The Next Financial Crisis Will Be Even Worse
by ilene - July 7th, 2011 1:47 am
By Brett Arends
The last financial crisis isn’t over, but we might as well start getting ready for the next one.
Sorry to be gloomy, but there it is.
Why? Here are 10 reasons.
1. We are learning the wrong lessons from the last one. Was the housing bubble really caused by Fannie Mae, Freddie Mac, the Community Reinvestment Act, Barney Frank, Bill Clinton, "liberals" and so on? That’s what a growing army of people now claim. There’s just one problem. If so, then how come there was a gigantic housing bubble in Spain as well? Did Barney Frank cause that, too (and while in the minority in Congress, no less!)? If so, how? And what about the giant housing bubbles in Ireland, the U.K. and Australia? All Barney Frank? And the ones across Eastern Europe, and elsewhere? I’d laugh, but tens of millions are being suckered into this piece of spin, which is being pushed in order to provide cover so the real culprits can get away. And it’s working.
2. No one has been punished. Executives like Dick Fuld at Lehman Brothers and Angelo Mozilo at Countrywide , along with many others, cashed out hundreds of millions of dollars before the ship crashed into the rocks. Predatory lenders and crooked mortgage lenders walked away with millions in ill-gotten gains. But they aren’t in jail. They aren’t even under criminal prosecution. They got away scot-free. As a general rule, the worse you behaved from 2000 to 2008, the better you’ve been treated. And so the next crowd will do it again. Guaranteed.
Read the rest here: The Next Financial Crisis Will Be Even Worse – SmartMoney.com.
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How to Kickstart the Economy
by ilene - October 21st, 2010 4:18 am
How to Kickstart the Economy
By MIKE WHITNEY, originally published at CounterPunch
On Friday, Fed chairman Ben Bernanke made the case for a second round of quantitative easing (QE) claiming that inflation is presently "too low" to achieve the Fed’s dual mandate of price stability and full employment. By purchasing long-term Treasuries, Bernanke hopes to lower bond yields and force investors into riskier assets. That, in turn, will push stocks higher, making investors feel wealthier and more apt to boost spending. (Re: "trickle down", when investors increase spending, it reduces the slack in the economy and lowers unemployment.) Thus, QE is intended to divert investment to where it is needed and to lift the economy out of the doldrums.
That’s the theory, at least. In practice, it doesn’t work so well. Over a trillion dollars in reserves are still sitting on banks balance sheets from QE1. The anticipated credit expansion never got off the ground; the banks loan books are still shrinking. Bernanke fails to say why more-of-the-same will produce a different result. QE is also risky; in fact, it could make matters worse. Unconventional methods of pumping liquidity into the economy can undermine confidence in the dollar and trigger turmoil in the currency markets. Trading partners like Brazil and South Korea are already complaining that the Fed is flooding the markets with money pushing up their currencies and igniting inflation.
The threat of more cheap capital is causing widespread concern and talk of a currency war. If Bernanke goes ahead with his plan, more countries will implement capital controls and trade barriers. The Fed is clearing the way for a wave of protectionism. Quantitative easing, which is essentially an asset swap--reserves for securities--will not lower unemployment or revive the economy. Low bond yields won’t spark another credit expansion any more than low interest rates have increased home sales. The way to tackle flagging demand is with fiscal stimulus; food stamps, state aid, unemployment benefits, work programs etc. The focus should be on putting money in the hands of the people who will spend it immediately giving the economy the jolt that policymakers seek. QE doesn’t do that. It depends on asset inflation to generate more spending, which means that we’ve returned to the Fed’s preferred growth formula--bubblenomics.
Quantitative easing is also extremely costly for, what amounts to, modest gains. Consider this, from the Wall Street Journal:
"The…
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OMG! Obama Scrambles To Keep the Homedebtor Scam Running
by ilene - August 30th, 2010 4:35 pm
OMG! Obama Scrambles To Keep the Homedebtor Scam Running
Courtesy of Jr. Deputy Accountant
h/t WCV
All the king’s horses and all the king’s men couldn’t inflate the housing bubble back again…
The Obama administration plans to set up an emergency loan program for the unemployed and a government mortgage refinancing effort in the next few weeks to help homeowners after home sales dropped in July, Housing and Urban Development Secretary Shaun Donovan said.
“The July numbers were worse than we expected, worse than the general market expected, and we are concerned,” Donovan said on CNN’s “State of the Union” program yesterday. “That’s why we are taking additional steps to move forward.”
The administration will begin a Federal Housing Authority refinancing effort to help borrowers who are struggling to pay their mortgages, and will start an emergency homeowners’ loan program for unemployed borrowers so they can stay in their homes, Donovan said.
