The Housing Bubble

Home Mortgage Interest Deduction In Play
Diana Olick CNBC Real Estate

The Administration isn’t officially considering it, maybe not “actively” considering it, not even taking a side on it per se.

According to “staff” it was just a “musing.”

At a small conclave of reporters, no cameras allowed, the Secretary of Housing and Urban Development was reportedly asked about the mortgage interest deduction, the importance of home ownership and the seeming shift of focus from owning to renting.

That last bit is huge in itself, as pretty much every President dating back to Herbert Hoover and the Home-Loan Discount Banks pushed people to own own own.

Herbert Hoover, Dec. 8, 1931

“I recommend the establishment of a system of home-loan discount banks as the necessary companion in our financial structure of the Federal Reserve Banks and our Federal Land Banks. Such action will relieve present distressing pressures against home and farm property owners.”

http://www.cnbc.com/id/37153056

Greece Considering Legal Action Against U.S. Banks for Crisis.

(Bloomberg) — Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis, Prime Minister George Papandreou said.

“I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of U.S. banks in the crisis, in an interview on CNN’s “Fareed Zakaria GPS.” The program, scheduled for broadcast today, was taped on May 13. Neither Papandreou nor Zakaria mentioned any banks by name.

U.S. stocks fell and the euro slumped on concern that Europe wouldn’t be able to contain the debt crisis stemming from Greece. The Standard & Poor’s 500 Index declined 1.9 percent May 14, while the euro fell below $1.24 for the first time since November 2008.

Papandreou said the decision on whether to go after U.S. banks will be made after a Greek parliamentary investigation into the cause of the crisis.

“Greece will look into the past and see how things went,” Papandreou said. “There are similar investigations going on in other countries and in the United States. This is where I think, yes, the financial sector, I hear the words fraud and lack of transparency. So yes, yes, there is great responsibility here.”

Robert Schiller- just say the name to an NYC broker and their blood curdles.
The word among the intelligentsia today is- buy now and get 2 years rent free…. How many bought houses recently with money they saved by not paying mortgage for 2 years?
I want to personally thank all of the loan officers, CMBS staff, and all others who profited from this boom for completely destroying my country. We will not see the true damage for 5 years, but it will be amazing. Take a look at Thailand for things to come…..

And what are the Brits thinking about the shake-up of the euro and the European Union? Commentator Ambrose Evans-Pritchard writes:

“The truth is that no British government can ever put Europe on the back-burner and hope it goes away. It hits you in the face, again, and again, and again. This is why so many British ministers end up feeling a visceral hatred for the project.

In my view, the EU elites overstepped the line by ignoring the rejection of the European Constitution by French and Dutch voters, then pushing it through under the guise of the Lisbon Treaty without a popular vote, except in Ireland, and when Ireland voted ‘No’, to ignore that too. The enterprise has become illegitimate – it is starting to exhibit the reflexes of tyranny.”

James K. Galbraith: Why the ‘Experts’ Failed to See How Financial Fraud Collapsed the Economy
I write to you from a disgraced profession… the study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft- pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now…

REhobbist made a good point yesterday in regards to ridding ourselves of incumbents:

“It’s a bummer that every incumbent senator and us rep is replaced by a state legislator. In my state, California, by the time they become a state legislator they have usually become corrupted by their time as a councilman or county supervisor.”

This site lists the races and candidates:
http://www.politics1.com/states.htm

While it’s nearly impossible to find actual honest candidates It does help to choose those lower on the corruption learning curve. In Massachusetts that entails eliminating any candidate with Sheriff, Treasurer or Turnpike attached to their current position….

Home Starts, Leading Index Probably Rose: U.S. Economy Preview

(Bloomberg) — Home construction probably picked up in April, the growth outlook improved and the cost of living was little changed, showing the U.S. economy is expanding without stoking inflation, economists said before reports this week.

Work began on 650,000 houses at an annual pace last month, the most since November 2008, according to the median forecast of 62 economists surveyed by Bloomberg News before Commerce Department figures on May 18. Other reports may show the index of leading indicators climbed for a 13th straight month, while consumer prices rose 0.1 percent.

A government tax credit worth as much as $8,000 helped sales of new houses surge in March by the most in five decades, which may lead to a rebound in construction in coming months after builders trimmed inventories. Minutes of the Federal Reserve’s April meeting, also due this week, may shed more light on policy makers’ assessment of the economy.

The tax incentive “gave a boost to developers too,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. “The economy is growing at a modest pace, and in the short run, there’s no reason to worry about inflation.”

I guess Ben understands the West a lot better than I do. This blows my mind.

http://www.nytimes.com/2010/05/16/business/16builder.html?src=me&ref=general

“Home prices in Las Vegas are down by 60 percent from 2006 in one of the steepest descents in modern times. There are 9,517 spanking new houses sitting empty. An additional 5,600 homes were repossessed by lenders in the first three months of this year and could soon be for sale.”

“Yet builders here are putting up 1,100 homes, and they are frantically buying lots for even more.”

