This page contains a single entry from the blog posted on January 2, 2010 12:40 AM. The previous post in this blog was Jerome Kersey may have to suit up. The next post in this blog is Can you hear me now?. Many more can be found on the main index page or by looking through the archives.

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Saturday, January 2, 2010

Let's get it over with

There's still some nasty, nasty stuff that's got to happen before the American economy can start moving forward again. All the gimmicks that the geniuses in Washington, D.C. are throwing at our problems are just delaying the inevitable. Here's one example; several others also come to mind. Why don't we have one really bad year, rather than three more years of treading water followed by a decade of steady-to-steep decline?

The administration is painting the many stopgap measures as being protective of the poor and the middle class, but after all the shenanigans that have gone on with the feds and the banks, it's hard to buy that line, even for a minute. My nose tells me we're propping up housing because some filthy rich and unduly powerful people want it that way.

Comments (23)

yeah, I have been seeing more commercials lately that say "Its never been a better time to buy a home" and they go on about the tax credits for home buyers. I just dont get it. Thats the stuff that got people in the trouble they are in now.
I still dont own a home. Poor families qualify for things like "Habitat for Humanity" programs and the rich can afford to buy whatever they want. Middle class families have been getting hosed for a long time. Even some of the nicer apartment complexes in this area have "income restrictions" that my family doesnt even qualify for- my wife and I make too much. And the sad part about that is, our rental townhouse is cheaper than every one of those places.


Are you referring to low income housing built under the auspices of "urban renewal" with Tax Increment Financing (TIF)?

I can think of the apartment complex near PGE stadium off of Burnside right along the MAX tracks.

As for "nicer" what do you mean?

Nice for me is living in an area where I can get 8 hours of uninterrupted sleep from roughly 10am-6pm because I work graveyards. Nicer for me has to do more with my neighbors than the age of the housing unit.

As for the mortgage meltdown, will Fannie Mae and Freddie Mac ever be able to get out of conservatorship and resume as Government Sponsored Enterprises?

My personal take is that government sponsored enterprises worked when the economy was well and could weather minor recessions due to a direct line to government funding. However, now that they are under conservatorship, I surmise that they will clean their books with tax payer dollars and resume in 2 to 3 years as if nothing happened.

How does it work once a government sponsored enterprise goes into conservatorship? How is it different than a wholly private enterprise such as AIG?

I am in favor of letting the market sort itself out, which would entail letting AIG, Fannie Mae, and Freddie Mac to fail, enter bankruptcy and then cease to exist if their restructuring in bankruptcy proves that they have zero net worth to attract investors.

Finally, with regards to "Lets Get It Over With," I am fully expecting Movie Gallery, Inc. who bought out Hollywood Video and then entered bankruptcy back in 2007 to enter chapter 11 bankruptcy before March 2010. By June 2010, I will be surprised if Movie Gallery and it's brands are still around.

Then we have $12 Trillion of National Tab coming up for a roll-over and the Premier has already said they won't be game for it again.

Rumor has it that Michelle gave each of the girls $500 in cash for Kwanzaa with a note suggesting they spend the dollars before they expire.

This year we will see a tidal wave of more homes falling into "short sake status" ...There are millions of deals coming due this year that are those "IN LA LAH LAND" 5 year interest only deals, no down deals etc. They will walk away from these properties and the banks will be knee deep in "What do we do know?"......This will be a major deal in 2010. The bottom line is until this country gets hammers swinging again, we will be struggling along. Obama blew it big time on that huge first round of cash. He should of been focused on roads-bridges-schools-wind. Last week the 2 liberal papers (NY TIMES & LA TIMES) really threw him under the bus for horrible leadership decision making. He better wake up before it is too late. He is starting to make the idiot Bush look better.

sorry for typos....I'm half awake & dead.

