The Recession is NOT Over
Mainstream economists, and many in the mainstream media, have declared that the alleged 3.5% third quarter growth (the first in over a year) means that the recession is now over.
Did you get that? It's over! Thank God, it's finally over!
How many Americans really believe that? According to this story, there are plenty of disbelievers, and this comes from the mainstream media.
How much do you want to bet that this report will revised in the weeks or months ahead?
Any economic growth was exclusively the result of absolutely massive deficit spending by the federal government – not by US businesses and consumers.
The US deficit for 2009 has reached $1.42 trillion. Adjusted for inflation, it is the largest deficit since 1945. Federal tax receipts are down 17%, while spending is up 18%.
No nation has ever borrowed its way to prosperity. The government is sacrificing our future prosperity for false, contrived, growth.
The recession is by no means over.
Job losses continue to mount and foreclosures will spread through 2010 and 2011. US banks have failed at a rate of 2.5 per week so far this year.
The truth is, we haven't even seen the worst of it yet.
Job creation for this entire decade is negative, resulting from 7.6 million lost jobs that will need to be made up. In addition, the government says that 1.3 million jobs need to be created every year from 2006-2016 just to keep up with the growing labor force. The hole is very deep. Experts note that it will take years to reverse these massive losses.
Currently, there are 2.8 million active interest-only loans nationally, worth a combined total of $908 billion. In the next 12 months, $71 billion of interest-only loans will reset. Even after mid-2011, another $400 billion will reset. That means there will be a massive number of additional defaults over the next two years.
Amherst Securities estimates that 7 million housing units are destined to default, only to be seized by lenders. That number represents well over a year's worth of home sales. When this "shadow inventory" eventually hits the market, prices will be pushed further downward.
Household credit has utterly collapsed, experiencing a year-over-year decline for the first time on record (since 1953). Simply put, we are not going to spend our way out of this recession. The Consumer Confidence Index now stands at 47.7 on a scale of 100., the lowest level in more than a quarter century. Americans are rightfully worried, even scared.
But the government has to spin the story. They have to control the message. Most of all, they have to control public fear, anxiety and even the possibility of outright panic.
We've seen this movie before. But most Americans are too young to remember it.
However, our government made these same rosy forecasts, completely detached from reality, during the Great Depression.
Does any of this seem familiar, or similar to the present?
"We will not have any more crashes in our time." - John Maynard Keynes, 1927
"There will be no interruption of our permanent prosperity." - Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928
"There is no cause to worry. The high tide of prosperity will continue." - Andrew W. Mellon, Secretary of the Treasury, September 1929
"Stock prices have reached what looks like a permanently high plateau." - Irving Fisher, Ph.D. in economics, Oct. 17, 1929
"Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board." - New York Times, October 14, 1929
"This crash is not going to have much effect on business." - Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929
"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression..." - Harvard Economic Society (HES), November 2, 1929
"The Government's business is in sound condition." - Andrew W. Mellon, Secretary of the Treasury, December 5, 1929
"President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days." - Washington Dispatch, March 8, 1930
"The spring of 1930 marks the end of a period of grave concern... American business is steadily coming back to a normal level of prosperity." - Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930
"While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States - that is, prosperity." - President Hoover, May 1, 1930
"The worst is over without a doubt." - James J. Davis, Secretary of Labor, June 29, 1930
Gentleman, you have come sixty days too late. The depression is over." - Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930
"We have hit bottom and are on the upswing." - James J. Davis, Secretary of Labor, September 12, 1930
"President Hoover has summoned Colonel Arthur Woods to help place 2,500,000 persons back to work this winter." - Washington dispatch, October 21, 1930
"I see no reason why 1931 should not be an extremely good year." - Alfred P. Sloan, Jr., General Motors Co, November 1930
"The depression has ended." - Dr. Julius Klein, Assistant Secretary of Commerce, June 9, 1931
"I believe July 8, 1932 was the end of the great bear market." - Dow Theorist, Robert Rhea, July 21, 1932
"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S." - President F.D. Roosevelt, 1933
Jumat, 30 Oktober 2009
Minggu, 25 Oktober 2009
Expert: $80/Barrel Oil Could Re-Trigger Recession
Steven Kopits runs the New York office of Douglas-Westwood, an independent energy analysis company.
Kopits has written a new paper on Peak Oil and the economy.
In it, he notes that the worldwide oil supply of has not improved much since the 4th quarter of 2004. Yet, demand has continued to rise.
“And I don’t see anything on the horizon that makes it appear that we’re going to break out into a really new level of production that’s far different than what we have today. So if we’re talking about practical Peak Oil, my view is that it started in late 2004.”
