The Housing Bubble

http://www.larouchepub.com/other/2009/3650failed_system.html

Dec. 18—It was a wild week in Washington. President George W. Obama started it off by proclaiming that “I did not run for office to be helping out a bunch of fat cat bankers on Wall Street,” a statement that flies in the face of his actions, both before and after his election. On that same Sunday, Obama’s chief economic advisor, the incomparably incompetent Larry Summers, touted the nonexistent recovery, and promised that, from here forward, the administration would be all about jobs.

Bold talk it was, but then bold talk has never been a problem with these clowns. Where they have the problem, is in walking the walk.

To pretend he was serious about whipping Wall Street into line, the posturing President had summoned the leaders of 12 major banks to the White House for a photo-op scolding. The meeting on Dec. 14 was a flop, yielding little more than a few cosmetic concessions. Significantly, the heads of Goldman Sachs, Morgan Stanley, and Citigroup did not even bother to show up, and merely phoned in.

By our count, that made the score Fat Cats one more, Posturing Obama zero. If Obama wanted to show everybody who was boss, he succeeded—it’s the Anglo-Venetian bankers of Wall Street. But then, we all knew that already.

Serving to underscore the power of the imperial bankers, Time magazine, in its coverage announcing Fed chairman Ben Bernanke as its Man of the Year for 2009, revealed that Bernanke keeps a photograph of Hjalmar Schacht in his office. Schacht was the German central banker who, working with the Bank of England’s Montagu Norman, arranged financing for the rise of Adolf Hitler, and then became Hitler’s economics minister. Hitler, like Obama, was a creature of the bankers.
The TARP Fiasco

The next major embarrassment for the Obama regime came as a result of pushing the big banks to repay the funds they obtained under the Troubled Asset Relief Program (TARP). The Administration’s push for early repayment was a blatant political move to try to halt Obama’s precipitous slide in the polls, in the hope that the Administration could both claim that the bailout was now over, and that the repaid money could be used to help create jobs.

The Administration’s demand that banks that are hopelessly bankrupt fork over tens of billions of dollars of government funds is a pretty stupid move. That stupidity was matched by the banks, which agreed for their own reasons to go along. Bank of America repaid $45 billion on Dec. 9, allowing it to escape the government’s pay restrictions at a time when it was shopping for a new CEO; but to do so, it had to take on an additional $19 billion in debt, through the sale of securities convertible to common stock.

Then came Treasury’s agreement with Citigroup and Wells Fargo, and here the incompetence reached new levels. Both banks would be required to raise huge amounts of capital by selling stock and stock-related securities. Both banks announced their intention to pay back the funds on Dec. 14, with Citi having to raise $20 billion and Wells Fargo $10 billion. Rather than spread these huge sales out, regulators let them occur at roughly the same time: Wells Fargo raised $12 billion on Dec. 15, and Citi raised $20 billion the next day.

Though successful, Citigroup’s sale did not go smoothly, as the bank was forced to offer its stock at a lower price than planned, a price so low that Treasury cancelled its own planned sale of Citi stock, to avoid losing money.

Allowing both sales to occur so quickly shows the desperation gripping the White House, as its policies and its popularity disintegrate. On top of that, the IRS—a division of Treasury—slipped Citigroup a tax break worth as much as $38 billion, to help the TARP deal go forward.

The three banking deals were record-setting. The Citigroup stock deal was the largest equity offering in U.S. history, with the Bank of America deal coming in at number three, and the Wells Fargo at number five.

This episode is evidence of what we’ve said all along: These so-called experts are a bunch of fools whose efforts to “save” the system are only making matters worse.
Pushback

This staggering level of cluelessness and incompetence has triggered some significant pushback, even in Washington. Most notable is the introduction of legislation to reinstate Glass-Steagall, the 1933 law which forced the separation of commercial banking and investment banking. The Glass-Steagall Act, also known as the Banking Act of 1933, was used by President Franklin Roosevelt to force the big banks into line, and end the abuses which helped cause the Great Depression.

The banks, with the help of the Federal Reserve, began chipping away at Glass-Steagall in the 1980s, and got it repealed in 1999. That repeal opened the floodgates, transforming the financial system into the giant, derivatives-fueled casino which blew up the global economy.

