Monday, December 29, 2008

Why are we concerned about saving GMAC?

Why are we concerned about saving GMAC? Is this car and home lender really "too big to let fail?" Regulators are considering whether to give taxpayer money to prop up GMAC.

GM owns 49% of GMAC. Privately held Cerberus Capital Management owns the rest. Cerberus also owns Chrysler. Maybe the car makers would be better off without the distraction of running banking operations.

The great fear is that loans to prospective car buyers would dry up without GMAC, and that would kill any hopes of a revival for the U.S. car industry.

Hogwash. There are many credit unions, small banks and large banks that would provide such loans. The U.S. government already provided hundreds of billions of dollars to lenders such as Citigroup and Bank of America for making loans.

Lehman Brothers Post Mortum

The WSJ this morning reported that Lehman Brothers Holdings Inc's emergency bankruptcy filing in Sept (after the U.S. government declined to bail it out)- wiped out as much as $75 billion of potential value for creditors.

A more planned and orderly filing would have allowed Lehman to sell some assets outside of bankruptcy court protection and would have given it time to unwind derivatives positions.

Lehman unsecured creditors have asserted they are owed $200 billion. How much of that is collected remains to be seen.

The Lehman meltdown touched of a stock market panic and credit crisis and was quickly followed by a government rescue of American International Group Inc, once the world's largest insurer - to the tune of $152 billion - 10X the bailout of the auto industry - with little to no oversight.

Reportedly - that bailout is benefiting European Banks.

Thursday, December 11, 2008

Consumers Cut Debt for First Time

Consumers Cut Debt for First Time

Let's Call it What it Is... a Depression

Let's call it what it is Now - some are in denial - calling this just a "recession" and that we have not met the "criteria" of depression - and that we will get out of this mess soon - just like past recessions.

Sorry - but this is NOT like past recessions for many reasons. The stock market snapped back smartly from the 7000's to almost 9000 recently - as people were "afraid to miss the bottom."

Unfortunately for them - I believe that we will be headed down again - when people see more dominoes fall.

Friday, December 5, 2008

Great Depression Unemployment Didn't Hit 25 Percent Overnight


Great Depression Unemployment Didn't Hit 25 Percent Overnight


unemployment stats are calculated differently now. If we calculated unemployment the same way we did in the Depression, our unemployment rate would be much higher.

Second, unemployment during the Depression didn't get to 25% overnight. It got there over three years, during which most people never dreamed it would get anywhere near that high. When unemployment started its run to 25% then, it was lower than it was last year.

In 1929, unemployment was below 5%. By the end of 1930, as the New York Times reveals, it had risen to just below 10%. The following year it hit 16%. In 1932, it was 24%. And in 1933, it peaked at 25%. It then took 19 years to get back to the pre-crash low.

As today's depressing jobs report showed, unemployment is now rising rapidly. Not as rapidly as in 1930, but rapidly.

Investors Drew Out More From Mutual Funds

Investors Drew Out More From Mutual Funds Money flowed out of mutual funds last week, erasing a spike in deposits from the week before, as market volatility continued to undermine investors' confidence.

TrimTabs Investment Research said Thursday that about $12.1 billion was withdrawn from stock-based mutual funds in the week ended Dec. 3. The week before, investors had put $10.4 billion into these funds.

The bulk of the exodus happened on Monday, with modest inflows occurring on the remaining days, according to Vincent Deluard, a TrimTrabs analyst. Investors pulled out $16 billion on Monday as the Dow Jones Industrial Average dropped 680 points or 7.7%.

On Monday, The National Bureau of Economic Research made official what most Americans already believed about the state of the economy - that the U.S. has been in a recession since December 2007.

"Mutual fund money is performance following," Deluard said. Investors tend to pump money into mutual funds when the market advances, "when the market goes down they take their money out," he said.

The flight from bond funds was the "most striking feature" of this week's report, Deluard said.

"People normally sell equities in a bear market and buy bonds because they are supposed to be safe and that was the case up until September," he said.

But now investors are cashing out of both stock and bond funds, reflecting the market's "extreme risk aversion,"

There had actually been an inflow of $6.8 billion last week.

