The Housing Bubble

I have a great idea: Why not colonize Detroit with new immigrants from Mainland China?

Canadian house prices fall 0.2 pct in February from Jan-Teranet
Wed Mar 20, 2013 10:23am EDT

(Reuters) - Canadian home prices fell in February from January, the sixth straight monthly decline, and February’s price gain versus a year earlier matched January’s modest year-on-year rise, the Teranet-National Bank Composite House Price Index showed on Wednesday.

The index, which measures price changes for repeat sales of single-family homes, showed overall prices fell 0.2 percent in February from a month earlier.

The index was up 2.7 percent from a year earlier, matching January’s smallest year-on-year gain since November 2009. The annual rate has been slowing for a year for more than a year.

The report added to evidence that Canadian housing market activity has been slowing since the middle of 2012. Economists are debating whether the market will crash or manage a soft landing.
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It’s a perfect storm!

I don`t know which one of Ethel Kennedy`s nephews raped Martha Moxley, broke their golf club while smashing her head in and then shoved the shaft down her throat in 1975. But I do know it was either Tommy or Michael Skakel and it was common knowledge in my town the day after Haloween 1975. Martha didn`t show up for school after that.

Michael Skakel: Brother, Thomas, lied about Moxley

David Hennessey
Published 11:04 pm, Saturday, March 23, 2013

Habitual liar. Capable of elaborate deception. Long neurological and psychiatric history. A history of temper outbursts.

All are phrases Michael Skakel and his defense team — intent on freeing the Kennedy cousin and convicted murderer, even after a decade in jail — are using to characterize Thomas Skakel, Michael’s brother, in a petition filed in state Superior Court in Rockville.

The issues about Thomas Skakel are just some of many that Michael Skakel’s attorneys may raise in an April trial that will focus on the alleged ways in which Skakel’s former attorney Mickey Sherman was ineffective in his defense of Skakel.

Desperate to clear his name and get out of prison, Michael is painting a picture of a dishonest and disturbed older brother, one of several men named in the document as people Sherman should have investigated more fully in connection with the 1975 murder of 15-year-old Martha Moxley.

Though the court document does not accuse Thomas Skakel of the crime, it does question Sherman’s failure to raise issues about him.

The family is saying the trial is about pursuing the legal avenues to set Skakel free. Success at the April 15 trial in Rockville could mean freedom for Skakel, 52, who is imprisoned at McDougall-Walker Correctional Institution in Suffield.

“This is about our brother, Michael, who was wrongly convicted more than 10 years ago for a crime he did not commit,” the Skakel family said. “It is time to correct this horrific injustice.”

http://www.ctpost.com/policereports/article/Michael-Skakel-Brother-Thomas-lied-about-Moxley-4379784.php - -

If Fang Fang sez it, then it must be so.

How is Secretary Geithner’s Dutch auction coming along?

Wall Street Journal - Retirement Is No Holiday From Debt:

“Gone are the days when most Americans went into retirement with little credit-card debt and without a mortgage. Now, for a growing number of seniors, high levels of debt are threatening their retirement dreams.

At any age, debt troubles are a major challenge and can take a heavy emotional toll. But for retirees with limited ability to boost their income and greater likelihood of big medical bills, it’s even more of an uphill battle.

The statistics on debt among older Americans reflect a stark change in their finances. “More people are going into retirement with debt,” says Craig Copeland, a senior research associate at the Employment Benefit Research Institute.

EBRI has been tracking debt levels going back to 1992. In the group’s most recent report, released last month, which captures trends through 2010, the percentage of American families with a head of household aged 75 or older carrying debt rose to 38.5%, up from 31.2% in 2001.

Back in 1992, one quarter of Americans families ages 65 to 74 had debt tied to their home. In 2010, that stood at 41%, including homeowners who are tapping the equity in their homes via reverse mortgages. Meanwhile, for those 75 and older, the percentage with a mortgage or other housing loan was 24%, up from 7% in 1992.

Worse, those carrying high levels of debt compared with their income have also become more numerous. In 1992, 4% of families ages 65 to 74 had debt payments greater than 40% of their income. In 2010, that figure hit 8.3%.”

http://online.wsj.com/article/SB10001424127887324103504578374130882414890.html?mod=googlenews_wsj

So long as today’s Rentership Society members plan to eventually buy a place of their own, the housing market is saved!

The Nation’s Housing: Now it’s a renters’ market
By Kenneth R. Harney, Special to the Times
Saturday, March 9, 2013 3:30am

It’s a single-family renters’ market

WASHINGTON — Over the past five years, according to Wall Street analysts’ estimates, between $7 billion and $9 billion worth of distressed single-family homes have been purchased and converted to rentals by institutional investors — hedge funds, private partnerships of high net-worth individuals and even pools of capital raised among investors in foreign countries.