Kopits says that China’s rapid growth will make it difficult for supply to keep up with demand, even if supply somehow manages to grow. But an increasing supply doesn't seem likely.
The International Energy Agency has pointed out that the decline rate appears to have increased to 6-7%.
But the most pressing issue at present is that rising oil prices could worsen the US recession.
This is a concern that Kopits shares with many economists.
“The US has experienced six recessions since 1972. At least five of these were associated with oil prices. In every case, when oil consumption in the US reached 4% percent of GDP, the US went into recession. Right now, 4% of GDP is $80 oil. So that’s my current view: If the oil price exceeds $80, then expect the US to fall back into recession.”
Right now, oil is already trading at over $80 per barrel, its highest level this year. Given Kopits’ analysis, that’s reason for genuine concern.
It requires great optimism to believe the US is currently coming out of recession. So that precludes the possibility of “falling back” into one. But, clearly, things can get worse.
Americans have cut oil consumption in response to the recession. The Federal Highway Administration reported that, as of September, Americans had traveled up to 112 billion fewer miles in the previous 13 months.
Yet, the price of oil continues to rise. In fact, prices have surged 25 percent in less than a month.
The plunging US dollar is largely to blame. Oil is traded in dollars, which are dropping in value. That makes oil more expensive in the US.
But rising demand in the developing world, particularly China, is also creating inflationary pressure on oil.
Kopits expects Chinese demand for oil to eventually stabilize at about 50 million barrels per day around 2032-2035. That's more than twice what the US – the world's biggest consumer of oil – currently uses.
But where will all that oil come from?
"If you have a flat—or heaven help us, declining—supply of oil, then the emerging and fast-growing economies will have no choice but to start bidding away the oil from the advanced or slow-growing economies. That is consistent with what we’ve seen in the data starting in about 2006. For China to grow, it will have to take away the oil of Japan, the US and Europe, just as it has in the last three years.
"If I run out the projections, this implies that US consumption is likely to drop by about one-third, from its peak at 21 mb/day before the recession, to about 14 mb/day in 2030. That will potentially be a long and painful adjustment.”
That's a stunning projection. It implies no growth in the US economy over the next two decades, but instead a massive contraction.
According to Kopits, the global economy cannot sustain oil at any price.
“Beyond a certain threshold, the result is likely to be stagflation or recession rather than perpetually increasing oil prices.”
Kopits says that we are in the midst of the first Peak Oil recession. The implications of that reality will be burdensome.
At a minimum, Kopits and other analysts believe that $4 a gallon gas is on the horizon.
Between a declining dollar and increasing Chinese energy demands, the American economy will be additionally impacted by the rising cost of oil.
The fact that it is a finite resource will become abundantly, and uncomfortably, clear.
Jumat, 23 Oktober 2009
US Banks Reach Grim Milestone: 100 Closures
Seven more US banks were shut down by regulators on Friday, bringing the total for this year to 106. It's the most closings since 1992, when 122 banks were shuttered.
Yet, it's only October.
The occasion also marked just the 11th time since the creation of the FDIC in 1933 that 100 banks have failed in a single year.
To provide some perspective, just three US banks failed in 2007.
And last year, 25 US banks were closed, which was more than in the previous five years combined.
But this year the problems in US banking have been growing steadily worse; a total of 416 banks were on the FDIC's troubled list as of the end of June.
With more and more mortgages continually going into default, those numbers are expected to steadily rise over the next couple of years, putting ever greater pressure on the entire US banking system.
However, this doesn't even account for the looming fallout in commercial real estate failures.
Investors in commercial mortgage-backed securities are holding assets with a delinquent unpaid balance of $29 billion, up more than five fold since June 2008, according to a report issued by the Congressional Oversight Panel.
Under a worst-case scenario, the panel estimates that commercial real estate and construction loan losses through 2010 may total $81.1 billion at 701 banks with assets of $600 million to $80 billion.
Consider the implications of that scenario; the potential losses could exceed the total assets of the banks involved.
According to Jim Rounds, senior vice president and senior economist at Elliott D. Pollack, the problems in commercial real estate are just getting started and they will hinder any possible economic recovery.
The resulting losses, on top of the already heavy losses in residential real estate, will be devastating.
Veteran bank analyst Gerard Cassidy of RBC Capital Markets expects as many as 1000 banks to ultimately go bust. And the money to cover those losses doesn't exist at present.
As of March 31, the FDIC's deposit insurance fund had $13 billion to cover pending bank losses. However, the agency has shelled out more than $25 billion to pay for all the bank failures so far this year. That meant the insurance fund that allegedly insures your accounts was officially in the red.
