The Federal Reserve has been responsible for the creation of some of the worst credit debacles since people began using currency and granting credit.
Maybe it's time to return to an economy based on fundamentals and driven by the production of real goods and services, rather than monetary manipulation, debt creation, and asset inflation.
Follow the title link to the petition to abolish the Fed- an institution that shouldn't have been permitted to survive the Great Depression.
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Thursday, October 9, 2008
Wednesday, October 8, 2008
Citi May Be Next
Nouriel Roubini, NYU Stern School economist and chairman of RGE Monitor, is predicting another failure of a major bank.
"Eventually, a government takeover of the biggest bank in the U.S. is a possibility," he says.
Will Bank of America, Chase, and Wells Fargo make it? Will a single major institution be left standing after this debacle finishes playing itself out?
Will we even still have MONEY after the dusts settles?
Nobody is really surprised that the big bailout is not working. Our policy makers should have know it wasn't going to work, and that we're not going to rebuild the economy by artificially propping up the prices of outrageously overinflated assets (i.e .housing) by shoveling evermore public money into the widening hole, while burdening the treasury with ever more debt.
The only emergency action that the government could have taken that would actually help would have been to guarantee all "demand money"- bank deposits and money markets, to the full amount deposited. This would forestall bank runs and assure that something would be left after all the failures and defaults.
"Eventually, a government takeover of the biggest bank in the U.S. is a possibility," he says.
Will Bank of America, Chase, and Wells Fargo make it? Will a single major institution be left standing after this debacle finishes playing itself out?
Will we even still have MONEY after the dusts settles?
Nobody is really surprised that the big bailout is not working. Our policy makers should have know it wasn't going to work, and that we're not going to rebuild the economy by artificially propping up the prices of outrageously overinflated assets (i.e .housing) by shoveling evermore public money into the widening hole, while burdening the treasury with ever more debt.
The only emergency action that the government could have taken that would actually help would have been to guarantee all "demand money"- bank deposits and money markets, to the full amount deposited. This would forestall bank runs and assure that something would be left after all the failures and defaults.
Monday, October 6, 2008
Bailout Fails to Reassure Investors
It appears that the great assistance plan is failing to reassure jittery investors around the globe or to ease credit, and it's increasingly doubtful that the government can do anything at all to restore confidence.
The markets here haven't opened yet, but stocks are already down in Asian and European markets, as panic spreads and credit continues to tighten.
Well-regarded NYU economist Nouriel Roubini, who accurately predicted the present debacle, calls the situation one of "generalized panic", and noted that the numerous government interventions of the past year have been getting larger, with diminishing returns.
What's next? A still-larger allocation of future taxes to be tossed down the sinkhole of collapsing debt? And how do we know it will work, when it's already obvious that the massive intervention of Friday isn't going to work as projected.
We can't continue to take the bait. Too Big to Fail also means Too Big to Bail.
The markets here haven't opened yet, but stocks are already down in Asian and European markets, as panic spreads and credit continues to tighten.
Well-regarded NYU economist Nouriel Roubini, who accurately predicted the present debacle, calls the situation one of "generalized panic", and noted that the numerous government interventions of the past year have been getting larger, with diminishing returns.
What's next? A still-larger allocation of future taxes to be tossed down the sinkhole of collapsing debt? And how do we know it will work, when it's already obvious that the massive intervention of Friday isn't going to work as projected.
We can't continue to take the bait. Too Big to Fail also means Too Big to Bail.
Friday, October 3, 2008
The Day of Infamy: The Official End of the Free Market and the Disaster of Government Intervention
Friday will surely be remembered in history as the most tragic day in the history of the United States, the day when this country's very justification for existence died, as most of our legislators on both sides of the aisle discarded whatever ideological differences they might have, in allowing themselves to be terrorized into legislating the complete socialization of our financial system, and colluding in pushing the country a large distance toward the eventual, and possibly inevitable, complete default on its sovereign debt and the utter destruction of our currency and what remains of our economy.
I had many, many thoughts as I witnessed this past week's ugly spectacle of intimidation by lies, compromise, abject fear, and utter capitulation to the terror-mongering of Paulson and his Wall Street cronies. Why, you had to wonder, would anyone believe that the economy would completely collapse merely because Paulson, who has told us nothing but lies during his entire tenure, and the Wall Street geniuses who engineered this debacle, told us so? Yet this wild claim was taken at face value.
No matter how dismal is the current situation in the credit markets at present, this massive addition to our national debt, which is almost too large to be repaid even now, will not only not arrest the unwinding of the un-repayable debt with which our large financial firms have burdened themselves, but will spread the distress to every corner of the economy.
Given that we are headed into an economic disaster no matter what, and that the great unraveling is proceeding with great speed and is unstoppable at this point, it would seem that the most constructive thing we can do is isolate healthy institutions and activities from the spreading blight, while triaging operations that are too far gone to be salvageable. However, this massively costly intervention, which basically commits the U.S. Treasury to supporting the financial system and its major players at whatever cost to the taxpayers, on terms left to the discretion of Mr. Paulson, will most likely make it certain that the Righteous will die just like the Wicked, and that no citizen and no enterprise will be able to isolate itself from the avalanche of failure.
