The Housing Bubble

Monday, April 19, 2010, 2:56pm CDT
The Conference Board: U.S. economic recovery is strengthening
The Business Journal of Milwaukee

The U.S. economic recovery seems to be gaining strength, according to new figures from The Conference Board.

Its Leading Economic Index reached its highest level in March, rising 1.4 percent, after having lifted 0.4 percent the month before and 0.6 percent in January, The Conference Board, a New York City-based nonprofit, said Monday.

Its U.S. Coincident Economic Index, which measures current economic conditions, rose 0.1 percent in March, after having increased by the same amount in February. It didn’t change in January.

“The U.S. LEI has risen steadily for a year, and its six-month growth rate has remained fairly stable in recent months, led by improvements in financial and labor market indicators,” Ataman Ozyildirim, an economist with The Conference Board, said in a release. “Payroll employment made its first substantial contribution to the coincident economic index, suggesting a recovery that is beginning to gain traction.”

Read more: The Conference Board: U.S. economic recovery is strengthening - The Business Journal of Milwaukee:

http://www.bizjournals.com/milwaukee/stories/2010/04/19/daily12.html

Bloomberg

Yen Falls Against Higher-Yielding Currencies on Recovery Signs
April 20, 2010, 12:41 AM EDT
More From Businessweek

By Yoshiaki Nohara and Ron Harui

April 20 (Bloomberg) — The yen fell against the Australian dollar and other higher-yielding currencies as signs of stability in the global economic recovery boosted demand for riskier investments.

Japan’s currency weakened against all of its 16 major counterparts as stocks rose before reports forecast to show improving German investor confidence and U.S. home sales. The Australian dollar gained for the first time in four days after the central bank said concern the nation’s mining boom will stoke inflation spurred this month’s increase in interest rates.

“As long as the global economic recovery remains on track, stocks will rise and cross currencies should advance against the yen,” said Daisaku Ueno, a Tokyo-based president at Gaitame.Com Research Institute Ltd., a unit of Japan’s largest currency margin company.

http://www.businessweek.com/news/2010-04-20/yen-falls-against-higher-yielding-currencies-on-recovery-signs.html

SEC V. GOLDMAN
Earnings under pressure

Wall Street is expecting a blockbuster quarter from Goldman Sachs, with a 43% gain in net income. In financial news, it’s the equivalent of Tiger Woods teeing off at the Masters, says David Callaway.
…
http://www.marketwatch.com/video/asset/goldman-under-pressure-to-report-earnings-2010-04-19/7756AE02-A36D-4D9C-8530-5C1AED9E3BBB

Okay, with all the bailouts and sly /delaying tactics of the banks - when do people in the Bay Area (SF) fortress areas think that house prices will drop/bottom?

I’m thinking 2012 maybe delayed to 2014 or am I just wishful thinking?

Hey, I used to post here relatively frequently for a while, but haven’t stopped by in well over a year or so. I really appreciate the forum as you guys helped convince me not to buy in Sacramento (both in 2005 and again in early 2008).

I’ll be moving to East Lansing, MI to start a PhD Economics at MSU (I know that might cause some snickers from this crowd). I’ll be supported by a very generous fellowship/research assistantship made possible by a grant from the US Department of Education to study the Economics of Education (I know that might cause even more snickers).

The program will last 5-6 years and the funding is guaranteed as long as I make satisfactory academic progress. While there is a non-zero probability that I will not complete the PhD, I’m very confident in my ability to do so.

Initially I was planning on renting out there, but after running the numbers it looks like it might make sense to buy instead. I’m looking at a 3bd/2ba, 1000sqft plus basement in the East Lansing school district for ~$90k that’s right on a busline that would drop me off right in front of the building where my office and classes will be.

Assuming 30yr fixed, 5.125% (rate from the MSU-affiliated credit union) would come to about $400/month (assuming 20% downpayment). Insurance and taxes would add about $250/month, so total cost would be about $650/month (comparable to what a 2bd/1ba apartment away from the undergrad complexes but still along a direct bus line would be). To rent a comparable house would be around at least $750-800/month.

From what I can ascertain from the property tax records, the house was foreclosed on for ~$130k and then bought at auction for $31k by an investor in mid-2009. Investor than renovated the house and is now selling for ~$90k. It’s smaller (and cheaper) than most of the other homes in the neighborhood.

My thinking is that there is some utility to having cost certainty about my housing (since my stipend is fixed). My wife is employed full-time and so the $650 would represent less than 15% of our gross annual income (i.e., we can easily afford the monthly payment and still have sufficient cash to weather unexpected expenses).

So what are THHB thoughts on the Michigan housing market and this situation in particular? My thinking is that it can’t get much worse (given that neither the state capitol nor the university, the area’s two major two employers, aren’t going anywhere). In 5 years, we will have built up about $5000 in equity, so we’d likely break even if prices stay flat. And it would seem like we could break even if we couldn’t sell and had to hire a property management to rent it out for a few years.

More proof that the USA is too stupid to save……

My youngest daughter came by my place Sunday night. Had a problem at work. She works at a Oklahoma-based fast food chain that starts with “S”, and ends with “C”. Seems that there is an employee the girls suspect of stealing money from them. The carhops are “short” in their wallets/cashdrawers every time this one individual is on duty. Instead of fixing the real problem, management gives the girls the option of being written up and/or pulled off carhop duty, or pay the shortage out of their pockets. So most of them are opting to pay it back out of pocket, which means that they are essentially working half their shift for free.

She doesn’t want to make waves, because she likes the manager and likes to work there. My suggestion to go out a find another job were brushed off.

So, I decided to call the company ethics/whistleblower line, to see what the company policy was. They wouldn’t even talk to me without giving them my name and the store involved. HR flack assured me that all this was confidential. So I did, and explained the situation (as I understood it) to them, recommended that they get their managers to DO THEIR EFFING JOB, instead of coercing the employees to square things with the money count.

Less than four hours later, my daughter calls. Seems that “confidential” doesn’t mean a damn thing to these people. Instead of fixing their real problem, she was given back her money, then “written up” TWO TIMES for being short.

Needless to say, she is pi$$ed at me. IMO, she should be pi$$ed at someone else, and go find a new job, but she’s 17 and doesn’t think too clearly.

Is it just me, or is this the most chicken$hit thing anyone has heard of? Any point in calling this HR POS back tomorrow, and reading her the riot act?

If it was me, I’d quit right now on general principle (and deal with the consequences), because life is too short for this kind of crap. Unfortunately, it appears that anything I stir up will slide downhill on her.

A Finance Overhaul Fight Draws a Swarm of Lobbyists

WASHINGTON — Assessing the battle to overhaul the nation’s financial regulations recently, Jamie Dimon, the chief executive of JPMorgan Chase, left no doubt about the consequences if Congress cracked down on his bank’s immense business in derivatives.

“It will be negative,” he said. “Depending on the real detail, it could be $700 million or a couple billion dollars.”

With so much money at stake, it is not surprising that more than 1,500 lobbyists, executives, bankers and others have made their way to the Senate committee that on Wednesday will take up legislation to rein in derivatives, the complex securities at the heart of the financial crisis, the billion-dollar bank bailouts and the fraud case filed last week against Goldman Sachs.

The forum for all this attention is not the usual banking and financial services committees, but rather the Senate Agriculture Committee, a group more accustomed to dealing with farm subsidies and national forest boundaries than with the more obscure corners of Wall Street.

http://www.nytimes.com/2010/04/20/business/20derivatives.html?ref=business

Brad Sherman Congressman (D-Calif.), member of House Financial Services Committee : (Interview with POLITICO’s David Mark)(excerpt)

~How can Democrats get out ahead of the Goldman Sachs story politically?

We can say, “No taxpayer money to Wall Street firms, their creditors and the counterparts.” Then we go to the voters and tell them there’s no money for Wall Street, but regulation instead. If you can’t run on that slogan, you’ve got a problem.

But there are serious problems with the Dodd bill. The Dodd bill has unlimited executive bailout authority. That’s something Wall Street desperately wants but doesn’t dare ask for. The bill contains permanent, unlimited bailout authority.

