive to live in.

Gregg appeared Sunday on CNN’s “State of the Union.”

Here’s the real reason why Detroit will never recover:

http://www.detnews.com/article/20090322/OPINION03/903220309/Hey+Martha++Ich+bin+ein+Detroiter+

CARACAS (Reuters) - Venezuela’s President Hugo Chavez said on Sunday his U.S. counterpart Barack Obama was at best an “ignoramus” for saying the socialist leader exported terrorism and obstructed progress in Latin America.

“He goes and accuses me of exporting terrorism: the least I can say is that he’s a poor ignoramus; he should read and study a little to understand reality,” said Chavez, who heads a group of left-wing Latin American leaders opposed to the U.S. influence in the region.

Chavez said Obama’s comments had made him change his mind about sending a new ambassador to Washington, after he withdrew the previous envoy in a dispute last year with the Bush administration in which he also expelled the U.S. ambassador to Venezuela.

“When I saw Obama saying what he said, I put the decision back in the drawer; let’s wait and see,” Chavez said on his weekly television show, adding he had wanted to send a new ambassador to improve relations with the United States after the departure of George W. Bush as president.

In a January interview with Spanish-language U.S. network Univision, Obama said Chavez had hindered progress in Latin America, accusing him of exporting terrorist activities and supporting Colombian guerrillas.

“My, what ignorance; the real obstacle to development in Latin America has been the empire that you today preside over,” said Chavez, who is a fierce critic of U.S. foreign policy.

In the 20th century the United States supported several armed movements and coups in Latin America. Chavez says Washington had a hand in a short-lived putsch against him in 2002, which was initially welcomed by U.S. officials.

Chavez and Obama will both attend the Summit of the Americas in Trinidad and Tobago next month. It is not known whether they will meet.

Most of OPEC nation Venezuela’s export income comes from oil it sells to the United States, but Chavez has built stronger ties with countries like China in an attempt to reduce dependence on his northern neighbor.

Chavez expelled its U.S. ambassador in September in a dispute over U.S. activities in his ally Bolivia, which also expelled its U.S. ambassador. Ecuador’s left-wing President Rafael Correa this year kicked out a mid-ranking U.S. diplomat.

Let the workers in these plants get the same wages – all the workers, all presidents, all executives, all directors, all managers, all bankers –

yes, and all generals and all admirals and all officers and all politicians and all government office holders – everyone in the nation be restricted to a total monthly income not to exceed that paid to the soldier in the trenches!

Let all these kings and tycoons and masters of business and all those workers in industry and all our senators and governors and majors pay half of their monthly $ wage to their families and pay war risk insurance and buy Liberty Bonds.

Why shouldn’t they?

…From War is a Racket - for all you optimist.

New York Times
Op-Ed Columnist
Has a ‘Katrina Moment’ Arrived?
By FRANK RICH
Published: March 21, 2009

A CHARMING visit with Jay Leno won’t fix it. A 90 percent tax on bankers’ bonuses won’t fix it. Firing Timothy Geithner won’t fix it. Unless and until Barack Obama addresses the full depth of Americans’ anger with his full arsenal of policy smarts and political gifts, his presidency and, worse, our economy will be paralyzed. It would be foolish to dismiss as hyperbole the stark warning delivered by Paulette Altmaier of Cupertino, Calif., in a letter to the editor published by The Times last week: “President Obama may not realize it yet, but his Katrina moment has arrived.”

Debt securitisation is a dead business model. The only vestige that survives is denial of this fact.

Financial Times
Bonus divide risks US rescue plan
By Aline van Duyn and Julie MacIntosh in New York
Published: March 22 2009 18:24 | Last updated: March 22 2009 18:24

Plans by US lawmakers to curtail big Wall Street bonuses may have adverse effects on government rescue plans aimed at restarting consumer lending and resolving the toxic asset overhang.

In particular, private investors such as hedge funds and private equity groups may be less likely to take part amid concerns of government scrutiny and fears that profits may be clawed back in the future.

Fed officials believe there is already evidence of this in the lacklustre initial takeup of loans offered for the term asset-backed securities loan facility (Talf).

The first $200bn (€147bn, £138bn) leg of the Talf, aimed at restarting the securitised debt markets, began last week and details are expected as early as Monday on a “public/private partnership” aimed at getting billions of dollars of toxic assets off banks’ books.