As a preventative measure (as futile as it may be), the FDIC's board took an unusual step on September 29, asking banks to pay $45 billion in fees up front. The money was to have been paid over three years. But the FDIC is in dire straights, so it has resorted to rather desperate moves.
The $45 million in fees amounts to putting a band-aid over a bullet wound. The FDIC purports to insure $4.83 trillion in deposits. Does $45 billion seem adequate for the task?
At the end of 2008, the FDIC expected bank failures to cost its insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. However, its problems have grown continually worse. As a result, the FDIC keeps revising it cost estimates ever higher.
The agency now expects to spend $100 billion on bank failures in the next few years.
However, analyst Andy Laperriere, Managing Director of the ISI Group, thinks that's a lowball number.
"I think the FDIC is going to continue to increase their estimated losses and this short-term measure of having the banks pay their fees up front probably is not going to hold us over through this cycle of bank failures. And I think ultimately, the FDIC is probably going to have to go to the Treasury and ask for a loan."
Due to their massive losses, US banks have a diminished capacity to increase lending, which will affect any recovery. According to the IMF, in both 2009 and 2010, US banks will have a negative lending capacity of approximately 3%.
And bank losses will only worsen.
Nationwide, there are 2.8 million active interest-only home loans, worth a combined total of $908 billion. In the next 12 months, $71 billion of interest-only loans will reset. Even after mid-2011, another $400 billion will reset. For instance, in 2004, nearly half of all buyers in California took out an interest-only loan.
That means there will be a massive number of additional defaults over the next two years.
And banks will continue to fall like dominoes as a result.
History and context of bank failures:
- In 1930, 1300+ banks failed, 600 in just the final two months of the year.
- During the savings-and-loan crisis (1986-95), 2,377 banks failed.
- In 1989, 534 banks were closed, the most since 1934.
- According to the FDIC, since 1934, the only two years with no bank failures were 2005 and 2006.
- From 2000=2007, only 32 US banks failed.
Seven more US banks were shut down by regulators on Friday, bringing the total for this year to 106. It's the most closings since 1992, when 122 banks were shuttered.
Yet, it's only October.
The occasion also marked just the 11th time since the creation of the FDIC in 1933 that 100 banks have failed in a single year.
To provide some perspective, just three US banks failed in 2007.
And last year, 25 US banks were closed, which was more than in the previous five years combined.
But this year the problems in US banking have been growing steadily worse; a total of 416 banks were on the FDIC's troubled list as of the end of June.
With more and more mortgages continually going into default, those numbers are expected to steadily rise over the next couple of years, putting ever greater pressure on the entire US banking system.
However, this doesn't even account for the looming fallout in commercial real estate failures.
Investors in commercial mortgage-backed securities are holding assets with a delinquent unpaid balance of $29 billion, up more than five fold since June 2008, according to a report issued by the Congressional Oversight Panel.
Under a worst-case scenario, the panel estimates that commercial real estate and construction loan losses through 2010 may total $81.1 billion at 701 banks with assets of $600 million to $80 billion.
Consider the implications of that scenario; the potential losses could exceed the total assets of the banks involved.
According to Jim Rounds, senior vice president and senior economist at Elliott D. Pollack, the problems in commercial real estate are just getting started and they will hinder any possible economic recovery.
The resulting losses, on top of the already heavy losses in residential real estate, will be devastating.
Veteran bank analyst Gerard Cassidy of RBC Capital Markets expects as many as 1000 banks to ultimately go bust. And the money to cover those losses doesn't exist at present.
As of March 31, the FDIC's deposit insurance fund had $13 billion to cover pending bank losses. However, the agency has shelled out more than $25 billion to pay for all the bank failures so far this year. That meant the insurance fund that allegedly insures your accounts was officially in the red.
As a preventative measure (as futile as it may be), the FDIC's board took an unusual step on September 29, asking banks to pay $45 billion in fees up front. The money was to have been paid over three years. But the FDIC is in dire straights, so it has resorted to rather desperate moves.
The $45 million in fees amounts to putting a band-aid over a bullet wound. The FDIC purports to insure $4.83 trillion in deposits. Does $45 billion seem adequate for the task?
At the end of 2008, the FDIC expected bank failures to cost its insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. However, its problems have grown continually worse. As a result, the FDIC keeps revising it cost estimates ever higher.
The agency now expects to spend $100 billion on bank failures in the next few years.
However, analyst Andy Laperriere, Managing Director of the ISI Group, thinks that's a lowball number.
