2010-04-29 Daniel Amerman.com
Have the Federal Reserve’s unprecedented market and banking interventions fundamentally weakened America’s banks? In this article, we will illustrate how the Federal Reserve has been hollowing out the US banking system. We will show how the Fed has been creating a banking industry shell that looks strong on the surface, but is increasingly empty beneath that facade, with less and less economic strength, and an ever greater reliance on the Federal Reserve’s monetary creation ability.
Using a single loan as an example, we will explore in step by step detail how almost 10 percent of US bank assets have been hollowed out, with former investments in the economy being replaced by excess reserve balances at the Federal Reserve. On paper, these balances are the highest quality assets which a bank can own, yet in economic reality, they represent an investment in nothing at all.
Few articles explained the dangerous process of creating an almost entirely artificial mortgage market in 2009, and almost none have explored how participating in this process has transformed US banks in 2010. When you finish, you may find yourself looking at the new US banking system in a very different way, as well as understanding the powerful economic and personal investment implications.
BEIJING — China is expected to impose a moratorium on share issues by real estate companies in mainland markets as part of a broader campaign to rein in rising property prices, state media said Wednesday, potentially blocking $16.1 billion in capital-raising.
The move could delay plans by 45 Chinese companies to raise about 110 billion renminbi, China Daily said, citing unidentified people close to the China Securities Regulatory Commission.
A commission official told Reuters a formal suspension was not in place but confirmed that before approving any share issues in mainland markets, the regulator and the Land Resources Ministry were examining whether property companies had illegally manipulated land prices. The official asked not to be identified because he was not authorized to speak to the media.
Willem Buiter Issues His Most Dire Prediction Yet: Sees “Unprecedented” Fiscal Crises, US Debt Inflation And Fed Monetization
Doomsday scenarios from the establishment periphery always come fast and furious, especially in our day and age when bankrupt sovereigns are the norm, not the exception. And the “faster and furiouser” these come, the more steadfast the core is in refuting that the reality is much, much worse than portrayed on the mainstream media. Which is why we were very surprised when we read Willem Buiter’s latest Global Economic View (recall that he works for Citi now). In it the strategist for the firm that defines the core of the establishment could not be more bearish. In fact, at first we thought that David Rosenberg had ghost written this. Once the apocryphal truthsayers such as Buiter become mainstream within the mainstream, it is only a matter of time before the marginal opinion shifts to match that of those who have been prognosticating doom all along (for all the right reasons). In the below piece, Buiter presents a game theory type analysis, which concludes that the US and other sovereigns will soon be forced into fiscal austerity. Among his critical observations (we recommend a careful read of the entire 68 pages), are that the US is highly polarized, and that the Fed, which is “the least independent of leading central banks” would be willing to implement “inflationary monetisation of public debt and deficits than other central banks.” The next step of course would be hyperinflation. And Buiter sees America as the one country the most likely to follow this route. Most troublingly, Buiter predicts that a massive crisis is the only thing that can break the political gridlock in the US in order to fix the broken US fiscal situation. Must read.
2010-04-29 Jesse Cafe’ Blog
The strategy of the Bernanke Federal Reserve and of the Obama Administration’s economic team is fairly clear: prevent the bank failures of the 1930’s by propping up the biggest banks with huge infusions of publicly subsidized capital, and hope that they start lending again as the economy recovers. It is a variation of the ‘trickle down’ theory of economics adjusted by the perceived Fed policy errors of the first Great Depression, with little from the New Deal programs.
Bernanke is famously a student of the first Great Depression, even as General Joffre, the architect of the Ligne Maginot, was a student of the first World War. And Larry Summers is remarkably similar to Marshal Pétain. Tim, on the other hand, seems to be a student of very little, not even apparently of the tax code which he administers, except perhaps the art of being a manservant, a valet to the powerful.
Failure number one of course is that the banks that they chose to support are not responsible commercial banks engaged primarily in lending to small business and localized activity. Those banks are the local and regional banks that are failing in record numbers. The banks they chose to save are those who have heavily contributed to the campaign coffers and job prospects of Washington politicians. Goldman Sachs, for example, is a glorified hedge fund dedicated to speculation and enormous amounts of leverage. One only has to look at the source of their profits to understand what it is that they do with their capital and energy. And it is largely from ‘trading.’