“Las Vegas is trying to recover by building what it does not need. It is an unlikely pattern being repeated in many of the areas where the housing crash was most severe.”

Unbelievable. There is enormous demand for housing in NYC, if (big if) it can be delivered an an affordable price. But out in the desert? I’m not surprised that builders would want to build, but who is financing that stuff?

No capitulation in the real estate market?

After looking around my local market, in more depth, recently. It’s very obvious we have not experienced the capitulation phase of the market decline, yet. The kool aid still flows, in a different flavor. I saw a lot of sellers looking to take advantage of the tax credit, with high asking prices. And buyers more more concerned with making the tax credit deadline than the price they were paying. Flipper activity is way up, in the last year. I was amazed at the amount of flip properties I saw for sale. The quick buck artists are out in force.

I guess the question I’m asking is, “What are the signs we should be looking for, that the real estate market has capitulated and bottomed”?

A tough time for self-employed borrowers.

http://www.nytimes.com/2010/05/16/realestate/16mort.html?src=me&ref=realestate

“The self-employed borrower’s only choice, mortgage brokers say, is to submit two years’ tax returns and hope that they qualify for a conventional loan.”

“That would not be a problem, the brokers said, if all self-employed people filled out their tax returns conservatively. But in this economic climate, the self-employed have been more likely to lighten their tax liabilities by taking business deductions, thereby lowering their official income levels, as well as the likelihood of qualifying for a loan.”

Look, you either have income or you don’t. If your business has lost money the past two years but earned money before that, how about submitting five years of tax returns? Ten years of tax returns?

Expats Fear New ‘Express Demolition’ Law (Spain will now only give 30 days notice until they demolish your house)

news dot kyero.com/2010/05/14/expats-fear-new-express-demolition-law/
May 14th, 2010

Owners of homes which are retrospectively judged to have fallen foul of regional planning rules can now be given just one month’s notice that council bulldozers are being sent in, as part of a crackdown on excessive development in one of Spain’s most popular regions.

Thousands of homes that were bought or built in good faith across the area are at risk since the regional authority began reviewing local councils’ planning approvals – and concluded that in many cases, permission to build should never have been granted.

The threat of sending in bulldozers at short notice has horrified the estimated 5,000 Britons with properties in the hillsides of Almanzora, one of the worst affected areas 60 miles north of the coastal city of Almeria in southern Spain.

…

“Spain is a lovely country with friendly people and a wonderful lifestyle but when it comes to law, this is the Third World,” Mr Brown said, standing amid rusting cans and scattered breeze blocks where his swimming pool was supposed to be.

“It was always our dream to retire here and we worked hard to do it. But now I wish I had never bought a property. People in Britain who are thinking of coming here should know what they are letting themselves in for.”

Other residents of the region were equally perturbed. Expatriates fear that any day an official could knock on their door with a legal order declaring their dream home was built without the requisite permission. Every time a JCB digger drives into the area there is panic.

…

The result has been crippling for Britons who in most cases bought in good faith, trusting Spanish property developers, lawyers and local officials to provide the correct paperwork. Most have been horrified to discover their houses may lack the necessary permission.

The global monetary “problems” are far greater then the collapse of Lehman Bro’s. Gene-Clod

Trichet: economy in deepest crisis since WWII
ECB President Trichet sees economy in deepest crisis since WWII or even WWI

BERLIN (AP) — The President of the European Central Bank was quoted Saturday as saying that he still sees Europe’s economy in its deepest crisis since World War II, or even World War I.

German news weekly Der Spiegel reported that Jean-Claude Trichet said that since the beginning of the financial crisis in 2008 “we have experienced and we are experiencing really dramatic times.”

Trichet was quoted as saying that there was no doubt the economy “is in its most difficult situation since World War II or perhaps even since World War I.”

In an interview to be published Monday, Trichet said the recent exacerbation of the eurozone’s debt crisis had provoked a market reaction similar to that at the height of the global financial crisis in 2008.

“The markets didn’t function anymore, it was almost like in the wake of the Lehman (Brothers) bankruptcy in September 2008,” he was quoted as saying.

Alert! Wall Street traders are coming for middle class jobs! Be sure to click the link in the story to read the letter this trader wrote. Whoa, these boyz are REALLY divorced from reality.

http://www.fool.com/investing/general/2010/05/12/this-is-why-i-hate-wall-street-people.aspx

“I will seriously consider eliminating the penny.”
~ Candidate Barack Obama, 2008.

I would like to thank those for their input on my situation posted in yesterdays Bits. Like always, I will take the wisdom of some of the very smart people who post here and leave the rest. I only had 1 reply to 1 comment.

Comment by ecofeco
2010-05-15 19:24:27
Move. Start looking now. Keep your nose out of their personal lives figure out how to get of there soonest.
Reply to this comment
Comment by jeff saturday
2010-05-16 04:41:29
“Keep your nose out of their personal lives”

They told me where they worked and what they did for a living. It`s not like I had them fill out an application with there personal info on it like they had me do. I just moved in March and I am looking for another place now. It would be a lot easier if I didn`t have kids that are in High School like both of these LL`s and a dog like both of these LL`s (once again they told me I didn`t get that from a credit app.) But hey you are right, otherwise the personal lives of these tax paid leeches on society is none of my business.