It's easy to blame the Republicans, for it was Bush and his appointees Paulson and Bernanke, in response to the desperate entreaties of wealthy Wall Street executives- almost all Republicans, who made hundreds of millions of dollars in fees and profits by setting this country up for the most catostrophic financial debacle in recorded history. However, the Democrats have had the major part in creating the structure of entitlements and government agencies that enabled and fueled the speculative binge of the past 10 years, while the Republicans made debt formation, calling it "wealth creation" and the "ownership society", the centerpiece of their economic policy. The public, meanwhile, was unable to pass on the good times to be had by pretending to be rich by means of virtually unlimited credit available to almost anyone.
We are all guilty, but the major responsibility attaches to the policy makers who saw clearly that a disaster of unimaginable proportions was setting up by 2003, yet said not a word in protest as the lending and spending became even more reckless and our institutions continued to layer on evermore unrepayable debt and as homebuilders and mall builders continued to build hundreds of thousands more 4000 sq ft homes in suburbs 80 miles out of the city, and condo builders threw up more and more shoddily built 50- story highrises with $400K one bed apartments in buildings with ever-shoddier construction within the speculation-crazed precincts of Miami, Los Vegas, and Chicago's South Loop.
The ugliest upshot of the collapse of our credit markets, is that the lessons contained therein are completely lost on both policy makers and the public at large, all of whom have managed to draw from the disaster the conclusion that free markets do not work and that the economy can be managed only by the heavy hand of the government.
That this debacle was created by government intervention and that the creation of the credit bubble was, in fact, a centerpiece of Bush economic policy, goes unmentioned. That the disaster that is now unfolding and cascading through our economy, toppling businesses, bankrupting unprecedented numbers of citizens, and triggering tens of thousands of layoffs, was forseen as early as 2003, and many credible experts warned of the developing catastrophe, their cogent, well-worded warnings, backed up by hard numbers, unheeded and mostly unacknowledged by Bush, Paulson, Greenspan, and Bernanke, as well as by executives at financial firms that have now collapsed under the weight of all the worthless garbage paper that they have now succeeded in offloading onto the American public. As the venerable and brilliant former Republican strategist Kevin Phillips, states in his landmark analysis of our current political alignments, American Theocracy, the creation of the monstrous structure of layered debt based on steeply overvalued assets, as a tool to drive our otherwise unproductive economy in an era of depleting resources and dependence on foriegn oil, was well underway by 2004, by which time it was obvious that the chain of utterly reckless debt creation could not possibly be sustained for much longer into the future, and that its inevitable unraveling had the potential to blow our financial system to smithereens:
"If there's a bubble, it's in this four-letter word:debt. The U.S. economy is just awash in it".
-David Rosenburg, Cheif North American Economist at Merrill Lynch, speaking in 2001.
"The United States has never run such large currrent account deficits and no single
nation's deficit hs ever bulked nearly as large relative to the global economy.
- Former U.S. Treasury Secretary Lawrence Summers in a 2004 speech.
"There are disturbing trends: huge imbalances, disequilibria, risks-call them what you will. Altogether the circumstances seem to be as dangerous and intractable as any I can remember.......I don't know whether change will come with a bang or with a whimper, whether sooner or later. But is things stand right now, it is more likely than not that it will be financial crisis rather than policy foresight that will force the change."
_Paul Volker, former Federal Reserve Chairman, The Washington Post, 2005.
And now, the massive intervention, that comes at such great cost to the public till, will not only not change the destructive fiscal policies of the current administration, but will attempt to enable our financial system to do more of what it was doing that caused the problem to begin with, which is the reckless extension of credit to unworthy borrowers for fantastically overvalued assets. Accounting rules are being suspended in order to allow firms holding piles of reeking garbage debt to allow mark-to-fantasy valuations of their worthless crap. Every attempt will be made to prop up stock prices and house prices. The treasury will have unlimited power to buy whatever securities it sees fit at evaluations that may or may not have any basis in reality, for it is the task of the treasury, under this bill, to create an evaluation for the assets, whether they would fetch that in this market, or any market, or not.
FHA loan limits have been raised, as have the limits of conforming mortgages eligible for purchase by GNMA and the GSEs, Fannie Mae and Freddie Mac., what agencies were responsible for the inflation of the debt bubble to begin with, for were it not for these government agencies and GSEs whose whole reason for being is to serve as a dumping ground for risks that would be unacceptable to financial institutions were it not for the explicit and implicit guarantees of such agencies, and by the Federal Reserve. We are in our present predicament not in spite of government intervention, but because of it, for were it not for the multitude of socialized housing programs specifically designed to make housing "affordable" for high-risk borrowers, and the stated and visible willingness of the Federal Reserve to bail out failing institutions and entities on the grounds of the public interest, our institutions would trim their risk considerably, and the normal fluctuations of the business cycle, with its expansions followed by contractions, would be much milder and shorter-lived.