“We’re going to continue to make sure folks have access to home ownership,” he said.
These additional steps are really starting to hurt, when does it end? Oh duh, it ends when the rest of the world gets smart and realizes that we’re abusing our printing press. Obv.
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Housing Bubble will Not be Reblown; Foreclosures Increase in 154 of 206 Metro Areas with Population Over 200,000
by ilene - July 29th, 2010 5:58 pm
Housing Bubble will Not be Reblown; Foreclosures Increase in 154 of 206 Metro Areas with Population Over 200,000
Courtesy of Mish
It’s been one hell of a non-recovery in housing, smack in the face of now-expiring $8,000 home tax credits that have proven to be as stimulative and futile as attacking fire ants with a BB-Gun.
Please consider Foreclosure Filings Rise in 75% of U.S. Metro Areas
Foreclosure filings climbed in three-quarters of U.S. metropolitan areas in the first half as high unemployment left many homeowners unable to pay their mortgages, according to RealtyTrac Inc.
The number of properties receiving a filing more than doubled from a year earlier in Baltimore, Oklahoma City and Albuquerque, New Mexico, the mortgage-data company said today in a report. Notices of default, auction or bank seizure rose more than 50 percent in areas including Salt Lake City; Savannah, Georgia; and Atlantic City, New Jersey.
“Foreclosures are spreading out from areas that had been hardest hit,” Rick Sharga, senior vice president for marketing at Irvine, California-based RealtyTrac, said in a telephone interview. “We’re dealing with underlying economic weakness as opposed to unsustainable home prices and bad loans.”
Continued weakness in employment and efforts to prevent foreclosure may “delay the inevitable” and weigh on home prices, RealtyTrac Chief Executive Officer James J. Saccacio said in a statement.
The company said 154 of 206 U.S. metro areas with populations of more than 200,000 had increases in households with filings from January through June.
Cities in Nevada, Florida, California and Arizona accounted for the 20 highest foreclosure rates. Nine of the top 10 metro areas had decreases in the total properties receiving filings, a sign that foreclosures may have peaked in the states hurt the most by the housing market’s collapse, RealtyTrac said.
Video with Rick Sharga Senior Vice President of RealtyTrac
Bloomberg has an interesting Video Interview with Rick Sharga that inquiring minds will want to play.
Partial Transcript: "There is a pretty direct correlation between job loss and foreclosure. Until the unemployment rates start to go down, and until we actually see net job creation, and importantly until consumer confidence comes back, the housing market has really slim chances of recovery. That coupled with the huge overhang of distressed property, really suggests the housing market is not going to turn around for the next few years."
Flashback Thursday, October 25, 2007
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The Attack of the Real Black Helicopter Gang: The IMF Is Coming for Your Social Security
by ilene - July 13th, 2010 11:51 am
The Attack of the Real Black Helicopter Gang: The IMF Is Coming for Your Social Security
Courtesy of Dean Baker at CEPR, writing at Truthout
See article on original website
A few years back there was a fear in some parts about black UN helicopters that were supposedly taking part in the planning of an invasion of the United States. While there was no foundation for this fear, there is basis for concern about the attack of another international organization, the International Monetary Fund (IMF).
Last week the IMF told the United States that it needs to start getting its budget deficit down. It put cutting Social Security at the top of the steps that the country should take to achieve deficit reduction. This one is more than a bit outrageous for two reasons.
First, the IMF deserves a substantial share of the blame for the economic crisis that gave us big deficits in the first place. The IMF is supposed to oversee the operations of the international financial system. According to standard economic theory, capital is supposed to flow from rich countries like the United States to poor countries to finance their development. In other words, the United States should be having a trade surplus, which would correspond to the money that we are investing in poor countries to finance their development.
However, the IMF messed up its management of financial crises so badly in the last 15 years that poor countries decided that they had to accumulate huge amounts of currency reserves in order to avoid ever being forced to deal with the IMF. This meant that capital was flowing in huge amounts in the wrong direction. One result of this reverse flow was that the United States ran a huge trade deficit instead of a trade surplus.
The trade deficit in the United States was a big part of the story of the housing bubble. The trade deficit cost millions of workers their jobs. This was one of the main reasons that economy was so weak coming out of the 2001 recession. This weakness led the Fed to keep interest rates at 50-year lows, until the growth of the housing bubble eventually began to generate jobs in the fall of 2003.