Unlike traditional “mom and pop” rental home investors, these funds have been scooping up dozens, sometimes hundreds, of properties at a time through all-cash purchases of foreclosures, short sales and bulk packages. Some of the bulk acquisitions have come from the troubled-asset portfolios of financing giants Fannie Mae and Freddie Mac, others from banks that have taken over homes left by defaulters.

Though single-family rental homes have long been a part of the American housing scene, the involvement of large-scale institutional investors is causing the category to explode. According to a new study conducted by pollster ORC International for Premier Property Management Group, a company that works with investors, roughly 52 percent of all rental units in the country are now single-family homes and house 27 percent of all renters.

Recent Census Bureau data cited in the study indicate that the number of single-family rentals grew by 21 percent between 2005 and 2010 — from the top of the boom through the depths of the bust and foreclosure crisis — compared with a 4 percent increase in total housing units.

What’s the significance of this rapid conversion of ownership units to rental? For one thing, according to Mark Fleming, chief economist for CoreLogic, a mortgage and real estate research firm, mass conversions are contributing to the severe declines in homes-for-sale inventories in markets where foreclosure rates were most pronounced during the bust. Lack of inventory, in turn, is pushing up prices of entry-level homes in those areas.

But the ORC-Premier study suggests that the new waves of single-family rentals may also be providing important pathways to home ownership, not only for first-timers but for those displaced by the housing bust. Fully 60 percent of rental home tenants say they plan to buy a house sometime in the next five years By contrast, only 44 percent of multifamily apartment building renters have similar plans.
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Wall Street Journal - Parent Trap: What to Know Before Taking a College Loan

“Diana Jackson had no student debt when she got her Bachelor’s degree from Miami University in Ohio in 1982. But when her daughter graduated from the school in 2011, Ms. Jackson was stuck with about $33,000 in parent loans.

The 51-year-old now faces a monthly payment of nearly $800.

“I’m now looking at being in my mid-70s before I get that paid off,” says Ms. Jackson, an adjunct professor at a community college in Columbus, Ohio. “I am at the point in my life where I would like to be doing some of the things I really want to do. When you’ve got what is essentially another house payment, you can’t do that.”

It’s a harsh math lesson that’s becoming all too common for parents of college kids as incomes stagnate, saving becomes more and more difficult and college costs soar.”

http://online.wsj.com/article/SB10001424127887324532004578362290396501134.html?mod=WSJ__MIDDLENexttoWhatsNewsForth

March 23, 2013, 6:02 a.m. EDT
New Critical Warning as 2013 shocker looms
Commentary: We are at a market top and an economic turning point
By Paul B. Farrell, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — Yes, another dark “shocker” before the end of the year, an unexpected “black swan.” And sadly for Fed Chairman Ben Bernanke — who hopes his “I saved America from economic collapse” illusion stays intact till he leaves office — he’s not going to get a dream ending to his Fed career.

Why? The shocker will happen before his scheduled exit in January, damaging Bernanke’s egocentric “hero’s legacy.”

The big shocker that economist Gary Shilling sees coming will hit before year-end. And it’s what we see as “Critical Warning No. 12” for 2013.

So let’s put all this in context, a quick survey going back four years when Bernanke was reappointed and he began his grand ego trip as the Great Savior of the American Economy, believing he was destined to do the job our dysfunctional politicians were incapable of doing.

True, Wall Street banks love Bernanke’s non-stop cheap-and-easy-money printing presses, even if bad for the rest of America. We called him the “Most Dangerous Man on Earth,” and “Black Swan’s” Nassim Nicholas Taleb was so shocked by the reappointment of Bernanke — certain to become Obama’s “greatest domestic blunder” — that Taleb went into isolation.

Now, four years later, Bernanke is even more rigid and dogmatic, hanging onto former Fed Chairman Alan Greenspan’s failed ideology pumping out bank QE stimulus while creating the illusion that he’s saving America from a dysfunctional gridlocked Washington that does nothing.

History will prove he’s made the economy worse, delaying the inevitable, blowing a new bubble, making the next crash ever bigger.
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S#!t

Bidding wars? Yes, Greater Lowell real-estate market’s back

http://www.lowellsun.com/todaysheadlines/ci_22860722/bidding-wars-yes-greater-lowell-real-estate-markets

LOWELL — Buy and sell like it’s the mid-2000s?

That’s the thinking of several Greater Lowell real-estate agents, who are anticipating the strongest spring housing market since at least 2008. Open houses are well attended, buyer activity is up and there aren’t enough houses on the market to meet growing demand, agents say.