Worse, we will set the stage for more destructive financial binges, for it is now completely understood by all that government authorities will always step in to rescue failing business entities that are considered of key importance because of their size and their executives' connections to powerful politicians.
We will additionally continue to throw good money after bad, in supplying tax-funded support to obsolete, non-competitive "sunset" enterprises, such as our sadly incompetent and uncompetitive domestic auto manufacturers, while killing budding enterprises in promising new industries in the inception, as they are deprived of necessary capital because the tax burden has grown so large by way of supporting failure that capital is scarcer than ever, especially for the innovative and experimental industries that we will need if we are to survive resource depletion and the failure of our financial system and rebuild our economy and lifestyles on a sustainable platform.
A reader of James Howard Kuntler's blog, a citizen from Ohio, remarked that we could completely rebuild our railroads and electrify them, with service to every town with more than 5,000 people, with the money that is being allocated to the bailout of our financial system.
Worst of all, this will not be the last cash call. Expect another desperate call for another trillion dollars or so, or more, in a couple of months when it becomes obvious that this rescue attempt is not working, for $700 Billion is only a fraction of what will be necessary, given the immense exposure in structured debt instruments and other derivative instruments that grossly amplified the leverage, and risk, inherent in the mountain of overvalued mortgages and commercial loans. Commercial credit is only beginning to unwind, and there remains the mass of credit card debt overhanging the economy.
If there's anything that ought to be evident from reviewing past and present financial debacles and the depressions that resulted, it should be that the largest and most far reaching disasters result in the attempts of government authorities to "play God" with the lives and fortunes of hundreds of millions of citizens and thousands of business entities; that the economy is simply too large and too complex for any group of people, no matter how expert and educated, to predict how sweeping policy decisions made at the top will play out over the near term, let alone over decades. We should by now have learned that the policies and instruments put into place 75 years ago by well-meaning people of ability and deep knowledge, had many unintended consequences that played out and amplified over the ensuing decades, with disastrous results, such as the decision, made with the best of intentions in Roosevelt's era, to enable as many Americans as possible to afford, with government assistance, the unaffordable. Roosevelt could not have predicted that the current administration would turn these socialistic enterprises into the agencies by which his administration's disastrous fiscal policies, namely the stated intention to enable the creation of a mountain of debt as the driver of "wealth creation", could be implemented and developed with the results we have seen.
What will be the unintended consequences of this latest disastrous and most far-reaching intervention? Aside from attempting to do what no government has any business doing, which is propping up housing prices at still-unaffordable levels, and stock prices at levels unjustified by the prospects and current financial situation of the underlying companies, for the benefit of dishonest and incompetent financial firms and flagrantly imprudent and extravagant home debtors, it will take us further down the road to government insolvency, which would be the ultimate disaster, and one that no one will bail us out of.
Instead of devising evermore ways to offload the burden of malfeasance and incompetence on the next three or four generations of hapless taxpayers while freeing the guilty from responsibility, we could start the process of unwinding the structure of government agencies and entitlements designed to facilitate easy credit, while returning to lending standards reasonably designed to select for borrowers able to repay, from citizens buying homes to businesses contemplating expansion or startup. We could start the long and painful process of de-financializing our economy and founding it on manufacturing and agriculture, the only true founts of wealth creation.
A system in which your responsibility is commensurate with your liberty would work to restore equilibrium, by weeding out the irresponsible, the incompetent, and the criminal as they failed, while rewarding prudence, responsibility, worthwhile innovation, and accurate judgment. But there is no way a "free market" will work as long as players have absolute license with no commensurate responsibility for the consequences of their failures, and know that they will be rescued by the body of taxpayers whenever they produce the kind of results we are now seeing. It is like handing your manic 16-year-old an American Express card with an unlimited line of credit, while making it clear to him that he will not be held responsible for the bill, and wondering why you get a $360,000 bill in the mail, payable immediately, the following month. Therefore, we must, unfortunately, return to the stricter regulatory climate that prevailed before 1980.
I had many, many thoughts as I witnessed this past week's ugly spectacle of intimidation by lies, compromise, abject fear, and utter capitulation to the terror-mongering of Paulson and his Wall Street cronies. Why, you had to wonder, would anyone believe that the economy would completely collapse merely because Paulson, who has told us nothing but lies during his entire tenure, and the Wall Street geniuses who engineered this debacle, told us so? Yet this wild claim was taken at face value.
No matter how dismal is the current situation in the credit markets at present, this massive addition to our national debt, which is almost too large to be repaid even now, will not only not arrest the unwinding of the un-repayable debt with which our large financial firms have burdened themselves, but will spread the distress to every corner of the economy.