“I just hope this divide between Washington and the investment community doesn’t actually injure the initiatives we need to succeed,” said Roger Altman, the head of Evercore Partners and a former deputy US Treasury secretary. “We need the investment community to participate in the Talf and the public/private partnership, and it would be a shame if they were not willing to step in.”

Financial Times
Warning over cuts in credit card lines
By Saskia Scholtes in New York
Published: March 22 2009 18:56 | Last updated: March 22 2009 18:56

Banks trying to reduce their exposure to losses on credit card loans are driving some borrowers deeper into trouble, say credit counsellors and analysts.

Major card issuers such as Bank of America, Citigroup and American Express have reacted to the economic crisis and rising credit card defaults by raising interest rates, closing inactive accounts and paring credit lines.

When a bank cuts a borrower’s credit line to lower its potential exposure, it can drive down the borrower’s credit score, even if he or she has paid all their bills on time in the past. A lower credit score can prompt other lenders to cut the borrower’s access to credit and to raise interest rates.

All real estate is local, neh?

Finance and economics
House prices
Caught in the downward current
Mar 19th 2009
From The Economist print edition
The global housing market goes from bad to worse

WHEN we last looked at global house prices, only six of the countries we surveyed had recorded year-on-year declines. Three months later that figure has risen to 16.

In America some saw signs of a bottom in a report on March 17th showing sharp rises in housebuilding starts and permits in February, after months of decline. Others, however, just saw a bigger stack of apartments for sale which no one will be very keen to buy. In truth, the outlook has long been dismal from the banks of the Potomac and the Thames, and now it is starting to look grim from the banks of the Huangpu.

Gone is the optimism of yesteryear. Book titles such as “Are You Missing the Real-Estate Boom? The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade — And How to Profit From Them” (2005) are destined for the annals of folly, next to asset-bubble classics such as “Dow 36,000”. Fear has replaced frenzy, and house prices may overshoot on the way down. A recent report by Numis Securities estimated that British house prices could fall by a further 40-55%, saddling millions with properties worth less than their mortgage debt. Long was the uphill march, long will be the downhill descent.
—————————————————————————
Deflation has even hit the used book market!

Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them (Hardcover)
by David Lereah (Author)

“The recent U.S. real estate boom has made money for an incredible number of households in America (blah, blah, blah…)”

Key Phrases: real estate services companies, home price appreciation, real estate expansion, Fannie Mae, Freddie Mac, United States

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17 new from $2.95 43 used from $0.01 2 collectible from $19.95

The Laugh fest just keeps rolling along!

Frank Says U.S. Should Sue AIG to Recover Bonuses (Update2)
By Alison Vekshin

March 22 (Bloomberg) — House Financial Services Committee Chairman Barney Frank said the government should “assert our rights” as the owner of taxpayer-funded American International Group Inc. and sue the company to return $165 million in bonus payments.

Policy makers also should address “the whole question of executive compensation and the perverse incentives” that result from how it’s structured, Frank, a Massachusetts Democrat, said today on CBS’s “Face The Nation” program.

“One of the things we ought to be doing is suing as a shareholder, saying ‘look these are people who were paid bonuses that they weren’t entitled to,’” Frank said.

AIG’s decision to pay the bonuses to employees after getting $173 billion in federal aid triggered a backlash in Congress last week. Lawmakers chided AIG Chief Executive Officer Edward Liddy for allowing the payments and advanced legislation to tax bonuses at the New York-based insurer and other companies getting government funding.

Senator Charles Grassley of Iowa, the top Republican on the Senate Finance Committee, said taxes are “Congress’s best leverage” for retrieving the money.

“We believe people ought to be compensated right,” Grassley said. “But there is a whole different ethic when you have the taxpayers bail you out.”

‘Dangerous Way to Go’

A top White House economic adviser cautioned against using the tax law to recoup the bonuses.

“That may be a dangerous way to go,” Jared Bernstein, chief economist for Vice President Joe Biden, said today on ABC’s “This Week” program.

The House of Representatives last week voted in favor of a 90 percent tax on bonuses, included those AIG paid out. The Senate plans to vote this week.

“I think the president would be concerned that this bill may have some problems,” Bernstein said. “The House bill may go too far in terms of some, some legal issues, constitutional validity, using the tax code to punish a small group. It may be a dangerous way to go.”

Does anyone know if Geithner has anyone up for approval for any of the 17 deputy positions that, when last I read about it, were all vacant? Seems like a captain trying to run a very big ship with nothing but deck hands. I don;t understand why this is so much harder to do now than in previous administrations.

he had taken out a $25,000 home equity loan to pay for a new kitchen.
The October 2008 appraisal had valued his house at $190,000.