"I think the FDIC is going to continue to increase their estimated losses and this short-term measure of having the banks pay their fees up front probably is not going to hold us over through this cycle of bank failures. And I think ultimately, the FDIC is probably going to have to go to the Treasury and ask for a loan."
Due to their massive losses, US banks have a diminished capacity to increase lending, which will affect any recovery. According to the IMF, in both 2009 and 2010, US banks will have a negative lending capacity of approximately 3%.
And bank losses will only worsen.
Nationwide, there are 2.8 million active interest-only home loans, worth a combined total of $908 billion. In the next 12 months, $71 billion of interest-only loans will reset. Even after mid-2011, another $400 billion will reset. For instance, in 2004, nearly half of all buyers in California took out an interest-only loan.
That means there will be a massive number of additional defaults over the next two years.
And banks will continue to fall like dominoes as a result.
History and context of bank failures:
- In 1930, 1300+ banks failed, 600 in just the final two months of the year.
- During the savings-and-loan crisis (1986-95), 2,377 banks failed.
- In 1989, 534 banks were closed, the most since 1934.
- According to the FDIC, since 1934, the only two years with no bank failures were 2005 and 2006.
- From 2000=2007, only 32 US banks failed.
Jumat, 16 Oktober 2009
Dollar's Decline Presents Bernanke With Faustian Bargain
This week it was revealed that the euro and the yen have supplanted the dollar as the currency of choice at foreign central banks.
This is a major development, but one that has been a long time coming.
According to Barclays Capital, over the last three months, banks put 63 percent of their new cash into euros and yen, and just 37 percent into dollars. A decade ago, the dollar's share of new cash in central banks was two-thirds.
The once mighty dollar has fallen considerably as the currency choice.
The IMF says that dollars currently account for about 62 percent of the total currency reserve at central banks -- the lowest on record.
The printing of trillions of dollars by the Federal Reserve – the very definition of inflation – has sparked concerns that the value of the dollar is eroding. That has sparked a worldwide flight to other currencies.
Investors and central banks are also snubbing dollars because near-zero interest rates are keeping the currency too weak.
Those investors and central banks are getting paid back by a currency that is worth 10 percent less in the past three months alone. In a decade, it's down nearly one-third.
The only thing that will stem the tide is for the Fed to raise interest rates – considerably. Some economists think that rates may have to spike to the high single digits to make the dollar attractive once again.
That would kill any economic recovery by halting investment and growth. Stocks would nosedive and housing would be further crippled.
The massive amounts of excess liquidity floating around world markets would also have to be mopped up by the Fed – a considerable task.
According to Peter Schiff, president of Euro Pacific Capital, Ben Bernanke's other choice is equally stark.
"Bernanke's other choice is to keep rates at zero, print even more money and sell more debt, but we'll see triple-digit inflation that could collapse the economy as we know it."
It's hard to decide which is the lesser of two evils. Either choice seems like a Faustian bargain.
This week it was revealed that the euro and the yen have supplanted the dollar as the currency of choice at foreign central banks.
This is a major development, but one that has been a long time coming.
According to Barclays Capital, over the last three months, banks put 63 percent of their new cash into euros and yen, and just 37 percent into dollars. A decade ago, the dollar's share of new cash in central banks was two-thirds.
The once mighty dollar has fallen considerably as the currency choice.
The IMF says that dollars currently account for about 62 percent of the total currency reserve at central banks -- the lowest on record.
The printing of trillions of dollars by the Federal Reserve – the very definition of inflation – has sparked concerns that the value of the dollar is eroding. That has sparked a worldwide flight to other currencies.
Investors and central banks are also snubbing dollars because near-zero interest rates are keeping the currency too weak.
Those investors and central banks are getting paid back by a currency that is worth 10 percent less in the past three months alone. In a decade, it's down nearly one-third.
The only thing that will stem the tide is for the Fed to raise interest rates – considerably. Some economists think that rates may have to spike to the high single digits to make the dollar attractive once again.
That would kill any economic recovery by halting investment and growth. Stocks would nosedive and housing would be further crippled.
The massive amounts of excess liquidity floating around world markets would also have to be mopped up by the Fed – a considerable task.
According to Peter Schiff, president of Euro Pacific Capital, Ben Bernanke's other choice is equally stark.
"Bernanke's other choice is to keep rates at zero, print even more money and sell more debt, but we'll see triple-digit inflation that could collapse the economy as we know it."
It's hard to decide which is the lesser of two evils. Either choice seems like a Faustian bargain.
Rabu, 14 Oktober 2009
Dow 10,000: a Charade
"I think there's a bubble-like atmosphere going on here in the rush back to 10,000. Caution should rule the day. We're not out of the woods yet." – Rich Yamarone, director of economic research at Argus Research
On Wednesday, the Dow Jones closed over 10,000 for the first time in over a year.