~As an active member of the House Financial Services Committee were you surprised to see suspicious shorting – perhaps illegal – by a top financial services firm?

Goldman is accused of hand-selecting bad mortgages to sell. If that’s true it’s absolutely outrageous. There are two issues here. First, did they mislead their clients into buying this type of mortgage rule? And second, did they hand-select the worst?

If this save the home ‘owner’ BS wasn’t so pathetic, it would be hilarious.

Mortgage aid program said more vulnerable to scams.
Watchdog report warns latest effort to aid homeowners makes program more vulnerable to fraud ~ April 20, 2010

WASHINGTON (AP) — Recent changes to the Obama administration’s mortgage assistance program may make it more vulnerable to fraud, a government watchdog says.

The changes, announced last month, are intended to make it easier for struggling homeowners to avoid foreclosure. But the administration hasn’t done enough to warn the public about fraud and hasn’t included sufficient safeguards to prevent abuse, the special inspector general for the Troubled Asset Relief Program, or TARP, said.

“Criminals feed on borrower confusion, and frequent changes to the programs provide opportunities for experienced criminal elements to prey on desperate homeowners,” inspector general Neil Barofsky wrote in a quarterly report issued Tuesday.

Last month, the Treasury Department revised the $75 billion mortgage assistance program it first rolled out last year. It is intended to prevent 3 million to 4 million home foreclosures by encouraging mortgage lenders to lower monthly payments.

So far only about 170,000 homeowners have qualified for mortgage modifications and critics charge the effort isn’t making much headway. In a report last month, Barofsky’s office said that a lack of planning and shifting rules on who qualifies has slowed the program’s progress.

In response to the criticisms, the administration made several changes. Mortgage lenders will receive incentive payments if they reduce the amount borrowers owe. That would help homeowners with mortgages larger than their homes are worth — a situation known as being “underwater.”

Just in you case you missed what kind of popular music was produced during the bubble, here it is (not one thing in this video is tongue-in-cheek, they are entirely serious):

http://www.youtube.com/watch?v=4uPnIq_tFcA

My theory is that this is the musical equivalent of “everyone deserves a house” AKA “everyone can be a rockstar.”

Door Closing on Building Talks
Final Hours Ahead Before Threatened Strike

In one of the longest running periodic stare downs between labor and management in New York, 30,000 doormen, handymen and porters seem again on the verge of walking off their jobs.

Similar standoffs went to the brink — but not over — in 2006, 2003, 1997 and 1994. The last strike was in 1991, when the workers were out for 12 days.

At issue this time are wages — Local 32BJ wants more, and health and retirement benefits — the Realty Advisory Board, representing building owners, wants to provide less. Stuck in the middle are one million residents in four boroughs of the city. Bronx building workers have a different contract that does not expire Tuesday at midnight.

So, in Manhattan, Queens, Brooklyn and Staten Island apartment residents have been signing up for volunteer fill-in duty.

“We have to do the garbage. I’m a little confused about that because you have to get a very large bag from the super, so if I have a small amount of garbage I’m not sure how to handle it,” said Marvis Berk of 5th Avenue in Manhattan.

What seems clear is that neither residents nor their building workers want a strike. “The tenants look at us not just as doormen, but as people. We respect them. We like them. we wouldn’t want to strike,” said George Williams as he helped visitors into 850 Park Avenue.

I’m sure we’ll latch on to this grand idea ASAP. Get poor quick, and avoid the rush!

Vacationing a human right, EU chief says
By Katherine Laidlaw, National Post

The European Union has declared travelling a human right, and is launching a scheme to subsidize vacations with taxpayers’ dollars for those too poor to afford their own trips.

Antonio Tajani, the European Union commissioner for enterprise and industry, proposed a strategy that could cost European taxpayers hundreds of millions of euros a year, The Times of London reports.

“Travelling for tourism today is a right. The way we spend our holidays is a formidable indicator of our quality of life,” Mr. Tajani told a group of ministers at The European Tourism Stakeholders Conference in Madrid on April 15. Mr. Tajani was appointed to his post by Italian Prime Minister Silvio Berlusconi.

Barrys top 10 campaign contributors… I think GS will be okay.

University of California $1,591,395
Goldman Sachs $994,795
Harvard University $854,747
Microsoft Corp $833,617
Google Inc $803,436
Citigroup Inc $701,290
JPMorgan Chase & Co $695,132
Time Warner $590,084
Sidley Austin LLP $588,598
Stanford University $586,557

Source: opensecrets.com

What’s a clent and how does it help you make bread?
===========================================================
The New York Times
Goldman Tops Forecast, With $3.46 Billion in Earnings
By NELSON D. SCHWARTZ
Published: April 20, 2010

Beset by accusations of securities fraud, Goldman Sachs nevertheless showed Tuesday that it was still very good at what it does best: making money.

Earnings for the Wall Street giant rose 91 percent in the quarter, to $3.46 billion or $5.59 a share in the first quarter of 2010, up from $1.81 billion or $3.39 a share in the same period last year, while revenues increased 36 percent to $12.78 billion, up from $9.42 billion in the quarter a year ago.

Analysts surveyed by Bloomberg had expected revenue of $11.05 billion and earnings of $4.14 a share.

Once again, the bank’s bond, commodities and currency trading bolstered the results.

In a statement, the chief executive, Lloyd C. Blankfein said that the results reflected “more signs of growth across the economy and the strength of our clent franchise.”

My building’s resident real estate agent slid a little note under all our doors this weekend. It’s hilarious! In it she addresses complaints from sellers about the slow pace of their sales. She explains, with the occasional use of boldface type, that their prices do not reflect the realities of the marketplace. Sounds reasonable, huh?

Well, at the bottom she lists two units she is currently working - one of them is the premier custom unit of the building. It last sold for $399k around 2006. Today it’s listed for $475k. So, as this agent chides other owners for not pricing realistically - she goes on to plug a unit of her own that’s priced substantially over boom pricing. All within a few sentences!

Lately I’ve been hearing and reading some real whoppers about prices. It is not difficult now to find prices 50% off bubble prices - both for condos and SFH - believe it or not. Examples are too numerous to list here. Mind you, this is significant because this is a place that they all said it would never happen. When CA and FL were sliding everyone said Chicago would be immune. Now all they talk about is when is the rebound.

This weekend my accidental landlord friend, who laughed at me for suggesting prices could fall 50% back in October 2007, now asks me when prices will rebound. “Will they come back in the next five or ten years?” he asked. How do you answer it? I just told him to read the newspapers. Why bother? Trusting propaganda got him into this, so propaganda might as well get him out!

Is America’s Economic Recovery On The Whole Based On A Rotten Sham?
By Justice Litle on April 20, 2010

The economic “recovery” we are now witnessing is based on theft, greed and deceit. It’s a giant rip-off, a rotten sham. In this sleazy imitation of a free market economy, liars, cheats and deadbeats are the ones getting rewarded.

And as for the savers, the hard workers, the ones who chose to honor their debts and live within their means? Nothing but a bunch of suckers. (They’re the ones paying for it all.)

If you’re one of those “suckers,” at least you’ve got company. I’m a sucker too.

All this time, I thought working hard for my money and staying debt free was wise. I thought sticking with one credit card - paying down the balance every month, no exceptions - was prudent. I thought driving a five-year-old car - fully paid off, nothing flashy - was a sensible thing to do.

Nope. Turns out those were sucker moves. What I should have done, to be in synch with this economy, was to have bought a 3,000-square-foot McMansion at the peak of the bubble… pulled out a cool hundred thousand in home equity loans… and then defaulted on the place.

That way I could have had the cash for a jet ski and a new convertible and a Hawaiian vacation - you know, the means of living in style - without having to worry about a thing.