I'm glad to see mention of those short-term rollovers. Ever since I read about them, I've been wondering how many people know.
The articles say the U.S. Treasury must rollover 2 trillion dollars of debt in 2010. That is in addition to 1.5 trillion for the "ordinary" budget deficit.
So just to open the doors for business in 2010, we have to come up with 3.5 trillion.
That is a significant percentage of GDP - 30% to 40% according to one article. I've seen both numbers in the same article.

Economics reporting is...well, there'll be time to discuss that later around the campfire.

Anyway...the world isn't going to buy that much more of our debt. We're rapidly arriving at a place where an investor would be afraid that the debt will never be paid off - or just as bad - paid back with dollars that have no value anymore.
So we're going to be forced to print 3.5 trillion out of thin air just for this year. And that is going to put a lot of downward pressure on the dollar. At some point a panic to dump dollars could ensue. The big holders of our debt like China could one day see this as cutting their losses. China is in a dollar trap but at some point you take what you can still get and flee.
If America was a private business and you were auditing this, what would you say? Aren't we - and I really don't know the answer to this - aren't we going bankrupt?

IMO we're living a movie where the government is keeping from the public the true extent of a catastrophe in hopes of avoiding panic and an even worse scenario.

Out in the real world are signs of very bad trouble ahead.
One is the vanishing of venture capital and business start ups over the past few years to replace those lost.
This natural shedding and replacement process has been severely crippled on a global scale and it will take a number of years to regenerate this vital economic component.

Making it worse than it needs to be are our government officials who should be pulling out all the stops to enable business creation and expansion but are instead focusing nearly entirely on preserving and expanding government.

Oregon is among the worst example of this.

Try also, enabling the preservation and expansion of existing mega-corporations and institutions regardless of their crimes or viability.

It's a sick, symbiotic relationship that doesn't consider the needs of taxpayers in any realistic way.

"Try also, enabling the preservation and expansion of existing mega-corporations"

Oh brother.

If we had government doing what it should instead of the vast mission of endless social equality we'd have a far more efficient and effective SEC and other regulating bodies.

Instead we have the government gone wild dysfunction that can't do anything effectivley.

Again, look at Oregon for starters.

These so-called "loan modification" programs are a sham because they don't address the fundamental problem: real estate prices were driven by loose credit rather than a borrower's true ability to pay the loan. Home buying became more about getting the biggest house possible as opposed to the house one could truly afford. Unfortunately, many borrowers behaved foolishly in thinking that they could pay $3,000 plus a month mortgage payments with incomes that could support half of that. Of course everyone was happy to go along for the ride because they felt that their equity was rising so quickly that they could always re-finance or sell their way out any hole they might fall into. Rampant speculation by people tapping into easy credit also caused artificial demand, which then created artificial supply.

There is no quick and easy solution. We have an oversupply of housing thanks to years of irresponsible lending and borrowing practices. It will probably take years to work our way out of this mess. The people who bought way over their heads are going to have to take a hit and lose their homes. Getting a bad credit rating for taking on debt that one cannot bear is a part of life that any responsible adult is aware of. When one treats their home as an investment vehicle rather than a place to live, they shouldn't be surprised when they get thrown out it because they made a bad bet.

The lenders that put up the cash on these foolish loans are going to have to take a hit as well. If they go under, too bad. A system with no accountability is not a system, it's a house of cards waiting to fall. The house of cards has fallen, and at his point the only way out of this mess is for people who messed up to take their lumps and lending to go back to the basics. Money should be lent according to the borrower's ability to pay. It's pretty simple when you thing about it.

BTW I fully agree with Bill McDonald in terms of the bottom falling out of the dollar. China is in a position to foreclose, and we might as well be bankrupt.

"Why don't we have one really bad year, rather than three more years of treading water followed by a decade of steady-to-steep decline?"

Agreed, propping up bad ideas like GM and AIG is not helping anything. We still have banks not loaning money after, what say, $1T?

BTW - Mr McDonald, go short US Debt - ticker symbol is TBT.