Don't believe the hype.
The US economy has suffered a real estate collapse, a banking crisis that led to a near systemic collapse on a global scale, a credit crisis, the worst economic downturn since the Great Depression, and an unprecedented global recession.
Because of all that, the stock market rightly crashed during the winter and spring, bottoming out at 6469 on March 6 — the market's lowest level since November, 1996.
Just eight months earlier, the market had been over 11,000.
But now, despite the fact that the US gross domestic product and consumer spending are declining, the stock is in the midst of an unfathomable rally. It has soared more than 50% since March, while the economy has remained in a tailspin.
This makes absolutely no sense. Consumers are deleveraging and the flow of credit has slowed. One in five Americans is unemployed or underemployed.
The government's U-6 unemployment figure - the true jobless rate - now stands at a whopping 17%. Yet, the government recently admitted that it has been systematically underestimating job losses for the last three years.
Additionally, one of the President's closest economic advisors, Austan Goolsbie, has noted that roughly 1% to 2% of our population's unemployed are downright unaccounted for on a monthly basis due to a variety of factors. And those who run out of unemployment benefits are no longer counted among the ranks of the unemployed.
With all of this in mind, how could the Dow have possibly surpassed 10,000?
It's due to a herd mentality, not fundamentals. Investors are bidding up the stock market in a delirious frenzy, hoping to recoup previous losses, or get rich buying at what is perceived to be an opportune time. Hey, everyone else is buying, right?
Simply put, lots of new money is flowing into the stock market and pushing up the average. It's not because a recovery is underway. And this means that a lot of people stand to get burned.
The relatively strong earnings reports that have lifted the markets in recent days are being driven by cost cuts and layoffs, not strong revenue growth. But that will only put further downward pressure on jobs and wages, and result in weaker economic growth and a deeper downturn.
The merry-go-round will end up right back where it started.
Wall Street is a pretty poor barometer of the economy's performance since it is simply a bet on the future performance of a select group of companies listed on three stock exchanges. Additionally, the majority of the country doesn't have any direct investments in the stock market.
The Dow Jones is currently trading at 28 times earnings. The S&P is even worse; historically, its median P/E is 16,, but is now trading at 139 times earnings. That alone is reason not to invest. It is simply unsustainable.
Yet, the fools have rushed in, enthusiastically.
But the institutional investors, the real market movers, will soon take their profits and quickly pull the escape lever. The herd will try to follow, but not all of them will be able to squeeze out the emergency exit at the same time. There will be a bloodbath.
By some estimates, "high frequency trading" is responsible for close to 70% of all volume in US markets. Computers can track hot stocks and immediately buy up all available shares, subsequently selling them at higher prices. Millions of shares can also be dumped in just milli-seconds.
The markets are manipulated. Sadly, there is a very heavy price to be paid because of this. Billions of dollars will be lost, yet again.
"I think there's a bubble-like atmosphere going on here in the rush back to 10,000. Caution should rule the day. We're not out of the woods yet." – Rich Yamarone, director of economic research at Argus Research
On Wednesday, the Dow Jones closed over 10,000 for the first time in over a year.
Don't believe the hype.
The US economy has suffered a real estate collapse, a banking crisis that led to a near systemic collapse on a global scale, a credit crisis, the worst economic downturn since the Great Depression, and an unprecedented global recession.
Because of all that, the stock market rightly crashed during the winter and spring, bottoming out at 6469 on March 6 — the market's lowest level since November, 1996.
Just eight months earlier, the market had been over 11,000.
But now, despite the fact that the US gross domestic product and consumer spending are declining, the stock is in the midst of an unfathomable rally. It has soared more than 50% since March, while the economy has remained in a tailspin.
This makes absolutely no sense. Consumers are deleveraging and the flow of credit has slowed. One in five Americans is unemployed or underemployed.
The government's U-6 unemployment figure - the true jobless rate - now stands at a whopping 17%. Yet, the government recently admitted that it has been systematically underestimating job losses for the last three years.
Additionally, one of the President's closest economic advisors, Austan Goolsbie, has noted that roughly 1% to 2% of our population's unemployed are downright unaccounted for on a monthly basis due to a variety of factors. And those who run out of unemployment benefits are no longer counted among the ranks of the unemployed.
With all of this in mind, how could the Dow have possibly surpassed 10,000?
It's due to a herd mentality, not fundamentals. Investors are bidding up the stock market in a delirious frenzy, hoping to recoup previous losses, or get rich buying at what is perceived to be an opportune time. Hey, everyone else is buying, right?