“The Savings & Loan disaster took around 4 years to bottom out”

That was without gubberment supports…

Last time, the government did everything they could to punish us in real estate,” said Craig Hall, founder of Frisco-based Hall Financial Group. “They caused a deflationary spiral in commercial real estate.

Not so this go-round.

Banking regulators have allowed many lenders to carry bad commercial property mortgages on their books and usually haven’t forced write-downs and foreclosures.

Government-sponsored lenders Fannie Mae and Freddie Mac are making apartment loans…

http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-CREpanel_15bus.ART0.State.Edition1.407ce4a.html

This is not going to end well. At this point, we are beyond the S&L disaster. 10% UE cannot sustain RE purchases.

http://www.nytimes.com/2010/05/16/business/16builder.html?src=me&ref=general

Building Is Booming in a City of Empty Houses

Some of the demand is coming from families that are getting shut out of the bidding for foreclosures by syndicates that pay in cash, and some is from investors who are back on the prowl.

Land and labor costs have fallen significantly, so the newest homes are competitively priced. Some of the boom-era homes, meanwhile, are in developments that feel like ghost towns. And many Americans will always believe the latest model of something is their only option, an attitude builders are doing their utmost to reinforce.

If wire transfers from the USA are Mexico’s 2nd largest source of income behind oil revenues, why aren’t we taxing them more heavily?

They are taking money away from our economy and sending it directly to their home!

If only that money stayed in the US, I bet we could solve a few financial shortfalls…

I disagree with the notion that handing Megabank, Inc a guaranteed spread between the rate at which they lend and the rate at which they borrow from the Fed properly falls under the heading of ‘monetary policy’:

Or how about the term ’systemic theft’? After all, the recipients of the Fed’s wealth reallocation scheme are private corporations, right?

* The Wall Street Journal
* OPINION: THE WEEKEND INTERVIEW
* MAY 15, 2010

The Fed’s Monetary Dissident
‘I really don’t think we should be guaranteeing Wall Street a margin by guaranteeing them a zero or a near zero interest rate.’

By MARY ANASTASIA O’GRADY

Kansas City, Mo.

In the aftermath of the 2008 financial panic centered on Wall Street, it’s easy to forget that this part of America has its own bitter history of wild speculation that ended in disaster. But Kansas City Federal Reserve Bank President Thomas Hoenig remembers the 1970s all too well. It was a lesson that still shapes his thinking about the role of the Fed’s monetary policy in creating asset bubbles.

Mr. Hoenig is more than just one of the 12 regional bank presidents of the Federal Reserve. Right now he’s also a voting member of the Fed’s Open Market Committee, which sets U.S. monetary policy. In recent months he’s been the committee’s sole dissident on the Fed’s promise to keep interest rates “at exceptionally low levels” for “an extended period of time.” At April’s FOMC meeting, Mr. Hoenig objected to that language for the third meeting in a row, warning that those words are inviting a kind of trouble we’ve seen before.

“I’ve been in the Federal Reserve for many years, since 1973, and I started out in bank supervision here at the Federal Reserve Bank of Kansas City,” Mr. Hoenig tells me in an interview in his office. “During the ’70s, we went through a time where interest rates were low” and “through that period I saw banks and others invest [based on inflated] asset values—including farm land, including commercial real estate, including the movement in energy prices and on projections that in 1980 oil would go to $100 a barrel.”

That oil and real-estate boom ended badly, with a rash of bank failures and financial ruin that set this region back considerably. Though Mr. Hoenig acknowledges that he can’t predict bubbles, “when you have an extended period of time with very low interest rates . . . those are some of the necessary conditions that will enable very rapid credit expansion leading to bubbles, perhaps. At least the likelihood of bubbles is greater under those circumstances.”

William McChesney Martin Jr., the longest serving Fed chairman, once noted that it is the job of the U.S. central bank “to take away the punch bowl just as the party gets going.” That’s probably true. But it’s also true that the Open Market Committee is not likely to vote to shutter the bar unless some members have the foresight to think about what the hangover is going to feel like. That’s where Mr. Hoenig comes in.

If the ’70s were his baptism by fire, the past decade has brought him confirmation. “So then we come to 2001-2002,” he continues, “and we have language that says we will have low rates for a considerable period, whatever the language was, and we kept interest rates low and real interest rates negative. The decade of the ’70s and the decade of the 2000s were the periods in which we had, over 40% of the time, negative real interest rates. The consequence of that was bubbles, high leverage and financial crisis.”
…

When inflation eventually hits the U.S. economy, it will be a shock (”no one could have seen it coming”), not a gradual change. How should one guard against it, given that the PM market already has priced in future inflation? I’m thinking of investing in canned tuna futures.