Yeah, re-inflate the housing bubble. That'll work. Reminds me of that great movie scene:


"Turn the machines back on!"

Maybe Geithner can hire some unemployed Coutrywide loan officers to push the re-financing scheme.

The debt roll-over Mr. MacDonald references is analogous to what happened with subprime mortgages. Low-rate loans were held by mortgagees that reset to higher rates, with the expectation that the loans could be continuously refinanced to avoid those increases. Eventually subprime mortgage loans reset to a point that they became unaffordable and the re-financing stream dried up. Just as the flow of funds dried up and the subprime bubble popped; at some point treasury inflows will abate and the treasury bubble will pop. For the interim, incredibly aggressive Fed monetization programs are holding the financial markets together and keeping debt afloat. Banks are happy to borrow money for essentially zero percent interest from the Fed and use those funds to earn a couple of percent on government bonds.

Accumulation of long-term debt burdens is a reason why stimulus packages are best spent on infrastructure. At least that infrastructure will be there to benefit the economy when the debt is serviced.

Rational financial management would have been to issue substantially more government debt at the long end of the yield curve last year, to gainsay the need for re-financing, to take advantage of attractive long-term rates, and to provide a better match of the debt with the indefinite repayment schedules. But this wasn’t done because the overriding objective was to hold down the five and ten year rates to keep mortgage interest rates down and prop up the housing market. The ball bounces down the road, down the road, down the road.

Eventually something like the Resolution Trust Corporation will be need to be created to sell off the assets of Fannie and Freddie if we want any semblance of market discipline and fiscal responsibility to return to the housing market. The RTC cost $100-$200 billion. When it’s all said and done the liquidation of Freddie and Fannie will likely cost more than $1 trillion.

I’m a big holder of TBT. Am looking to buy some PST to broaden that part of my portfolio. Caution to the uninitiated – these funds are bought to be sold, not held. In an environment where interest rates are steady these funds continuously lose value. Don’t buy without having a plan for selling.

I don’t quite see where you are coming from on this topic, Jack. A quarter to a third (depending on who you ask) of American homeowners are underwater, with property values down 20% to 50% (depending on where you live) already – so are you suggesting that the government just let everyone take a bath on their real estate?

OK, so the mortgage modification programs are not necessarily working as planned; does that mean that we just scrap them and let more people lose their homes? Or do we keep working and tweaking the programs to improve them? One aspect of the problem not addressed in the linked article is that many mortgage loans have been sold on the secondary market and the investors (insurance companies, pensions, etc. – another words – you and I) are not willing to adjust the expected return on those investments. Many times the CDO conduit that financed these mortgages are insured (i.e., AIG) and therefore the investor (you and I via our pension fund) would lose more by agreeing to a modification as opposed to simply allowing foreclosure which would mean the credit insurance pays.

We are in a very difficult economic down cycle; it will take awhile for things to sort out, I doubt that the government can just engineer some maneuver that will shake out all the bad stuff and be done with it in a short time (at least without throwing the world into a full depression).

A good read on the current situation is the book “The Return of Depression Economics” by Princeton economist Klugman.

AIG, Fannie Mae, and Freddie Mac have been effectively nationalized. AIG will probably be wound down and sold off in pieces; Fannie Mae and Freddie Mac will most likely continue to exist as some type of government supported agency, it is doubtful either will return to the private sector in the near future.

Those posters suggesting AIG should have simply been allowed to go into bankruptcy apparently have little understanding of the repercussions of such a move. Just look at the wreckage caused by the Lehman fiasco, and then multiply that by a thousand, maybe more, if AIG went under. The inter-connections in the financial world are widespread and huge; the failure of the counter-party system (which almost happened had it not been for actions of the Fed and the Treasury Dept) would have destroyed the world financial system.