—–

WTF? He put in a $25K kitchen in 190k house?

“…Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.”

http://www.rollingstone.com/politics/story/26793903/the_big_takeover

Duke and OlyGal — Take note

Calif. man charged with $40 million Ponzi scheme
By DON THOMPSON Associated Press Writer
Posted: 03/20/2009 04:44:37 PM PDT

SACRAMENTO—Federal prosecutors unsealed a complaint Friday charging the president of a suburban Sacramento company with running a $40 million investment scam that bilked about 150 investors, many of whom he met through his Mormon church.

One of his associates was charged with impersonating a federal agent in what prosecutors say was a bizarre shakedown scheme to recover some of the lost money.

Acting U.S. Attorney Lawrence Brown said Anthony Vassallo, 29, of Folsom, promised investors in his hedge fund 36 percent annual returns with little risk of loss. But he put their money into high-risk ventures, as well as luxuries like a $103,000 Lexus for his wife.

Most of the money was gone by September 2007. So, investigators say, he stopped trading securities and started making up investment information that reported continued profits.

He also paid off some investors using other investors’ money, said Internal Revenue Service agent Scott O’Briant.

“You rob from Peter to pay Paul. Eventually you run out of Peters and Pauls,” O’Briant said.

That’s when the alleged Ponzi scheme collapsed like many others in the faltering national economy.

The federal Securities and Exchange Commission shut down Vassallo’s Equity Investment Management and Trading Inc. last week. It froze $1.2 million found in one of Vassallo’s bank accounts.

http://en.wikipedia.org/wiki/File:Chifflart_conscience001.JPG

When the conscience is tested,
and if the current social ideology framework regime fails the currency…there is no such thing as money.

Think of money as an emotional attachement to security. Or think of claims on rights which regimes do not allow the citizenry to possess as money….

I’ll tell ya right now, security has no price too high. The rights of the citizenry are being tested by the security of money. This is about trusting people…..and I cant find the gumption to trust.

Potential silver lining: Barter is harder to tax than payrolls.

The Dangers of Printing Money

The Fed’s doing it. The Bank of England says it plans to do it, too. With printing money (or as they say today, “quantitative easing”) back in fashion, TIME reflects on Germany’s efforts in the 1920s — and the crisis that followed.

Tough Times
In the years following World War I, Germany took to printing money to help meet expenses. With inflation spiraling and the mark plummeting, things worsened when the French occupied Germany’s industrial Ruhr region. Workers, the middle class and pensioners were hit hardest by the crisis by the crisis. Here, the Salvation Army serves hungry Berliners in the dark days of 1923.

Who Wants To Be A Millionaire?
Amid runaway inflation, new bank notes were issued. This, a 50 million mark bill from 1923, was small change compared to the 100 trillion mark notes that were also being printed.

Child’s Play
Forget toys: with as many as 4.2 trillion marks to the dollar by late 1923, German children played in the streets with worthless money.

Walking a Tightrope
With the mark almost worthless, bartering made a comeback. Germans are seen here swapping bread, sausages and jam for tickets to the circus.

Federal Reserve’s move to print money shows perilous policy failure
Michael Stutchbury, Economics editor | March 20, 2009
Article from: The Australian

IT’S an ominous day when the world’s economic superpower starts printing money to buy its own government’s debt.

“Who’s going to buy the bonds?” Paul Keating asked two weeks ago. Who would finance a US budget deficit forecast to swell to $US1.7 trillion ($2.5trillion) thisyear?

Now US Federal Reserve chairman Ben Bernanke has revealed part of the answer: the central bank itself will buy $US300 billion of US Treasury bonds and pay for them by electronically printing the money.
…
Cleaning up the banking sector is seen as the key pre-condition to stemming the crisis. But the US has been dithering over this for months, and the IMF has now condemned the latest plan from US Treasury Secretary Timothy Geithner as “unclear”.

This roadblock has diverted the policy response into the Federal Reserve’s moves to print money, and to political diversions such as the controversy over finance executives’ payouts.

Examiner dot com
Stephanie Esworthy
Baltimore Political Satire Examiner
Printing moolah and paying Paul
March 22, 1:50 PM · Add a Comment

Ever since mankind took that first step out of primordial goop to stand upright, the poor guy named Peter and his descendants have been robbed relentlessly to pay the guy named Paul and his offspring who should be sluggish with comfort by now but never seem satiated. They are like black holes of endless need and though Peter wields a heavy shovel, he just can’t fill them up.

