A Sigh of Relief, but Hard Questions Remain
Investors around the world breathed a sigh of relief on Monday after the federal government took over and backed Fannie Mae and Freddie Mac, assuring a continued flow of credit through America’s wounded mortgage system....
{But]...the plan also raises a host of questions about the fragility of the American economy, which will continue to figure into investor calculations. On Friday, for instance, the Labor Department reported that the unemployment rate climbed to a five-year high of 6.1 percent. -- Perhaps most important, despite the government support for Fannie Mae and Freddie Mac, any stabilization in home prices is still a way off, and the waves of foreclosures battering the housing market are not likely to reverse right away. What is more, the plan will do little to stem losses in risky home loans, commercial mortgages and debt used by private equity firms to acquire companies. Financial institutions have already taken write-downs of $500 billion and the International Monetary Fund projects that losses could reach $1 trillion. ... more »
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Monday, September 8
US Nationalizes Fannie Mae & Freddie Mac - Outcome Uncertain (NYT)
by
ronjon
on September 8, 2008 01:00AM (PDT)
Saturday, September 6
Volcker Says Finance System`Broken,' Losses May Rise
by
ronjon
on September 6, 2008 09:00AM (PDT)
Sept. 5 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker said the U.S. financial system, dependent upon securitization rather than traditional bank loans, is broken, and may contribute to the weakest expansion since the 1930s.
``This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down,'' Volcker said today at a banking conference in Calgary. ``Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation.'' ... more »
Gold and the Collapse of Fiat Paper Money
by
ronjon
on September 6, 2008 09:00AM (PDT)
Free will, like the idea of free markets, has an unmistakable appeal. Nonetheless, even its most committed advocates did not choose or will their birth, their gender, their proclivities, their talents or their foibles; and whether we wish to be here or not, all of us are now gathered together on the very precipice of extreme change.
To most, the appearance and severity of the current crisis is unexpected. To Professor David Hackett Fisher, author of The Great Wave, Price Revolutions and the Rhythm of History (Oxford University Press 1996) the crisis and its severity was both expected and understood. According to Professor Fisher, waves of rising prices have interrupted long periods of stability throughout history. These great waves are often accompanied by unexpected disasters, extreme social upheaval and always end in economic collapse... ...We have been living through a period of “deep change,” when one “change regime” yields to another...In periods of deep change, understanding lags behind the movement of events…In the United States problems of economic understanding have been compounded by the effects of economic prosperity…The Greeks called it hubris, and thought that it always ended in the intervention of the goddess Nemesis. That lady makes her appearance when wave-riders begin to believe that they are wave-makers, at the moment when the great wave breaks and begins to gather its energy again. ... more » Friday, September 5
In the Eye of the Storm of the Credit Crisis Hurricane
by
ronjon
on September 5, 2008 09:00AM (PDT)
We have long warned our readers of a coming real estate crash which would then lead to a credit crunch, and eventually a major round of bank failures. We have argued that these developments would be the precursors to a major recession, and perhaps a depression.
As predicted, the collapsing values of bonds backed by subprime mortgages did indeed lead to a collapse of the entire mortgage market, a bank liquidity crisis, a credit crunch and a steep fall in consumer confidence. This was the first leg of the storm, but the full blown banking collapse and the deep recession are not yet manifest. The conventional wisdom holds that the bullet has been dodged. At its core, our economy is simply showing the effects of a national depletion of wealth caused by decades of consuming more than we produce and spending more than we earn. The natural corrective mechanism to such a condition is a recession. But recession is very bad for politics, especially in an election year. So, the potential corrective recession has been postponed by a massive injection of billions of dollars into the economy. At a time when we needed serious physical therapy, the government instead offered four massive pain killers:... ...Last week, the FDIC announced that bank losses have tripled to $26.4 billion, leading to a fall of 86.5 percent in bank earnings. The Case-Shiller home price index shows American housing to have fallen in value by some 20 percent and still sliding. These massive movements have yet to be felt along the entire economic spectrum…but it is inevitable that they will be. Don’t be lulled into a false sense of security and start buying U.S. equities at seemingly knockdown prices. We are in the eye of the hurricane. Beware of the second leg! ... more » Tuesday, September 2
Integrity Bank Becomes 10th U.S. Failure This Year [Bloomberg]
by
ronjon
on September 2, 2008 01:00AM (PDT)
Integrity Bank of Alpharetta, Georgia, was closed by U.S. regulators today, the 10th bank to collapse this year amid a surge in soured real-estate loans stemming from the worst housing slump since the Great Depression...
Banks are being closed at the fastest pace in 14 years as financial companies report more than $505 billion in writedowns and credit losses since 2007. California lender IndyMac Bancorp Inc., which had $32 billion in assets, was closed July 11 in the third-largest bank seizure, contributing to a 14 percent drop in the U.S. deposit insurance fund that had $45.2 billion at the end of the in the second quarter. ... more » Monday, September 1
A Nasty Twist to the Cartel “End Game”?
by
ronjon
on September 1, 2008 01:00AM (PDT)
...there is increasing evidence that this “End Game” involves a heretofore hidden “Nasty Twist” which could seriously injure investors and non-favored (by The Cartel) financial institutions around the world. To understand this Nasty Twist we must provide a bit of background.