Statement of Congressman Ron Paul – United States House of Representatives – on Motion to Instruct Conferees on HR 2194, Comprehensive Iran Sanctions, Accountability and Divestment Act – April 22, 2010
Mr. Speaker I rise in opposition to this motion to instruct House conferees on HR 2194, the Comprehensive Iran Sanctions, Accountability and Divestment Act, and I rise in strong opposition again to the underlying bill and to its Senate version as well. I object to this entire push for war on Iran, however it is disguised. Listening to the debate on the Floor on this motion and the underlying bill it feels as if we are back in 2002 all over again: the same falsehoods and distortions used to push the United States into a disastrous and unnecessary one trillion dollar war on Iraq are being trotted out again to lead us to what will likely be an even more disastrous and costly war on Iran. The parallels are astonishing.
We hear war advocates today on the Floor scare-mongering about reports that in one year Iran will have missiles that can hit the United States. Where have we heard this bombast before? Anyone remember the claims that Iraqi drones were going to fly over the United States and attack us? These “drones” ended up being pure propaganda – the UN chief weapons inspector concluded in 2004 that there was no evidence that Saddam Hussein had ever developed unpiloted drones for use on enemy targets. Of course by then the propagandists had gotten their war so the truth did not matter much.
We hear war advocates on the floor today arguing that we cannot afford to sit around and wait for Iran to detonate a nuclear weapon. Where have we heard this before? Anyone remember then-Secretary of State Condoleeza Rice’s oft-repeated quip about Iraq: that we cannot wait for the smoking gun to appear as a mushroom cloud.
2010-04-21 – Ritzhold.com
” We have known for decades that these are frauds. We have known for a decade how to stop them. All of the major regulatory agencies were complicit in that statement, in destroying it. We have a self-fulfilling policy of regulatory failure because of the leadership in this era.
We have the Fed, the Federal Reserve Bank of New York, finding that this is three card monty. Well what would you do, as a regulator, if you knew that one of the largest enterprises in the world, when the nation is on the brink of economic collapse, is engaged in fraud, three card monty? Would you continue business as usual?
That’s what was done. Oh they met a lot — they say “we only had a nuclear stick.” Sounds like a pretty good stick to use, if you’re on the brink of collapse of the system. But that’s not what the Fed has to do. The Fed is a central bank. Central banks for centuries have gotten rid of the heads of financial institutions. The Bank of England does it with a luncheon. The board of directors are invited. They don’t say “no.” They are sat down.
Instead, every day that Lehman remained under its leadership, the exposure of the American people to loss grew by hundreds of millions of dollars on average. Auroroa was pumping out up to 300 billion dollars a month in liars’ loans. Losses on those are running roughly 50% to 85 cents on the dollar. It is critical not to do business as usual, to change.”
2010-04-19 – Calculated Risk Blog
” Moody’s reported this morning that the Moody’s/REAL All Property Type Aggregate Index declined 2.6% in February. This is a repeat sales measure of commercial real estate prices.
Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index.
Notes: Beware of the “Real” in the title – this index is not inflation adjusted. Moody’s CRE price index is a repeat sales index like Case-Shiller – but there are far fewer commercial sales – and that can impact prices.
CRE prices only go back to December 2000.
The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).
Commercial real estate values are now down 25.8% over the last year, and down 41.8% from the peak in August 2007.
2010-04-19 – Calculated Risk
Several articles tonight …
From Gretchen Morgenson and Landon Thomas Jr. at the NY Timmes: A Glare on Goldman, From U.S. and Beyond
“We request that S.E.C., with all due haste, pursue investigations into the remaining 24 Abacus transactions for securities fraud, evaluate the extent of any receipt, by Goldman Sachs, of fraudulently generated A.I.G.-issued credit default swap payments, and vigorously pursue the recovery of such payments on behalf of the U.S. taxpayer,” the [Representatives Elijah E. Cummings and Peter DeFazio] wrote to Mary L. Schapiro, the head of the [S.E.C.], in a letter dated April 19. Mr. Cummings and Mr. DeFazio are still gathering signatures from other members of Congress to add to their letter, so it has not yet been sent.
From Trish Regan at CNBC: Pursuing Banking Fraud is ‘Top Priority': SEC’S Khuzami
In the Securities and Exchange Commission’s first public statement since its press conference announcing charges against Goldman Sachs on Friday, S.E.C. Enforcement Director Robert Khuzami told CNBC, “We have brought and will continue to pursue cases involving the products and practices related to the financial crisis.” … a wide range of cases are currently being investigated.