Comment -- The stock market traditionally falls throughout December after the Thanksgiving Holiday - perhaps due to tax loss selling.

Thursday, December 4, 2008

Foreclosure Forecast and Bernanke Finally "Gets It" -- 2 Years Too Late

Lenders appear to be on track to initiate 2.25 million foreclosures this year, up from an average annual pace of less than 1 million during the pre-crisis period, he said.

To provide additional relief, Bernanke outlined a number of what he called "promising options" to reduce preventable foreclosures.

Under one plan, Bernanke called on Congress to ease the terms of a government program called "Hope for Homeowners," which lets distressed homeowners refinance into more affordable, federally insured mortgages if the lender writes down the amount owed on the mortgage and pays an upfront insurance premium.

Bernanke suggested Congress lower lender's upfront insurance premium as well as reducing the interest rate borrowers pay, which presently is quite high, roughly 8 percent. To bring down this interest rate, Treasury could buy Ginnie Mae securities, which fund the mortgage program, or Congress could decide to subsidize the rate.

Another option would ease the terms of a loan-modification plan put forward by the Federal Deposit Insurance Corp. that seeks to make monthly mortgage payments more affordable. The FDIC put this plan into effect at IndyMac Bank, a large savings and loan that failed earlier this year, and has used it to modify mortgages at other financial institutions.

Under the so-called IndyMac plan, struggling home borrowers pay interest rates of about 3 percent for five years.

Rates are reduced so that borrowers aren't paying more than 38 percent of their pretax income on housing.

Bernanke suggested this threshold could be lowered to perhaps 31 percent of income, with the government sharing some of the cost.

Yet another option would have the government purchase delinquent or at-risk mortgages in bulk and then refinance them into the "Hope for Homeowners" or another government program that insures home mortgages.

Other options include a broader push for lenders to forgive a portion of the home loan for certain borrowers, and other permanent modifications over the longer term so that people don't fall back into distress again.

The housing crisis has driven up foreclosures and forced financial companies to take massive losses on soured mortgage investments. The housing debacle touched off the worst financial crisis since the 1930s that Bernanke and Treasury Secretary Henry Paulson have been desperately trying to bring under control.

All the fallout has plunged the country into a painful recession.

*****Bernanke stressed the importance of curbing the foreclosure mess because it is so inter-linked with the economy's health.*****

"Weakness in the housing market has proved a serious drag on overall economic activity," he said.

(Comment - Gee Ben - no kidding. Why didn't you have the rate drop program put into place back in early 2006 - when you should have? You finally "get it" - 2 years later...)

Paulson and his colleagues within the Bush administration have come under fire by Democrats and some Republicans for not doing enough to help Americans at risk of losing their homes.

Paulson has been opposed to tapping the bailout pool to fund a mortgage-relief program championed by FDIC chief Sheila Bair. The $24 billion FDIC plan would use some of the rescue money to help back refinanced mortgages that would lower monthly payments.

Wednesday, December 3, 2008

Kimball Hill Homes announced today that it was going out of business.

Kimball Hill Homes announced today that it was going out of business.

Kimball Hill Homes, the Rolling Meadows Illinois based home builder that has operated under Chapter 11 bankruptcy protection since April, said late Tuesday that it would wind down its operations after failing to find a buyer.

The 400-employee company, which has been a prominent player in the west and northwest suburban Chicago housing market, has a significant presence in California and four other states. Kimball pulled out of the troubled Florida market earlier this year. A year ago, it had 1,100 employeesIt will refund the earnest money to buyers with whom it has written contracts but has not started construction.

Some 700 homes are in various stages of completion around the country. Locally - 150.

On a side note - Bally's Fitness declared BK today

Monday, December 1, 2008

Citi Spends Bailout Money on an Acquisition!

(Sidenote - As I predicted - the stock market is down today. It ran up too many days (in a head fake) -- from 7500 to 8800. I think it is due to go back down to 7500 again (for a bounce off of that again) - and could go lower next year.._

Treasury Secretary Henry Paulson gave Citi $45 billion in taxpayer money to keep it afloat and get it to pump some money into the emaciated U.S. lending system and what does Citi do?