Of course I identify with Peter and have noticed that I always can depend on eloquent encouragement from Paul who supports my work ethic. It’s a gracious nod that I appreciate. It warms my heart when Paul acknowledges that he owes me a great debt of gratitude, as well as a financial debt that he assures he’ll pay off with my money. Today, it’s about $80,000 for just me and this will increase tomorrow. Paul knows he can count on me to hand it over with civility and I’m not worried because my children and grandchildren will do their duty and take my place after first paying my death tax.

Paul does have more “peeps” than ever now, but I almost missed the latest announcement on his behalf because it was mumbled quickly and close to a weekend. Treasury has decided to print money that we will loan to ourselves. So we will borrow money from ourselves, blurring the formerly clear roles of Peter and Paul. I am confused. But I’m no Einstein and still have trouble wrapping my head around his theory of time and space. Here too, I bow to greater intellects on this printing and borrowing thing.

Helpful advice to U.S. leaders from a foreign rival on the best way to cope with deficits:

Putin Warns Against Printing Money to Cover Deficit (Update3)
By Alex Nicholson

March 19 (Bloomberg) — Russia won’t resort to printing money to cover budget deficits that Prime Minister Vladimir Putin said are likely to continue for the “next few years.”

The government should tackle the deficit “by using the reserves that have been accumulated in recent years, or if necessary by borrowing under market conditions,” Putin told the Cabinet in Moscow today, adding that Russia doesn’t yet need to borrow and won’t seek loans abroad. “Resorting to a printing press would be unwise and extremely dangerous.”

Euro Currency of Choice as Fed Easing Devalues Dollar (Update1)
By Oliver Biggadike

March 23 (Bloomberg) — Less than a month after lambasting European Central Bank President Jean-Claude Trichet for failing to keep up with Ben S. Bernanke’s efforts to stem the recession, foreign-exchange traders are glad he’s behind the curve.

The 16-nation currency strengthened 7.5 percent versus the dollar since February, after tumbling 9.3 percent in the first two months of the year. JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. are advising investors to buy euros.

Traders are looking past forecasts from Germany’s Kiel- based IfW institute for the European Union economy to shrink 3.3 percent this year, and snapping up currencies where central bankers are resisting calls to purchase debt securities as a way of lowering interest rates and pump cash into their financial systems. Those options are becoming scarce after Federal Reserve Chairman Bernanke joined the Bank of England, Bank of Japan and Swiss National Bank in so-called quantitative easing.

“The dollar is a sell near term versus those currencies where quantitative easing is off the table,” said John Normand, head of currency strategy at JPMorgan in London. “The top on euro-dollar will come when the ECB looks likely to join the quantitative easing crowd. For now, it’s content to stay on the sidelines.”
…
“This is a historic moment — the start of debasement of the world’s reserve currency,” wrote Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “It feels to many participants that in the grand sweep of history we are witnessing the end of ‘Rome’ on the Potomac.”

EDITORIAL
The real us financial crisis has yet to begin
By The Nation
Published on March 23, 2009

Its roots are deep; after a consumption binge of decades, it’s time now to pay up for free lunch
…the worst has yet to come. With a loss of confidence in the US financial system, creditors and investors are dumping dollar-denominated instruments. They are willing to cut losses. The US banks, who issue the instruments, have to take their debts back. Since they do not have the liquidity because the credit market has already ground to a halt, they can only rely on the Federal Reserve. As a result, the balance sheet of the Federal Reserve will continue to balloon.

US Treasuries, traditionally recognised as risk free, are now under pressure. Russia, China, India and other countries are discussing a possibility of dumping the US dollar as a reserve currency. They have proposed a return to the Special Drawing Rights issued by the International Monetary Fund.

In the meantime, the US federal government will find it tough to finance its deficit spending. Recent projects have put the deficit for 2009 at a record US$1.8 trillion. This would complicate President Obama’s efforts to pass his US$3.55 trillion budget plan for 2010. The deficit would continue for several years to come. Where will this money come from?

The US won’t be able to finance the deficit of this magnitude. The US Treasury doesn’t have any money. The Americans are also losing their savings and investments in the meltdown of the stock market by at least 50 per cent last year alone. They are also saddled with consumer and mortgage debt. So the US ends up with only two options left: Borrowing from the foreign creditors or resorting to the printing press.