No Morals Is the New Normal

Apologies for my cranky tone today. I hope I’m not messing up your Monday. It’s just that, heading into the weekend, I read something that absolutely made me sick. More on that in a moment…

Two weeks ago your humble editor asked, “Did the Housing Bust Fuel the Consumer Spending Binge?” In that piece, it was explained step by step how the phenomenon of “strategic defaults,” i.e. homeowners walking away from their mortgages, may have fueled a surge in retail spending by way of freeing up cash.

As it turns out, it looks like the strategic default thesis was correct. And this helps show why those who were expecting a “new normal” got it wrong.

See, guys like Mohamed El-Erian at Pimco (and yours truly) at first thought the “new normal” meant consumers tightening up and living within their means. What we failed to realize is that “new normal” actually translated to “NO MORALS,” as in “deadbeats ripping off the banks with abandon” (while the banks in turn screw the taxpayers).

http://www.dailymarkets.com/stocks/2010/04/20/is-americas-economic-recovery-on-the-whole-based-on-a-rotten-sham/

Fed officials warn on bubbles but Bernanke cautious
Mark Felsenthal
SANTA FE, New Mexico
Wed Apr 7, 2010 5:48pm EDT

Federal Reserve Chairman Ben Bernanke addresses members of the Dallas Regional Chamber in Dallas, Texas
April 7, 2010. REUTERS/Mike Stone

SANTA FE, New Mexico (Reuters) - Two top U.S. Federal Reserve officials warned about the risks to the economy from asset bubbles on Wednesday, and one suggested raising interest rates to halt risky behavior that could trigger another bust.

Still, Fed Chairman Ben Bernanke offered a relatively downbeat view of the economy during a speech in Dallas, suggesting he was in no rush to tighten monetary policy.

Thomas Hoenig, president of the Kansas City Fed, reiterated his concern that the Fed’s ultra-low interest rate policies could have unintended consequences.

“I am confident that holding rates down at artificially low levels over extended periods encourages bubbles, because it encourages debt over equity and consumption over savings,” Kansas City Federal Reserve Bank President Thomas Hoenig told a business group.

“While we may not know where the bubble will emerge, these conditions left unchanged will invite a credit boom and, inevitably, a bust,” he said.

Hoenig is a voter on the Fed’s policy setting panel this year and has dissented against the U.S. central bank’s promise to hold rates exceptionally low for an extended period, arguing it is no longer necessary for the Fed to tie its hands while the economy recovers.

Bernanke, for his part, said the U.S. economy still faces significant headwinds, including a housing sector that has yet to recover convincingly and an ailing employment market.

“We are far from being out of the woods,” Bernanke said in a speech to the Dallas Regional Chamber of Commerce. “Many Americans are still grappling with unemployment or foreclosure, or both.”

PUT THE MARKET ON NOTICE

Hoenig said on Wednesday the Fed could raise rates to around 1.0 percent, which would keep borrowing costs at historically low levels while sending a signal that easy money policies put in place during the global financial crisis of 2008 are steadily being pulled back.

“The time is right to put the market on notice that it must again manage its risk, be accountable for its actions, and cease its reliance on assurances that the Federal Reserve, not they, will manage the risks they must deal with in a market economy,” Hoenig said.

Most Fed officials hold the view that with unemployment just under 10 percent, and the economic recovery still weak, there is no need to rush to raise interest rates. Minutes of the Fed’s most recent policy meeting on March 16 showed policy-makers worried about the possibilities of setbacks to the recovery and of inflation falling from low levels.

However, asset price bubbles are difficult to identify, but they occur “fairly frequently” and policymakers need to be more aggressive than in the past in confronting them, New York Federal Reserve Bank President William Dudley said on Wednesday.

The challenge of identifying bubbles as they occur “cannot be an excuse for inaction,” Dudley said during a speech to the Economic Club of New York.

“Recent experience strongly suggests that asset bubbles exist and their collapse can be very damaging” to financial markets and the broader economy.

The bursting of the U.S. real estate bubble, which began to deflate rapidly in 2007 when house prices started falling, triggered a credit crisis that grew into the worst financial downturn since the 1930s.
…

Krugman seems to entirely overlook the point of systemic theft under too-big-to-fail, which goes something like this: We masquerade as free-market capitalists during the boom, taking the most highly leveraged swashbuckling gambles in the history of the planet and keeping the spoils to ourselves; when the inevitable bust follows, we go to Congress, the Fed and the Treasury with hat in hand and tell them that no one could have seen it coming, and that if they don’t bail us out, the entire global economy will collapse.

Lather, rinse, repeat…

Op-Ed Columnist
Financial Reform Endgame
By PAUL KRUGMAN
Published: February 28, 2010

So here’s the situation. We’ve been through the second-worst financial crisis in the history of the world, and we’ve barely begun to recover: 29 million Americans either can’t find jobs or can’t find full-time work. Yet all momentum for serious banking reform has been lost. The question now seems to be whether we’ll get a watered-down bill or no bill at all. And I hate to say this, but the second option is starting to look preferable.

The problem, not too surprisingly, lies in the Senate, and mainly, though not entirely, with Republicans. The House has already passed a fairly strong reform bill, more or less along the lines proposed by the Obama administration, and the Senate could probably do the same if it operated on the principle of majority rule. But it doesn’t — and when you combine near-universal Republican opposition to serious reform with the wavering of some Democrats, prospects look bleak.

How did we get to this point? And should reform advocates accept the compromises that might yet produce some kind of bill?

Many opponents of the House version of banking reform present their position as one of principle. House Republicans, offering their alternative proposal, claimed that they would end banking excesses by introducing “market discipline” — basically, by promising not to rescue banks in the future.

But that’s a fantasy. For one thing, governments always, when push comes to shove, end up rescuing key financial institutions in a crisis. And more broadly, relying on the magic of the market to keep banks safe has always been a path to disaster. Even Adam Smith knew that: he may have been the father of free-market economics, but he argued that bank regulation was as necessary as fire codes on urban buildings, and called for a ban on high-risk, high-interest lending, the 18th-century version of subprime. And the lesson has been confirmed again and again, from the Panic of 1873 to Iceland today.

I suspect that even Republicans, in their hearts, understand the need for real reform. But their strategy of opposing anything the Obama administration proposes, coupled with the lure of financial-industry dollars — back in December top Republican leaders huddled with bank lobbyists to coordinate their campaigns against reform — has trumped all other considerations.

That said, some Republicans might, just possibly, be persuaded to sign on to a much-weakened version of reform — in particular, one that eliminates a key plank of the Obama administration’s proposals, the creation of a strong, independent agency protecting consumers. Should Democrats accept such a watered-down reform?

I say no.

There are times when even a highly imperfect reform is much better than nothing; this is very much the case for health care. But financial reform is different. An imperfect health care bill can be revised in the light of experience, and if Democrats pass the current plan there will be steady pressure to make it better. A weak financial reform, by contrast, wouldn’t be tested until the next big crisis. All it would do is create a false sense of security and a fig leaf for politicians opposed to any serious action — then fail in the clinch.
…

New Zealand eyes income tax cuts ~ Washington

New Zealand’s centre-right government is considering cutting income tax rates and increasing the goods and services tax when it releases its budget next month as part of its efforts to rebalance the economy and make the country more internationally competitive.

Thanks largely to rising commodity prices, New Zealand has emerged relatively quickly from its prolonged recession, which began with the bursting of a housing bubble before the global financial crisis took hold. But the domestic economy remains fragile.

Goldman Blows Past Expectations as Fraud Case Looms- AP

Goldman Sachs Group Inc. said Tuesday its first-quarter earnings almost doubled to $3.3 billion as its trading business again surpassed the rest of the financial industry. It was a bit of good news for the bank as it faces a government civil fraud charge.

Woohoo! Goldman’s profits of $3.5B in Q1 beat 2009’s Q1 by 94 percent.

So, as an American taxpayer/investor in GS, when should I expect to receive my check?

Taxpayers for Common Sense calculate that the 1970 Defense Appropriations Bill had a dozen earmarks; the 1980 bill had 62 earmarks; and by 2005, the defense bill had skyrocketed to 2,671 earmarks. ~Dysfunctional Gov’t

< Are budget “earmarks” too often paybacks for bribes members of Congress receive on a steady basis?