“The Lowell-area market is very busy, with at least one out of every five offers in a bidding war. We haven’t seen that in nine years,” said Stacey Alcorn, owner of RE/MAX Prestige in Chelmsford. “There are low interest rates and having the (presidential) election behind us helps.”

….One local official, however, remains concerned about the high number of foreclosures and how it might affect the market.

“(The number of) foreclosures in the region aren’t as much as from 2008 to 2011, but it’s still a lot more than when the real-estate market is in especially good health,” said Richard Howe Jr., register of deeds at the Northern Middlesex Registry of Deeds. “Foreclosures are still high by historic standards, and every foreclosure tends to be a drag on the price appreciation in the vicinity. It’s also a signal that a lot of people are still underwater on old loans.”

From 2001 to 2005, which was a healthy real-estate market, the registry district of Lowell and nine surrounding towns had fewer than 50 foreclosures per year, Howe said. But the number skyrocketed to 602 in 2008 and came in at 342 last year. In the first two months of 2013, there were 34 foreclosures in the district.

“Whereas in a really good year, there are less than 50 foreclosures in 12 months, so we’re not there yet,” Howe said. “There are signs of increasing sales — I’ve seen some deeds recorded in Lowell at pretty good prices and that’s a good sign. However, quite a few properties are going for low prices, which means the sellers are not getting the value they purchased at.”

You Be The Judge: Is The Housing Market Really Improving?

http://www.npr.org/2013/03/21/174873797/you-be-the-judge-is-the-housing-market-really-improving

This week, optimists had no trouble finding fresh evidence to suggest that the housing market is recovering.

On Thursday, they learned from a Realtors’ report that existing home sales hit the highest level in more than 3 years. And earlier this week, a Commerce Department report showed homebuilding permits have been rising at the quickest pace since June 2008.

But not everyone is convinced that the sector’s momentum has staying power. Skeptics point to reasons why the housing sector might falter, just as it has several times over the past s

NYTimes: Mortgage’s future looks too much like the past

IN a perfect world, policy makers, legislators and concerned Americans would have spent the last few years conducting an honest dialogue about two important issues: how to resolve Fannie Mae and Freddie Mac, the government-owned mortgage finance giants, and how to create a housing finance system that would serve borrowers without imperiling taxpayers…the future of housing finance in this country seems to be coming down to two taxpayer-backed concepts. One is the status quo, with Fannie Mae and Freddie Mac continuing to back the vast majority of mortgages. The other is a newly conceived public guarantor with some of the same problems that got Fannie and Freddie into trouble.
Let’s begin with the status quo. The taxpayer rescue of Fannie and Freddie in September 2008 has cost $137 billion so far. While this has been paid down from an initial $187.5 billion, taxpayers aren’t likely to get their money back anytime soon. Last fall, the regulator charged with overseeing Fannie and Freddie estimated that the taxpayer bill for the companies could be $200 billion by the end of 2015.

Still, Washington has shown little interest in winding down Fannie and Freddie. The ostensible reason is that there would be no mortgage market without them; private lenders are still unwilling to make home loans that they want to hold as investments, so Fannie and Freddie still have to buy or guarantee them.

The second option is outlined here PDF download

Bloomberg, mayor group tout big gun control push

12 hours ago

NEW YORK (AP) — A new $12 million television ad campaign from Mayors Against Illegal Guns will push senators in key states to back gun control efforts, including comprehensive background checks.

New York City Mayor Michael Bloomberg announced the ad buy Saturday — just days after Senate Democrats touted stronger background checks while acknowledging insufficient support to restore a ban on assault-style weapons to federal gun control legislation.

“These ads bring the voices of Americans — who overwhelmingly support comprehensive and enforceable background checks — into the discussion to move senators to immediately take action to prevent gun violence,” Bloomberg said in a statement issued by the group he co-founded in 2006.

The two ads posted on the group’s website, called “Responsible” and “Family,” show a gun owner holding a rifle while sitting on the back of a pickup truck.

In one ad, the man says he’ll defend the Second Amendment but adds “with rights come responsibilities.” The ad then urges viewers to tell Congress to support background checks.

In the other ad, the man, a hunter, says “background checks have nothing to do with taking guns away from anyone.” The man then says closing loopholes will stop criminals and the mentally ill from obtaining weapons.
——————————————————————————–
Bloomberg, Biden warn of political price for opposing weapons ban

By Kasie Hunt and Carrie Dann , NBC News

Days after lawmakers sidelined a proposed assault weapons ban, Vice President Joe Biden and New York City Mayor Michael Bloomberg on Thursday offered a stern warning to Congress: there are still political consequences for opposing the measure.