Given that we are headed into an economic disaster no matter what, and that the great unraveling is proceeding with great speed and is unstoppable at this point, it would seem that the most constructive thing we can do is isolate healthy institutions and activities from the spreading blight, while triaging operations that are too far gone to be salvageable. However, this massively costly intervention, which basically commits the U.S. Treasury to supporting the financial system and its major players at whatever cost to the taxpayers, on terms left to the discretion of Mr. Paulson, will most likely make it certain that the Righteous will die just like the Wicked, and that no citizen and no enterprise will be able to isolate itself from the avalanche of failure.
It's easy to blame the Republicans, for it was Bush and his appointees Paulson and Bernanke, in response to the desperate entreaties of wealthy Wall Street executives- almost all Republicans, who made hundreds of millions of dollars in fees and profits by setting this country up for the most catostrophic financial debacle in recorded history. However, the Democrats have had the major part in creating the structure of entitlements and government agencies that enabled and fueled the speculative binge of the past 10 years, while the Republicans made debt formation, calling it "wealth creation" and the "ownership society", the centerpiece of their economic policy. The public, meanwhile, was unable to pass on the good times to be had by pretending to be rich by means of virtually unlimited credit available to almost anyone.
We are all guilty, but the major responsibility attaches to the policy makers who saw clearly that a disaster of unimaginable proportions was setting up by 2003, yet said not a word in protest as the lending and spending became even more reckless and our institutions continued to layer on evermore unrepayable debt and as homebuilders and mall builders continued to build hundreds of thousands more 4000 sq ft homes in suburbs 80 miles out of the city, and condo builders threw up more and more shoddily built 50- story highrises with $400K one bed apartments in buildings with ever-shoddier construction within the speculation-crazed precincts of Miami, Los Vegas, and Chicago's South Loop.
The ugliest upshot of the collapse of our credit markets, is that the lessons contained therein are completely lost on both policy makers and the public at large, all of whom have managed to draw from the disaster the conclusion that free markets do not work and that the economy can be managed only by the heavy hand of the government.
That this debacle was created by government intervention and that the creation of the credit bubble was, in fact, a centerpiece of Bush economic policy, goes unmentioned. That the disaster that is now unfolding and cascading through our economy, toppling businesses, bankrupting unprecedented numbers of citizens, and triggering tens of thousands of layoffs, was forseen as early as 2003, and many credible experts warned of the developing catastrophe, their cogent, well-worded warnings, backed up by hard numbers, unheeded and mostly unacknowledged by Bush, Paulson, Greenspan, and Bernanke, as well as by executives at financial firms that have now collapsed under the weight of all the worthless garbage paper that they have now succeeded in offloading onto the American public. As the venerable and brilliant former Republican strategist Kevin Phillips, states in his landmark analysis of our current political alignments, American Theocracy, the creation of the monstrous structure of layered debt based on steeply overvalued assets, as a tool to drive our otherwise unproductive economy in an era of depleting resources and dependence on foriegn oil, was well underway by 2004, by which time it was obvious that the chain of utterly reckless debt creation could not possibly be sustained for much longer into the future, and that its inevitable unraveling had the potential to blow our financial system to smithereens:
"If there's a bubble, it's in this four-letter word:debt. The U.S. economy is just awash in it".
-David Rosenburg, Cheif North American Economist at Merrill Lynch, speaking in 2001.
"The United States has never run such large currrent account deficits and no single
nation's deficit hs ever bulked nearly as large relative to the global economy.
- Former U.S. Treasury Secretary Lawrence Summers in a 2004 speech.
"There are disturbing trends: huge imbalances, disequilibria, risks-call them what you will. Altogether the circumstances seem to be as dangerous and intractable as any I can remember.......I don't know whether change will come with a bang or with a whimper, whether sooner or later. But is things stand right now, it is more likely than not that it will be financial crisis rather than policy foresight that will force the change."
_Paul Volker, former Federal Reserve Chairman, The Washington Post, 2005.
And now, the massive intervention, that comes at such great cost to the public till, will not only not change the destructive fiscal policies of the current administration, but will attempt to enable our financial system to do more of what it was doing that caused the problem to begin with, which is the reckless extension of credit to unworthy borrowers for fantastically overvalued assets. Accounting rules are being suspended in order to allow firms holding piles of reeking garbage debt to allow mark-to-fantasy valuations of their worthless crap. Every attempt will be made to prop up stock prices and house prices. The treasury will have unlimited power to buy whatever securities it sees fit at evaluations that may or may not have any basis in reality, for it is the task of the treasury, under this bill, to create an evaluation for the assets, whether they would fetch that in this market, or any market, or not.
FHA loan limits have been raised, as have the limits of conforming mortgages eligible for purchase by GNMA and the GSEs, Fannie Mae and Freddie Mac., what agencies were responsible for the inflation of the debt bubble to begin with, for were it not for these government agencies and GSEs whose whole reason for being is to serve as a dumping ground for risks that would be unacceptable to financial institutions were it not for the explicit and implicit guarantees of such agencies, and by the Federal Reserve. We are in our present predicament not in spite of government intervention, but because of it, for were it not for the multitude of socialized housing programs specifically designed to make housing "affordable" for high-risk borrowers, and the stated and visible willingness of the Federal Reserve to bail out failing institutions and entities on the grounds of the public interest, our institutions would trim their risk considerably, and the normal fluctuations of the business cycle, with its expansions followed by contractions, would be much milder and shorter-lived.