Thoughts?

Economic Preview

May 16, 2010, 10:06 a.m. EDT
Price rollback in U.S. economy
Core inflation could see smallest yearly increase in 44 years

By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) — U.S. consumer prices likely fell in April for the first time in a year, putting further pressure on the Federal Reserve to keep interest rates low to stimulate more growth, economists said.

“We continue to see significant disinflationary pressures in the U.S. economy,” wrote David Resler, U.S. economist for Nomura Securities.

“Inflation is still not a serious worry for U.S. policymakers, who are more focused on shepherding a fragile economy onto a sustainable growth path,” said Meny Grauman, an economist for CIBC World Markets.

The consumer price index, which will be released by the Labor Department on Wednesday, is the most significant U.S. economic release of the coming week. Other numbers to watch include April housing starts on Tuesday, regional manufacturing surveys for May on Monday and Thursday, and the weekly jobless claims data on Thursday.
…

Eddies World gets smaller:

http://www.ajchomefinder.com/AJCHomefinder-sharing_/data-show-how-far-528030.html

So BP has a tube that can reach into the darkest places and suck away oil. Hmmm. Can we extend a similar tube into Capital Hill and suck away all the snake-oil peddlers there?

Here’s a pretty cool index, it measures diesel use by the trucking industry across America- good ‘real world’, hard to spin data:
http://www.ceridianindex.com/

Is there a possibility the international forces who believe in fundamental principles of justice, good and evil, right and wrong, law and order etc. might join together to establish a banking system version of the Nuremberg Trials? I personally don’t see how a rule of law could be established to contain international banking piracy unless something of this nature is done. Can anyone suggest a precedent?

UPDATE 1-
Greece to probe U.S. banks’ role in crisis-PM
Sun May 16, 2010 9:53am EDT

(Adds further Papandreou comment)

By Angeliki Koutantou

ATHENS, May 16 (Reuters) - Greece may investigate U.S. investment banks and their role in the run-up to the Greek debt crisis which has shaken faith in euro zone economies, Prime Minister George Papandreou said in comments broadcast on Sunday.

Wall Street and major banks around the world are attracting scrutiny from regulators who are looking at transactions that occurred in the run-up to the subprime mortgage meltdown and financial crisis.

U.S. prosecutors are already conducting a broad criminal investigation of six major Wall Street banks to determine if they misled investors.

“We are right now having a parliamentary investigation in Greece which will look into the past and see how things went the wrong direction and what kinds of practices were negative practices,” Papandreou told CNN.

“There are similar investigations going on in other countries and in the United States … I hear the words fraud and lack of transparency. So yes, there is great responsibility here,” he said. Asked whether there was a possibility of legal action against the banks, he said: “I wouldn’t rule out that this may be a recourse also … but we need to let the due process proceed and make our judgments once we get the results from the investigations.”
…
Related News

* Greece says to probe U.S. banks role in debt crisis-PM
6:55am EDT
* UPDATE 1-Greek ruling party support falls slightly–poll
4:42am EDT
* Greece says will clean up corruption in politics
Sat, May 15 2010
* UPDATE 2-Greece says will clean up corruption in politics
Sat, May 15 2010
* TREASURIES-Edge up in Asia as stocks fall
Thu, May 13 2010

* Greek PM says U.S. banks may face legal action

Sorry for the repost; the Schadenfreude rush of reading and rereading the story of the criminal probe of Wall Street Megabanks is just too strong to suppress.

Criminal probe targets 6 Wall Street firms: source
James Vicini and Steve Eder
WASHINGTON/NEW YORK

Thu May 13, 2010 8:36pm EDT

WASHINGTON/NEW YORK (Reuters) - Prosecutors are conducting a broad criminal investigation of six major Wall Street banks, including JPMorgan Chase & Co and Citigroup Inc, to determine if they misled investors, a person familiar with the matter said on Thursday.

Deals

The others are Deutsche Bank AG, UBS AG, Morgan Stanley and Goldman Sachs Group Inc, the source said.

The investigation, being conducted with the Securities and Exchange Commission, comes as Wall Street and major banks around the world are attracting scrutiny from regulators who are looking at transactions that occurred in the run-up to the subprime mortgage meltdown and financial crisis.

The source said the investigation includes mortgage-bond deals, that it is in an early stage, and that it might not necessarily lead to criminal charges against all of the firms. The person spoke anonymously because the probe is ongoing.

Separately, New York authorities opened an investigation into whether eight banks, including Citigroup, Goldman Sachs and Morgan Stanley, misled rating agencies with regard to mortgage-derivative deals, a separate source familiar with the matter said on Thursday.

New York Attorney General Andrew Cuomo’s office served subpoenas on Wednesday to four U.S. banks and four European lenders, the source said. Cuomo is also targeting Credit Agricole SA, Credit Suisse Groupe AG, Deutsche Bank, UBS and Merrill Lynch, now owned by Bank of America Corp, the second source said.