Despite the obvious connection between deregulation and the largest financial disaster in history, the Obama Administration and Wall Street have blocked all efforts to reintroduce effective regulation. However, given the continuing collapse of living standards in the United States, and the continuing deterioration of the banks, their ability to block such efforts is cracking.

Senators Maria Cantwell (D-Wash.) and John McCain (R-Ariz.) introduced the Banking Integrity Act of 2009, this week. Their bill would restore Glass-Steagall as the law of the land. On the same day, the Glass-Steagall Restoration Act was introduced in the House, by Representatives Maurice Hinchey (D-N.Y.), John Conyers (D-Mich.), Peter DeFazio (D-Ore.), Jay Inslee (D-Wash.), Marcy Kaptur (D-Ohio), Jim McDermott (D-Wash.), and John Tierney (D-Mass.).

We view these bills as promising. Restoring Glass-Steagall will not, in itself, restore economic sanity, but it would be a big step in the right direction.

A minor revolt also broke out in the Bernanke confirmation hearing in the Senate Banking Committee. Seven of the 16 members of the committee actually voted to deny Bernanke a second term as Fed chairman.

These are the first signs of life from Congress in a long time.
The System Is Finished!

The posturing of Obama, both here and in Copenhagen, Bernanke’s fantasies, and the insane games around the TARP, reflect the intellectual and emotional limitations of our so-called leaders. They are working desperately to defend a system which is destroying them. Their own beliefs are destroying them.

New York Times Story about Cape Coral:

http://www.nytimes.com/2010/01/03/business/economy/03coral.html?em

Highlight:

THE MESS is the product of The Story, the fable that waterfront living beyond winter’s reach exerts such a powerful pull that it justifies almost any price for housing. The Story propelled the orgy of borrowing, investing and flipping that dominated life here and in other places where January doesn’t include a snow blower.

The Story lost its magic amid the realization that speculators had simply been selling to other speculators, making the real estate market look like a Ponzi scheme. The ensuing crash was breathtaking….

Seems to me that now that Christmas and New Year’s is over, that the newspaper editors have decided that unhappy stories are OK again. No more talk about how being out of work is a good thing because it makes families closer.

Ahhh….clear blue skies and dry roads - doesn’t get much better in January here in Idaho. Even Highway 21 opened back up Stanley as the avalanche danger subsided. Time for French roast and a bagel with Fred Meyer’s fresh ground smoked salmon spread, all three bought on sale.

Me again? No way…Amusing article on Citi’s ex-Ceo Sandy Weill-
http://www.nytimes.com/2010/01/03/business/economy/03weill.html?ref=todayspaper&pagewanted=all

Hello! Anyone home?

Lane

Ozymandias in winter:

“Sitting in his office on the 46th floor of the General Motors building in Manhattan, he is surrounded by reminders of a lifetime on Wall Street. The space is breathtaking with floor-to-ceiling windows and views stretching out over Central Park. One wall is devoted to framed magazine and newspaper articles chronicling his career. A Fortune magazine clipping from 2001 declares Citi one of its “10 Most Admired Companies.”

On another wall hangs a hunk of wood — at least 4 feet wide — etched with his portrait and the words “The Shatterer of Glass-Steagall.” The memento is a reference to the repeal in 1999 of Depression-era legislation; the repeal overturned core financial regulations, allowed for the creation of Citi and helped feed the Wall Street boom.

Sandy took advantage of changes in the industry to build a financial colossus,” says Michael Holland, founder of Holland & Company, a money management firm. “In the end it didn’t work, and we are now paying for that as taxpayers.”

Elsewhere in Mr. Weill’s office, a bust honors him as Chief Executive magazine’s “C.E.O. of the Year” in 2002. There are pictures of him with world leaders like Nelson Mandela, Bill Clinton, Vladimir Putin and Fidel Castro. There is also one of his humble childhood home in Brooklyn — a reminder of how far he has come.

Despite these trappings, what’s most noticeable about Mr. Weill’s office is this: It feels empty. Other than a few assistants, he is alone.”

Good morning, everyone.

Still living in a state of wonder in my new place. Love not having to always live in a cold draft from the leaky outside doors. If this continues to be a cold winter, I am in a much better space than I was before. Especially now that my heat is included in the rent.

And I have so much more space. The extra 20% makes a world of difference. Even with boxes stacked up all over the place (it takes a while to unpack and shelve books).