The IMF both bears much of the blame for the imbalances in the world economy and then for failing to clearly sound the…
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Vancouver Home Sales Drop 30 Percent , Calgary 42 Percent – First Comes Volume, Then Comes Price; Canada Housing Peak is Finally In
by ilene - July 7th, 2010 1:05 am
Vancouver Home Sales Drop 30 Percent , Calgary 42 Percent – First Comes Volume, Then Comes Price; Canada Housing Peak is Finally In
Courtesy of Mish The Globe and Mail reports Vancouver home sales drop sharply.
The Real Estate Board of Greater Vancouver reported yesterday that home sales fell 30.2 per cent in June from the inflated levels of a year earlier, and 5.8 per cent from May. New property listings rose 1.2 per cent from May and 32 per cent from a year earlier.
The Calgary Real Estate Board, meanwhile, reported sales of single family homes fell 16 per cent in June from May and 42 per cent from June of 2009, while condo sales fell 14 per cent from a month earlier and 40 per cent from a year earlier. Notable is that sales of high-end properties worth $1-million or more are rising, the group said.
“We are seeing continued moderation in Calgary’s home sales in the face of higher mortgage rates, increased inventory levels and a decreasing number of first-time home buyers entering the market,” said board president Diane Scott.
This pattern is quite similar to how things cascaded in the US once the top was in.
Housing Collapse Cascade Pattern
- Volume drops precipitously
- Prices soften a bit
- Inventory levels rise slowly
- High-end home prices remain relatively steady for a brief while longer
- The real estate industry tries to convince everyone it’s "business as usual" and homes are affordable because rates are low
- Bubble denial kicks in with media articles everywhere touting the "fundamentals"
- Stubborn sellers hold out for last year’s prices as volume continues to shrink
- Inventory levels reach new highs
- Builders start offering huge incentives to clear inventory
- Some sellers finally realize (too late) what is happening
- Price declines hit the high-end
- Increasingly desperate sellers get creative with incentives, offering new cars, below market interest rates, trips, etc
- Gimmicks do not work
- Price declines escalate sharply at all price levels
- The Central Bank issues statements that housing is fundamentally sound
- Prices collapse, inventory skyrockets, and builders holding inventory go bankrupt
Some of those may happen simultaneously or in a different order, but the whole mess starts with a huge plunge in volume.
I am now confident the peak in Canadian housing insanity is finally in.
****
Picture credit: Jr. Deputy Accountant
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The Root of the Housing Bubble Remains Unchanged
by ilene - May 28th, 2010 12:00 pm
Introduction, courtesy of Michael Panzner of Financial Armageddon, ‘Who Benefits?’
It’s not often that I highlight material from the same blog more than once over the course of a few days or weeks. But then again, there are not too many commentators who are as thoughtful and insightful as Charles Hugh Smith, author of Survival+ and publisher of Of Two Minds blog, a long-time favorite of mine. Last time around, he gave us a no-holds barred assessment of the so-called recovery. In "The Root of the Housing Bubble Remains Unchanged," he suggests, among other things, that for many people, there’s little to gain — and lots to lose — from pursuing the traditional American dream.
The Root of the Housing Bubble Remains Unchanged
Courtesy of Charles Hugh Smith
Banks and Wall Street profited immensely from millions of unqualified home buyers reaching out for the simulacrum of middle class "ownership."
The fundamental root of the housing bubble--the collusion of the Central State and banks to extend home ownership to millions of citizens who did not qualify for that burden-- remains firmly in place.
The Federal government continues to pour tens of billions of dollars into this "home ownership should be for everyone" project via subsidies to Fannie Mae, Freddie Mac and FHA. Mortgage lenders have been delighted to write mortgages in our completely nationalized market in which the government backs literally 99% of all mortgages and the Federal Reserve bought $1.2 trillion in mortgages that no sane private investor would touch.
Fannie Mae seeks $8.4 billion from government after loss: Fannie Mae, the largest U.S. residential mortgage funds provider, on Monday asked the government for an additional $8.4 billion after the company lost $13.1 billion in the first quarter.
Because of current trends in housing and financial markets, Fannie Mae expects to continue having a net worth deficit in future periods and to need to tap more funding from the Treasury.
"Promoting sustainable homeownership and maintaining ready access to liquidity are our guiding principles in serving the residential markets," said Michael Williams, the firm’s chief executive.
The government has relied heavily on both companies, which buy mortgages from lenders to stimulate more lending, to stabilize the housing market.
In other words, the housing market would collapse without this massive Federal support, and there is no end to the losses this subsidy will require. Propping up the…
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The Roof Is On Fire
by ilene - May 20th, 2010 4:00 pm
The Roof Is On Fire
Courtesy of Karl Denninger at The Market Ticker
The Euro Zone is in serious trouble, and Britain and we are next.