The companies that rated the mortgage deals were McGraw-Hill Cos Inc’s Standard & Poor’s, Fitch Ratings, majority-owned by Fimalac, and Moody’s Investors Service, a unit of Moody’s Corp.

The federal and state probes also come less than a month after the SEC charged Goldman Sachs with civil fraud in connection with its marketing of a subprime mortgage product.

A federal criminal investigation of Goldman was first disclosed on April 30, but it had not been previously known that other major Wall Street companies were under scrutiny as well.

JPMorgan has not been contacted by the Department of Justice or any U.S. attorney’s office on these matters and is unaware of any criminal investigation, a spokeswoman said. A spokesman for JPMorgan declined to comment on the SEC investigation.

With regard to the Cuomo investigation, Citigroup spokesman Alex Samuelson said: “We are cooperating with the AG’s office.”

On the criminal probe, Samuelson declined to comment and referred to the company’s most recent quarterly filing with regulators, which says the bank is cooperating with subpoenas and requests for information from the SEC and other government agencies regarding subprime and other matters.

Credit Suisse spokeswoman Victoria Harmon said: “It is our practice to cooperate fully with regulatory authorities.”

Morgan Stanley Chief Executive James Gorman said he had no knowledge of any such investigation, the Wall Street Journal reported on Wednesday.

A Credit Agricole official said it had received the Cuomo subpoena and was cooperating, but wouldn’t comment on the ongoing matter. Spokesmen for UBS and Deutsche Bank declined to comment.

The other banks did not immediately return messages seeking comment. The Justice Department and the SEC declined comment.

Interesting Zestimate comparison between three homes currently for sale on the same cul-de-sac in our ‘hood.

2) The Zestimate range estimates are wide enough to drive a truck through them, suggesting that either the estimates are crap, the market is in a state of severe disequilibrium, or both.

1) 11320 Meadow Flower Pl
San Diego, CA 92127
Property type: Condo (actually an SFR subject to an HOA)
Bedrooms: 4
Bathrooms: 3
Sqft: 1,830
Lot size: 5,227 sq ft / 0.12 acres
Year built: 1985
For Sale: $549,000

Price History
Date Description Price % Chg Source
04/29/2010 Listed for sale* $549,000 74.3% Windermere Exclusive Properties
05/30/2002 Sold $315,000 82.6% Public Record
02/20/1996 Sold $172,500 – Public Record

Zestimate® Range 30-day-change last updated
$491,000 $432K – $530K -$7,000 05/15/2010

2) 11329 Meadow Flower Pl
San Diego, CA 92127
Property type: Single Family
Bedrooms: 2
Bathrooms: 2
Sqft: 1,132
Lot size: 6,185 sq ft / 0.14 acres
Year built: 1985
(This one has a For Sale sign out front, but maybe they took it off the market, as Zilldo shows no list price info?)

Price History
Date 03/20/1997 Sold $149,500 – Public Record

Zestimate® Range 30-day-change last updated
$377,500 $336K – $411K +$4,000 05/15/2010

3) 11352 Meadow Flower Pl
San Diego, CA 92127

Property type: Single Family
Bedrooms: 4
Bathrooms: 2.5
Sqft: 1,835
Lot size: 5,924 sq ft / 0.14 acres
Year built: 1985

Price History
Date Description Price % Chg Source
04/28/2010 Listing removed* – – –
04/02/2010 Listed for sale* $499,500 4.9% Realty Exe
03/04/2004 Sold $476,000 8.4% Public Record
12/19/2003 Sold $439,000 110% Public Record
06/23/1999 Sold $209,000 945% Public Record

Zestimate® Range 30-day-change last updated
$503,000 $448K – $543K +$3,000 05/15/2010
Owner’s estimate $599,119

More welfare money for mortgage owners:

http://money.cnn.com/2010/05/12/news/economy/taxpayer_mortgages/index.htm

As a taxpayer who did the responsible thing I’m beyond disgusted with this. My family will end up paying through the nose because American voters refuse to pay the consequences for participating in a wildly unsustainable system.

Amazing how the world turns upside down every generation. Prediction: Just as we had to relearn capitalism from communist China in the 1990s, we will have to learn how to wean ourselves from the welfare state from European countries by around 2025.

http://thehill.com/blogs/blog-briefing-room/news/98075-thousands-of-bees-swarm-white-house?page=2

Bees are swarming the White House. Not FBs, the actual honeybee kind.

Question by Water Over Gold: On a scale of 1 to 10: How corrupt is Treasury Secretary Tim Geithner?? Follow-up: Should he be fired?

1 – Not corrupt
10 – HE’S A TAX CHEAT WHO OVERSEES THE IRS……..WHAT DID YOU EXPECT??..VERY CORRUPT.

http://www.usatoday.com/money/economy/fed/2010-01-07-geithner-fed-aig_N.htm?csp=34

WASHINGTON — Controversial deals that sent billions of bailout dollars to Goldman Sachs and other banks were kept quiet under pressure from the Federal Reserve Bank of New York, then led by Treasury Secretary Timothy Geithner.