“Even though restrictions on military-style weapons will not be part of the bill that goes to the floor of the U.S. Senate, it will get a vote by the full Senate as an amendment to the bill. And everyone’s going to have to stand up and say yea or nay, and then the rest of us have to decide just how we feel about people and their stands,” Bloomberg said at a New York press conference with Biden and several family members of children killed in last year’s Sandy Hook Elementary shooting.

http://firstread.nbcnews.com/_news/2013/03/21/17403092-bloomberg-biden-warn-of-political-price-for-opposing-weapons-ban?lite - 60k -
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Sorry about the infowars link but for some reason the (AP) nbcnews.com, CNN, NYT etc. did not run this story.

Decorated Combat Veteran Arrested: Charged With 5 Felonies For Possession of (empty) AR Magazines

Robert Richardson
Off Grid Survival
Feb 1, 2013

In the latest attack on the American people, a decorated War Hero has been arrested and charged with five counts of third degree criminal possession of a weapon, for having empty 30 round AR-15 Magazines in his vehicle.

http://www.infowars.com/decorated-combat-veteran-arrested-in-new-york-charged-with-5-felonies-for-possession-of-ar-magazines/ - 51k -

Future of the Housing Market Is ‘A Great Unknown’: Robert Shiller

http://finance.yahoo.com/blogs/daily-ticker/future-housing-market-great-unknown-robert-shiller-133256983.html

There’s no doubt the housing market is recovering. New and existing home sales are well above the levels of a year ago and inventories are at their lowest level in 13 years. Plus, home prices are 7% higher than they were a year ago, according to the latest S&P/Case-Shiller report.

But along with this good news are growing concerns that another bubble is forming in the housing market. Feeding those fears is a growing number of all-cash purchases for homes—primarily by speculators. They account for 27% or more of existing home sales every month over the past year, according to the National Association of Realtors.

Related: Housing ‘Taking a Breath’ as Starts and Confidence Decline

The housing market “is becoming more of a speculative asset,” says Robert Shiller, co-creator of the S&P/Case-Shiller Index and a professor of economics and finance at Yale University. He expects the market will advance in the short-run but beyond that there’s “a great unknown.”

90% of Foreclosed Properties Held Off the Market

http://realestate.aol.com/blog/2012/07/13/shadow-reo-as-much-as-90-percent-of-foreclosed-properties-are-h/

“With 20-30 million excess empty housing units in the US, housing demand fallen to 1997 levels and household formation at multi-decade lows, housing prices have a very long way to fall.”

“The Truth About The ‘Housing Bottom’: Home Prices Across The Northeast Are In Total Freefall

If you buy a house today at current grossly inflated asking prices, you’re going to lose so much money that you’ll never recover from the loss.

What’s really going on in California

California imposed a new law on banks innocuously called “Homeowners Bill of Rights” which forces banks to switch over to a judicial foreclosure process, which they can opt to do on their own, but takes a year or more to renegotiate contracts and compensation structures for the foreclosure law firms who do all the leg work for the banks. And while those changes are being made… it makes it appear that foreclosures have slowed down dramatically in the state.

The reality?

Defaults (undeclared) are spiraling upward that yet have to pass through the foreclosure pipeline.

The truth?

California is still the highest foreclosure state in sheer volume and percentage.

The low-down?

Resale housing is still massively overpriced as a result of unprecedented interference by individual states and the federal government. The market distortions will be removed and the down draft will continue allowing the market to correct.

With millions of excess empty houses and housing demand at 17 year lows, housing prices have a long way to fall. A very long way to fall.

(I’m hoping I have the date right.)

Happy Birthday Ben!!!!!!!

I hope you have a fantastic year and make it out to the (surprisingly snowy today) midwest soon!

Just remember: You’re not another year older….you’re another year closer to affordable housing!

The Muppets - Animal & Rita Moreno - Fever.avi - YouTube
http://www.youtube.com/watch?v=b_IpgKzy75E - 188k -

Parents: Beware the student debt trap form of moral hazard. (Speaking to myself as well as anyone else who cares to heed my warning…)

AL’S EMPORIUM
March 23, 2013, 10:08 p.m. ET
Other People’s Money
By AL LEWIS

Let’s face it: $300,000 a year isn’t enough.

When Federico Buenrostro Jr. left his post as chief executive of the world’s largest pension fund in June 2008, he said he was retiring from public service “to pursue private-sector opportunities.” He was making only about $300,000 a year in an industry where executives at his level made millions.

Never mind that before landing the top job at the California Public Employees’ Retirement System he was just a bureaucrat, the No. 2 guy in the Department of Personnel Administration in California. You take a pencil pusher, ask him to watch over nearly a quarter trillion dollars of other people’s money, and bam, the value of his alleged contributions to society just skyrockets.

When Mr. Buenrostro cut the cord at Calpers, it wasn’t because investment performance was slipping; it wasn’t because of dicey real-estate investments at the top of the market; nor was it because of divisiveness on Calpers’s board—all of which the press and others speculated. “Media speculation about reasons for my departure are unwarranted and incorrect,” Mr. Buenrostro said.