Buy a Spanish highway operator.

Yes, you heard right. A Citigroup infrastructure fund agreed to take over Spain's Itinere from Sacyr Vallehermoso in a deal valued at about $10 billion, which includes about $6.3 billion in debt that Citi will take on.

Just what Citi needs: more debt.

Of course, Citi officials will tell us this is good debt, unlike the $306 billion in risky assets U.S. regulators agreed to backstop last week as part of a $20 billion taxpayer-funded cash injection to shore up Citi. That's on top of the $25 billion in federal bailout money Citi received earlier this year.

I'll bet Paulson just can't wait to hand over another $10 billion to Citi when the bank complains that the global recession is eating into the tolls it thought it would be collecting in Spain.

Wednesday, November 26, 2008

Citi President and Directors Feel No Pain or Remorse

Citi board member and former Treasury Secretary Robert Rubin received over $100 million in compensation from Citi in 10-plus years, according to the New York Post.

"I don't feel responsible, in light of the facts as I knew them in my role," Rubin told the New York Times back in April. "In hindsight, there are a lot of things we'd do differently. But in the context of the facts as I knew them and my role, I'm inclined to think probably not."

Rubin is one of several directors, including current chairman Sir Win Bischoff, who've been on Citi's board for at least 10 years.

Not one of the directors has been fired, stepped down or even had the decency to apologize to shareholders or U.S. taxpayers.

There's billions of losses at Citi but no one willing to take any responsibility. And all the top brass are still getting paid mega-bucks.

There's something wrong with this picture...

Tuesday, November 25, 2008

Believe it or Not - Inflation Threat is Coming

They Say Equities Have Bottomed

My opinion is.... well - perhaps they did temporarily last week.... but this is an uptick that won't last for more then another few days - and at max - a week.

I tend to agree with the other comments in this article though..

The government's bailout plan is not working, said Bianco Research's James Bianco. At some point, though, it will start to work — and there will be massive inflation at least as bad as the 1980s. Bianco said the Fed's challenge in withdrawing the liquidity it has pumped into the system will be bigger than anyone suspects.

Michael Darda of MKM Partners said we're in for a long string of ghastly economic figures. They point the way to "the collapse of the consumer." He sees a return to frugality, with households holding back 8 to 9 percent of disposable income, an $800 billion hit to the economy.

Comment - whether the govt's plan works or not is irrelevant to inflation. When you pump the equiv of 7 trillion into bailouts - inflation eventually has to come out the other end... That is almost the amount of all debt the govt has run up for the last 80 years!

In the meantime - there might be deflation.... (which will be followed by hyper-inflation)

OECD warns of worst recession since early 1980s

OECD warns of worst recession since early 1980s -- Hilarious -- try the early 1930's.....

In its half-yearly economic outlook, the Paris-based organization said economic output will likely shrink by 0.4 percent in 2009 for the 30 market democracies that make up its membership, against the 1.4 percent growth prediction for 2008.

Comment - I think their forecast for shrinkage - is much more optimistic than what will play out in reality...

Monday, November 24, 2008

Bailout of GM Won't Work...

GM is burning through cash to the tune of $4 to $5 billion per month.

At that rate, even if they were to snag the entire $25 billion from Uncle Sam, the company could remain solvent only through Q1 2009.

Does any reputable economist think the economy will be markedly better by April? Unlikely.

So it begs the question: Rather than treat the American public to another horror story, why don't you help show us how you plan to build better cars? Cars that can compete with their German and Japanese counterparts?

Why Citi Was Bailed Out

The fact is - they made a lot of bad loans.... subprime loans /// no doc interest only 100% financing loans for people upsizing to McMansions etc.

So - the government is rewarding them for their screw ups..... Yet the people who got screwed by these loans - are...well....screwed....

Why Citi Was Bailed Out

Whether the government's rescue of Citigroup Inc., announced late Sunday, will ultimately prove a good deal for taxpayers is hard to tell. In part, that's because no one seems sure what Citi's troubled assets are actually worth.