Simply put, lots of new money is flowing into the stock market and pushing up the average. It's not because a recovery is underway. And this means that a lot of people stand to get burned.
The relatively strong earnings reports that have lifted the markets in recent days are being driven by cost cuts and layoffs, not strong revenue growth. But that will only put further downward pressure on jobs and wages, and result in weaker economic growth and a deeper downturn.
The merry-go-round will end up right back where it started.
Wall Street is a pretty poor barometer of the economy's performance since it is simply a bet on the future performance of a select group of companies listed on three stock exchanges. Additionally, the majority of the country doesn't have any direct investments in the stock market.
The Dow Jones is currently trading at 28 times earnings. The S&P is even worse; historically, its median P/E is 16,, but is now trading at 139 times earnings. That alone is reason not to invest. It is simply unsustainable.
Yet, the fools have rushed in, enthusiastically.
But the institutional investors, the real market movers, will soon take their profits and quickly pull the escape lever. The herd will try to follow, but not all of them will be able to squeeze out the emergency exit at the same time. There will be a bloodbath.
By some estimates, "high frequency trading" is responsible for close to 70% of all volume in US markets. Computers can track hot stocks and immediately buy up all available shares, subsequently selling them at higher prices. Millions of shares can also be dumped in just milli-seconds.
The markets are manipulated. Sadly, there is a very heavy price to be paid because of this. Billions of dollars will be lost, yet again.
Senin, 12 Oktober 2009
Report: Treasury Misled Public With TARP
The Federal Reserve Chairman Also Misled the Public. The Treasury and Fed Work in Tandem. See a Pattern? A Problem?
Despite critics expressing alarm about the Fed’s immense power during the financial crisis, Ben Bernanke still insists that the Fed should be put in charge of regulating the nation’s biggest financial institutions.
Yes, the Fed Chairman actually favors this extraordinary concentration of power, despite his total inability to thwart, or even foresee, the Great Recession. Not only didn't Bernanke foresee the economic storm that was on the horizon, he actually said that things were quite rosy at US banks.
"Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.” - Fed Chairman Ben Bernanke, 2006
“Importantly, we see no serious broader spillover to banks or thift institutions from problems in the subprime market; the troubled lenders, for the most part, have not been institutions with federally insured deposits” - Ben Bernanke, May 17, 2007
Clearly, Bernanke saw no reason for regulation or oversight. Everything was just fine — until it wasn't.
Perhaps realizing the Fed's failure to see what many others could, or merely bowing to political pressure, Bernanke says responsibility for monitoring broader risks in the financial system should go to a council of regulators.
But Bernanke says the Fed would be merely one of several players on the new council, and endorses the Obama administration’s proposal to have the Treasury lead that council.
How convenient, since the Treasury and the Fed are joined at the hip like Siamese twins engineered by Dr. Frankenstein.
Ultimately, the Treasury is no better than the Fed and the two work together hand in glove.
A new report on the bank bailouts says the Treasury misled the public and was the benefactor of the mega banks.
Neil Barofsky, the special inspector general who oversees the government’s bailout of the banking system, says the Treasury may have unfairly disbursed billions to the biggest banks under the Troubled Assets Relief Program.
Nine of Wall Street’s largest players were given billions of dollars of taxpayer money by the Treasury through the TARP.
Barofsky’s office also says that regulators were wrong to tell the public last year that the earliest bailout recipients were all healthy.
On October 14, 2008, Treasury Secretary Hank Paulson said that the banks were “healthy” and accepted the money for “the good of the U.S. economy,” so that they could increase lending to consumers and businesses.
In truth, regulators were concerned about the health of several banks that received that first bailout, the inspector general contends.
On October 5th, the day his new report was released, Barofsky discussed Paulson's bogus claim, and the TARP, with CNBC.
"As we disclose and describe in our audit, this just wasn't an accurate statement," Barofsky told CNBC. "The Treasury and the Federal Reserve had serious concerns about the health of some of these institutions. They didn't really do a test, they didn't really review, there really wasn't a criteria — when they made the decision to give this $125 billion — about the relative health of these institutions. And as we note in our report, those statements raised expectations and it hurt Treasury's credibility."
Barofsky believes that there is an important lesson to be leaned from all of this.
"It's very important, when we look back, to learn these lessons. And I think that one of the key ones that we learned from this is that transparency, being honest with the American people, it's important — not just for the sake of transparency, but because of the long term, unintended, negative consequences that come when we're not honest, when we're not forthcoming. The bottom line is that the American people saw very shortly thereafter that these were not all healthy institutions, and lending didn't increase. So that hurts the credibility of the program... Even in times of crisis — particularly in times of crisis — let's make sure when we're making public statements that they're accurate and that they're truthful."