Worse, we will set the stage for more destructive financial binges, for it is now completely understood by all that government authorities will always step in to rescue failing business entities that are considered of key importance because of their size and their executives' connections to powerful politicians.
We will additionally continue to throw good money after bad, in supplying tax-funded support to obsolete, non-competitive "sunset" enterprises, such as our sadly incompetent and uncompetitive domestic auto manufacturers, while killing budding enterprises in promising new industries in the inception, as they are deprived of necessary capital because the tax burden has grown so large by way of supporting failure that capital is scarcer than ever, especially for the innovative and experimental industries that we will need if we are to survive resource depletion and the failure of our financial system and rebuild our economy and lifestyles on a sustainable platform.
A reader of James Howard Kuntler's blog, a citizen from Ohio, remarked that we could completely rebuild our railroads and electrify them, with service to every town with more than 5,000 people, with the money that is being allocated to the bailout of our financial system.
Worst of all, this will not be the last cash call. Expect another desperate call for another trillion dollars or so, or more, in a couple of months when it becomes obvious that this rescue attempt is not working, for $700 Billion is only a fraction of what will be necessary, given the immense exposure in structured debt instruments and other derivative instruments that grossly amplified the leverage, and risk, inherent in the mountain of overvalued mortgages and commercial loans. Commercial credit is only beginning to unwind, and there remains the mass of credit card debt overhanging the economy.
If there's anything that ought to be evident from reviewing past and present financial debacles and the depressions that resulted, it should be that the largest and most far reaching disasters result in the attempts of government authorities to "play God" with the lives and fortunes of hundreds of millions of citizens and thousands of business entities; that the economy is simply too large and too complex for any group of people, no matter how expert and educated, to predict how sweeping policy decisions made at the top will play out over the near term, let alone over decades. We should by now have learned that the policies and instruments put into place 75 years ago by well-meaning people of ability and deep knowledge, had many unintended consequences that played out and amplified over the ensuing decades, with disastrous results, such as the decision, made with the best of intentions in Roosevelt's era, to enable as many Americans as possible to afford, with government assistance, the unaffordable. Roosevelt could not have predicted that the current administration would turn these socialistic enterprises into the agencies by which his administration's disastrous fiscal policies, namely the stated intention to enable the creation of a mountain of debt as the driver of "wealth creation", could be implemented and developed with the results we have seen.
What will be the unintended consequences of this latest disastrous and most far-reaching intervention? Aside from attempting to do what no government has any business doing, which is propping up housing prices at still-unaffordable levels, and stock prices at levels unjustified by the prospects and current financial situation of the underlying companies, for the benefit of dishonest and incompetent financial firms and flagrantly imprudent and extravagant home debtors, it will take us further down the road to government insolvency, which would be the ultimate disaster, and one that no one will bail us out of.
Instead of devising evermore ways to offload the burden of malfeasance and incompetence on the next three or four generations of hapless taxpayers while freeing the guilty from responsibility, we could start the process of unwinding the structure of government agencies and entitlements designed to facilitate easy credit, while returning to lending standards reasonably designed to select for borrowers able to repay, from citizens buying homes to businesses contemplating expansion or startup. We could start the long and painful process of de-financializing our economy and founding it on manufacturing and agriculture, the only true founts of wealth creation.
A system in which your responsibility is commensurate with your liberty would work to restore equilibrium, by weeding out the irresponsible, the incompetent, and the criminal as they failed, while rewarding prudence, responsibility, worthwhile innovation, and accurate judgment. But there is no way a "free market" will work as long as players have absolute license with no commensurate responsibility for the consequences of their failures, and know that they will be rescued by the body of taxpayers whenever they produce the kind of results we are now seeing. It is like handing your manic 16-year-old an American Express card with an unlimited line of credit, while making it clear to him that he will not be held responsible for the bill, and wondering why you get a $360,000 bill in the mail, payable immediately, the following month. Therefore, we must, unfortunately, return to the stricter regulatory climate that prevailed before 1980.
Saturday, September 27, 2008
Pride of Ownership
Pictured here is the grandiose and pretentious condominium development, built late in the boom, at 6212 N. Winthrop in Edgewater, which is additionally the most unkempt property on this block by far and a rather nasty contrast to the well-kept four-plus-ones and corridor buildings that line this block.
The asking prices for the units in this "luxury" building started at $600,000, though I doubt that the units sold thus far closed at that price (I haven't looked), but even so, I have to doubt they sold much under $500,000.
In the photos, you can see the trash lodged in the pikes of the fence and scattered about the parkway. It's not just a transient condition, either- I walk past this property on my way home and this trash has been here for many, many days. Yet, every other structure on the block, including low-rent corridor buildings, is well-groomed and often landscaped with great care.