If the gamble pays off, Citigroup would be back on firm footing, unhinged financial markets would recover and taxpayers would turn a profit. If it doesn't, taxpayers would take a hit. And they would possibly have to rescue still more huge financial institutions, digging the bailout hole even deeper.

The case for rescuing Citigroup, a company with 200 million customers and operations in more than 100 countries, may be more persuasive than the case for smaller banks whose reach doesn't extend so far. Still, the government action makes other financial companies more likely to seek federal aid.

Citigroup was hit especially hard by the meltdown in risky subprime mortgages made to people with tarnished credit or low incomes.

Under the loss-sharing arrangement, Citigroup Inc. will assume the first $29 billion in losses on the risky pool of assets, which stays on its books. Beyond that amount, the government would absorb 90 percent of the remaining losses and Citigroup 10 percent. Money from the $700 billion bailout and funds from the FDIC would cover the government's portion of potential losses. The Federal Reserve would finance the remaining assets with a loan to Citigroup.

In exchange for the guarantees, the government will get $7 billion in preferred shares of Citigroup.

As a condition of the rescue, Citigroup cannot pay quarterly dividends to shareholders of more than 1 cent a share for three years unless it obtains consent from the three federal agencies. The bank is now paying a dividend of 16 cents, halved from a 32-cent payout in the previous quarter.

The agreement also restricts executive pay, including bonuses. But it doesn't get rid of Citi's top management as the government did with AIG.

Sunday, November 23, 2008

THIS JUST BROKE (12 PM EST) ON GOVT BAILOUT OF CITIGROUP

The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup Inc. by moving to guarantee close to $300 billion in troubled assets weighing on the bank's books, according to people familiar with details of the plan.

Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.

Citigroup would also agree to work to modify -- if possible -- troubled mortgages held in the $300 billion pool, using standards created by the FDIC after the collapse of IndyMac Bank.

Taxpayers could be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.

The government and Citigroup had hoped to unveil the plan Sunday evening, but the negotiations appeared to drag on longer than expected.

Depending on the structure of Citigroup's deal, government officials could face requests from other banks for similar help shoring up their balance sheets. Banks, hedge funds, and private equity firms have urged Capitol Hill and government officials to restart the asset-purchase program in recent weeks.

"The problem is that other banks would want to get in line" for such government support, says Thomas B. Michaud, a vice chairman of investment bank Keefe, Bruyette & Woods Inc. "Is there enough money to do that?"

The Auto Companies - Bailout or No Bailout?

The Auto Companies - Bailout or No Bailout? I think a govt bailout would only just delay the inevitable. Come on now - does anyone really think that there will be a consumer demand for cars next year - when things will be even worse?

Instead of giving them a loan = some proposed that people get a tax credit of 5k if they buy a US maker's car. But that just creates an even bigger deficit. If you are going to up the deficit - why not just give consumers 5k direct from the govt if they buy a US car?

Various states have already hosed the US car companies by offering very generous tax incentives to foreign car companies to set up plants here. For example - Indiana.

Of course GM and Ford's downfall has to do with consumer perception as well. They always used to be less reliable cars. But they improved over time.... But the consumer didn't catch on... They built cars that didn't get good gas mileage. There are many other reasons....

Now - their exec's make huge money for being so great at losing money for their stockholders. I'd be a little outraged if I were a stockholder.

I say - let them fail. Or - let them declare Bankrupcy - and then emerge from it.
Happens all the time...

The government can't keep bailing out companies. Let the free market take care of it.
We are starting to live in a socialist state - where the government is assuming ownership interest in various entities. That never works. Government screws up everything that it touches.

Ever wonder how many clueless people they would have to hire just to administer a program where they had to figure out which mortgage balances would be reduced for a given consumer? It would take one person a week or two just to deal with one mortgage. How many thousands are we talking about?

If the government ends up buying up Citigroup bad mortgage loans - and the owners have a buyer that wants to do a short sale on the property -- would it be a Citigroup employee that would determine if it was allowed - or a government worker?