Under the current condition, foreign creditors will be more cautious or unwilling to subscribe to US debt. They already have toxic financial instruments in the books of their banks more than they can handle. So the US has only one option left, which is to inflate away the debt by printing money. By doing so, the US Treasury will issue bonds directly to the Federal Reserve, which will issue the money in return. The Treasury will use the money to meet its budget or other spending obligations.

This US money-printing, the Bank of England, the Swiss National Bank, the Bank of Japan, have warned is threatening hyperinflation afterward. The dollar will head for a decline. Once inflation is off and running, the printing press dollars will only have goods made in America to chase after. The real crisis has not yet begun.

This bubble unwinding has gone on so long I am finding it difficult to keep score any longer, but didn’t we already have a commodities boom and bust over just the past couple of years?

The Globe and Mail
FINANCIAL CRISIS
World poised to fall in lockstep with Fed
Central banks expected to follow U.S. plan to create and spend cash to spark growth; metals prices jump on inflation concerns
KEVIN CARMICHAEL AND ANDY HOFFMAN
March 20, 2009

OTTAWA and TORONTO — The U.S. Federal Reserve’s plan to create and spend more than $1-trillion (U.S.) is expected to trigger a tsunami of cash from central banks around the world that will spark economic growth and test policy makers’ ability to contain inflation.

Economists said yesterday that the European Central Bank and the Bank of Canada will follow the Fed’s pledge on Tuesday to effectively double its reserves to buy Treasuries and other assets, creating the prospect of a global pool of easy money.

Investors bet the initiatives would not only restore global growth, but spark rampant inflation, and bought up hard assets that will both be in demand as economies recover and serve as hedges against inflation.

Gold soared the most in six months and silver posted its biggest one-day rally in 29 years.il

Copper, which has lost more than half its value since peaking at a record above $4 a pound last June, climbed 5 per cent to a four-month high of $1.80 yesterday. Oil for April delivery surged $3.47 or 7 per cent to settle at $51.61 a barrel on the New York Mercantile Exchange, the highest in three months.

“What the Fed has done is put a strong bid under the commodities such as copper, steel, perhaps the grains, perhaps too, energy, but most certainly the precious metals for the long and foreseeable future,” Dennis Gartman, an influential analyst, advised clients in a report issued yesterday.

The commodities rally reflects the global reverberations from Fed chairman Ben Bernanke’s embrace on Tuesday of quantitative easing.

The Korea Times
Opinion
03-19-2009 15:26
The Rewards of Failure
By Dale McFeatters
Scripps Howard News Service

If AIG were in the public relations business instead of insurance, it surely would have gone broke years ago.

Take the reaction to its decision to go ahead with $450 million in bonus payments, including $165 billion paid out over this last weekend, to executives of the business unit whose recklessness almost wrecked the company.

Also over the weekend the firm disclosed that had to sue $34 billion in bailout money to make good on credit default swaps the unit has written that had gone bad.

President Barack Obama was not pleased. AIG finds itself in this fix, he said, due to greed and the aforementioned recklessness. “… it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the American taxpayers who are keeping the company afloat?” the president asked.

He instructed Treasury Secretary Timothy Geithner to “take every legal avenue to block these bonuses.”

The president’s top economic adviser, Lawrence Summers, was also steamed: “The whole situation at AIG is outrageous. What taxpayers are being forced to do is outrageous.”

Fed chairman Ben Bernanke, who wields unrivaled economic clout, said, “Of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG.”

Even the most shortsighted derivatives trader can see that this sort of reaction is not good. This is not just verbiage coming out of Washington. These three officials, standing in for the taxpayers, basically own AIG.

Thanks to $170 billion total in bailout money pumped into the giant insurer, the American public owns 80 percent of the company.

So will hedge hogs set up “Subsidized Toxic Asset Investment” funds to lure their wealthy clients back to the supply end of the debt securitization pipeline?

I frankly don’t understand the reason they need private investors; why can’t they just use the Fed’s printing press to reprime the debt securitization sump pump?

Wall Street Journal
* MARCH 23, 2009
Geithner Banks on Private Cash
Treasury Secretary Says Investors Needed to Help U.S. Rid Balance Sheets of Bad Assets
By DEBORAH SOLOMON

WASHINGTON — Treasury Secretary Timothy Geithner said the only way to resolve the financial crisis is to work with the private sector to remove troubled assets clogging banks’ balance sheets, even at a time when Wall Street moneymakers are being vilified by the public and politicians.