Maybe the unit owners really have no idea that they are supposed to maintain the parkway and walk, or the little patch of lawn, in front of their place. Someone should tell them- this place is blighting the block. Home ownership is supposed to foster pride and commitment, but it's nowhere in evidence here.
Paulson's Lies
July 12th, 2007 "This is far and away the strongest global economy I've seen in my business lifetime."
My note: By July 12, 2007, we were well into the first stages of a steep retrenchment, and defaults were soaring. By this time, over 160 small mortgages lenders had already failed/
April 20th, 2007 "I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained."
My note: By February of 2007, the subprime market was going "down in flames", and then-failing Countrywide Financial's people stated publicly that "40 or 50 small lenders are failing daily".
April 20th, 2007 "We've clearly had a big correction in the housing market. Retail housing was growing for some time at a level that was not sustainable," Paulson said in a speech to The Committee of 100, a business group in New York promoting better Chinese relations.
My note: Well, no shit, Sherlock. I said the same thing in 2003, in 2005, and in 2006,and so did many pundits and economists who have a lot more credibility than this one disgruntled renter and taxpayer. Many other observers also said that $500,000 adjustable loans for fruitpickers and store clerks making $20,000 a year were not sustainable, and many economists were noting that the United States had the largest public and private debt loads of any economy ever to have existed, and that every other economy that had reached anything like this level of debt overhang, had collapsed.
August 1st, 2007 "The market has focused on this. There's a wake-up call, and there's an adjustment to this repricing of risk, but I see the underlying economy as being very healthy," he told reporters before leaving Beijing.
My note: Some understatement. By August of 2007, American Home and New Century had gone under, along with over 160 other lenders, and the credit markets were unspooling rapidly, as two hedge funds operated by Bear Stearns cruised toward collapse. Unemployment and inflation were soaring.
February 28th, 2008 "I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street."
My note: The grand-daddy of boners. Do you remember saying this, Mr. Paulson?
March 16th, 2008 "We've got strong financial institutions . . . Our markets are the envy of the world. They're resilient, they're...innovative, they're flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong."
My note: Another whopper. The United States has the most over-leveraged economy along with the most rampant fraud and malfeasance and the most over-compensated financial industry executives, in the history of the world, as we have since seen. Our entire economy has been founded on the layering of debt since 1980.
May 7, 2008 'The worst is likely to be behind us,' Paulson told the paper, in one of the most optimistic comments by a top U.S. finance official since sub-prime mortgage losses set a domino effect in motion in mid 2007.
And....
May 16th, 2008 "In my judgment, we are closer to the end of the market turmoil than the beginning," he said. "Looking forward, I expect that financial markets will be driven less by the recent turmoil and more by broader economic conditions and, specifically, by the recovery of the housing sector."
My note: Well, we've seen what's transpired since. Mr. Paulson did not offer any supporting evidence to back these statements, which were made as the blight was spreading into Alt-A and prime debt, and as foreclosures continued to soar and as current defaults foretell even higher foreclosure rates as we leave the selling season behind.
But worse lies ahead, for commercial credit is even worse and is only beginning to unravel, and there remains unsecured consumer credit- the mountain of credit card debt that will almost certainly default more rapidly than housing or commercial. The reckless expansion of credit of the past 20 years promises to be matched by a proportionately ruthless contraction, and it's doubtful that people who have walked away from impossible mortgages and are losing jobs that there are no replacements for, are going to be able or willing to meet less-pressing obligations, such as the tens of thousands of dollars of credit card debt that many householders rung up when they had tapped out the last of their fake house equity.
The foregoing is only a sampling of Paulson's flamingly bad calls, flagrant mis-statements, and outright lies. We know that we have no reason to believe any of his statements, yet he and Bernanke have managed to terrorize the administration and Congress into rushing to foist a bailout of failing institutions that will cost each taxpayer in this country an average of $6,000 a year at least.
Worse, we can't help but wonder what else remains unsaid. Paulson insists that without a $700 Billion bailout, our economy will collapse. What he has not said is what another trillion dollars or so of debt will do to our currency and how we will continue to meet the interest payments on our government debt if we continue to add to it at the rate of a trillion dollars at a time. At this time, we have approximately $9.5 Trillion worth of soveriegn debt, and the interest per annum on this debt is $500 Trillion dollars.
At what point will the United States be forced to default on its government debt, and become the world's largest IMF client state? And what will that do to our currency, our economy, and our ability to keep the oil flowing into the country? There is no public discussion of these harrowing possibilities.
The risk of failing to take action is repeatedly belabored, yet neither Paulson or any of the other policy makers pushing for the nationalization of our banking system, which is what this bailout amounts to, wants to talk about the risks entailed in this massive socialization of the fallout from the greed and malfeasance of the only people who really stand to profit from the bailout.
My note: By July 12, 2007, we were well into the first stages of a steep retrenchment, and defaults were soaring. By this time, over 160 small mortgages lenders had already failed/
April 20th, 2007 "I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained."
My note: By February of 2007, the subprime market was going "down in flames", and then-failing Countrywide Financial's people stated publicly that "40 or 50 small lenders are failing daily".