(In either case - that appears to be bad for sellers who have Citimortgage loans. From what I understand from sellers who tried to deal with Citimortgage - it was impossible to get them to take action on short sales - and so many properties instead - went into foreclosure -- which was much worse for the seller and for Citimortgage.)

Paulson Flipped - then Flopped and Now Has Flipped Again - Citigroup

Paulson Flipped - then Flopped and Now Has Flipped Again - Citigroup

First Paulson was supposed to buy troubled debt from lenders. Then he said he changed his plan and wouldn't and would buy preferred stock in the Financial Companies instead. In exchange for an equity stake, the govt injected $25 billion into Citigroup and an additional $100 billion into eight other major U.S. financial institutions.

But that didn't stem the fall of Citigroup stock from 20 to 3.6 or so - as of the close on Friday. Citigroup had more than $2 trillion in assets as of the end of the third quarter and has operations in more than 100 countries.

Now - Paulson reportedly wants to subsidize Citi's bad loans.
He's flipped once again....

Some People Are Burying Cash

Some People Are Burying Cash

I also noticed a news article last week that frozen and canned food sales were way up. Perhaps people are stocking up - just in case of some sort of food crisis - or food costs that skyrocket if hyper-inflation takes off at some point.

Gold has been down for the past month or two (from the 900's to mid 700's) - but rebounded a lot on Friday - up 57 bucks to $801/ounce. Meanwhile - Australian gold production hit a 20 year low.

Meanwhile Gold Stocks tanked during the past few months - getting cut in half or more.
GG went from 35 to as low as 15 or so. And AUY (Yamana) went from 11 to 3.5. Seemed like quite an over-reaction to gold just popping down about 150 bucks.

Friday, November 21, 2008

Citigroup Shares - Down from 4.6 to 3.8'ish right now

Citigroup Shares - Down from 4.6 to 3.8'ish right now

Citigroup's shares may be tumbling, but Ladenburg Thalmann's banking analyst Dick Bove said he does not see any reason for Citigroup to follow the path of Lehman and fail. Bove maintained his "buy" rating on the stock on Thursday.

The current decline in the stock price is reflecting a series of fears related to loans and security values that cannot be actualized without a severe setback in the economy and a very rapid increase in interest rates, Bove said.

"It would take a Depression every bit as large and long as the 1930s debacle to shake this company's viability," Bove said.

But by falling below $5, many mutual funds and institutional investors -- in particular pension funds -- must unload shares of Citigroup to comply with investment guidelines.

Thursday, November 20, 2008

The $700 BILLION dollar bait and switch by Henry Paulson

Paulson wants to use the money to have the government buy equity stakes (stock) in financial companies. Does anyone see the absurdity in this?

One person in the article does...

Dubitsky believes that the Treasury should have stuck to its original intent and bought up mortgage assets; not only would that improve mortgage markets, he argues the government would then be positioned to finally develop a more standardized national approach to loan modifications, and to do a more effective job of managing the often deteriorating real estate that's now piling up on the market due to the wave of foreclosures.

Paulson needs to get a brain. Can't we find someone that is a bit more qualified? Why did Congress give carte blanche power to one person to decide what to do with the $700 billion??? It is the height of insanity...

The Automotive Company Government Loan Status -- Delayed

Apparently - the exec's flying into Washington in their expensive private jets didn't go over well with some Congressmen - who decided that it was best to go on vacation for Thanksgiving rather than handle the automobile crisis in a more expeditious manner - thus causing the stock market to tank today

Actually - one article stated: "As Congress prepared to leave town -- perhaps for the year -- there was no such resolution on helping the auto industry, a disaster in the making that could lead to hundreds of thousands if not millions of additional lost jobs. Democratic leaders said they could return to Washington in mid-December to vote on rescue loans if the carmakers first present a plan on transforming and modernizing their operations." (So nice of the Democrats to come back in 17 days - to cut their vacation very short.)

Discouraged by the stalemate over auto aid, investors sent the Dow Jones industrials down to another big loss, 445 points.