In an interview with The Wall Street Journal Sunday, Mr. Geithner said the government cannot do this alone. “Our judgment is that the best way to get through this is if we can work with the markets,” he said. “We don’t want the government to assume all the risk. We want the private sector to work with us.”

Mr. Geithner’s three-pronged program, which will be unveiled Monday, envisions the creation of a series of public-private investments to soak up $500 billion, and maybe as much as $1 trillion, in troubled loans and securities at the heart of the financial crisis. To encourage investors to buy those assets, the U.S. government will offer lucrative subsidies and shoulder much of the risk.

I guess we won’t get the bonuses back after all.

Obama bucks House bonus tax plan, cites Constitution and refusal to govern from anger

WASHINGTON (AP) — President Barack Obama wagered significant political capital on Sunday as he bucked a highly popular House measure to slap a punitive 90 percent tax on bonuses to big earners at financial institutions already deeply in hock to taxpayers.

Obama defended his stance by saying the tax would be unconstitutional and that he would not “govern out of anger.” He declared his determination, nevertheless, to make Wall Street understand it must shed “the old way of doing business.”

In a wide-ranging interview broadcast Sunday night, Obama also acknowledged surprise at how quickly the U.S. economy crumbled between his November election and January inauguration.

“I don’t think that we anticipated how steep the decline would be,” he said in the interview on CBS’ “60 Minutes.” “That slope is a lot steeper than anything that we’ve said — we’ve seen before.”

The un-scientific Poll on the streetdotcom website shows more Bulls than Bears out there. Cramer must be ringing his bells and whistles again.

Bull or Bear? Vote in Our Poll

http://www.thestreet.com/_yahoo/story/10475754/1/bull-or-bear-vote-in-our-poll.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

Chinese stockpiling spurs copper price rally
By Chris Flood
Published: March 22 2009 19:41 | Last updated: March 22 2009 19:41

Copper stockpiling by a secretive Chinese state organisation has helped trigger an impressive rally of 28 per cent in the price of the metal this year.

Copper’s fortunes are closely tied to the industrial cycle so the price jump, bigger than that of gold, has grabbed attention outside the commodities market, with some questioning whether it could signal a turning point for economic growth.

However, developments in China, which accounted for almost a third of global copper consumption last year, remain central to the market’s prospects.

Industry reports point to buying by the Beijing’s State Reserves Bureau, which manages the country’s strategic stockpiles.

SRB’s decisions are shrouded in secrecy, making it virtually impossible to assess accurately how much the Chinese government has bought. Traders estimate that the SRB is in the process of securing 300,000 tonnes and speculate that it could buy up to 1.2m tonnes this year. Global copper production last year stood at 18m tonnes.

John mauldin and how to get inflation back ( I dislike this idea but I am a renter and like lower home prices ) I expect this idea would work though and anyone who makes money off growth would like it ? I often have suspected our system doesn’t work well with no population growth though.

Buy A Home, Get a Green Card

What if we changed the rules for a few years? Starting as soon as possible, we should allow anyone to come into the country who would buy a home. They would be given a temporary visa which would become permanent if they had no problems after, say, five years.

While Gary proposes that they be allowed to borrow against the value of their homes, I lean toward suggesting that initially we take those who buy their homes outright (with a few exceptions). That means they have enough capital to purchase a home to begin with, which probably means they are educated and have skills. In fact, if they have enough cash to buy a home, that means they would have more actual savings than most US citizens. We would be attracting future citizens with the capital to invest in job-creating businesses and/or who have useful skills to assist in the recovery of the US economy.

Wall Street Journal
* THE OUTLOOK
* MARCH 23, 2009

Imbalance in Nations’ Savings Clouds Forecasts for Recovery
By MARK WHITEHOUSE
London

When leaders of the world’s 20 largest economies meet in London April 2, they’ll have a lot on their plates, from preventing a global depression to fixing a broken banking system. But economists are hoping they also will pay some attention to what many see as a root cause of the financial crisis: a vast disparity in the way big nations save.

In recent weeks, a growing chorus of prominent economists — including U.S. Federal Reserve Chairman Ben Bernanke and Bank of England Gov. Mervyn King — have pointed out that it took more than greedy bankers, profligate American consumers and lax regulation to generate a crisis of global proportions. While all those factors played important roles, they say, the conditions were created in part by China and other Asian nations, which over a decade of export-led growth socked away trillions of dollars in the form of foreign-currency reserves. Their efforts to invest those savings flooded Western financial markets with cash, making it cheaper to borrow at a time when people in places like the U.S. and the U.K. were building up debts at an alarming rate.