As to comments that “the lenders who put up the cash on these foolish loans are going to have to take a hit as well. If they go under, too bad.” Well they did go under; Fannie Mae and Freddie Mac effectively ‘went under’ and were taken over by the US government. The stockholders lost their investment. GM stockholders were also wiped out and GM bondholders received something like 10 cents on the dollar for their $90 billion investment.

The upshot of all of this has been a significant increase in the national debt. However, the dollar remains the strongest currency in the world. Look at all the naysayers in the last several years expecting the Euro to trump the dollar; but when the chips were down in 2008, everyone was putting their money in the dollar. The dollar is considered such a strong investment that the Treasury borrows funds at almost no interest cost. And China and others moving their money out of US dollars? Not likely in the immediate future - where are they going to put all that money that would even remotely provide the security of the US dollar?

One reason the dollar remains strong compared to other currencies is that our debt, large as it may be, is still not as large as other countries (debt as a percent of GDP). And the US has NEVER defaulted on its debt.

The current administration is actually doing what it can to foster growth of small businesses via the SBA – guidelines have been eased and fees reduced. The bigger focus has been on large corporations as that is where you get the most bang for your buck.

Commercial banks are being very conservative in their lending due to regulatory issues. While we constantly hear that banks have to start lending again, the reality is that the regulators (OCC, FDIC, Federal Reserve) are all over the banks regarding lending policy. All the money that flowed to the banks simply bolstered their capital base, allowing them to continue in business; the funds were never targeted as funds to be loaned out. With all the losses, many of the large banks would have folded if not for the Fed’s capital investment. The safe route for banks is to invest rather than loan.

For those who say the US government needs to stop spending and balance the budget, etc., I wonder if they have ever heard of the Great Depression. The Hoover administration’s response to the Depression was to raise interest rates, raise taxes, and cut spending. Thus the effects of an otherwise difficult recession turned into the Great Depression and set the stage for FDR, who greatly expanded government spending in an effort to end the down cycle. As we are well aware the spending turned out to be much less than needed, and only the huge expansion of government debt in WW2 truly ended the Great Depression.

Thank you, Henry Paulson, for that large, steaming crock. You forgot the part about the inevitability of martial law if you and your friends don't keep getting your bonuses.

are you suggesting that the government just let everyone take a bath on their real estate?

Pretty much. Handing out thousands in tax credits ("our" money, as you would put it) to churn housing is garbage economics. People who overbought need to be pushed out, the prices need to come down a good deal more, a bunch more banks need to be closed, and many, many more banker guys (like you, apparently) need to take the unemployment checks they so richly deserve.

The financial institution balance sheets, so patently lies at the moment, need to be brought into line with reality.

the security of the US dollar

Have you checked commodity prices lately? A loaf of bread is going to cost $20 pretty soon. These sermonettes get old, especially when we see that they're just cover for the Jamie Dimon types to steal.

And let's not forget that the FHA is still passing out 3% down mortgages to people that will likely walk away from those homes if they lose their jobs. And that 3% doesn't even have to be the buyer's own money. It can be a "loan" from parents or relatives.

Yeah, Jack, the PTB (powers that be, 'official') could conduct The Collapse in one year and get it over with . . . and get started the most riot ever -- in populated streets and in institution policies, confronting the PTB.

The economic dislocation underway is epochal. That means: this ain't a 'cycle.' 'Normal' is not coming back around.

The voices which speak of 'bad intelligence' and 'inept management' and 'foolish imprudent finance' -- the NYTimes voice especially -- calling the situation "a circus of clowns" are LIARS voices. What we are told is intentional confidence-game misrepresentation and lying; NOT ignorant misspeak.

The false-future-hope propaganda serves to freeze the suckers in position to be targets easier to drop economic collapse onto, not taking evasive survival action. And dying off.

I'm not the only one warning that the PTB -- in Congress, in the White House, in the Supreme Court's so-called 'Justice' Department, in authority are double agents. Those well-known names on the evening news, in the papers, and discussed around the water cooler, are the betrayers of America and Americans and humankind. The Good Guys are the new Bad Guys.