But I agree that they shouldn't be loaning out dollars unless then see a decent plan. Of course - what plan did they see for the $700 blllion "bail out?" Nothing. In fact - Paulson totally reversed what the funds were supposed to be used for. How swift.

Perhaps the govt should just give each person in the US over 18 - $30,000 to get the GM or Ford car of their choice!

FANNIE AND FREDDIE - HALTING FORECLOSURES SHORT TERM. FOR THE HOLIDAYS

FANNIE AND FREDDIE - HALTING FORECLOSURES SHORT TERM. FOR THE HOLIDAYS

Fannie Mae and Freddie Mac are suspending foreclosures for about 16,000 households during the holiday season.

The two companies said Thursday that they will halt foreclosure sales between Nov. 26 and Jan. 9, while they evaluate whether borrowers qualify for a new loan modification program announced last week.

The Federal Deposit Insurance Corp. estimates that more than 4.4 million borrowers will become delinquent by the end of next year, not including loans backed by Fannie and Freddie.

(Personally - I think that estimate will turn out to be too low..)

WAS IT CAPITULATION DAY - WITH THE MARKET DOWN 440?

Today's News (I plan on documenting stuff each day with links when I can - as this is history.... should have actually been documenting things for the past year...)

The article stated: "Thursday's pullback came amid heavy volume, a welcome sign for some investors who are looking for the market to experience a cathartic sell-off that could lay the groundwork for a recovery. Some people think this is the capitulation we've been waiting for," he said. All along we've been hoping for a real violent sell-off and the end of the day today was a pretty dramatic move. Investors who have been groping for a bottom to the yearlong market rout have been worried that Washington's disagreements over whether to bail out the auto industry could lead to bankruptcies that would cascade into other industries and throw perhaps millions of workers out of work."

WAS IT CAPITULATION DAY - WITH THE MARKET DOWN 440? I MEAN COME ON - GE AT 13 - GOOGLE AT 260...(I think that is about where I bought it at when it first came public...& it got as high as 500 and something..) MOTOROLA AT 3 SOMETHING (IT'S CASH HAS MORE VALUE THAN THAT ALONE - AND WE AREN'T EVEN TALKING THE VALUE OF THEIR BUILDINGS AND LAND)

I THINK SMART INVESTORS FOR THE LONG TERM HAVE TO BE LOOKING AT PICKING UP THINGS AT THESE LEVELS THAT WILL SURVIVE THIS MESS. GOOGLE WILL BE ONE OF THE SURVIVORS... I CAN'T SEE GOOGLE HURTING THAT MUCH WHEN PEOPLE WILL BE AT HOME DOING MORE WEB SURFING FOR BARGAINS OR OTHER THINGS... THOUGH AD BUDGETS MAY GET TRIMMED...

GRANTED - THE TREND IN THE NEXT FEW MONTHS COULD BE DOWN - BUT I THINK IN THE SHORT TERM - THE MARKET IS WAY OVERSOLD (AND I AM DR DOOM.... BUT... COME ON HERE PEOPLE...GET REAL..EVERYTHING ISN'T GOING TO ZERO..)

IF WE DON'T SEE A POP IN THE MARKET TOMORROW -- NOV 21ST -- I WILL BE SHOCKED - AND I'LL BE A BUYER OF SELECT STOCKS NEAR THE END OF THE DAY - IF THEY ARE EVEN MORE ABSURDLY BEATEN DOWN...

YES - I THINK THINGS MIGHT RATE GOING DOWN MORE OVER THE NEXT FEW MONTHS - BUT NOT FOR THE NEXT WEEK.... THINGS ARE WAY OVERSOLD IN THE SHORT TERM... WE SHALL SEE.... AND IF YOU ARE ON A 3-7 YEAR OR MORE HORIZON - THERE ARE SOME GREAT DEALS TO BE HAD - BOTH IN REAL ESTATE AND IN THE STOCK MARKET AT THE MOMENT...