The huge machine of subprime-mortgage lending that triggered the crisis, the logic goes, was just one of the many ways bankers took advantage of these so-called “global imbalances” by putting savers and borrowers together.

“Bankers have always been avaricious, regulation didn’t get worse and we’ve always had crises — it’s just that this crisis has some special features, and the key special feature is the global imbalances,” says Richard Portes, professor of economics at London Business School and president of the Centre for Economic Policy Research.

Official story: Uncertain asset prices are causing banks to hold back on lending.

My take: Still-unaffordable asset prices (at least in the case of housing) coupled with a reversion to traditional underwriting standards are standing in the way of banks loaning much money. Once home prices have returned to affordable levls, mortgage lending will resume. The longer until affordability returns, the longer until mortgage lending recovers.

Wal Street Journal
* OPINION
* MARCH 23, 2009

My Plan for Bad Bank Assets

The private sector will set prices. Taxpayers will share in any upside.

By TIMOTHY GEITHNER

The American economy and much of the world now face extraordinary challenges, and confronting these challenges will continue to require extraordinary actions.
…
However, the financial system as a whole is still working against recovery. Many banks, still burdened by bad lending decisions, are holding back on providing credit. Market prices for many assets held by financial institutions — so-called legacy assets — are either uncertain or depressed. With these pressures at work on bank balance sheets, credit remains a scarce commodity, and credit that is available carries a high cost for borrowers.

It is somehow reassuring to know a Nobel laureate has a similar viewpoint to that shared by many posters here.

Wall Street Journal
* OPINION: THE WEEKEND INTERVIEW
* MARCH 21, 2009

Now Is No Time to Give Up on Markets
By MARY ANASTASIA O’GRADY
…
Gary Becker, the winner of the 1992 Nobel Prize in Economic Sciences, is in New York to speak to a special meeting of the Mont Pelerin Society on the global meltdown. He has agreed to sit down to chat with me on the subject of his lecture.

Slumped in a soft chair in a noisy hotel coffee lounge, the 78-year-old University of Chicago professor is relaxed and remarkably humble for a guy who has achieved so much.
…
Mr. Becker sees the finger prints of big government all over today’s economic woes. When I ask him about the sources of the mania in housing prices, the first culprit he names is the Fed. Low interest rates, he says, were “partly, maybe mainly, due to the Fed’s policy of keeping [its] interest rates very low during 2002-2004.” A second reason rates were low was the “high savings rates primarily from Asia and also from the rest of the world.”

“People debate the relative importance of the two and I don’t think we know exactly,” Mr. Becker admits. But what is clear is that “when you have low interest rates, any long-lived assets tend to go up in price because they are based upon returns accruing over many years. When interest rates are low you don’t discount these returns very much and you get high asset prices.”

On top of that, Mr. Becker says, there were government policies aimed at “extending the scope of homeownership in the United States to low-credit, low-income families.” This was done through “the Community Reinvestment Act in the ’70s and then Fannie Mae and Freddie Mac later on” and it put many unqualified borrowers into the mix.

The third effect, Mr. Becker says, was the “bubble mentality.” By this “I mean that much of the additional lending and borrowing was based on expectations that prices would continue to rise at rates we now recognize, and should have recognized then, were unsustainable.”

Could this behavior be considered rational? “There is a lot of debate in economics about whether we can understand bubbles within a rational framework. There are models where you can do it, but it’s not easy,” he says. What he does seem sure about is that “the lending would not have continued unless there was this expectation that prices would continue to rise and therefore one could refinance these assets through the higher prices.” That mentality was at least partly related to Fed action, he says, because the low interest rates “generated an increase in prices and I think that helped generate some of this excess of optimism.”

Mr. Becker says that the market-clearing process, so important to recovery, is well underway. “Construction in new residential housing is way down and prices are way down. Maybe 25% down. Lower prices stimulate demand, reduced construction reduces supply.”

That’s the good news. But he complains about “counterproductive” government policies “designed to lower mortgage rates to stimulate demand.” He says he was against the Bush Treasury’s idea of capping mortgage rates (which was only floated) and he has “opposed the mortgage plan of President Obama.” “It goes against both these adjustments . . . it would hold up prices and increase construction. I think that’s a bad idea at this time.”