Indeed, I'm just repeating the warning that is published in a thousand places, for those who would see with eyes not staring at the idiot tube. It is uncertain where to send a doubter first, which moneyworld facet to see first, to be convinced of the imminent danger and for personally taking action. The true beginning point is in the mind of a person, being curious, deciding to look, and beginning his or her trek of discovery beyond the banks and outside the mainstream media.

Here's one sample, selected for its compound opportunities. You might start researching this website, researching this writer, or researching this news content (written in Nov.'08), and whichever way you go is going to lead to the same conclusion: disbar and dismiss and disrobe the authorities, into exile prison. Then take care of ourselves, ourselves . . . one fashion of that is 'local currency,' (which is the trading stock of this blog).

Who are the Architects of Economic Collapse? - Will an Obama Administration Reverse the Tide?, by Michel Chossudovsky, Global Research, November 9, 2008

The October 2008 financial meltdown is not the result of a cyclical economic phenomenon. It is the deliberate result of US government policy instrumented through the Treasury and the US Federal Reserve Board.

This is the most serious economic crisis in World history.

The "bailout" proposed by the US Treasury does not constitute a "solution" to the crisis. In fact quite the opposite: it is the cause of further collapse. It triggers an unprecedented concentration of wealth, which in turn contributes to widening economic and social inequalities both within and between nations.

The levels of indebtedness have skyrocketed. Industrial corporations are driven into bankruptcy, taken over by the global financial institutions. Credit, namely the supply of loanable funds, which constitutes the lifeline of production and investment, is controlled by a handful of financial conglomerates.

With the "bailout", the public debt has spiraled. ...

... There can be no meaningful solution to the crisis, unless there is a major reform in the financial architecture, implying inter alia the freezing of speculative trade and the "disarming of financial markets".


The Washington Consensus
Summers, Geithner, Corzine, Volker, Fischer, Phil Gramm, Bernanke, Hank Paulson, Rubin, not to mention Alan Greenspan, al al. are buddies; they play golf together; they have links to the Council on Foreign Relations and the Bilderberg; they act concurrently in accordance with the interests of Wall Street; they meet behind closed doors; they are on the same wave length; they are Democrats and Republicans.

While they may disagree on some issues, they are firmly committed to the Washington-Wall Street Consensus. They are utterly ruthless in their management of economic and financial processes. Their actions are profit driven. Outside of their narrow interest in the "efficiency" of "markets", they have little concern for "living human beings". How are people's lives affected by the deadly gamut of macro-economic and financial reforms, which is spearheading entire sectors of economic activity into bankruptcy.

The economic reasoning underlying neoliberal economic discourse is often cynical and contemptuous. ...

I believe that deliberate subversion, de-securing the blessings of Liberty for ourselves AND our posterity is unConstitutional and that is an actionable offense.

Bankerman: "so are you suggesting that the government just let everyone take a bath on their real estate?"

The problem bankerman, is that buyers took on too much debt buying more house than they should have. An unaffordable mortgage doesn't really become more affordable if you modify the interest rate, or if you stretch the payments to 40 years. Statistics are bearing out that these people just default again. The loan is too damn big, and the house isn't worth that much money.

Half-ass reinflation of a real estate bubble is what has kept the Japanese economy in the dumps for two decades now, and counting.

Jack is exactly right, you can rip off the band aid and feel the pain quickly, or just watch a slow fade for decades. And with the size of the credit bubble we've blown it would be decades.

I’m not suggesting that we somehow try to reinflate the real estate bubble; however, I believe that actions should be taken to limit the economic fall out caused by the combination of the bursting asset bubble and the failure of the shadow banking system, and that process takes time. A couple of years ago when the extent of the real estate bubble became apparent to the banking industry, the discussions centered around whether we would have a “hard” landing or a “soft” landing (similar to when the stock market bubble burst); obviously we have experienced a pretty hard landing, but why make it worse with unwarranted actions that may result in a further decline in economic activity and further loss of asset value? The Fed is attempting to orchestrate a recovery that balances economic recovery against (hopefully) a tolerable level of inflation.