Over 100 Blue Chips Selling For Under $10 Per Share

Over 100 Blue Chips Selling For Under $10 Per Share

Now - last time I was in the Starbucks here locally - it was still packed. (Perhaps because some of the unemployed or self=employed find it a less depressing place to hang out vs. at home?) So - I'm not sure what is going on here...But I guess people are indeed spending less on coffee out...

Take a look at some of those other names as well. While the market is set to open a tad down - I think you will see some sort of a bounce back today w/some bargain hunters.

Citigroup is supposed to up a tad because of the Saudi guy putting a bit more money into them...

We'll see....

Wednesday, November 19, 2008

The Great Depression of 2009 - What Would it Look Like?

The Great Depression of 2009 - What Would it Look Like? -- From Boston.com

I Read This Web Article in early 2006 and It Was Quite Compelling

I Read This Web Article About Three Years Ago... and it was quite compelling. I believe it was published in late 2005.

"One has to realize that all the increase in US consumer spending is borrowed. And it is borrowed against rising house prices. In 2001, Greenspan replaced the bursting stock market bubble with the housing bubble. But soon he'll be faced with a bursting housing bubble. The only question is when."

The thing to realize, of course, is that the housing bubble is many times more dangerous than the stock market bubble, because it involves the whole banking system. Greenspan has replaced one bubble with an even bigger and more dangerous bubble.

American monetary policy is out of control. Greenspan has created a debt Colossus. This debt Colossus needs permanent new credit. In an economy that needs four dollars in credit to produce one dollar of GDP, simply reducing credit could be disastrous. Even a slight reduction of credit could create enormous negative repercussions in the asset markets and financial markets.

The level of credit excess in America has reached such a level of absurdity that no return to normalcy is possible without a disastrous effect on the economy.

What I often hear is that there's so much liquidity in the US economy and US financial markets. But this liquidity is not from cash. It is credit. There is huge liquidity in the asset markets that could turn into a savage deflation tomorrow. This is an illusion, this liquidity argument. It works as long as the system of inflating asset prices functions. But when it stops, liquidity is gone. If there is a lot of leverage in the market, it can collapse.

It has not yet happened…But it will, as soon as credit becomes more expensive or difficult to obtain…

The crucial support for the American financial infrastructure is the massive purchases of U.S. Treasury bonds by foreign central banks. The Americans think that this is to their advantage. But this only means that they have a longer rope with which to hang themselves. To have too much credit is never good, not for a country and not for an individual and not for a company.

Because consumption has grown so far out of proportion to production, capitalist America relies on the generosity of communist China. Americans don't even realize how ridiculous and absurd this is. It's so absurd I can't believe it. I think this is the worst sign that I could imagine. It means that net investment is collapsing.

Consumption produces the least desirable kind of growth. And the simple thing to know is that it is unsustainable. It is unsustainable because real incomes are not growing. In America you're having a fiasco in employment and income growth. The average income of the American middle-class is declining in real terms. And they have debts and debts and debts and zero savings. They have no reserves.

Citigroup - Headed Towards Bankruptcy?

Some articles related to Citigroup possibly declaring bankruptcy next year.

Who knows - perhaps it would be sooner...

Citigroup purchased Associated First Capital, what was known as the “icon of predatory lending” and then proceeded to slice and dice these portfolios of predatory loans into derivatives. Clearly, it just got too aggressive and fleeced many of these vulnerable consumers right into default on their mortgages. This is the same problem HSBC has, resulting from its purchase of another leading predatory lending firm, Household Finance.

The good news is that there are many outstanding banks out there including Northern Trust, US Bank and many other regional and local banks. At this point, however, for the system to repair itself we’ll first need to rid it of the cesspools of unproductive greed and corruption as exemplified by Citigroup. Or in more mundane terms, simply require Citigroup, a leader in structuring the most egregious Enron related partnerships, to follow the rules and take the required FASB 115 write-downs on its derivatives, loans and investments. Anything short of that will only harm the higher quality more important financial institutions we depend on.

A YouTube Video on Citigroup


Another Source

Most likely - it will be another government bailout. The question is - how many companies can the government bail out? The govt supposedly already invested $25 billion in preferred stock in Citigroup. Great investment for the taxpayers don't you think? (not!)