And why was the 17th amendment to the Constitution such a bad idea?

http://townhall.com/columnists/JohnHawkins/2010/04/20/seven_reasons_government_has_become_completely_dysfunctional_in_america

Wow, unethical HR within a Corporation…

“…The carhops”

Question: Are the carhops on roller skates?

Don’t get mad, get even…

Oh my word…. look at the top contributors to Bush 2004 election cycle…..

Morgan Stanley $600,480
Merrill Lynch $580,004
PricewaterhouseCoopers $513,750
UBS Americas $472,075
Goldman Sachs $390,600
MBNA Corp $356,350
Credit Suisse Group $331,040
Lehman Brothers $329,725
Citigroup Inc $320,620
Bear Stearns $309,150
Ernst & Young $305,140
Deloitte Touche Tohmatsu $290,450
US Government $287,636
Wachovia Corp $275,310
Ameriquest Capital $250,650
Blank Rome LLP $223,900
Bank of America $218,261
AT&T Inc $212,920
Cendant Corp $207,443
JP Morgan Chase & Co $205,900

….. oh my word…. Look at how the GOP was bought and paid for by NAR…… one election cycle after another.

Cycle % to Dems % to Repubs

2004 48% 52%
2002 46% 54%
2000 42% 58%
1998 40% 60%

FDA takes aim at salt content in processed food
Regulator says limits will reduce deaths, but many fear taste will suffer
April 20, 2010

The Food and Drug Administration is planning an unprecedented effort to gradually reduce the salt consumed each day by Americans, saying that less sodium in everything from soup to nuts would prevent thousands of deaths from hypertension and heart disease. The initiative, to be launched this year, would eventually lead to the first legal limits on the amount of salt allowed in food products.

The government intends to work with the food industry and health experts to reduce sodium gradually over a period of years to adjust the American palate to a less salty diet, according to FDA sources, who spoke on condition of anonymity because the initiative had not been formally announced.

Officials have not determined the salt limits. In a complicated undertaking, the FDA would analyze the salt in spaghetti sauces, breads and thousands of other products that make up the $600 billion food and beverage market, sources said. Working with food manufacturers, the government would set limits for salt in these categories, designed to gradually ratchet down sodium consumption. The changes would be calibrated so that consumers barely notice the modification.

Also Food prizes make kids fat, official says
A movement is underway in California to ban fast-food kid meal toys.

A.O. Smith reports record earnings
The Business Journal of Milwaukee

Growth of water heater sales in China and increased electric motor volumes helped propel A.O. Smith Corp. to record earnings in the first quarter of 2010, according to an earnings report released Tuesday.

Milwaukee-based A.O. Smith (NYSE: AOS) reported earnings of $30.9 million, or $1.01 per share, in the quarter ending March 31, compared with $2.7 million, or 28 cents per share, in the first quarter of 2009. The closing of a transaction with Smith Investment Company in April 2009 affected the earnings for the first quarter of 2009.

Where the hell has McCain been all these years? I hope you folks in Az. flush this turd!

US senators: 3,000 more troops needed on US-Mexico border

WASHINGTON (AFP) – Two Republican senators proposed Monday sending 3,000 more US National Guard soldiers to quell violence spilling over the border between their home state of Arizona and Mexico.

In a 10-point plan for beefing up security in the area, Senators John McCain and John Kyl also called for permanently adding 3,000 US Custom and Border Protection Agents to the Arizona/Mexico border by 2015.

They also called for completing construction of 700 miles of fencing along the border and beefing up unmanned aerial vehicle patrols so that they could be run 24 hours a day.

“Violence has dramatically increased over the last two years,” McCain said at a joint press conference with Kyl and two sheriffs from Arizona border areas.

New speed cameras trap motorists from space
A new type of speed cameras which can use satellites to measure average speed over long distances are being tested in Britain.
UK online

The cameras, which combine number plate reading technology with a global positioning satellite receiver, are similar to those used in roadworks.

The AA said it believed the new system could cover a network of streets as opposed to a straight line, and was “probably geared up to zones in residential areas.”

The Home Office is testing the cameras at two sites, one in Southwark, London, and the other A374 between Antony and Torpoint in Cornwall.

The `SpeedSpike’ system, which calculates average speed between any two points in the network, has been developed by PIPS Technology Ltd, an American-owned company with a base in Hampshire.

Details of the trials are contained in a House of Commons report. The company said in its evidence that the cameras enabled “number plate capture in all weather conditions, 24 hours a day”. It also referred to the system’s “low cost” and ease of installation.

The system could be used for “main road enforcement for congestion reduction and speed enforcement”, and could help to “eliminate rat-runs” and cut speeds outside schools, it added. It could also reduce the need for speed humps.

http://www.thedailyshow.com/watch/mon-april-19-2010/these-f–king-guys—goldman-sachs

The Daily Show: Goldman Sachs, These Fu@#king Guys

Schwab settles mortgage-backed securities suit
Charles Schwab reaches deal to settle 2008 suit over bond fund drained by mortgage meltdown

SAN FRANCISCO (AP) — Charles Schwab will pay $200 million to resolve a federal class action lawsuit filed by investors who say the financial holding company misled them over the safety of mortgage-backed securities.

If approved by the court, the settlement announced Tuesday will result in a retroactive charge that would nearly eliminate the first-quarter profit that the discount broker posted last week.

The fund that angered investors, the YieldPlus Fund, shriveled from nearly $14 billion in 2007 to less than $1 billion in early 2008, as investors bailed out and managers were forced to dump their holdings cheaply.

The U.S. District Court in California will decide if Schwab can avoid trial with the settlement, yet the fund’s collapse is still the subject of investigations by the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

YieldPlus invested heavily in securities backed by risky mortgages made during the housing boom.

Where does the govt’s role in our daily life end? Apparently with Obama at the helm, there is no limit. The amount of salt in my spaghetti sauce is no the business of the federal government.

By Lyndsey Layton
Washington Post Staff Writer
Tuesday, April 20, 2010; A01

The Food and Drug Administration is planning an unprecedented effort to gradually reduce the salt consumed each day by Americans, saying that less sodium in everything from soup to nuts would prevent thousands of deaths from hypertension and heart disease. The initiative, to be launched this year, would eventually lead to the first legal limits on the amount of salt allowed in food products.

Officials have not determined the salt limits. In a complicated undertaking, the FDA would analyze the salt in spaghetti sauces, breads and thousands of other products that make up the $600 billion food and beverage market, sources said

New York’s Fifth Ave. Sets Record with Uniqlo Lease (Update2)

(Bloomberg) — New York’s Fifth Avenue is claiming a city retail record: Japanese clothier Uniqlo agreed to pay $300 million over 15 years to bring its affordable fashions to the world’s most expensive shopping area.

Uniqlo owner Fast Retailing Co., Japan’s biggest apparel seller, announced the deal today, with broker Cushman & Wakefield Inc. and landlord Crown Acquisitions disclosing the price. The space lies at 666 Fifth Ave. near 53rd Street.

“Uniqlo identified this location as being the one that they were willing to make the biggest bet on,” said C. Bradley Mendelson, the Cushman & Wakefield broker who represented landlords Carlyle Group, Crown Acquisitions and Kushner Cos. “They’re one of the biggest retailers in the world; they’re just small in the U.S.”

Don’t look now, but Greek 2-year bonds are back up to 7.3% - just shy of the record from two weeks ago.

April 20, 2010, 11:26 a.m. EDT

IMF trims bank loss estimate but warns crisis not over
Banks must raise more capital, shrink assets and reassess business plans

By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) — The global banking industry faces further challenges that should keep credit flows constrained, despite recent reports of rosy earnings at U.S. banks, according to a new report released by the International Monetary Fund on Tuesday.

“Banks must reassess business models, raise further capital, shrink assets and make their balance sheets less risky,” the report said.

“Risks remain. Global financial stability has not been secured,” Jose Vinals, director of the IMF’s market and capital market division that authored the report, said at a press conference.
…

So long as the subprime mortgage lending kingpins post stellar financials, who cares about fraud allegations? Money talks, bullsh!t walks.