As for me hitting the unemployment lines – sorry, I have too many business clients that need to be tutored in proper financial management.......

Bankerman, I hope you saw Bernanke's address to the American Economic Association last weekend. He gave the Fed a free pass for the role its monetary policy played coming into this mess and in not having adequate insight into the burgeoning systemic risks until markets were on the edge of collapse.

Expecting the same cast of characters to "orchestrate a recovery" is a testament to hope over experience. Bernanke and friends are technicians, not visionaries -- great to have around when the machinery breaks down, but useless in guiding a transformation to a sustainable future.

Tinkering to fend off the inevitable prevented myriad market adjustments that would have taken the edge off the "Great Recession". The tinkering that's going on now is creating another set of bubbles that have at least an even chance of leading within a few years to a second Great Recession that's worse than the first.

The monetarist activists and the fiscal interventionists need to get out of the way and let markets do their thing.

Always remember and never forget, that money is the medium of exchange, the ultimate derivative. It doesn't represent value in and of itself. It sounds to me like you've been working too long in the banking system. In the end it is the real economy that drives value, not the Fed's printing presses, banking gimmicks or entitlement programs funded by debt.

Well, Grady, here's one 'market thing that is doing and happening' whether anyone around here is out of the way or in the way.

Concern as China Clamps Down on Rare Earth Exports, by Cahal Milmo, the Independent/UK, January 2, 2010

Neodymium is one of 17 metals crucial to green technology. There’s only one snag – China produces 97% of the world’s supply. And they’re not selling

Britain and other Western countries risk running out of supplies of certain highly sought-after rare metals that are vital to a host of green technologies, amid growing evidence that China, which has a monopoly on global production, is set to choke off exports of valuable compounds.

Failure to secure alternative long-term sources of rare earth elements (REEs) would affect the manufacturing and development of low-carbon technology, which relies on the unique properties of the 17 metals to mass-produce eco-friendly innovations such as wind turbines and low-energy lightbulbs.

China, whose mines account for 97 per cent of global supplies, is trying to ensure that all raw REE materials are processed within its borders.

... considered little more than geological oddities, rare earths have recently become a boom industry after the invention of a succession of devices, including iPhones and X-ray machines, which rely on their specific properties.

Global demand has tripled from 40,000 tons to 120,000 tonnes over the past 10 years, during which time China has steadily cut annual exports from 48,500 tonnes to 31,310 tons.

Worldwide, the industries reliant on REEs, which produce anything from fiber-optic cables to missile guidance systems, are estimated to be worth £3 trillion, or 5 per cent of global GDP.

... Nearly all of China's supply of rare earths comes from a single mine near the city of Baotou, in Inner Mongolia. ...

97% of the world supply. and they're not selling. I suppose we'all should buy gold. find out if it is a medium of 'exchange.'

Sure markets 'adjust' things all they might, and can, but they can't buy and sell something that no one brings into and puts on the market. Habitable global climate; cure for the common cold; neodymium -- for examples.

- - -

On a totally different note, the Washington Examiner (which is almost mainstream media) published a story this week, offering an overview of what real power looks like in the PTB, (hint: it ain't paper money), and darned if the Examiner didn't cite the same Wayne Madsen material linked in my previous comment.

Delta black op bomb gave neocon Christmas gifts of nudity and fear, January 4, 3:42 PM, Human Rights Examiner, Deborah Dupre'

Thanks for the heads up Tenskwatawa -- I'll let my wife know she should pull her Northwest Federal Credit Union membership, lest we become implicated in the conspiracy. And I'll be screening my golfing buddies more carefully -- no one from Treasury, FDIC, the Federal Reserve, ABA (Bankers), FDIC, the Comptroller of the Currency, or the Hill allowed.

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