The game’s up folks.
Many people talk about us "printing" money. Indeed, there’s a large brokerage that runs advertisements on CNBS with that exact claim, over and over and over. Ron Paul and Peter Schiff have run this mantra for years.
This chart says something else entirely:
THERE HAS BEEN NO PRINTING GOING ON!
No, what’s been happening is worse.
Worldwide governments have borrowed and spent huge percentages of their GDP in a puerile attempt to protect a criminal class that has looted the public and bribed the legislature - THE BANKS.
There was always a point where this would fail, but it is flatly impossible for anyone to know exactly where it was beforehand.
But mathematically, there was a point where it would fail.
The gamble that Bernanke, Trichet, Obama, Bush, Paulson, Geithner and everyone else in the world took is that we could do this for a short period of time and that in doing so private demand would pick up and return us to "stability."
THESE PEOPLE DID NOT STUDY THE ABOVE CHART, AND THEY’RE F^#KING IDIOTS FOR BELIEVING THAT WHICH WAS TRIED IN 2003-2007, WITH A HIGHER DEBT LOAD THAN WE HAD THEN, WOULD WORK NOW WHEN IT FAILED IN 2003.…
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Doug Noland: “There Is No Concern For Short-Term Funding Issues”
by ilene - April 26th, 2010 2:14 pm
Doug Noland: “There Is No Concern For Short-Term Funding Issues”
Courtesy of JOHN RUBINO at Dollar Collapse
Prudent Bear’s Doug Noland was a must-read in the years leading up to the bursting of the housing bubble. Almost alone out there, he got not just the fact that we were heading off a cliff, but the exact mechanism of our demise: “Wall Street alchemy” was creating unlimited amounts of artificial securities that the marketplace was treating like money, which sent the effective global money supply through the roof and fueled a series of ever-bigger bubbles.
Once the crash came, Noland reined it in a bit and his articles fell off my automatic “Best of the Web” list. But now the bubble is back and so is Noland. His latest post dissects the current “recovery” and explains why we’re headed back into interesting times:
Deficits and Private Sector Credit
The bullish contingent is these days increasingly confident that there is much more to the recovery than a mere stimulus-induced “sugar high.” The marketplace now comfortably disregards bearish developments – and becomes further emboldened by “market resiliency”. The market this week brushed aside issues with Greece, China, Goldman and financial reform.
Complacency abounds, in true Bubble fashion. The U.S. stock market dismisses that there could be meaningful ramifications from the unfolding Greek debt crisis. Chinese authorities’ recent determination to restrict mortgage Credit barely garners a headline. And while the Goldman allegations generate great interest and discussion, few believe they will have much general market impact. Financial reform, well, it’s an afterthought when the market is open. Market participants are enamored with the notion that the securities markets and real economy are now conjoined in the initial phase of a big bull cycle.
Count me a subscriber of the “sugar high” thesis. The combination of double-digit (to GDP) deficits, protracted near-zero rates, and the Fed’s unprecedented Trillion-plus monetization has worked wonders. Government stimulus stabilized the Credit system, asset prices, system incomes and economic output. The bulls today believe that a new expansionary cycle has commenced, and fundamentals and prospects couldn’t be much more encouraging from their point of view. Surging stock prices have the optimists disregarding the possibility of a systemic addiction to massive government spending, ultra-low rates, and overabundant marketplace liquidity. Potential issues in the area of risk intermediation are not on the radar screen.
Yet, the sustainability of this recovery will be determined by private
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Maestro no more
by ilene - March 19th, 2010 2:51 pm
Given the name of his blog, it’s not surprising that Tim has thoughts on the Maestro’s latest return to explain (again) why the mess was not his fault. – Ilene
Maestro no more
Courtesy of Tim Iacono at The Mess That Greenspan Made
The defense of monetary policy during the gestation years of the housing bubble was reiterated (yet again) yesterday by former Fed chief Alan Greenspan in a paper(.pdf) titled "The Crisis" that is being presented today at the Brookings Institution.
While the 48 pages of text and the 18 page appendix await attention that they are unlikely to receive from me on this Friday, the contents are quite clearly based on reports in the mainstream financial media and the two central points appear to be:
1. Low rates are not to blame
2. See number 1
The Wall Street Journal carries a story in the public area of their website today where Jon Hilsenrath restores some order to the recent reporting on the former Fed chairman, inserting the once-mandatory caveats that all post-2008 Greenspan stories used to carry before an image re-building campaign apparently met with some success over the last year or so:
Mr. Greenspan’s reputation has been tarnished by the crisis. Widely hailed when he left office in January 2006 as one of
…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site