Graph of current account balances of various countries.

Graph of current account balances of various countries. Pretty revealing.

People Are Paying Their Credit Card Bills Before Their Mortgage Bills

Revolving debt – most of it on credit cards – is topping 970 billion in September. The average household now owes $10.678 in credit card debt – up 29% from 2000. More borrowers are paying their credit card bills before their mortgage bills – suggesting that people are walking away from mortgages and using credit cards to get by. Source - USA Today

Mortgage Rates

30 year rates are typically affected by supply and demand of funds available for long term loans and the anticipated inflation rate.

Often the federal reserve lowers the fund rate when the economy is struggling which will also normally mean that the demand for long term loans is reduced. That is the primary reason for some correlation between the rates (not that a drop or increase in federal funds rate causes the 30 year rate to move but that the same economic factor - a slow economy, for example, that prompts the federal reserve to lower rates reduces the demand of long term borrowing which can lower the rate of 30 year mortgages).

Yet - with all the slowness in our economy - and actual price DEFLATION - we are still seeing 30 year mortgage rates at around 6% - which is still WAY WAY TOO HIGH FOR HOUSING TO RECOVER.

Thirty reasons why we will see a Great Depression

Thirty reasons why we will see a Great Depression. The question is - which year will it be categorized in? 2009, 2010, or 2011? Of course the Mayan Calendar ends in 2012...

A Very Good Chart and Data of the Federal Funds Rate

Here is a very good chart of the Federal Funds rate - with numerical data as well - and the trends.
When people talk about the Fed raising or reducing rates - this is the rate they are referring to.

You can see that though the Fed funds rate increased in all of 2005 -- Ben kept the rate increasing throughout 2006 - even when it was apparent that housing was tanking.

Kicking off the Great Depression of 2009 Blog -- The Kondratieff Wave?

Kicking off the Great Depression of 2009 Blog. (By the way - this domain is for sale)

I reserved the domain name 2009greatdepression.com about a year ago - and was surprised that it still existed. I saw this coming about 2-3 years ago - when I saw charts and other things - showing that the consumer had more debt than savings. And since Ben Bernanke killed off housing - by jacking rates over and over again in 2006 - no one could use their home equity like an ATM machine anymore.

I called the Federal Reserve back then and got Ben's secretary. I was upset that he kept (inexplicably) jacking rates month after month (and other policies - which indirectly caused mortgage rates to increase significantly at that time) - and I saw what it was doing to housing early on. He had no clue - and apparently didn't want to wait to see the effects. I told the secretary "Listen - I am a Real Estate broker and I see what his policy is doing to housing - and it is just starting. He needs to figure out how to get mortgage rates to come back down - or housing will tank - which will cause the collapse of many banks and the economy."

"Oh - don't worry - Mr. Bernanke knows what he is doing. I said "No he doesn't -- he isn't seeing what the housing market is doing. If he kills housing - everything will fall down like a house of cards. He needs to stop jacking the rate month after month. He isn't waiting to see the effects."

(I almost wondered if the man could really be that stupid - or if he was paid off by terrorists... ya know - the terrorists wanted to kill the US economy.....) (well - that is probably a bit far fetched eh? But it WOULD be great grist for a fiction novel.)

Granted - Greenspan was way too "loose" when he was in - but it was Bernanke that caused the current situation that we are in - in my opinion...(among many other factors such as loose lending standards - bad subprime loans - hedge fund stuff & much more)

And now - no matter how much BB tries to drop rates - it is too little - too late - as the dominos are falling and he is helpless to stop it. It is like pushing on a string.

Of course - what he really has to figure out - is how to get mortgage rates to come down. The Fed Funds rate is not that correlated to mortgage rates - though looser money does help to some extent.. Problem is - it isn't getting loose.

And with credit card lines tightening due to defaults - people just won't be able to spend.

There is a theory called the Kondratieff Wave

which I learned about in business school years ago. Human behavior repeats itself about every 80 years (though that chart had it being a bit less - so we were overdue.)

Here is a blog about it...

1929 to 2009 is 80 years....