Under-fire Goldman Sachs reveals 90% jump in profits

Wall Street bank raises spectre of multimillion dollar bonuses at height of battle over regulatory reform and in spite of accusations of dishonesty

When is the Fed scheduled to be audited? It would be nice if we could get some objective information to shed light on who knew what, when, to supplant this “He said, she said…” nonsense.

It is also clear that we need an investigation which is independent of the Fed and Treasury Departments, as they were in the middle of these discussions and have a motive to distort the facts.

* BUSINESS
* APRIL 20, 2010

Fuld: SEC, Fed Knew All—Even If He Didn’t

By SUSANNE CRAIG And DAVID REILLY

Former Lehman Brothers Holdings Inc. Chairman and Chief Executive Richard S. Fuld Jr. plans to tell lawmakers Tuesday that regulators knew everything that was going on inside Lehman “in real time” as it neared bankruptcy, an allegation that will pit him against others testifying with him in Washington.

Tuesday’s showdown with the House Committee on Financial Services will mark the first time Mr. Fuld has spoken publicly since a bankruptcy examiner released a stunning report on Lehman’s collapse that raised the specter that executives, including Mr. Fuld, intentionally misled investors to mask huge losses in areas such as commercial real estate and leveraged loans.

“The SEC and the Fed were privy to everything as it was happening,” Mr. Fuld plans to say, according to a copy of his prepared remarks. “I am not aware that any data was ever withheld from them, or that either of them ever asked for any information that was not promptly provided.”
…

I don’t think this bailout tax idea is going to work, as we have already seen that there is no way to insure against systemic risk. How about instead considering a proposal to rid sovereign governments of future bailout risk by chopping up Megabanks into non-systemically risky pieces? At least smaller banks would have the incentive to pursue sound banking practices, rather than facing moral hazard incentives for banking on bailouts to make them whole after they cast money into the sea.

On the other hand, if banks are truly horrified by this proposal, at least it has some redeeming merits.

IMF proposes two big new bank taxes to fund bail-outs
G20 Summit

The London G20 summit agreed banks must pay for bail-outs.

Banks and other financial institutions face paying two new taxes to fund future bail-outs, the BBC has learned.

Business editor Robert Peston said the global proposals by the International Monetary Fund (IMF) were “more radical” than most had anticipated.

All institutions would pay a bank levy - initially at a flat-rate - and also face a further tax on profits and pay.

The measures are designed to make banks pay for the costs of future financial and economic rescue packages.

The IMF documents were made available to governments of the G20 group of nations on Tuesday afternoon and seen by the BBC soon afterwards. The plans will be discussed by finance ministers this weekend.

“The proposals are likely to horrify banks, especially the proposed tax on pay,” our business editor said.

“They will also be politically explosive both domestically and internationally.”
…

Treasury votes for Citigroup reverse share split

WASHINGTON (Reuters) - The Treasury Department said on Tuesday it voted the 7.7 billion shares it owns in Citigroup Inc (C.N) at the bank’s annual meeting, including for a proposal to have a reverse share split.

The Treasury acquired the shares when it pumped bailout money into Citigroup and reiterated it was “a reluctant shareholder (that) intends to dispose of its TARP (Troubled Asset Relief Program) investments as quickly as practicable.”

The Treasury said it backed all 15 of the Citigroup directors who were nominated and voted in favor of two Citigroup proposals. One permits the company to issue common shares to settle $1.7 billion of “common stock equivalent” awards to employees in lieu of cash incentive pay.

“The VAT would just be a license to spend, and that is the last thing the federal government needs” ~ Olivier Garret

The sales pitch for the Value Added Tax (VAT) has begun, thanks to a boost from former Fed chief Paul Volcker. It’s a great scheme if one wants to have more government on his back and in his pocket, but a lousy idea to anyone who realizes that an overblown federal government is the problem, not the solution.

http://www.foxnews.com/opinion/2010/04/20/oliver-garrett-vat-tax-democrat-california-indiana-ipod/

LPS schedules foreclosed homes auction
Jacksonville Business Journal

A division of Lender Processing Services Inc. is conducting an online auction of bank-foreclosed homes nationwide for a bid deadline on May 10.

The Jacksonville-based company, which provides technology and services to the mortgage and real estate industries, announced Tuesday that one of its divisions, LPS Auction Solutions was conducting the online auction.

The portfolio of foreclosed properties includes single-family homes, condominiums and town homes in cities such as Coral Springs and Pembroke Pines in Florida; Atlanta, Ga.; Baton Rouge, La.; Canton, Ohio and Tacoma, Wash.

“This auction is a terrific opportunity for home buyers and investors to purchase one or more residential properties at a significant discount,” said LPS Auction Solutions’ managing director, Evan Gladstone in the announcement. “There are some wonderful deals for interested buyers.”

This is par for the course for this ‘international’ waste of money. When they see a chance to load their pockets they act swiftly. Wonder what their chief Ding-Dong-Moon was able to skim?

U.N.’s Ballooning $732 Million Haiti Peacekeeping Budget Goes Mostly to Its Own Personnel ~ FOXNews.com

The United Nations has quietly upped this year’s peacekeeping budget for earthquake-shattered Haiti to $732.4 million, with two-thirds of that amount going for the salary, perks and upkeep of its own personnel, not residents of the devastated island.

The world organization plans to spend the money on an expanded force of some 12,675 soldiers and police, plus some 479 international staffers, 669 international contract personnel, and 1,300 local workers, just for the 12 months ending June 30, 2010.

Some $495.8 million goes for salaries, benefits, hazard pay, mandatory R&R allowances and upkeep for the peacekeepers and their international staff support. Only about $33.9 million, or 4.6 percent, of that salary total is going to what the U.N. calls “national staff” attached to the peacekeeping effort.

S&P / Moody’s : “…you had me at AAA”

BWAHAHHAHAHAHHAHAHHAHHAHAHAHHHHHHHHHHHHH!!! (fpss™)

Abacus Deal: As Bad as They Come
by Aaron Lucchetti and Serena Ng
Tuesday, April 20, 2010 WSJ

“Both Moody’s Investors Service and Standard & Poor’s Ratings Service placed their once-revered triple-A ratings on the Abacus deal.”

“They couldn’t have done the deal without the rating,” says Jack Chen, a former Moody’s analyst who left the firm in 2006″

“The SEC complaint said that 83% of the residential mortgage securities in Abacus were downgraded by October 2007, about six months after the deal was completed.”

Sergeant Schultz from Hogan’s Heros: “I know NOTHING!”:

A Moody’s spokesman declined to comment. An S&P spokesman had no immediate comment.

Goldman denies it did anything wrong and is fighting the charges

I would tell Abu Talhah al Amrikee to blow it out his azz. If you can’t take a joke, don’t look or listen.

‘South Park’ Creators Could Face Retribution for Depicting Muhammad, Website Warns.

RevolutionMuslim.com posted a warning following the 200th episode of Trey Parker and Matt Stone’s “South Park,” which included a caricature of the Prophet Muhammad disguised in a bear suit.

A radical Islamic website is warning the creators of “South Park” that they could face violent retribution for depicting the Prophet Muhammad in a bear suit during an episode broadcast on Comedy Central last week.

RevolutionMuslim.com posted the warning following the 200th episode of Trey Parker and Matt Stone’s “South Park,” which included a caricature of the Prophet Muhammad disguised in a bear suit. The Web posting also included a graphic photo of Theo van Gogh, a Dutch filmmaker who was murdered in 2004 after making a documentary on violence against Muslim women.

“We have to warn Matt and Trey that what they are doing is stupid and they will probably wind up like Theo Van Gogh for airing this show,” the posting reads. “This is not a threat, but a warning of the reality of what will likely happen to them.”

Reaching by phone early Tuesday, Abu Talhah al Amrikee, the author of the post, said he wrote the entry to “raise awareness.” He said the grisly photograph of van Gogh was meant to “explain the severity” of what Parker and Stone did by mocking Muhammad.