E-mails between lawyers for the New York Fed and bailed-out insurance conglomerate American International Group show AIG wanted to disclose some details about payments it made to banks, including Goldman and Deutsche Bank, to cancel financial deals.

But lawyers for the New York Fed, which engineered AIG’s bailout with the Bush administration’s Treasury Department, told AIG to remove the information from a draft.

A watchdog report has said Geithner and the New York Fed mismanaged the AIG rescue, potentially handing billions more than necessary to banks that have since recovered and are again paying record bonuses.

http://www.huffingtonpost.com/huff-tv/roy-sekoff-on-aig-fed-ema_b_415528.html

HuffPost Editor Roy Sekoff appeared on The Ed Show Thursday to weigh in on news that Tim Geithner and the New York Fed actively worked to keep details of bailed out insurer AIG’s payments to Wll Street banks hidden from the public–even though it was taxpayer money that was being used.

Sekoff contends that this is just more evidence that the government has become “Of the bankers, for the bankers, and by the bankers.”

“The fix is in,” he said.

Best answer:

Answer by Brandon W
10——-Fire his butt

And now, for a more pessimistic look at recent policital developments:

Op-Ed Columnist
The Great Consolidation
By Ross Doutha
Published: May 16, 2010

This feels like a populist moment. Americans are Tea Partying. Greeks are rioting. Incumbents are being thrown out; the Federal Reserve is facing an audit; Goldman Sachs is facing prosecution. In Kentucky, Ron Paul’s son might be about to win a Republican Senate primary.

But look through these anti-establishment theatrics to the deep structures of political and economic power, and suddenly the surge of populism feels like so much sound and fury, obscuring the real story of our time. From Washington to Athens, the economic crisis is producing consolidation rather than revolution, the entrenchment of authority rather than its diffusion, and the concentration of power in the hands of the same elite that presided over the disasters in the first place.
…

Since the U.S. and Asian markets are decoupled, I take this news of a steep selloff on the Hong Kong stock exchange as a sign the U.S. stock market has a great week in store. Start your engines, bovines: Vroom, vroom!

market pulse

May 16, 2010, 10:25 p.m. EDT

Hong Kong shares sell off across the board
By V. Phani Kumar

HONG KONG (MarketWatch) — Hong Kong shares traded sharply lower early Monday as mounting fears about the euro zone and a big drop Friday on Wall Street hit stocks across almost all sectors, with exporters such as Foxconn International Holdings Ltd. fronting the drop. The Hang Seng Index fell 2.1% to 19,732.12, falling back below the psychologically important 20,000 level, and the Hang Seng China Enterprises Index lost 2.9% to 11,254.22. Foxconn (HK:2038 6.22, -0.44, -6.60%) (FXCNY 16.75, -1.29, -7.15%) and Esprit Holdings Ltd. (HK:330 45.45, -3.45, -7.06%) (ESHDF 5.70, -2.45, -30.06%) tumbled 6.8% each, banking major HSBC Holdings PLC (HK:5 72.45, -2.15, -2.88%) (HBC 47.35, -1.21, -2.49%) shed 2.7% and Aluminum Corp. of China Ltd. (HK:2600 6.67, -0.30, -4.30%) (ACH 22.03, -0.40, -1.78%) . Cnooc Ltd. (HK:883 12.44, -0.46, -3.57%) (CEO 162.83, -3.32, -2.00%) skidded 3.6%, as crude-oil prices approached the $70-a-barrel level. China’s Shanghai Composite lost 1.7% to 2,650.71.

Monday Asian stocks as of 8:00 Pacific Time down between 1 and 2%. Gold up nearly 1% to $1241 spot. And cash (short term treasuries) is still king.

Ten other states are considering laws similar to Arizona’s anti illegal alien laws: Colorado, Utah, Idaho, Oklahoma, Minnesota, Maryland, Texas, Michigan, and two others I forgot.

Then there is this event in Louisiana that is stirring things up:

http://tinyurl.com/353meyo

“THIBODAUX — Four immigrant workers were charged Sunday with raping and killing a south Lafourche woman whose body had been found in Golden Meadow a day earlier. “

I’m wondering how Goldman Sachs and friends might be involved in this story about Thai Armed Forces firing on protestors; any leads?

Raw Video: Thai Military Fires at Red Shirts

May 16, 2010

Thailand’s Armed Forces increased pressure on antigovernment, Red Shirt Protesters in downtown Bangkok. The military has come under criticism for using live fire. The following raw video contains graphic images. Viewer discretion is advised.

Must see tee vee: “The Bob Next Door” Simpsons episode.

- Features Bart getting kidnapped by Bob, the evil real estate flipper who recently was released from prison.

- The Simpsons family neighborhood is riddled with homes going into foreclosure.

- The Simpsons are planning a move to Detroit, to start a new life where housing is cheaper.