The day after Mr. Buenrostro left Calpers, he went to work for a firm called Arvco Capital Research in Nevada. Arvco had been founded by Mr. Buenrostro’s friend and former Calpers board member Alfred J. Villalobos.

Arvco was an agent that helped private-equity funds get a hold of the pension savings of public employees—the little people’s money that big people like to play with.

Last week, a federal grand jury in San Francisco charged Mr. Buenrostro, 64, and Mr. Villalobos, 69, with fraud. The indictment alleges the two forged documents to certify to federal regulators that Arvco had obtained required disclosure letters from Calpers to serve as a placement agent. The indictment says these faked documents allowed Arvco to bag $14 million in fees for getting Calpers to funnel money to New York-based private-equity firm Apollo Global Management.

Apollo uses the money to invest in all kinds of important companies. For instance, it owns burger joints Carl’s Jr. and Hardee’s. Last week, a bankruptcy-court judge approved its investment in Twinkies, Ding Dongs and whatever else is left of Hostess Brands.

The allegations match lawsuits already filed by California and federal regulators. One day, these guys were calling themselves public servants, the next they were collecting fees for getting the savings of public employees into private-equity firms.

Corrupt as this may sound, it would have been perfectly OK if they’d received the required permissions. Prosecutors alleged they forged that part. They deny wrongdoing.
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Resale Housing: “The Great realtor Rip-Off

http://www.economist.com/node/21554204

KEYRAAAAAAAAAAAAAAAASH!

That’s the sound of housing prices crashing through the floor in your neighborhood.

Buyer beware.

‘Fess up: How many of our female posters and self-disrespecting male posters would vote for Hillary Clinton if she were the Democratic candidate in the next presidential race, just for the chance to see a female in the WH for the first time in history?

Isn’t it interesting with all the efforts to prevent a deflationary spiral, deflation is still raging…..

EU deal emerging to shut Cyprus bank, inflict losses
By Annika Breidthardt and Jan Strupczewski
BRUSSELS | Sun Mar 24, 2013 8:36pm EDT

(Reuters) - Cyprus reached an outline deal with international lenders for a 10 billion euro ($13 billion) bailout that would shut down its second largest bank and inflict heavy losses on uninsured depositors, an EU spokesman said early on Monday.

The tentative deal emerged after fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund - hours before a deadline to avert a collapse of the banking system.

The draft proposal, which still has to be approved by euro zone finance ministers, would save the Mediterranean island from financial meltdown by winding down Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a “good bank”.

Deposits above 100,000 euros, which under EU law are not guaranteed, would be frozen and used to resolve debts, and Laiki would effectively be shuttered. The EU spokesman said no levy would be imposed on any deposits in Cypriot banks.
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Lots of Democrats want DeMarco fired if he doesn’t hand out $100K+ in writedowns to underwater home owners.

White House Urged to Fire a Housing Regulator
By ANNIE LOWREY
Published: March 17, 2013

WASHINGTON — Prominent state attorneys general are calling on President Obama to fire the acting director of the Federal Housing Finance Agency and name a new permanent director, arguing that current policies are impeding the economic recovery.

Under its current leader, Edward J. DeMarco, the F.H.F.A., which oversees the bailed-out mortgage financiers Fannie Mae and Freddie Mac, has refused to put in place a White House proposal to reduce the principal on so-called underwater mortgages — a move that might prevent foreclosures and thus save the mortgage giants money, but also might expose taxpayers to additional losses.

Led by Eric T. Schneiderman of New York and Martha Coakley of Massachusetts, the attorneys general argue that writing down the principal on underwater mortgages — those where the outstanding mortgage is greater than the current value of the home — would aid the recovery. They note that write-downs were a central part of a multibillion-dollar mortgage settlement that 49 state attorneys general negotiated with five major banks a year ago. And they say the White House should name a director to take that action.

“Our nation’s economy will never fully recover until we address this foreclosure crisis,” Ms. Coakley said in a statement. “Fannie Mae and Freddie Mac have been an obstacle to progress for far too long, and it is time for new leadership and a new direction to ensure that homeowners receive this important relief.”

Mr. DeMarco has held the position at the head of the F.H.F.A for more than three years. In the last year, especially, he has clashed with the administration over the issue of write-downs, also called principal forgiveness.

The Treasury Department has argued that write-downs would save money by reducing the chances homeowners would default. An F.H.F.A. analysis released last year seemed to show that a carefully directed program could save Fannie and Freddie money. But Mr. DeMarco has rejected the idea on the grounds that it would expose taxpayers to more losses. Fannie and Freddie have already required tens of billions of dollars of taxpayer aid.