I went back to the old place to finish cleaning out the fridge and freezer on New Year’s Day and to drop off my parking pass and keys. I have one big regret. When they asked me why I decided to move, I said that it was because the new place is closer to work. Now, being closer to work is the best advantage of this place. Time can’t be bought with money. But I might never have started looking if they had offered me a market rate rent in the first place (would have required about a $250 per month rent reductions). I wish I had said that too. Oh well. If they are too dumb to figure it out for themselves, I guess it is not really my problem.

Some additional “ingreedients” for all those “let-them-eat-cake-’cause-I-don’t-have-a-job-anymore-myself” real estate industry “professionals”

“The OC” is looking kinda soft & moldy…like its past ripe.

Local bankruptcy rise is double the U.S. rate:

January 3rd, 2010, by Jan Norman, small-business columnist

The number of consumer and business bankruptcy filings in Southern California rose at more than double the rate of the rest of the nation in the first nine months of 2009, according to the federal bankruptcy courts.
Source: U.S. Bankruptcy Courts

The central district of California extends from Ventura County to Orange County to the Arizona border. In Orange County the total number of bankruptcy filings rose 65.6% to 12,079 through the first three quarters. O.C. accounts for almost one in seven bankruptcy filings in Southern California.

Here are the comparisons:

http://jan.freedomblogging.com/2010/01/03/local-bankruptcy-rise-is-double-the-us-rate/28589/

Last weeksome HBBers commented on Pastor Rich Warren’s callfor an emergency injection of $900k to his mega-church. Well, praise Jesus, at todays Sunday service he declared that people have contributed $2,400,000.

States’ jobless funds are being drained in recession

By Peter Whoriskey
Washington Post Staff Writer

The recession’s jobless toll is draining unemployment-compensation funds so fast that according to federal projections, 40 state programs will go broke within two years and need $90 billion in loans to keep issuing the benefit checks.

The shortfalls are putting pressure on governments to either raise taxes or shrink the aid payments.

Debates over the state benefit programs have erupted in South Carolina, Nevada, Kansas, Vermont and Indiana. And the budget gaps are expected to spread and become more acute in the coming year, compelling legislators in many states to reconsider their operations.

Currently, 25 states have run out of unemployment money and have borrowed $24 billion from the federal government to cover the gaps. By 2011, according to Department of Labor estimates, 40 state funds will have been emptied by the jobless tsunami.

“There’s immense pressure, and it’s got to be faced,” said Indiana state Rep. David Niezgodski (D), a sponsor of a bill that addressed the gaps in Indiana’s unemployment program. “Our system was absolutely broke.”

The Indiana legislation protected the aid checks, Niezgodski said, but it came after a give-and-take this spring in which Gov. Mitchell E. Daniels Jr. (R) said the state had been providing “Rolls-Royce benefits” and several thousand union workers countered by protesting proposed cuts at the state capitol. In January, the legislature is slated to consider a bill to delay the proposed tax increases intended to refill the fund.

In Nevada, Gov. Jim Gibbons (R) and legislators have feuded over the unemployment program, which is $85 million in debt to the federal government, with Gibbons accusing the legislature of “callous disregard” for not setting a tax rate.

And last week, a state task force in Kentucky recommended cutting benefits about 9 percent and imposing a week’s delay in their payment. The average benefit check there is about $309 a week. The task force also proposed raising taxes.

In Virginia, the unemployment program has borrowed $89 million from the federal government, while Maryland has not borrowed, according to the federal data.

Wayne Vroman, an expert in unemployment insurance at the Urban Institute, said that entering the recession, state programs were on average funded at only one-third the level they should have been, according to generally accepted funding guidelines.

“If you fund a program adequately, you don’t need to come to these kinds of difficult decisions,” he said.

Before the recession, he said, the funding guidelines “were rarely honored.”

While the amount of the states’ loans from the federal government is expected to grow rapidly, it is not expected to add to the federal debt. “In the past, the federal government has always gotten its money back,” Vroman said.

In the meantime, however, more states are struggling to fill the gap. West Virginia imposed a freeze on benefit levels this year, and legislators in South Carolina are considering one.

Housing bubble euphoria appears to have capitulated into a modicum of housing bust circumspection over at the SD Union-Tribune, although the writer still sees a silver lining inside most dark clouds. Now if those housing prices could only finish correcting another 33 percent or so, to restore San Diego to pre-bubble levels of affordability, perhaps the city could attract the work force we need to reinvent the real (non-real estate) economy.