The Financial Times
Central bankers get with the politics
By Clive Crook
Published: May 16 2010 19:37 | Last updated: May 16 2010 19:37

The financial unravelling of the past three years has cast doubt on some certainties of orthodox economics. Central-bank independence is one. Before 2008, the idea that central banks should be shielded from politics, given an anti-inflation mandate, then left to run monetary policy as they saw fit was little doubted – by economists, anyway. In 2010 this looks neither desirable nor even possible. Governments and central banks would rather avoid a proper discussion of this sensitive subject. But in the light of all that has happened, whether central banks should be above politics is a question that needs a fundamental rethink.

In this respect, the issue is an exception, because most of what you read about the “crisis of economics” is nonsense. Of course, financial regulation needs tightening – but no paradigms need to shift for that. Pro-market orthodoxy will be pressed more cautiously and apologetically for a while, but even its most hyperventilating critics want to tweak not bury it.

Central-bank independence, however, really was an article of faith. The Federal Reserve, heading off demands for stricter audit, and the European Central Bank, under pressure to help the wretched of the eurozone, insist it still is. But they protest too much. Both have proved willing to conduct massive fiscal operations at the behest of treasury ministers. This is not what central-bank independence used to mean. As once understood, the idea is defunct.

Was it flawed all along? The standard argument had two parts. First, in the long term, you cannot raise employment by boosting inflation. Therefore, since low inflation is a good thing, you might as well have it. Second, there is, however, a short-term trade-off: for a while, high inflation can raise employment. Politicians, concentrating on the next election, are likely to exploit this. The long-term outcome will be high inflation with no employment gain. Getting the right result requires governments to insulate control of inflation from politics. The underlying logic was always questionable. Why grant monetary policy this special status? You could make a parallel argument for fiscal policy . The case for a balanced-budget amendment to the US constitution runs along these lines; likewise the case for Europe’s stability and growth pact, for what that was worth. European Union supervision of national budget deficits, recently mooted, aims to counter domestic politics. But the problem is obvious. The net fiscal balance cannot be separated from line-by-line detail of taxes and spending – decisions as political as they come.

Monetary policy was thought separable partly because it seemed simpler: all you have to do is control interest rates. But in a crisis monetary policy gets complicated. Quantitative easing erases the line between monetary and fiscal policy altogether. When central banks support troubled borrowers, public or private, they expose themselves to default risk: again, fiscal policy by another name. Such interventions involve choices about who will be protected and who will pay. Those are, or should be, political choices.

Most fundamentally, why deny politicians access to the short-term trade-off between inflation and output in the first place? Because they will make a mess of it? Let me count the ways in which politicians might make a mess of things. Why not hand every area of policy over to an unelected group of experts who can be trusted to take the long view, confining politicians, if they are needed at all, to an oversight role?

Democracies cannot embrace central-bank independence unreservedly – least of all now. What remains of the case must be based on a contingent weighing of costs and benefits, rather than sharp, principled and ultimately indefensible distinctions.

Monetary policy in ordinary times is more separable from politics than fiscal policy and there are gains from maintaining some distance. One can say that much. But the balance of advantage depends on circumstances, and the particular country. In emergencies, independence has to give way – and it will, because central banks must bend to political demands at such times, at their own initiative or otherwise.

Economists who worry about infringing the independence of the Fed and ECB are right to. When central banks put themselves at the disposal of finance ministries, the results can be calamitous. But in emergencies they cannot stand aside – as the ECB has tried to. The reason is something that simple models of central-bank independence tended to ignore: fiscal incapacity elsewhere in government.
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If Meredith Whitney is correct on the future of small business credit, the housing crash is bound to worsen before bottoming out.

* The Wall Street Journal
* OPINION
* MAY 17, 2010

The Small Business Credit Crunch
The financial reforms currently contemplated will further restrict capital. Expect unemployment to stay high.

By MEREDITH WHITNEY

The next several weeks will be critically important for politicians, regulators and the larger U.S. economy. First, over the next week Capitol Hill will decide on potentially game-changing regulatory reform that could result in the unintended consequences of restricting credit and further damaging small businesses.

Second, states will approach their June fiscal year-ends and, as a result of staggering budget gaps, soon announce austerity measures that by my estimates will cost between one million to two million jobs for state and local government workers over the next 12 months.

Typically, government hiring provides a nice tailwind at this point in an economic recovery. Governments have employed this tool through most downturns since 1955, so much so that state and local government jobs have ballooned to 15% of total U.S. employment.

However, over the next 12 months, disappearing state and local government jobs will prove to be a meaningful headwind to an already fragile economic recovery. This is simply how the math shakes out. Collectively, over 40 states face hundreds of billions of dollars in budget gaps over the next two years, and 49 states are constitutionally required to balance their accounts annually. States will raise taxes, but higher taxes alone will not be enough to make up for the vast shortfall in state budgets. Accordingly, 42 states and the District of Columbia have already articulated plans to cut government jobs.

So the burden on the private sector to create jobs becomes that much more crucial. Just to maintain a steady level of unemployment, the private sector will have to create one million to two million jobs to offset government job losses.