‘Shale gas destroys US LNG demand’

Shale gas has destroyed demand for liquefied natural gas imports in the US, sinking cargoes into a deep freeze for perhaps the next 10 years according to a new research report by Houston-based securities analyst Tudor, Pickering, Holt.

The LNG report – the first by TPH since 2007 – predicts shipments to the US in 2010 will fall to 1.8 billion cubic feet of gas per day.

US regasification capacity is about 15 Bcfd, dispersed among nine different terminals on the US Atlantic and Gulf of Mexico coasts.

“Shale gas renders US LNG imports nearly unnecessary over the next five to 10 years,” the report stated.

TPH managing director David Pursell said: “The general gist is the US doesn’t need it. We (the US) are the market of last resort.

“We have a lot of capacity out there that is under-utilised,” Pursell said, adding therefore that it is “highly unlikely” any new regasification terminals will be built in North America.

LNG represents about 10% of an estimated 300 Bcfd in global gas supply gas, but “markets are sloppy right now”, TPH’s report said.

“According to our estimates, the global gas market is oversupplied by about 3 Bcfd in 2010 and by 1.5 Bcfd in 2011,” according to TPH. “We would note, however, that this represents only 1% of global gas consumption,” it added.

However, LNG demand in Asia and Europe is growing “more than twice as fast as overall gas demand and approximately six times that of oil”, according to TPH.

Senator Sanders could use your support, America!

The Nation: A Senate Move on Goldman Sachs

by John Nichols
Goldman Sachs booth
Enlarge Chris Hondros/Getty Images

Goldman Sachs was charged with fraud by the Securities and Exchange Commission over its marketing of a subprime mortgage product, sending its stock price sharply lower.

April 19, 2010

The news that the Securities and Exchange Commission has charged Goldman Sachs with fraud is to be celebrated, as it represents one of the first significant responses by federal authorities to the abuses that created and extended the financial crisis.

Coming at a time when the Senate is preparing, finally, to begin a too-long-delayed debate on regulating an out-of-control financial industry, the SEC’s civil lawsuit against the Wall Street powerhouse — which charges that alleging that Goldman Sachs let a large hedge fund include risky subprime mortgages in a financial “product” and then failed to disclose this to the product’s buyers — sends an important signal about what regulators can and should do.

As Vermont Senator Bernie Sanders says: “While its action was slow in coming, I applaud the SEC for finally beginning to deal with the illegal behavior of major Wall Street firms which, in my view, knowingly sold junk products and as a result helped cause the worst recession since the 1930s.”

But the regulators need more tools and more prodding from Congress to crack down in a manner that will change the way Wall Street does business.

That’s why Sanders and a number of other senators are fighting to strengthen legislation that is too weak, too compromised and too influenced by the demands of lobbyists for financial-services firms — including Goldman Sachs.

Here’s how Sanders is looking at the coming fight:

The greed and recklessness of Wall Street has created the most severe economic recession since the 1930s. Millions of people have lost their homes and savings, and 17 percent of our people are unemployed or underemployed. Wall Street is now spending billions of dollars on lobbying and campaign contributions to make sure that they can continue to act in the reckless and unregulated manner which led us to where we are today. We cannot allow that to happen.

Among other very important reforms, Congress must stop big banks from ripping off consumers by charging credit card interest rates of 35 percent or more. That is why I will offer an amendment to stop usury in America and place a reasonable cap on what lenders may charge credit card customers, similar to the limit already in place and working well for credit unions.

Here’s how you can help. Members of Congress definitely will hear from the big bankers and their well-paid lobbyists. I think they need to hear from you too. They need to hear about your real-world experiences with these loan sharks in three-piece suits. Let me know how credit card companies have treated you, and I will read some of your stories on the Senate floor.

There also must be greater transparency at the Federal Reserve. The Senate banking committee chairman wants to allow the Government Accountability Office to audit the Fed’s emergency lending programs, but bar GAO from naming loan recipients and detailing the terms. That’s not good enough. As long as the Federal Reserve is allowed to keep secrets about its loans, we will never know the true financial condition of the banking system. The lack of transparency could lead to an even bigger crisis in the future.
…

Suggestion: Go see the movie “Date Night,” and ponder the similarity between the plight of the couple in the movie, Phil and Claire Foster, upon learning the bad guys work for the NYCPD, and that of American households, upon discovery that their political leaders are fully bought and captured by Gollum.

It is amazing how hard Obama is working. The guy is tackling, health insurance reform, wall st reform, war reform and creating jobs all in one year!!! yikes!!!

http://www.larouchepub.com/pr/2010/100419banks_flunk_test.html

Morgan Chase, Bank of America, Flunk Glass-Steagall Test

April 19, 2010 (EIRNS)—J.P. Morgan Chase and Bank of America, at or near the top of bank holding companies in the United States, both reported multi-billion dollar profits for the first quarter of 2010 last week. The two banks were also bailed out by the U.S. government. At the time of its bailout in 2008, Morgan Chase had the largest hedge fund unit in the United States.

After the announcement, EIR investigated these so-called profits from the standpoint of the Glass-Steagall regulations which had been the law of the land from the time they were implemented by President Franklin Roosevelt, until the standard was overturned in 1999.

Not surprisingly, it appears that both banks lost money on those aspects of their business that would be legal under the Glass-Steagall standard, and made all of what they termed “profits” from the sorts of speculation, manipulation, and gambling which would have been outlawed by the Glass-Steagall regulations.

J.P. Morgan Chase reported a profit of $3.3 billion for the quarter, but all of that profit came from the speculative side-investment banking, asset management, Treasury and securities services, and corporate/private equity. All told, these activities generated $3.3 billion in claimed income. The banking side—that is, that part which would be permitted under Glass-Steagall—actually lost money, reporting a loss of $44 million.

Bank of America reported similar results. The bank reported $3.7 billion in income from its investment banking and money- management activities, and lost $406 million on its traditional banking activities.

These are rough calculations, based upon general business categories, and while EIR suspects that the truth is even worse than these figures suggest, they are sufficient to make the point: These banks have, in the absence of honest and effective regulation, destroyed themselves.

• Morgan Chase has a whopping $78.5 trillion in derivatives—99.9% of its total holdings—inside its commercial bank.

• Bank of America has $44 trillion of derivatives inside its commercial bank, and another $28 trillion in its Merrill Lynch subsidiary, for a total of $72.5 trillion.

These are not banks; they are casinos, and their continued existence comes at the expense of the United States, its people, and what remains of the U.S. economy. The Obama Administration has continued the policy of bailing out the parasites, which continue to feed off the public. Glass-Steagall-type regulations must be re-instituted—quickly—as part of an overall bankruptcy reorganization of the global economy, if the United States and the rest of the world are to survive.

GLOBAL FINANCIAL STABILITY REPORT
Government Borrowing Is Rising Risk to World Financial System
IMF Survey online ~ April 20, 2010

The global financial system and the world economy are slowly regaining their health, thanks in large part to unprecedented interventions by governments, but the sharp rise in government debt during the economic crisis from already elevated levels helped create what the IMF says is the newest threat to the financial system: growing sovereign risk.

That is not to say that the private financial sector is fully recovered. Indeed, the recovery in the financial sector remains “fragile,” according to José Viñals, Financial Counselor and Director of the IMF’s Monetary and Capital Markets Department.

Bank balance sheets still contain bad assets, consumers and businesses remain stretched, and credit recovery is some time off, the IMF said in its latest Global Financial Stability Report (GFSR), released April 20. Moreover, a large part of the financial system continues to rely in varying degrees upon the extraordinary measures governments began to introduce two years ago—such as purchasing bad assets from, and injecting capital into, troubled institutions.

Activists heading to Tallahassee to oppose non judicial foreclosures

By Kimberly Miller Palm Beach Post Staff Writer
Posted: 2:21 p.m. Tuesday, April 20, 2010

Florida foreclosure activists plan to rally Wednesday morning in the state’s capitol, protesting bank repossessions and proposals that want to take the courts out of some foreclosure proceedings.