Housing picture not all gloomy
Median price 48.4% higher than in January 2000

By Roger Showley, UNION-TRIBUNE STAFF WRITER

For all the talk of the housing bust, San Diego County’s median price ended the decade up 48.4 percent from 2000.

If in January 2000 you bought a home at the median price of $219,000 and went to sleep like Rip Van Winkle, you awoke at the end of 2009 to see your home worth $325,000.

This means that many longtime homeowners are still sitting on big gains even after seeing the market skyrocket to a peak of $517,500 in November 2005 before plummeting.

Take the Krumweide family in University City. The family bought a 2,800-square-foot home for $432,000 in June 2000, took out a small amount of equity for home repairs when they refinanced and now could sell the house for about $850,000, according to their neighbor and original real estate agent, Ann Throckmorton.

“We’re just relieved we stayed with our guns, stayed with our heads,” Molly Krumweide said.

Thousands of San Diegans aren’t so fortunate. Either they bought in the midst of the bubble and paid far more than what their homes would command today or they piled on debt by refinancing their homes to pay for cars, vacations or everyday expenses.

When the housing bubble burst at the end of 2005, dreams became nightmares, and the bad vibes are likely to ripple through the economy for years.

Throckmorton likened the market to a game of musical chairs: “Not only did more than one person not get a chair, there was a lot of falling over each other. There was much damage.”

During the decade, about 510,000 homes changed hands, but 41,100 were lost to foreclosure through November. Nearly 121,000 notices of default were lodged against local residents. Thousands more are delinquent in their payments and hoping their lenders will modify the loans or let them do a “short sale” — sell for less than the outstanding mortgage balance.

“The greatest recession since the Depression and the financial market meltdown in the last year has changed people’s behaviors, and changed lenders’ willingness to extend credit to a lot of people,” said Andrew LePage, an analyst for San Diego-based MDA DataQuick. “It will take years to recover that (lost) equity, and they won’t have much equity.”
…

(Hwy wonders what the movie would have looked like if Sheriff Buford Pusser used “regular-tory” cream pies instead of a large Hickory Stick…)

Rate hikes not best way to burst bubbles: Bernanke:

ATLANTA (Reuters) Mark Felsenthal Sun Jan 3, 2010

“…In a speech defending the Fed’s rock-bottom interest rates in the early 2000s, a policy many say fueled a runaway housing boom that triggered a devastating crisis when it went bust, Bernanke said regulatory and supervisory actions, rather than rate hikes, would have been more effective ways to check the run-up in house prices.”

So my Ginormous Rat in garage scenario is out of control. Last night I rigged a trap with peanut butter and smooshed it between the wall and a bag of garbage, hoping to attract the rat. It did.

*** Disgusting Details Warning ***

The rat evaded my traps, and gnawed into the bag. The rat pulled out four poop-laden, used baby wipes and chewed them all up to bits and left tiny turd wipes all over the place. Thank Jeebus it was about 30 degrees overnight here. Can you imagine what my garage would smell like if it was hot out?

Any advice on how to off this m’f'er?

Dream or Nightmare?

HGTV Dream Home 2010 Giveaway
http://www.hgtv.com/hgtv-dream-home-2010-giveaway/package/index.html

2038375 valued prize, including a “Dream House” in New Mexico, $500k cash, and a car ($38,375)

———
AFAIK, I’d owe 561K in income taxes plus $22500 in 1.5% (true rate unknown) property taxes the first year.

Basically, this means my one loan entry before I ran the numbers is pre-destined to win, staying in line with my normal luck. My wife is going to be very annoyed with me when they “ambush style” award us on March 14th ;( Quick, someone slap me and wake me from this dream.

Or, you could all put in 60 entries each and save me

I am speechless at Ben’s remarks.

Bernanke Blames Weak Regulation for Financial Crisis

ATLANTA — Regulatory failure, not lax monetary policy, was responsible for the housing bubble and subsequent financial crisis of the last decade, Ben S. Bernanke, the Federal Reserve chairman, said in a speech on Sunday.

“Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates,” Mr. Bernanke, whose nomination for a second term awaits Senate confirmation, said in remarks to the American Economic Association.

Mr. Bernanke, addressing accusations that the Fed contributed to the financial crisis, argued that the interest rates set by the central bank between 2002 and 2006 were appropriately low. He was a member of the board of governors of the Federal Reserve System for most of that period.