Citigroup, JP Morgan Chase, Bank if America, and Wells Fargo were among the nine financial giants to receive billions in taxpayer assistance.
When asked by CNBC if he thought it was inevitable that taxpayers would wind up losing some of the TARP money, Barofsky replied, "I think it's extremely unlikely that we're going to have a dollar-for-dollar return. And I don't think the program, as designed, is made to have a dollar-for-dollar return."
So, forced to prop up banks deemed "too big too fail," the taxpayers have been burned once again.
It's said that sunlight is the greatest disinfectant. Both the Treasury and the Fed — especially — need lots of disinfectant.
Let the sun shine.
The Federal Reserve Chairman Also Misled the Public. The Treasury and Fed Work in Tandem. See a Pattern? A Problem?
Despite critics expressing alarm about the Fed’s immense power during the financial crisis, Ben Bernanke still insists that the Fed should be put in charge of regulating the nation’s biggest financial institutions.
Yes, the Fed Chairman actually favors this extraordinary concentration of power, despite his total inability to thwart, or even foresee, the Great Recession. Not only didn't Bernanke foresee the economic storm that was on the horizon, he actually said that things were quite rosy at US banks.
"Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.” - Fed Chairman Ben Bernanke, 2006
“Importantly, we see no serious broader spillover to banks or thift institutions from problems in the subprime market; the troubled lenders, for the most part, have not been institutions with federally insured deposits” - Ben Bernanke, May 17, 2007
Clearly, Bernanke saw no reason for regulation or oversight. Everything was just fine — until it wasn't.
Perhaps realizing the Fed's failure to see what many others could, or merely bowing to political pressure, Bernanke says responsibility for monitoring broader risks in the financial system should go to a council of regulators.
But Bernanke says the Fed would be merely one of several players on the new council, and endorses the Obama administration’s proposal to have the Treasury lead that council.
How convenient, since the Treasury and the Fed are joined at the hip like Siamese twins engineered by Dr. Frankenstein.
Ultimately, the Treasury is no better than the Fed and the two work together hand in glove.
A new report on the bank bailouts says the Treasury misled the public and was the benefactor of the mega banks.
Neil Barofsky, the special inspector general who oversees the government’s bailout of the banking system, says the Treasury may have unfairly disbursed billions to the biggest banks under the Troubled Assets Relief Program.
Nine of Wall Street’s largest players were given billions of dollars of taxpayer money by the Treasury through the TARP.
Barofsky’s office also says that regulators were wrong to tell the public last year that the earliest bailout recipients were all healthy.
On October 14, 2008, Treasury Secretary Hank Paulson said that the banks were “healthy” and accepted the money for “the good of the U.S. economy,” so that they could increase lending to consumers and businesses.
In truth, regulators were concerned about the health of several banks that received that first bailout, the inspector general contends.
On October 5th, the day his new report was released, Barofsky discussed Paulson's bogus claim, and the TARP, with CNBC.
"As we disclose and describe in our audit, this just wasn't an accurate statement," Barofsky told CNBC. "The Treasury and the Federal Reserve had serious concerns about the health of some of these institutions. They didn't really do a test, they didn't really review, there really wasn't a criteria — when they made the decision to give this $125 billion — about the relative health of these institutions. And as we note in our report, those statements raised expectations and it hurt Treasury's credibility."
Barofsky believes that there is an important lesson to be leaned from all of this.
"It's very important, when we look back, to learn these lessons. And I think that one of the key ones that we learned from this is that transparency, being honest with the American people, it's important — not just for the sake of transparency, but because of the long term, unintended, negative consequences that come when we're not honest, when we're not forthcoming. The bottom line is that the American people saw very shortly thereafter that these were not all healthy institutions, and lending didn't increase. So that hurts the credibility of the program... Even in times of crisis — particularly in times of crisis — let's make sure when we're making public statements that they're accurate and that they're truthful."
Citigroup, JP Morgan Chase, Bank if America, and Wells Fargo were among the nine financial giants to receive billions in taxpayer assistance.
When asked by CNBC if he thought it was inevitable that taxpayers would wind up losing some of the TARP money, Barofsky replied, "I think it's extremely unlikely that we're going to have a dollar-for-dollar return. And I don't think the program, as designed, is made to have a dollar-for-dollar return."
So, forced to prop up banks deemed "too big too fail," the taxpayers have been burned once again.
It's said that sunlight is the greatest disinfectant. Both the Treasury and the Fed — especially — need lots of disinfectant.
Let the sun shine.