The administration has frequently criticized Mr. DeMarco’s decision. “F.H.F.A. is an independent federal agency, and I recognize that, as its acting director, you have the sole legal authority to make this decision,” Timothy F. Geithner, who stepped down as Treasury secretary in January, wrote Mr. DeMarco last year. “However, I do not believe it is the best decision for the country.”

Yet the White House has failed to replace Mr. DeMarco.
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Beware the Kondratiev tsunami!

The Coming Crash In The Bond Market
Mar 10 2013, 09:22

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…)

It is my contention that the 70-year debt supercycle has come to an end.

To put the current financial situation in perspective, here’s a long-term history of the debt-to-GDP ratio, which reached a record high at the beginning of the current crisis. It was a dramatic change in 2009, unlike anything since the aftermath of the Great Depression.
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Warning Stock and Bond Market Crash
Stock-Markets / Financial Crash Mar 22, 2013 - 04:06 PM GMT
By: Dr_Martenson

After the shot across the bow in 2008, you might have expected that regulators and market participants would use the experience to change for the better, to become more prudent, and to reduce the sorts of risky behaviors that almost crashed the entire system.

Unfortunately, you’d be wrong.

LTCM and Moral Hazard

In 1998, there was a firm called Long-Term Capital Management (LTCM, as it is commonly referred to today), staffed by the best of the best, including one of the very top bond traders that Wall Street ever produced as well as two future Nobel laureates.

LTCM boasted of its use of complex models that were supposed to generate outsized returns while operating with a risk-minimizing profile that, mathematically, was only supposed to experience severe losses so infrequently that the periods between them would be measured in the thousands of years.

Unfortunately for LTCM, their models badly underestimated real risks, and their leverage was such that their original $1 billion in capital turned into total losses of $4.6 billion in a little over four years, nearly dragging down the entire financial system in the process.

While this experience has much to teach us in the way of market risk, hubris, and the dangers of leverage, it really needs to be understood in terms of the rise of moral hazard on Wall Street. The main lesson that Wall Street seems to have learned from the LTCM disaster is that if the wipe-out was big enough, the Federal Reserve would swoop in and rescue things.

Message received: Go big or go home. Take on as much risk as possible, secure in the knowledge that if things got bad enough, the Fed would simply print up what was necessary to make all the players whole again, with perhaps one core player or institution thrown under the bus for the sake of appearances.

Fast forward to 2008, and that exact experience was replicated perfectly, thereby reinforcing Wall Street’s perception that it is best rewarded by chasing big risks and big returns. And if things didn’t go as hoped, the good ol’ Fed would always be there to push the Reset button.

Since nobody of consequence went to prison after the overt fraud and excesses of the housing bubble were revealed, and no bank had to give back a single penny of their ill-gotten and outlandish profits related to such behaviors, one does not have to be a genius to guess what happened next.

Banks took the taxpayer funds, paid themselves gigantic bonuses, and immediately began taking on huge new risks. I mean, why not? If you had a rich uncle that promised to let you keep any gains from your trading portfolio but would absorb any losses you might incur, you’d soon be swinging for the fences like a pro.
Back to the Future

This is why today, instead of having been reduced, financial risks loom larger than ever. It’s why the next downturn will be just as bad – if not worse – than the last one. Nothing has been learned, and nothing has been changed. The most basic of human behaviors, the tendency towards moral hazard (so well understood by the insurance industry) has been completely overlooked by the Fed. Once again, that institution, entrusted with so much, has been exposed as being rather intellectually shallow, or at least devoid of common sense.

I’ll leave you with this: The very same Fed that could not and did not see that a housing bubble was forming is now equally complacent about corporate bond yields touching all-time record lows across the entire spectrum, right down to CCC junk that sits one skinny notch above default. Stocks are for show, but bonds are for dough – and with bonds now priced for perfection if not for something even better, there’s no room for error.
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Mismanaged State Pensions Bill Taxpayers for Shortfall

Photo: iStockphoto/The Fiscal Times

Type Size:

By ERIC PIANIN and DAVID FRANCIS, The Fiscal Times
March 22, 2013
For years, state and local governments have been playing imaginative or patently dishonest games with their pension funds, thinking they could get away with it. But now the chickens are coming home to roost, as federal authorities have begun cracking down on corruption and mismanagement.