Two bills floated this session, HB 1523 and SB 2270, would allow for non judicial foreclosures in Florida. Both proposals appear stalled in committee and unlikely to see a full floor vote by either chamber. But opponents fear there is life in them yet, even if it’s next year.

“We believe in the rule of law and the court system in determining these people’s rights,” said Thomas Ice, of Ice Legal P.A. in West Palm Beach. “By shifting to a non judicial foreclosure system, the courts would be left out and the average borrower will have much more difficulty in defending their rights.”

Ice Legal is sponsoring a 60-person bus out of West Palm Beach for the Tallahassee trip. Other buses from around the state are expected to ferry hundreds of foreclosure opponents to the rally.

The non-judicial foreclosure bills were prompted by an estimated backlog of 500,000 foreclosure cases in Florida’s courts following the real estate crash.

Proponents of the bills say non-judicial foreclosures would only be allowed when the borrower and lender agree to them. Also, the borrower would not be liable to pay the remainder of the home loan if he or she agrees to a non-judicial foreclosure.

The rally, which has been promoted through Web sites such as 4closurefraud.org and foreclosurehamlet.org, is scheduled to begin at 9 a.m

SEC chief pledges better oversight of banks:

“Chairman Mary Schapiro told a congressional panel that the agency has sent letters to 19 banks seeking information about whether they are using accounting tricks that a bankruptcy examiner said masked the bank’s precarious financial condition. Lehman failed in September 2008 in the largest corporate bankruptcy in U.S. history.”

Wow! She sent them letters! ASKING if they used accounting tricks!!!

“No, we swear we didn’t use any tricks.”

That is really cracking down!

The solution to TBTF institutions seems straightforward to this natural born American citizen, taxpayer and voter: BUST THE TRUSTS: Break up the Wall Street Megabanks into non-oligopolistic, non-systemically-risky, competitive institutions which will not be able to dangle a Sword of Damocles over the heads of future generations of American tax payers. What is the downside, other than a highly beneficial loss of power for BB, TTT and their central banking cabal?

P.S. California voters, be forwarned: Meg Whitman is in league with Gollum.

Republicans soften on Wall Street reform bill
Senate Republicans back off their hard line against Democratic efforts to rein in Wall Street, making it clear that they want to change the financial overhaul bill, not kill it.

By Janet Hook, Los Angeles Times

April 20, 2010 | 5:04 p.m.

Reporting from Washington

Less than a week after Senate Republicans unleashed a blistering attack on pending legislation to rein in Wall Street, they began striking a more conciliatory tone Tuesday that improves prospects for the bill that is the next major item on President Obama’s domestic agenda.

Many Republicans appear to be shying away from another scorched-earth battle like the one they waged over healthcare, a sign that they may have reached their limit for being portrayed as the “party of no,” particularly on the issue of financial reform.

Last week, Senate GOP Leader Mitch McConnell (R-Ky.) charged that the Democratic-backed legislation

left the door open to big government bailouts in the future. He produced a letter opposing it signed by all 41 Republican senators. That is the number of votes needed to sustain a filibuster.

But now Republicans seem intent on making it clear that they want to change the financial overhaul bill, not kill it.

“This one is a little bit different,” said Sen. John McCain (R-Ariz.), the party’s 2008 presidential nominee and leader of the opposition to healthcare and economic stimulus bills. “We want to keep 41 votes together to have a negotiating position; on healthcare, we didn’t like any of it.”

Sen. Susan Collins, a moderate Republican from Maine, was the last to sign the letter and did so only after the language was softened to drop filibuster threats in favor of substantive criticism of the legislation.

“I felt it was important to accomplish two goals in the letter: to send a signal that Republicans are in opposition to the bill, and to indicate that we were for a financial reform bill,” Collins said. “There is widespread agreement that we must deal with too-big-to-fail institutions.”
…

If this guy is correct, we are frackin’ doomed! Wall Street’s culture of deception is so deeply ingrained that the banksters and the politicians who support them don’t even know when they are lying.

Regrettably, I agree with 100 percent of Mr O’Driscoll’s WSJ Op-ed.

* OPINION
* APRIL 20, 2010

An Economy of Liars
When government and business collude, it’s called crony capitalism. Expect more of this from the financial reforms contemplated in Washington.

By GERALD P. O’DRISCOLL JR.

Free markets depend on truth telling. Prices must reflect the valuations of consumers; interest rates must be reliable guides to entrepreneurs allocating capital across time; and a firm’s accounts must reflect the true value of the business. Rather than truth telling, we are becoming an economy of liars. The cause is straightforward: crony capitalism.

Thomas Carlyle, the 19th century Victorian essayist, unflatteringly described classical liberalism as “anarchy plus a constable.” As a romanticist, Carlyle hated the system—but described it accurately.

Classical liberals, whose modern counterparts are libertarians and small-government conservatives, believed that the state’s duties should be limited (1) to provide for the national defense; (2) to protect persons and property against force and fraud; and (3) to provide public goods that markets cannot. That conception of government and its duties was articulated by the Declaration of Independence and embodied in the U.S. Constitution.

Modern liberals have greatly expanded the list of government functions, but, aside from totalitarian regimes, I know of no modern political movement that has shortened it. While protecting citizens against force, both at home and abroad, is the government’s most basic function, protecting them against fraud is closely allied. By the use of force, a thief takes by arms what is not rightfully his; he who commits fraud takes secretly what is not rightfully his. It is the difference between a robber stealing brazenly on the street and a burglar stealing by stealth at night. The result is the same: the loss of property by its owner and the disordering of civil society. And government has failed miserably to perform this basic function.

Why has this happened? Financial services regulators failed to enforce laws and regulations against fraud. Bernie Madoff is the paradigmatic case and the Securities and Exchange Commission the paradigmatic failed regulator. Fraud is famously difficult to uncover, but as we now know, not Madoff’s. The SEC chose to ignore the evidence brought to its attention. Banking regulators allowed a kind of mortgage dubbed “liar loans” to flourish. And so on.

We have now learned of the creative way Lehman Brothers hid its leverage (how much money it was borrowing) by the use of a Repo 105. The Repo 105 meant Lehman temporarily swapped assets (such as bonds) for cash. A Repo, or repurchasing agreement, is a way to borrow money. But an accounting rule allowed Lehman to book the transaction as a sale and reduce its reported borrowings, according to a report by the court-appointed Lehman bankruptcy examiner, a former federal prosecutor, last month.

Are we to believe that regulators were unaware? Last week Goldman Sachs was accused in a civil fraud suit of deceiving many clients for the benefit of another, hedge-fund operator John Paulson.

The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately—not withstanding what any rule might otherwise allow. And financial institutions should have a duty of care to their customers. Lawyers tell me that would get us closer to the common law approach to fraud and bad dealing.

Public choice theory has identified the root causes of regulatory failure as the capture of regulators by the industry being regulated. Regulatory agencies begin to identify with the interests of the regulated rather than the public they are charged to protect. In a paper for the Federal Reserve’s Jackson Hole Conference in 2008, economist Willem Buiter described “cognitive capture,” by which regulators become incapable of thinking in terms other than that of the industry. On April 5 of this year, The Wall Street Journal chronicled the revolving door between industry and regulator in “Staffer One Day, Opponent the Next.”

Congressional committees overseeing industries succumb to the allure of campaign contributions, the solicitations of industry lobbyists, and the siren song of experts whose livelihood is beholden to the industry. The interests of industry and government become intertwined and it is regulation that binds those interests together. Business succeeds by getting along with politicians and regulators. And vice-versa through the revolving door.

We call that system not the free-market, but crony capitalism. It owes more to Benito Mussolini than to Adam Smith.

Nobel laureate Friedrich Hayek described the price system as an information-transmission mechanism. The interplay of producers and consumers establishes prices that reflect relative valuations of goods and services. Subsidies distort prices and lead to misallocation of resources (judged by the preferences of consumers and the opportunity costs of producers). Prices no longer convey true values but distorted ones.