Minggu, 11 Oktober 2009
Shadow Inventory Will Impede Housing Recovery
"The single largest impediment to a recovery in the housing market is the large number of loans that are either in delinquent status or in foreclosure that are destined to liquidate. This creates a huge shadow inventory. We estimate this housing overhang at 7 million units, 135% of a full year of existing home sales. We are concerned that, in light of this housing overhang, the stabilization we have seen in home prices the last few months is temporary." - Amherst Securities Group
In a September 23 report, Amherst Securities estimates that 7 million housing units are destined to default, and then be seized by lenders. This is a "shadow inventory" that hasn't yet hit the market, but soon will.
That number represents well over a year's worth of home sales. Amherst believes that this housing overhang is the single biggest obstacle to a housing recovery.
To put that into perspective, existing home sales total around 5.2 million units — so the overhang is approximately 1.35X one year of existing home sales.
This shadow inventory has grown measurably in recent years; there were just 1.27 million such units in 2005.
Based on the current pace of existing home sales, Amherst analysts say it would take 1.35 years sell these properties — assuming no other homes are on the market. Naturally, that is a highly unlikely scenario.
Amherst noted that efforts to rework mortgages and avoid foreclosure will not make much of a difference, with perhaps a reduction of 1 million from this shadow inventory. Amherst also noted that "many of these borrowers would default later, if they remain in a negative equity position."
For that estimate to be accurate, Amherst concluded that those 1 million modifications would have to be more successful than historical modifications. That makes such an outcome seem optimistic, if not unlikely.
Amherst is a securities firm specializing in trading and advising investors on home-loan debt.
Earlier this year, Barclays' analysts wrote that once it starts, the housing recovery will be dulled by a “pent- up supply” of homes from owners who have put off sales during the slump. That inventory will further dilute an already weak market.
Banks are loathe to acknowledge this large shadow inventory, for fear of what it wold do to their already troubled balance sheets. However, they can't keep this supply hidden indefinitely. At some point it will have to be acknowledged, and the supply will once again begin depressing home prices even further.
According to the Mortgage Bankers Association (MBA) Quarterly Delinquency Survey, about 55.9 million homes in the United States have a mortgage. At the end of Q2 2009, a staggering 13.54% of mortgages in the MBA survey were in some stage of delinquency.
That suggest that some 7 million are already in the delinquency pipeline and will eventually liquidate.
"The single largest impediment to a recovery in the housing market is the large number of loans that are either in delinquent status or in foreclosure that are destined to liquidate. This creates a huge shadow inventory. We estimate this housing overhang at 7 million units, 135% of a full year of existing home sales. We are concerned that, in light of this housing overhang, the stabilization we have seen in home prices the last few months is temporary." - Amherst Securities Group
In a September 23 report, Amherst Securities estimates that 7 million housing units are destined to default, and then be seized by lenders. This is a "shadow inventory" that hasn't yet hit the market, but soon will.
That number represents well over a year's worth of home sales. Amherst believes that this housing overhang is the single biggest obstacle to a housing recovery.
To put that into perspective, existing home sales total around 5.2 million units — so the overhang is approximately 1.35X one year of existing home sales.
This shadow inventory has grown measurably in recent years; there were just 1.27 million such units in 2005.
Based on the current pace of existing home sales, Amherst analysts say it would take 1.35 years sell these properties — assuming no other homes are on the market. Naturally, that is a highly unlikely scenario.
Amherst noted that efforts to rework mortgages and avoid foreclosure will not make much of a difference, with perhaps a reduction of 1 million from this shadow inventory. Amherst also noted that "many of these borrowers would default later, if they remain in a negative equity position."
For that estimate to be accurate, Amherst concluded that those 1 million modifications would have to be more successful than historical modifications. That makes such an outcome seem optimistic, if not unlikely.
Amherst is a securities firm specializing in trading and advising investors on home-loan debt.
Earlier this year, Barclays' analysts wrote that once it starts, the housing recovery will be dulled by a “pent- up supply” of homes from owners who have put off sales during the slump. That inventory will further dilute an already weak market.
Banks are loathe to acknowledge this large shadow inventory, for fear of what it wold do to their already troubled balance sheets. However, they can't keep this supply hidden indefinitely. At some point it will have to be acknowledged, and the supply will once again begin depressing home prices even further.
According to the Mortgage Bankers Association (MBA) Quarterly Delinquency Survey, about 55.9 million homes in the United States have a mortgage. At the end of Q2 2009, a staggering 13.54% of mortgages in the MBA survey were in some stage of delinquency.
That suggest that some 7 million are already in the delinquency pipeline and will eventually liquidate.
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