Technical models based on historical trends in United States housing prices and monetary policy show that home prices rose much faster than interest rates alone would have predicted, Mr. Bernanke said.

He also argued that trends in other countries demonstrated a “quite weak” connection between housing price appreciation and monetary policy.

“When historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment,” he said.

http://www.nytimes.com/2010/01/04/business/economy/04fed.html?hp

THE SAFETY NET

Living on Nothing but Food Stamps

CAPE CORAL, Fla. — After an improbable rise from the Bronx projects to a job selling Gulf Coast homes, Isabel Bermudez lost it all to an epic housing bust — the six-figure income, the house with the pool and the investment property.

Now, as she papers the county with résumés and girds herself for rejection, she is supporting two daughters on an income that inspires a double take: zero dollars in monthly cash and a few hundred dollars in food stamps.

With food-stamp use at a record high and surging by the day, Ms. Bermudez belongs to an overlooked subgroup that is growing especially fast: recipients with no cash income.

http://www.nytimes.com/2010/01/03/us/03foodstamps.html?hp

Recently saw a house for sale in San Jose for a $380,000 listing price. The last sale — August of 2009 for $90,000. Now how the hell could that be? If banks are offering houses at that price, why aren’t we aware of them? Is that even legal?

ALL YOU NEED IS A DOLLAR AND SOME STUPIDITY.

NEW YORK ON LESS: MAKING CHOICES

http://video.nytimes.com/video/playlist/ny-region/1194811622241/index.html

What Do You Call It?

In retrospect, it might be recognized as a troubling harbinger that, ten years ago, no consensus could be reached in this country on what to call the decade upon which we were about to embark. The ohs? The double-ohs? The zeros? The zips? The nadas? The naughties? As the reassuringly comprehensible nineties were drawing to a close, all these were suggested as possible designations for the coming era. When Madison Avenue and the collective editorial boards of the nation’s newspapers failed to come up with a killer appellation in advance, there was at least confidence that, by decade’s end, a majority-pleasing solution to the problem of decennial nomenclature would have presented itself.

As we near the end, however, we still don’t have a good collective name for the first decade of the twenty-first century—at least, not one beyond “the first decade of the twenty-first century,” which is gratifyingly lacking in cuteness but may be too wordy for practicality, particularly given contemporary constraints. (Call it that on Twitter, and you’ve used up a third of your character allotment.) Arguably, a grudging agreement has been reached on calling the decade “the aughts,” but that unfortunate term is rooted in a linguistic error. The use of “aught” to mean “nothing,” “zero,” or “cipher” is a nineteenth-century corruption of the word “naught,” which actually does mean nothing, and which, as in the phrase “all for naught,” is still in current usage. Meanwhile, the adoption of “the aughts” as the decade’s name only accelerates the almost complete obsolescence of the actual English word “aught,” a concise and poetic near-synonym for “anything” that has for centuries well served writers, including Shakespeare (“I never gave you aught,” Hamlet says to Ophelia, in an especially ungenerous moment, before she goes off and drowns) and Milton (“To do aught good never will be our task / But ever to do ill our sole delight,” Satan declares near the beginning of “Paradise Lost,” before slinking up to tempt Eve). To call the decade “the aughts” is a compromise that pleases no one, and that has more than a whiff of resigned settling about it.

http://www.newyorker.com/talk/comment/2010/01/04/100104taco_talk_mead#ixzz0bZl2NOSk

This guy is nuts and thinks all of us are fool.

Fed officials defend policies, see slow recovery

ATLANTA (Reuters) - Top U.S. Federal Reserve officials defended policies leading up to the recent financial crisis, arguing that exotic mortgages and overconfidence in home price gains, not low interest rates, fueled a catastrophic housing bubble.

Addressing an economists’ conference in Atlanta on Sunday, Fed Chairman Ben Bernanke said the U.S. economy is only now recovering from recession, and Fed Vice Chairman Donald Kohn warned the pace of recovery will be slow.

Bernanke said that vigorous financial regulation would have been the best way to restrain the housing boom that helped cause the deep recession but said policy makers can no longer rule out monetary policy to curb the buildup of risk.

In a speech defending the Fed’s rock-bottom interest rates in the early 2000s, a policy some say spurred a surge in home values, Bernanke said the blunt instrument of rate hikes would have been ineffective in checking the run-up in house prices.