April 20th, 2007 "We've clearly had a big correction in the housing market. Retail housing was growing for some time at a level that was not sustainable," Paulson said in a speech to The Committee of 100, a business group in New York promoting better Chinese relations.
My note: Well, no shit, Sherlock. I said the same thing in 2003, in 2005, and in 2006,and so did many pundits and economists who have a lot more credibility than this one disgruntled renter and taxpayer. Many other observers also said that $500,000 adjustable loans for fruitpickers and store clerks making $20,000 a year were not sustainable, and many economists were noting that the United States had the largest public and private debt loads of any economy ever to have existed, and that every other economy that had reached anything like this level of debt overhang, had collapsed.
August 1st, 2007 "The market has focused on this. There's a wake-up call, and there's an adjustment to this repricing of risk, but I see the underlying economy as being very healthy," he told reporters before leaving Beijing.
My note: Some understatement. By August of 2007, American Home and New Century had gone under, along with over 160 other lenders, and the credit markets were unspooling rapidly, as two hedge funds operated by Bear Stearns cruised toward collapse. Unemployment and inflation were soaring.
February 28th, 2008 "I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street."
My note: The grand-daddy of boners. Do you remember saying this, Mr. Paulson?
March 16th, 2008 "We've got strong financial institutions . . . Our markets are the envy of the world. They're resilient, they're...innovative, they're flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong."
My note: Another whopper. The United States has the most over-leveraged economy along with the most rampant fraud and malfeasance and the most over-compensated financial industry executives, in the history of the world, as we have since seen. Our entire economy has been founded on the layering of debt since 1980.
May 7, 2008 'The worst is likely to be behind us,' Paulson told the paper, in one of the most optimistic comments by a top U.S. finance official since sub-prime mortgage losses set a domino effect in motion in mid 2007.
And....
May 16th, 2008 "In my judgment, we are closer to the end of the market turmoil than the beginning," he said. "Looking forward, I expect that financial markets will be driven less by the recent turmoil and more by broader economic conditions and, specifically, by the recovery of the housing sector."
My note: Well, we've seen what's transpired since. Mr. Paulson did not offer any supporting evidence to back these statements, which were made as the blight was spreading into Alt-A and prime debt, and as foreclosures continued to soar and as current defaults foretell even higher foreclosure rates as we leave the selling season behind.
But worse lies ahead, for commercial credit is even worse and is only beginning to unravel, and there remains unsecured consumer credit- the mountain of credit card debt that will almost certainly default more rapidly than housing or commercial. The reckless expansion of credit of the past 20 years promises to be matched by a proportionately ruthless contraction, and it's doubtful that people who have walked away from impossible mortgages and are losing jobs that there are no replacements for, are going to be able or willing to meet less-pressing obligations, such as the tens of thousands of dollars of credit card debt that many householders rung up when they had tapped out the last of their fake house equity.
The foregoing is only a sampling of Paulson's flamingly bad calls, flagrant mis-statements, and outright lies. We know that we have no reason to believe any of his statements, yet he and Bernanke have managed to terrorize the administration and Congress into rushing to foist a bailout of failing institutions that will cost each taxpayer in this country an average of $6,000 a year at least.
Worse, we can't help but wonder what else remains unsaid. Paulson insists that without a $700 Billion bailout, our economy will collapse. What he has not said is what another trillion dollars or so of debt will do to our currency and how we will continue to meet the interest payments on our government debt if we continue to add to it at the rate of a trillion dollars at a time. At this time, we have approximately $9.5 Trillion worth of soveriegn debt, and the interest per annum on this debt is $500 Trillion dollars.
At what point will the United States be forced to default on its government debt, and become the world's largest IMF client state? And what will that do to our currency, our economy, and our ability to keep the oil flowing into the country? There is no public discussion of these harrowing possibilities.
The risk of failing to take action is repeatedly belabored, yet neither Paulson or any of the other policy makers pushing for the nationalization of our banking system, which is what this bailout amounts to, wants to talk about the risks entailed in this massive socialization of the fallout from the greed and malfeasance of the only people who really stand to profit from the bailout.
Monday, September 22, 2008
$1.8 Trillion and Climbing- The Coming Insolvancy of the U.S. Treasury
I'll get to the point right now.
I don't see the attempt to bail out that which is too big to bail ending anywhere but in the complete insolvency of the U.S. Treasury, and it's deeply troubling that no one has broached this possibility, amidst the panic that ensued last week.
It's sad and sickening that our financial and government leaders are trying so hard to spin the total collapse of our financial system as merely a problem of "confidence", as if trillions of dollars worth of loans that can never be repaid and the derivatives based on them in insane ratios, can be made manageable merely by belief that the system can be kept going on its own terms....merely by belief.
And just as Paulson told us only a few short weeks ago that the economy is in good shape and that the financial system is fundamentally sound, he and the rest of our political leaders are pretending that if we just toss a few trillion more in taxpayers money into the system, that things will return to "normal", by which I imagine they mean that our financiers can go back to writing the Pay Option ARM and IO and NINJA loans and other worthless crap from which they were able to draw salaries and bonuses in the hundreds of millions of dollars.