Herein lies the challenge: Small businesses, half of the private sector (and the most important part as far as jobs are concerned), have been heavily impacted by this credit crisis. Small businesses created 64% of new jobs over the past 15 years, but they have cut five million jobs since the onset of this credit crisis. Large businesses, by comparison, have shed three million jobs in the past two years.

Small businesses continue to struggle to gain access to credit and cannot hire in this environment. Thus, the full weight of job creation falls upon large businesses. It would take large businesses rehiring 100% of the three million workers laid off over the past two years to make a substantial change in jobless numbers. Given the productivity gains enjoyed recently, it is improbable that anything near this will occur.

Unless real focus is afforded to re-engaging small businesses in this country, we will have a tragic and dangerous unemployment level for an extended period of time. Small businesses fund themselves exactly the way consumers do, with credit cards and home equity lines. Over the past two years, more than $1.5 trillion in credit-card lines have been cut, and those cuts are increasing by the day. Due to dramatic declines in home values, home-equity lines as a funding option are effectively off the table. Proposed regulatory reform—specifically interest-rate caps and interchange fees—will merely exacerbate the cycle of credit contraction plaguing small businesses.

If banks are not allowed to effectively price for risk, they will not take the risk. Right now we need banks, and particularly community banks, more than ever to step in and provide liquidity to small businesses. Interest-rate caps and interchange fees will more likely drive consumer credit out of the market and many community banks out of business.

Clearly, the issue of recharging the securitization market as an alternative source of liquidity is one that needs to be addressed over time, but politicians should not force rash regulatory reforms when significant portions of our economy remain fragile. The very actions designed to “protect” the consumer, such as rate caps and interchange fees, will undoubtedly take more credit away from the consumer.

It is important now to support any and all lending activities that would enable small businesses to begin hiring again. If the regulatory reform passes with rate-cap and interchange regulation amendments incorporated, small businesses will be hurt rather than helped. Politicians and regulators need to appreciate the core structural challenges facing unemployment in the U.S.

Elected officials know better than most that an employed voter is better than an unemployed voter. They should improve their odds of re-election and do the right thing on regulatory reform.

Ms. Whitney is CEO of Meredith Whitney Advisory Group LLC.

Wake up, America
By Robert J. Samuelson
Monday, May 17, 2010

You might think that Europe’s economic turmoil would inject a note of urgency into America’s budget debate. After all, high government deficits and debt are the roots of Europe’s problems, and these same problems afflict the United States. But no. Most Americans, starting with the nation’s political leaders, dismiss what’s happening in Europe as a continental drama with little relevance to them.

What Americans resolutely avoid is a realistic debate about the desirable role of government. How big should it be? Should it favor the old or the young? Will social spending crowd out defense spending? Will larger government dampen economic growth through higher deficits or taxes? No one engages this debate, because if rigorously conducted, it would disappoint both liberals and conservatives.

Confronted with huge spending increases — reflecting an aging population and soaring health costs — liberals would have to concede that benefits and spending ought to be reduced. Seeing that total government spending would rise even after these cuts (more people would receive benefits, even if benefit levels fell), conservatives would have to concede the need for higher taxes. On both left and right, true believers would howl.

The lack of seriousness is defined by three missing words: “balance the budget.” These words are taboo. In February, President Obama created a National Commission on Fiscal Responsibility and Reform (call it the Deficit Commission). Its charge is to propose measures that would reduce the deficit to the level of “interest payments on the debt” by 2015 so as “to stabilize the debt-to-GDP ratio at an acceptable level.”

Understand? No? Well, you’re not supposed to. All the mumbo jumbo about stabilizing “debt to GDP” and according special treatment to interest payments are examples of budget-speak. It’s the language of “experts,” employed to deaden debate and convince people that “something is being done” when little, or nothing, is being done. For example, Obama’s target for 2015 would involve a deficit of about $500 billion, despite an assumed full economic recovery (unemployment: 5.1 percent). The commission is also supposed to “propose recommendations that meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending,” a mushy mandate. But balance the budget? There’s no mention.
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Maybe Papanderou and Cuomo could team up in their Wall Street probe.

Papandreou: Probe banks
May 16, 2010 11:12 PM | By Reuters

Greece might launch investigations of US investment banks and their role before the Greek debt crisis, which has shaken faith in eurozone economies, Prime Minister George Papandreou said yesterday.

Papandreou told a parliamentary investigation to “see how things went the wrong direction and what kinds of practices were negative”.

“There are similar investigations going on in other countries and in the US,” he said. “I hear the words fraud and lack of transparency.”

He would not rule out legal action against banks.

The EU and IMF agreed to a à110-billion bail-out of Greece recently after Greek bond spreads hit record highs and a default loomed.
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Found on another comment thread:

“I negotiate short sales for a living and I am just flabbergasted that the big banks have outsourced imaging and negotiation to India. i read that Indian prisoners are now handling much of the work outsourced by the too big to fail banks. GD Banksters!”

Can anyone confirm any knowledge of this?