Bernanke and the Fed face sharp criticism for failing to anticipate and prevent the crisis, even as he draws accolades for his handling of the meltdown. Bernanke’s renomination as Fed chairman faces an unusual degree of opposition, and the Fed’s responsibilities stand to be curtailed if congressional proposals become law.

SUPPLEMENTAL TOOL

Bernanke said, however, in a speech to the American Economic Association, that policy makers can no longer eliminate rate increases from their arsenal to prevent future crises.

“If adequate reforms are not made, or if they are made but prove insufficient to prevent dangerous buildups of financial risks, we must remain open to using monetary policy as a supplemental tool for addressing those risks,” he said.

Bernanke conceded that efforts by the Fed and other regulators beginning in 2005 came too late or were insufficient to slow the housing bubble.

“The lesson I take from this experience is not that financial regulations are ineffective for controlling emerging risks, but that their execution must be better and smarter,” he said.

The U.S. Senate is poised to begin debate over financial rules reforms that would peel away the Fed’s authority for regulating large financial firms. The U.S. central bank would be charged instead with focusing on monetary policy.

Bernanke and other Fed officials have argued that such a change would hurt the Fed and oversight of the system in general by removing a crucial monitor from the pulse of the financial system.

http://www.reuters.com/article/idUSTRE60217U20100103

This dude thinks we are idiots. They pour gasoline on fire and now saying we have nothing to do with it. If you didn’t lend money at 0% this might have not happened.

Fed: Regulation 1st Defense Against Speculation

Stronger regulation is the best way to prevent financial speculation from getting out of hand and throwing the economy in a new crisis, Federal Reserve Chairman Ben Bernanke said Sunday.

But he didn’t rule out higher interest rates to stop new speculative investment bubbles from forming.

The Fed chief’s remarks were his most extensive on the subject since the housing market’s tumble led to the gravest financial crisis since World War II — and perhaps the worst in modern history, in his view.

Critics blame the Fed for feeding that speculative boom in housing by holding interest rates too low for too long after the 2001 recession.

But Bernanke, in a speech to the American Economic Association’s annual meeting in Atlanta, defended the central bank’s actions. Extra-low rates were needed to get the economy and job creation back to full throttle after the Sept. 11 attacks and accounting scandals that rocked Wall Street, he said.

Bernanke said the direct links were weak between super-low interest rates and the rapid rise in house prices that occurred at roughly the same time. The stance of interest rates during that period “does not appear to have been inappropriate,” he said.

http://www.npr.org/templates/story/story.php?storyId=112098999

Airline passengers face body scanners and double searches

Full body scanners will also be introduced at Heathrow within weeks where they will be used for flights to all destinations and not just those bound for the United States.

The Department for Transport will instruct other airports across the country to install the scanners, costing around £100,000 each, as soon as possible.

As well as being searched as they pass into departures, new rules will allow staff to pat down passengers at the gate, immediately before they board.

Other security measures will include the use of explosive trace technology - swabs which are wiped across hand-luggage and then read by a scanner to see if the passenger has handled explosives.

It takes roughly 20 seconds to screen an individual passenger. Airports are also expected to bring in more sniffer dogs and increase their use of passenger profiling, or identifying those most likely to pose a risk to an aircraft..

http://www.telegraph.co.uk/travel/travelnews/6927430/Airline-passengers-face-body-scanners-and-double-searches.html

How Goldman Made Bank in 2009

Trading Revenue Spike Mystery

Just how did Goldman make all that money trading? The short answer is, it’s a mystery. What Goldman says in its quarterly report fails to provide insight: For example, in the first nine months of 2009 Goldman says it had “particularly strong performances in credit products, mortgages and interest rate products.”

But Goldman fails to disclose specific reasons why it was able to generate this strong performance. All it discloses is that the improvement was due to “strong client-driven activity, particularly in more liquid products. In addition, during our second and third quarters of 2009, asset values generally improved and corporate credit spreads tightened.” And Goldman boasts of “strong net revenues in derivatives.”

This “disclosure” leaves investors scratching their heads trying to understand what Goldman actually did to nearly double its trading revenues. Perhaps it would help if it could provide a few examples of particularly profitable trades from “liquid products” — whatever that means. Investors could also benefit from specifics on how improvements in asset values and tighter credit spreads boosted its trading revenue.

http://www.dailyfinance.com/story/how-goldman-made-bank-in-2009/19299963/

I agree that monetary policy is a blunt instrument. That is why whenever the Fed pushes the interest rate pedal to the metal for a protracted period of time, it is impossible to predict which asset class will experience the next bubble.