A key component of this multi-faceted Scheme is the replacement of the U.S. Dollar with the “Amero” as the Council on Foreign Relations (CFR) consultant Robert Pastor named it. This, of course, would entail the final destruction of the U.S. Dollar, a demise of which has already begun – or should we say, is being managed by The Cartel*. This Scheme appears to be an integral part of The Cartel’s Interventional Regime which involves manipulation of many Markets and Statistics. ... more » Sunday, August 31
Have we really never had it so bad? [Scotland SundayHerald]
by
ronjon
on August 31, 2008 01:15PM (PDT)
SO, IS it the worst economic crisis in 60 years? Worse than the 1970s with its hyperinflation and the three-day week? Worse than the recession of 1990-92 when hundreds of thousands of people lost their homes in the property crunch?
Banks, such as Northern Rock, that depended on asset-backed securities were the first to go. With losses from sub-prime loans in the US expected to rise above $1 trillion, a wave of bank failures is under way in America. And with the huge US government sponsored mortgage lenders Fannie Mae and Freddie Mac in deep trouble over their $5.2 trillion mortgage book, there are fears for the security of the world financial system itself. Banks lend many times the actual reserves they hold, and at the moment many are effectively insolvent and dependent on state support. Central banks, such as the Bank of England, have stepped in to buy much of the bad debt, but they can only go so far. When the central bankers use up their available funds and once the banks burn up their assets, there could be a complete meltdown in the global financial system. At the very best, we face a decade of credit restriction and an inevitable recession. ... more » Monday, August 18
Meet the Economist Who Thinks We're Doomed: Dr. Nouriel Roubini (NYT)
by
ronjon
on August 18, 2008 05:44PM (PDT)
On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac. ...
...Roubini, a respected but formerly obscure academic, has become a major figure in the public debate about the economy: the seer who saw it coming. He has been summoned to speak before Congress, the Council on Foreign Relations and the World Economic Forum at Davos. He is now a sought-after adviser, spending much of his time shuttling between meetings with central bank governors and finance ministers in Europe and Asia. Though he continues to issue colorful doomsday prophecies of a decidedly nonmainstream sort -- especially on his popular and polemical blog, where he offers visions of "equity market slaughter" and the "Coming Systemic Bust of the U.S. Banking System" -- the mainstream economic establishment appears to be moving closer, however fitfully, to his way of seeing things. "I have in the last few months become more pessimistic than the consensus," the former Treasury secretary Lawrence Summers told me earlier this year. "Certainly, Nouriel's writings have been a contributor to that." ... more » Tuesday, August 12
China: rise or collapse: corruption, finance, trade, outsourcing, politics, law, society
by
ronjon
on August 12, 2008 08:00AM (PDT)
A compelling new report says that runaway corruption in China poses a lethal threat to the nation's economic development and "undermines the legitimacy of the ruling Chinese Communist Party."
Evidence from official audits, press articles and law enforcement data, the report says, indicates that "corruption in China is both pervasive and costly."-- Bribery, kickbacks, theft and fraud, particularly by government officials, are said to be rampant. Pei Minxin (裴敏欣) wrote the report issued last month by the Carnegie Endowment of International Peace, based in Washington. Pei is a political scientist educated at the Shanghai International Studies University. He earned his PhD at Harvard and his work has been widely published in the US. ... more » Monday, August 11
The Shadow Government Statistics Newsletter
by
ronjon
on August 11, 2008 08:00AM (PDT)
The Shadow Government Statistics Newsletter
"John Williams' Shadow Government Statistics" is an electronic newsletter that exposes and analyzes the flaws in current U.S. government economic data and reporting, as well as in certain private-sector numbers, and provides an assessment of underlying economic conditions, net of financial-market hype . • Published 11 to 12 times per year, the newsletter is supplemented by occasional Special Issues and by interim "Flash Updates" and "Alerts" that cover key economic reports and highlight unusual developments. (See "Newsletter Coverage" below for the publication's regular scope of coverage.) • Subscription service provides website access to current and archived content, data on proprietary alternate estimates of the CPI, Unemployment and the GDP, an ongoing estimate of M3 growth -- where the M3 series no longer is reported by the Federal Reserve -- and a financial-weighted index of the U.S. dollar. Also available is an inflation calculator that estimates comparative prices between any two months, 1913 to date, using both the official CPI and the SGS-alternate measure. Postings to the website of all new material are advised directly to subscribers by e-mail. ... more » Sunday, August 10
The Price of Oil, Tripled? - An Attack on Iran Could Make It Happen
by
ronjon
on August 10, 2008 08:00AM (PDT)
A war with Iran would ruin our economy and finally kill off our weakened, anemic democracy.