Financial Times
The fearsome become the fallen
By Peter Thal Larsen and Simon Briscoe
Published: March 22 2009 18:32 | Last updated: March 22 2009 18:32

The worst financial crisis since the second world war has not only forced governments across the western world to step in and rescue giant institutions. Amid the turmoil, there has also been a tectonic shift in banking’s centre of gravity.

A decade ago, a list of the world’s largest financial institutions was dominated by banks from the US and UK. Today, just four of the top 20 have their headquarters in the US, still the world’s largest economy. HSBC, at heart an emerging markets bank, is Britain’s sole representative.

After writing off more than $1,000bn (€734bn, £691bn) on complex debt instruments and raising hundreds of billions of dollars in fresh capital, many banks have watched their market value shrink to a fraction of its level at the peak of the boom.

Looking back 10 years, the banking industry in early 1999 was still dusting off the debris of the previous autumn, when the Asian economic crisis and near-collapse of Long-Term Capital Management in the US left some banks nursing large losses. Though few recognised it at the time, however, the industry was at the beginning of an eight-year growth spurt that would ultimately bring the world financial system to the brink of collapse.

The most striking are the fallen. Citigroup, which dominated the landscape for most of the past decade, now languishes at the bottom of the list and is in effect under government control. Lloyds TSB is now too small to register after its ill-judged rescue of HBOS.

Not everyone is sold on the wisdom of yet another hair-of-the-dog stimulus program.

Obama’s toxic assets plan greeted with skepticism
By MARK WILLIAMS – 6 hours ago

The Obama administration’s latest plan to help banks get credit flowing again is drawing a tepid reaction from investors and academics, who say the proposal comes with too many strings attached and is unlikely to stimulate lending industrywide.

And even if banks are willing to start lending more money, they wonder if many people will be able to take on more credit until the economy gets going again.

“We went on a borrowing binge,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. “Debt levels, especially in households, are too high or unmanageable.”

The plan Treasury Secretary Timothy Geithner intends to announce Monday aims to create a new government entity — the Public Investment Corp. — to help buy up to $1 trillion in toxic assets on banks’ books.

The initiative will seek to entice private investors, including big hedge funds, to participate. It will do so by offering billions of dollars in low-interest loans to finance the purchases and by sharing risks if assets fall further in value.

Analysts agree that stabilizing the banking system is crucial. But some wonder whether the proposal will create more problems.

“It’s quite possible we could make bad banks out of good banks,” Sung Won Sohn, professor of economic and finance at the Smith School at California State University, said Sunday.

Wormy apples — yum! Love that protein…

ABC News
How ‘Toxic Assets’ Are Like Bad Apples
Analogy of Bad Apple Spoiling Perception of Entire Batch Can Help Explain Problem
By JOHN HENDREN
March 22, 2009

The term “toxic assets” has now joined such historic terms of villainy as Watergate, junk bonds and Ponzi scheme.

Breaking down the recession’s biggest buzz word.

They’ve brought the nation’s banking system — and the economy — to the brink of collapse.

As the Treasury Department prepares to move forward with its plan to buy as much as $1 trillion in so-called “toxic assets” from the financial industry, it’s important to understand just what toxic assets are.

Toxic Assets, Defined

Imagine the bank as a fruit stand. It sells oranges, pineapples, grapes and apples — but there’s a problem with the apples.

“They look beautiful and delicious on the outside but inside there are these horrible worms,” Adam Davidson, a New York correspondent for National Public Radio, told ABC News. “They’re rotten. They’re disgusting. Suddenly you say whoa! I don’t wanna eat apples!”

Wall Street Journal
* AHEAD OF THE TAPE
* MARCH 23, 2009

Bear Rallies Turn Market Into a Circus
By MARK GONGLOFF

If the latest bear-market rally in stocks already is over, stick around: Another should be on the way soon.

The Dow Jones Industrial Average last week ended, at least temporarily, a seven-day, 14% rebound from a 12-year low. Thus continued the wildest ride for stocks since at least the 1930s, according to various estimates of historical volatility.

Since this bear market began in October 2007, there have been several episodes of rip-roaring gains, including three S&P 500 revivals of more than 15%, including this latest bounce, according to data compiled by Morgan Stanley strategist Gerard Minack.

Such rallies are fairly typical of the worst markets. The 1929-32 bear market, with the S&P down 86%, featured nine rallies of 15% or more. The grim stretch between 1937 and 1942 was punctuated by nine 15% rallies, even as the S&P ultimately shed 60%.