Insolvency will mean our government is totally unable to meet its obligations, and that the United States will become the largest IMF client state. It will mean that we might no longer be able to adequately fund our military at the "stretch" level we currently are. It might mean that social security will be endangered for current recipeints, and possibly forever, at a time when millions of people are losing massive equity in their 401K plans and pensions, on the eve of their retirements, and that everything that is the legitimate responsibility of the government, such as our aging and badly deteriorated water and road infrastructure, as well as essential services and infrastructure at the local levels, as cash-starved local authorities are pressed to make further cuts as less money comes from Washington and more must be raised at the local level.
Government insolvancy will mean that the value of both government and non-government debt tanks completely, and that no one will be able to raise money in either the public or private sector for business formation or expansion, for the repair of failing bridges and collapsing roads, for public health programs such as immunizations for flue and other infectiuos diseases, or for disaster preparedness.
It would also most likely mean that oil will cease to be denominated in U.S. dollars, which would mean a disastrous runup in oil prices, as our currency totally craters in value. Note that oil today had the biggest one-day runup (to over $109 a barrel) in history. Winter lies just ahead, and the gas and fuel oil orders haven't come in yet, but we needn't expect any relief in prices when they do.
We have a choice between catastrophic- the failure of our financial system that looks to happen no matter what; or worse- the collapse of our financial system and of the U.S. Treasury, the very last backup.
Just as our leadership did not consider the current steamrolling disaster to be within the realm of possibility three months ago even though it was clear that almost every major institution was leveraged beyond sanity and confronting massive "liquidity" (i.e. solvency) problems; no one now is discussing the possibility of the ultimate failure.
This means we have no leadership that can possibly shepard us through the mother of all collapses, and we are on our own. I don't feel ready for it, and I'm sure no one else does, either, but we had all better be prepared to deal- with job loss, no unemployment, the loss of our homes, spotty or nonexistant services both public and private, and chronic shortages of basic goods essential to our day-to-day lives.
I don't see the attempt to bail out that which is too big to bail ending anywhere but in the complete insolvency of the U.S. Treasury, and it's deeply troubling that no one has broached this possibility, amidst the panic that ensued last week.
It's sad and sickening that our financial and government leaders are trying so hard to spin the total collapse of our financial system as merely a problem of "confidence", as if trillions of dollars worth of loans that can never be repaid and the derivatives based on them in insane ratios, can be made manageable merely by belief that the system can be kept going on its own terms....merely by belief.
And just as Paulson told us only a few short weeks ago that the economy is in good shape and that the financial system is fundamentally sound, he and the rest of our political leaders are pretending that if we just toss a few trillion more in taxpayers money into the system, that things will return to "normal", by which I imagine they mean that our financiers can go back to writing the Pay Option ARM and IO and NINJA loans and other worthless crap from which they were able to draw salaries and bonuses in the hundreds of millions of dollars.
Insolvency will mean our government is totally unable to meet its obligations, and that the United States will become the largest IMF client state. It will mean that we might no longer be able to adequately fund our military at the "stretch" level we currently are. It might mean that social security will be endangered for current recipeints, and possibly forever, at a time when millions of people are losing massive equity in their 401K plans and pensions, on the eve of their retirements, and that everything that is the legitimate responsibility of the government, such as our aging and badly deteriorated water and road infrastructure, as well as essential services and infrastructure at the local levels, as cash-starved local authorities are pressed to make further cuts as less money comes from Washington and more must be raised at the local level.
Government insolvancy will mean that the value of both government and non-government debt tanks completely, and that no one will be able to raise money in either the public or private sector for business formation or expansion, for the repair of failing bridges and collapsing roads, for public health programs such as immunizations for flue and other infectiuos diseases, or for disaster preparedness.
It would also most likely mean that oil will cease to be denominated in U.S. dollars, which would mean a disastrous runup in oil prices, as our currency totally craters in value. Note that oil today had the biggest one-day runup (to over $109 a barrel) in history. Winter lies just ahead, and the gas and fuel oil orders haven't come in yet, but we needn't expect any relief in prices when they do.
We have a choice between catastrophic- the failure of our financial system that looks to happen no matter what; or worse- the collapse of our financial system and of the U.S. Treasury, the very last backup.
Just as our leadership did not consider the current steamrolling disaster to be within the realm of possibility three months ago even though it was clear that almost every major institution was leveraged beyond sanity and confronting massive "liquidity" (i.e. solvency) problems; no one now is discussing the possibility of the ultimate failure.
This means we have no leadership that can possibly shepard us through the mother of all collapses, and we are on our own. I don't feel ready for it, and I'm sure no one else does, either, but we had all better be prepared to deal- with job loss, no unemployment, the loss of our homes, spotty or nonexistant services both public and private, and chronic shortages of basic goods essential to our day-to-day lives.
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