The modus operandi was much the same in state after state: government officials underfunding or skimming retiree pension funds to meet other more immediate costs; financial officers papering over or hiding the extent of the funding shortfalls; and private financial managers exaggerating the return they could deliver on pension fund investments while often leaving the fund vulnerable to unexpected market swings.
State pensions, still feeling the pain of the Great Recession, are now underfunded to the tune of more than $4 trillion, according to State Budget Solutions, a non-partisan fiscal watchdog.
In the past week alone, government officials and private investment groups with major government contracts have learned hard lessons about the risks of playing fast and loose with the government retirement systems:
• The Securities and Exchange Commission charged Illinois with securities fraud following years in which state officials misled investors and shortchanged the state pension system and stuck future generations of taxpayers with the staggering bill. The suit was part of a larger push by the SEC to bring greater transparency and accountability to the municipal bond market, according to the Wall Street Journal.
• A federal grand jury indicted the former CEO and former board member of the $232 billion California Public Employees’ Retirement System on bribery and influence peddling charges. The indictment accuses them of unduly using their influence to defraud a giant equity firm of millions of dollars.
• The nearly bankrupt city of Detroit was placed under a state financial overseer after years of mismanagement, corruption and obfuscation of major obligations – including billions of dollars in retiree health costs. Federal authorities meanwhile charged two former pension officials with bribery and accepting kickbacks.
These are arguably among the worst cases of state and municipal malfeasance in the handling of public employees’ vital pension programs, but experts say they represent the tip of the iceberg. Around the country, state and local governments are cutting corners and taking big chances to meet pension investment goals. Absent reforms or a turnabout in current practices, many state employees will end up with far less than promised when they retire.
“There are a lot of governmental pension plans that have been chronically underfunded, and this is a big problem,” said Chester Spatt, a former chief economist for the SEC and now the director of the Center for Financial Markets at Carnegie Mellon University’s Tepper School of Business.
NO OVERSIGHT
A big part of the problem has been shoddy accounting practices by state and municipal officials who have operated with fewer restraints than financial officers in the private sector, Spatt said. Moreover, many states and local governments have misled investors by exaggerating the projected return on their bonds and securities.

Nowhere is the problem greater than in Illinois, where Democratic Gov. Patrick Quinn is facing the biggest crisis of his administration. Quinn inherited the budget crisis when he took office back in January 2011, at a time when many state governments were struggling to make ends meet.
Quinn and the Democrat controlled state legislature moved swiftly to pass a major tax increase to offset a budget deficit of at least $12 billion, or about 34 percent of the $35 billion general fund budget – plus another $6 billion of debt carried over from the previous year. That debt consisted of unpaid bills to public universities, schools, social service agencies, druggists and vendors.
On top of that, the state employee pension fund was woefully underfunded to the tune of $80 to $90 billion, and the state’s once shining credit rating was dangerously on the skids, which meant paying high interest rates to borrow money. “It’s the enormity of the deficit,” when compared to the overall budget, that sets Illinois apart from many other states, Richard F. Dye, of the University of Illinois’ Institute of Government, said at the time.
Even with the new tax revenue in place, Illinois has struggled to address its long term pension program problems. Standard & Poor’s downgraded Illinois Jan. 25 to A-, six steps below AAA, after lawmakers were unable to whittle down a backlog of $9 billion of unpaid bills or produce a plan to shore up the pensions, which have just 39 percent of assets needed to cover projected obligations, according to Bloomberg. No other U.S. state has a ratio that low.

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But the illegal practices that triggered last week’s SEC sanctions date back to 2005 and the administration of disgraced – and now imprisoned – Democratic governor Rod Blagojevich. The SEC charged that the state misled investors from 2005 to 2009 about shortfalls in retirement funds. Illinois failed to disclose how much it was underfunding its plans as it sold $2.2 billion in bonds, according to the SEC. The fifth-most-populous state became the second to settle over such charges. New Jersey resolved a similar case in 2010, as did San Diego in 2006.
Illinois neither admitted nor denied the SEC’s findings in the settlement, which didn’t include fines, according to a statement from Quinn’s Office of Management and Budget. However, the state is paying a steep price for its misdeeds in operating the pension fund. Investors demand 1.3 percentage points of extra yield to own 10-year debt of the state and its localities, almost seven times the average in 2005, when the SEC said the inadequate disclosure began.
“I can tell you it’s troubling because we have made promises we can’t keep in Illinois,” said Sen. Richard J. Durbin, D-Ill, the second-ranking Democrat in the U.S. Senate. “And the people who are affected by those promises have done everything they were asked to do. They’ve made all the payments they were expected to make, and many of them are in a vulnerable position personally.”