An attack on Iran, which Israeli and Bush administration officials appear set to carry out if Iranian uranium enrichment is not halted, would ignite a regional war in the Middle East and lead to economic collapse and political upheaval in the United States. "In short and simple terms, we would be plunged into a depression that would make the Great Depression of the 1930s in which I spent my childhood look like boom times," said William R. Polk, former professor of history at the University of Chicago and a member of the Policy Planning Council under President Kennedy. "Industries would fail, banks would collapse, government revenues would dry up, universities would have to close, health care, even as limited as it now is for roughly 75 million Americans, would virtually cease. In short, something like [what] the South suffered at the end of the Civil War would plague the country." ... more » Saturday, August 9
The Real State of the US Economy (www.Global Research.ca)
by
ronjon
on August 9, 2008 07:53AM (PDT)
When Henry Paulson agreed to leave his job as chairman of the powerful Wall Street investment bank, Goldman Sachs to go to Washington as Treasury Secretary in 2006 he demanded extraordinary powers as de facto economic czar. He got it. Paulson is also head of the President’s Working Group on Financial Markets -- the secretary of the treasury and the chairmen of the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The Working Group is the financial world's equivalent of the Pentagon war room. Paulson, not Fed chairman Bernanke, is the person running the Administration’s crisis management. And his recent actions indicate he has lost control as the snowballing problems from the semi-government mortgage companies Freddie Mac and Fannie Mae to the collapse of the multi-trillion dollar market in Asset Backed Securities (ABS) to the real economy are compounding into the worst crisis since the 1930’s Great Depression. ... more »
Thursday, August 7
Moving to a Trans-Industrial Paradigm:
by
ronjon
on August 7, 2008 03:00AM (PDT)
Why is there an underlying assumption that a market collapse and financial meltdown needs to be a bad thing? Doom and gloom is all the talk, as if the only positive thing is when the markets are going up. Many believe that increasing markets are ‘healthy’ and declining markets need ‘fixing’. Isn’t the idea of pure market capitalism that the markets determine the prices freely, i.e. what market participants are willing to (and can afford) to pay, not what sellers would like prices to be? Is it a question of what is vs. what should be? Every seller would like a higher price, but their dreams about higher prices are only justified by people willing to pay the price.
Short sellers have known for a long time the profits that can be made in declining markets. Catastrophe is opportunity; it is the birth of modern day fortunes such as Rockefellers and Morgans. These noble houses were not crafty geniuses who invented the cure for cancer, they were shrewd, well-informed executives who were at the right place at the right time, and they had the cash to strike. In fact, it is much easier to profit from calamity than success, because of the predictability and calculability of crises (.pdf warning). Success is more difficult to predict, and you do not have a measure of how successful a company can be. If a company goes IPO at $20 per share, and you expect them to increase, the price could go to $50 or $500 like Google. However, if you expect bankruptcy, you have a ground floor at zero. In addition, the statistics are in your favor, 95% of all businesses in USA fail. Knowing that, it makes sense statistically to bet on failure rather than success. ... more » Wednesday, August 6
NYU Economist Nouriel Roubini sees worst crisis since Great Depression
by
ronjon
on August 6, 2008 03:40PM (PDT)
Brace yourself. Nouriel Roubini, whose gloom-and-doom predictions about the housing market collapse and subprime-mortgage debacle have come true, is getting even more bearish.
During an interview late last month, he offered up an even gloomier outlook for the economy than he did during an interview in March. Mr. Roubini said the failure of IndyMac Bancorp Inc. of Pasadena, Calif., just reinforces his earlier predictions, and he is now forecasting that more than 100 banks will blow up, the housing market won't rebound before 2011, Fannie Mae of Washington and Freddie Mac of McLean, Va., will become insolvent, and financial losses from the credit crisis will top the $1.5 trillion mark. Much of Wall Street snickered when Mr. Roubini, a professor at New York University's Stern School of Business and founder of New York-based economic research firm RGE Monitor, first made dire predictions of a devastating economic downturn in a July 2006 report, "A Coming Recession in the U.S. Economy." But as each frightening prediction turned into reality, skeptics became followers, and the market turned a nervous ear to his subsequent predictions. ... more » Tuesday, July 15
United States Federal Reserve Bank Is Now in Panic Mode
by
ronjon
on July 15, 2008 12:55PM (PDT)
...
Fed in Panic Mode
If Bernanke continues to act to provide unlimited liquidity to prevent a banking system collapse, he risks destroying the US corporate and Treasury bond market and with it the dollar. If Bernanke acts to save the heart of the US capital market—its bond market—by raising interest rates, its only anti-inflation weapon, it will only trigger the next even more devastating round in Tsunami shock waves. ... more »Thursday, June 12
Soros attacks 'craze-following' institutions for inflating oil prices
by
ronjon
on June 12, 2008 02:00AM (PDT)
George Soros, the billionaire financier, has rounded on institutional investors who have been ploughing money into oil, saying they are following a "craze" that is inflating a commodities bubble and harming the global economy.
And he predicted that the rise of index funds that allow retail investors to bet on the oil price could lead to a crash that destabilises more than just the commodities markets.
Mr Soros was called to give evidence on Capitol Hill as US lawmakers investigated whether "speculators" were manipulating or otherwise influencing the price of oil, which has doubled and doubled again in the past five years. A 25 per cent spike since the start of the year has sent petrol above $4 a gallon in many US states and sent the issue to the top of the political agenda. ... more »
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