I am curious whether this weekend is the first time Bernanke openly acknowledged the housing bubble, or has he done so previously?

The Financial Times
Fed chief calls for tougher regulation
By Tom Braithwaite in Washington
Published: January 3 2010 21:49 | Last updated: January 3 2010 21:49

Ben Bernanke has called for reform of financial regulation, arguing on Sunday that it was lapses in regulatory oversight rather than loose monetary policy that stoked the US housing bubble.

The Federal Reserve chairman told the American Economic Association that exotic new mortgages and lending to borrowers who could not hope to repay their loans were chief causes of the sharp increase in home prices that ran from the late 1990s until 2006 and whose collapse hurt millions of Americans.

“All efforts should be made to strengthen our regulatory system to prevent a recurrence of the crisis, and to cushion the effects if another crisis occurs,” he said. If reforms were not “adequate”, the Fed might be forced to tackle the next asset bubble using the “blunt tool” of monetary policy, he said.
…

The great debate is on over how best to put Humpty-Dumpty together again. Count me among the critics who maintain the best way to end the systemic risk posed by too-big-to-fail financial entities is to break them up into small enough pieces to eliminate the systemic risk they pose.

Anyone still claiming that the too-big-to-fail Megabanks should continue to exist on grounds of efficiency (e.g. economies of scale) should be forced to come up with a complete accounting of exactly how many hundreds of billions of dollars in wealth Megabanks destroyed since the onset of the credit crunch. I am thinking this might be a pretty big number?

The Financial Times
Beware the crisis around the corner
By Clive Crook
Published: January 3 2010 19:36 | Last updated: January 3 2010 19:36

The US economy is sickly, but the mood of impending doom has lifted. The response of US and other authorities to the emergency is unfinished business and needs continuing attention – but in 2010, if the crisis continues to ease, the danger is that politicians will relax and minds will wander from the need for new financial rules.

The next model of US financial regulation is unclear. The House of Representatives has passed a bill concentrating on regulatory structure: that is, on which regulators are responsible for what. What the Senate will do is anybody’s guess. Important as the regulatory organisation chart may be, however, it is not the key thing. The rules regulators apply are what matter.

The need for better rules is greater now than before the crisis. Critics of the US government say its response has made another financial collapse more likely – and they have a point. They worry about institutions that are too big to fail. The authorities encouraged consolidation as a way to restore short-term stability, but at what cost in the longer term? Attacking this concentration, critics say, is crucial.
…

I hope HBB readers don’t mind my sharing a personal financial milestone. Though my wife and I are not home owners, and may never end up owning again, given the government’s efforts to artificially prop up housing prices (inadvertently destroying the prospect of future price appreciation in the effort), as of this weekend, for the first time in our two decades of marital bliss, we have no car debt and no mortgage debt, as my wife just made the last car payment on my four-year car loan. (The only long-term debt obligation we have elected to not pay off at this stage is a small amount of federal student loan debt which we retain for the attached life-insurance…) We are greatly looking forward to the increase in positive net cash flow…

Professor Bear, This is indeed a moment to treasure! Congratulations, many happy returns! All of us seek to emulate your sterling example!

I am green with envy, congratulations notwithstanding. Personally, another fourteen months of debt slavery.

The highlights of my month are 1) Getting emails from my son, deployed overseas; 2) Taking advantage of momentary opportunities to cushion grinding grad student poverty for my cherished daughter; and 3) Scrutinizing my declining debt balance.

To be sure, 2) and 3) are somewhat contradictory. Oh well.

I’ll have no debt by the next round of tuition payments, in two and a half years, for son number two. I’m in training for the big race.

The ginormous rat is dead! w00t w00t!

Grapefruit in the snap trap behind the dryer.

Money market account holders you may want to read this:

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to “suspend redemptions to allow for the orderly liquidation of fund assets.” You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA’s latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was “absolutely” safe money, a back office person will get back to you saying, “Sorry – your money is now frozen. Bank runs have become illegal.” This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous “extraordinary circumstances” arise.”

http://www.zerohedge.com/article/government-your-legal-right-redeem-your-money-market-account-has-been-denied