1|2CalPERS SCANDAL ILLUSTRATED BROADER PROBLEMS
For years, the California Public Employees’ Retirement System (CalPERS) was considered one of the best run in the nation. It was the largest public fund, with nearly $180 billion in assets at the end of 2008. It served 1.6 million workers, and had a reputation for taking a careful, balanced investment approach that provided consistent returns. Also absent were rumors of corruption.
That all changed in 2011, when the Justice Department launched an investigation into how the fund was managed. What followed was a scandal that followed a familiar script: former CalPERS CEO Federico Buenrostro Jr. and former board member Alfred J.R. Villalobos steered money to Wall Street investment houses in exchange for payouts. They also conspired to hide the payments, creating false document trails to mislead investigators.
According to Edward Siedle, a forensic expert who specializes in pension fraud crimes, the crimes committed in the CalPERS scandal are common in cases of pension abuse. He said lack of sufficient regulation allows board members to act without oversight.
“Funds aren’t regulated by any comprehensive federal or state laws. They’re subject to a patchwork or quilt of city, state or county laws that more often than not don’t have the power to oversee fund activities,” he said. “If you want to know if a fund can invest in derivatives, there’s almost certainly no law that requires the board to tell you.”
Siedle also said that the very make up of pension boards invite the prospect of mismanagement. “Pensions boards are composed of firefighters, kindergarten teachers, and garbage collectors,” he said. “There is no requirement that these boards require any kind of financial expertise.”
But mismanagement does not just exist on the public side, Siedle said. Money managers know they aren’t dealing with the most sophisticated investors when they pitch pension boards. They often oversell projected returns, making promises that they are unlikely to keep.
“It is often said that public pension boards are the dumbest investors in the room. If you want to pitch a billion dollar scam, are you better pitching it to a wealthy person or a bunch of schoolteachers or firefighters?” Siedle asked. The burden falls on taxpayers when money managers fail to deliver.
The financial crisis that led Republican Gov. Rick Snyder to installing bankruptcy attorney Kevyn Orr as emergency czar of Detroit last week was decades in the making and had much to do with an economy buffeted by a declining auto industry, white flight to the suburbs, widespread poverty and crime, and government corruption. But a state-appointed review board also found astounding examples of government mismanagement, particularly in the handling of employee pension and retiree health programs.
These included the hiding of $7.2 billion in retiree health costs until it was discovered by an outside consultant in 2005 and the use of tricks to hold down salary costs in the short term by offering employees inflated pension programs down the road without the resources to make good on them.
Last week, Ronald Zajac, the long-time general counsel of Detroit’s two pension funds, and Paul Stewart, a former trustee of Detroit’s Police and Fire Retirement System, were indicted on federal charges of taking part in a bribery and kickback scheme involving more than $200 million in Detroit pension fund investments.
A distraught Mayor Dave Bing issued a statement saying Detroiters deserved honest government, and that “when the public trust is betrayed, justice must prevail.”

This story was updated at 11:30 a.m.

Read more at http://www.thefiscaltimes.com/Articles/2013/03/22/Mismanaged-State-Pensions-Bill-Taxpayers-for-Shortfall.aspx#Rb53Cr2RdKRMrzs7.99

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Bank Manager Verifies Cash Withdrawal Limits & Reduced Hours Coming To US Banks Within 60 Days

Wednesday, March 20, 2013 22:19

SteveQuayle.com

Gentlemen:
Just received a call from a highly agitated bank manager who stated that within 60 days, banks will be greatly reducing their hours, days of operation, amount of withdrawals and a requirement to fill out “paperwork” if the amount is questioned by bank officials. Unless the form is completed, money will not be disbursed. What really irritated this manager is that after hearing our statements on the air, and receiving years of assurance that our positions and contacts were so much bravo sierra, now he hears from corporate people that it is apparently true after all. He said, “screw them, grab the money while you can.” The parameters given were banks open two days a week for four to five hours with below minimum staffs, increased security and greatly reduced amounts of actual cash in the vault. Amount of withdrawal will be held to $500-2000 per day per customer account–not customer. So my account could only have either my wife or I withdraw, not both. That level could change at ANY time. There is no plan (at least known) for automatic confiscation from accounts–yet, and he said that the banks hold the “ownership” authority and final disposition of any items found in safety deposit boxes. (surprise, surprise!) Withholding mortgage payments could result in expedited (30) day foreclosures and 15 day Sheriff’s locks on your front door.
The Federal Reserve could and will initiate other more draconian restrictions on all aspects of “private” banking and access to any property held by banks. It could include forfeiture of your primary (paid for) residence if your summer cottage has a mortgage and you fail to pony up to keeping it current or any forthcoming restrictions on your accounts.
Clearly, the only option is to close accounts or only keep funds that can be paid instantly to keep electric, water, or other critical accounts paid. Cash will be drying up—so, unless people hold precious metals, bullets (the new currency) or medicines, etc., you are screwed. Barter will be king. As the Colonel said yesterday, “the universe is contracting into the black hole. There is no way to escape its pull.” (Political/economic/social order black hole) Received at 1545 hours
20 March 2013
The Lawman

http://www.stevequayle.com/index.php?s=33&d=325

Mar 20, 2013