Hayek’s mentor, Ludwig von Mises, predicted in the 1930s that communism would eventually fail because it did not rely on prices to allocate resources. He predicted that the wrong goods would be produced: too many of some, too few of others. He was proven correct.

In the U.S today, we are moving away from reliance on honest pricing. The federal government controls 90% of housing finance. Policies to encourage home ownership remain on the books, and more have been added. Fed policies of low interest rates result in capital being misallocated across time. Low interest rates particularly impact housing because a home is a pre-eminent long-lived asset whose value is enhanced by low interest rates.

Distorted prices and interest rates no longer serve as accurate indicators of the relative importance of goods. Crony capitalism ensures the special access of protected firms and industries to capital. Businesses that stumble in the process of doing what is politically favored are bailed out. That leads to moral hazard and more bailouts in the future. And those losing money may be enabled to hide it by accounting chicanery.

If we want to restore our economic freedom and recover the wonderfully productive free market, we must restore truth-telling on markets. That means the end to price-distorting subsidies, which include artificially low interest rates. No one admits to preferring crony capitalism, but an expansive regulatory state undergirds it in practice.

Piling on more rules and statutes will not produce something different than it has in the past. Reliance on affirmative principles of truth-telling in accounting statements and a duty of care would be preferable. Deregulation is not some kind of libertarian mantra but an absolute necessity if we are to exit crony capitalism.

Mr. O’Driscoll is a senior fellow at the Cato Institute. He has been a vice president at Citigroup and a vice president at the Federal Reserve Bank of Dallas.

I agree with this guy except for one thing: Through the TARP and other Fed/Treasury sponsored crony capitalist bailouts, Megabank, Inc is committing a crime of systemic theft against American Main Street households.

So long as the winners and losers of Wall Street casino gambling internalize their losses, I don’t care what kind of crazy bets they make. When they are enabled by the Treasury, the Fed and Congress to play heads-we-win, tails-you-lose strategies with the U.S. Treasury serving as the kitty, it is time for all honest Americans to lock arms and stop them. Thieves belong in prison, not free to rape, rob and pillage at will.

* The Wall Street Journal
* OPINION: BUSINESS WORLD
* APRIL 21, 2010

The War on Shorts, Cont.
Start with a villain. Find a crime.

* By HOLMAN W. JENKINS, JR.

The SEC case against Goldman is shoddy but allows us to delve into deeper mysteries of the housing bubble.

Shoddy: Don’t worry if you don’t know what the letters CDO stand for. You can understand the following. The buyers of the CDO in the latest Goldman scandal weren’t buying mortgages or bonds backed by mortgages.

They were buying a stream of payments from a credit default swap related to mortgages—that is, they were knowingly taking money from other investors who wanted to bet mortgages would tank.

By the time Goldman floated the 2007 deal at the heart of last week’s Securities and Exchange Commission lawsuit, markets were engulfed in debate about whether a housing meltdown was coming. The phrase “housing bubble” had appeared 270 times in The Wall Street Journal and the New York Times. It was the subject of conferences. It was the subject of op-eds and editorials in this very newspaper. In 2004, the FBI warned of a mortgage fraud “epidemic.” Not surprising, an appetite developed on Wall Street for ways to bet against housing. It would be surreal if it didn’t.

Make no mistake: The gestalt behind the SEC case is that short selling is bad. Constructing deals to enable short sellers to bet against certain markets (as Goldman did) is bad. When longs lose money because of freely chosen participation in such trades, it’s bad. When shorts make money, it’s bad.
…

“Free markets depend on truth telling.”

Mr. Bear, there are some black beans mixed in with the yellow corn in the Financial Silo…whose gonna find them before the box car is loaded and headed to market?…

“…when the Senate Agriculture Committee considers a derivatives bill that would force big banks out of the $450 trillion derivatives market.”

450 $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ TRILLION

is 450 +/- ATTBTF?

Gollum’s track record of scamming clients greater fools goes back at least as far as the runup to the first Great Depression.

P.S. There is one encouraging sign I see in recent MSM stories: Even the bubble-blind Fed now openly admits there was a bubble, and the MSM acts as though it is common knowledge. Now if we could just get the Fed to stop with its hair-of-the-dog bubble reflation efforts, perhaps we could begin the healing process and dump this horrendous episode in financial history’s dustbin of collapsed manias.

When clever insiders are pitted against naive outsiders
By John Plender

Published: April 20 2010 17:47 | Last updated: April 20 2010 17:47

Financial history has nothing to compare in sophistication and complexity with the collateralised debt obligation. Yet the fevered discussion of the Securities and Exchange Commission’s fraud charges against Goldman Sachs serves as a reminder that bubbles tend to follow archetypal patterns. While the courts will decide whether Goldman knowingly sold a CDO pup to IKB and others, there is a wider sense in which the recent credit bubble followed an age-old pattern whereby clever insiders are pitted against naive outsiders.

Economic historian Charles Kindleberger argued that in great financial aberrations such as the South Sea or Mississippi Bubbles a permanent group of expert insiders buys (or promotes shares) at the bottom, drives the price up and sells at the top, after which the market plunges. A larger, changing group of outsiders comes in late, buys high and sells low, before retiring hurt.

This was the refutation of Milton Friedman’s famous argument that destabilising speculation is impossible in the long run because it would involve buying high and selling low. According to Friedman, anyone who did that would lose money and be wiped out. Since speculators continue to exist, they must buy low and sell high and act as stabilising speculators. Kindleberger’s point was that speculators were not a single, homogeneous group: some won, some lost.

Certainly, in the latest credit bubble the big investment banks look like classic insiders, selling pups in the form of complex structured products that few really understood.

For its part, Goldman Sachs neatly fits the description of a permanent insider in the same (non-legalistic) sense. In the last great bust, it sold a gigantic pup called the Goldman Sachs Trading Corporation to the public in late 1928 at $104 and saw the stock price collapse to $1.75 in the ensuing Crash. This time it was prescient in recognising the residential property market was overheating, positioning itself to profit from the bust while some clients remained bullish. It may have made losses on the now infamous CDO called Abacus 2007-AC1. But overall, it emerged better from the property crash than its peers.

The outsiders this time were the small German banks such as IKB. This was a bank that had expertise in lending to small- and medium-sized businesses in Germany. But like many German banks, it was partly state-owned; and German politicians have been notoriously reluctant to permit consolidation in a banking market suffering from excess capacity. Profitability in German banking was thus very low and because state-owned banks were losing their state guarantees in 2005 they raised capital in preparation for credit rating downgrades. The cash-rich banks were sitting ducks when Wall Street’s finest came along with their incomprehensible products adorned with misleading credit ratings. They thus became naive outsiders in an alien market.
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NBR Transcripts-April 20, 2010
Tuesday, April 20, 2010

Lehman Brothers’ Ex-Execs Get Grilled on the Hill

TOM HUDSON: An autopsy today on the largest bankruptcy in U.S. history, Lehman Brothers. Susie, this was quite a scene on Capitol Hill today with lawmakers grilling everybody from Lehman’s former CEO Richard Fuld to the Fed Chairman Ben Bernanke and even the Treasury Secretary Tim Geithner.

SUSIE GHARIB: You’re right about that Tom. At that hearing, this was of the House Committee on Financial Services, lawmakers had sharp words for those gentlemen and what they did and didn’t do in the collapse of Lehman.

HUDSON: Certainly did and it’s all of course part of this huge effort to figure out the best way to run the nation’s financial system in the future. But as Darren Gersh reports tonight, there are no easy answers.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: As the financial crisis deepened, regulators did not ask the right questions, did not share the right information and did not insist Lehman Brothers change its risky ways. That’s the conclusion of Anton Valukas, the court-appointed examiner who dissected Lehman’s failure. But even if regulators had acted, Valukas says, it is not clear they could have saved the firm.

ANTON VALUKAS, LEHMAN BANKRUPTCY EXAMINER: But what is clear is, had the government acted sooner on what it did know or should have known, there would have been more opportunities to spare the markets and the American people the turmoil of Lehman’s abrupt failure.
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