From Carrick Mollenkamp, Serena Ng, Scott Patterson, and Gergory Zuckerman the WSJ: SEC Investigating Other Soured Deals
The Securities and Exchange Commission … is investigating whether other mortgage deals arranged by some of Wall Street’s biggest firms may have crossed the line into misleading investors.
From Edward Wyatt at the NY Times: S.E.C. Puts Wall St. on Notice
In the last few years, the Securities and Exchange Commission seemed like the cop in the doughnut shop, sitting idly by while the likes of Lehman Brothers and Bernard L. Madoff ran amok.
In interviews this weekend, Mary L. Schapiro, the commission’s chairwoman, and Robert Khuzami, its new director of enforcement, said the agency was stepping up both its rule-making and its investigations in the wake of the financial crisis.
And from John Emshwiller at the WSJ: Countrywide Probe Shows Signs of Life
Federal criminal investigators looking into the collapse of Countrywide Financial Corp. have been calling witnesses before a grand jury, say people familiar with the matter. Such a step suggests that the investigation of the one-time mortgage giant, which has been continuing for about two years, could be moving closer to a resolution.
Wow. What a crazy read.
“….There was so much money to be made bilking these dizzy Southerners that banks like JP Morgan spent millions paying middlemen who bribed — yes, that’s right, bribed, criminally bribed — the county commissioners and their buddies just to keep their business. Hell, the money was so good, JP Morgan at one point even paid Goldman Sachs $3 million just to back the fuck off, so they could have the rubes of Jefferson County to fleece all for themselves…..”
Our Country is currently doing 50,287 loans a month per article above. These include all types of home loans, purchases, refinances, construction loans, HELOC’s, etc. This does not mean 50,287 homes have been sold or taken off of the market.
Our same Country is losing 290,631 homes a month to foreclosure. These numbers do not include the hidden inventory nor does it include all the mortgages that will adjust in 2010, 2011, 2012 causing the foreclosure number to go up and removing even more potential buyers. I always go back to the fact we were at an all time high of homeownership in our country’s history before the bust. Where do we plan to find more buyers? We have lost close to 5 million buyers because they lost their homes to foreclosure. Minimum lending requirements require you to be 3 years removed from a foreclosure discharge date before they will be able to buy again.
A LOT OF INVENTORY WITH VERY FEW BUYERS!
SUPPLY AND DEMAND. IT’S A VERY SIMPLE NUMBERS GAME.
HOME PRICES WILL CONTINUE TO FALL WAY BELOW WHERE THEY CURRENTLY ARE FOR THE SIMPLE FACT THERE ARE NO BUYERS TO REMOVE THE SUPPLY.
2010-04-09 – newobservations.net
” The average of four major nationwide indexes measuring prices also continues to suggest we hover right around a middle point of the total loss expected. Our current loss by the average of four indexes from the peak in 2006/2007 is 20 percent. The total loss forecast by the blend of indexes is 33 percent.”
2010-04-08 – businessinsider.com
“In this morning’s Breakfast With Dave note, David Rosenberg of Gluskin-Sheff hits on a theme we discussed the other day, about the impact of Obama’s “Extend & Pretend” mortgage policy. As originally argued by Paul Jackson at HousingWire, it’s the fact that millions of families are essentially living mortgage-free which explains the seeming disconnect between sagging housing and rebounding consumer spending.”
2010-04-08 – irvinehousingblog.com
“Lenders are trying to figure out how their massive Ponzi Scheme collapsed. They are relearning lending again because everything they thought they knew was wrong. When you get down to the heart of the matter, borrowers are carrying too much debt which is killing them financially and emotionally”
I attended a local Building Industry Association conference on Friday 26 March 2010. The west coast manager of real estate owned, Senior Vice President Ken Gaitan, stated that Bank of America, which currently forecloses on 7,500 homes a month nationally, will increase that number to 45,000 homes per month by December of 2010.
I apologize to everyone about the lack of updates. Work has been…. well…. work. It seems transactions take 3 – 4x as long and nearly 9 of 10 are either Short Sales or Bank Owned real estate. It seems that the banks are controlling the market, the interest rates and now, most of the real estate for sale. We have tax credits expiring, we have the FED’s backing out of buying Mortgage Backed Securities, we have hundreds of billions $$$ in loans left to adjust and we have an ENORMOUS pool of Commercial Rela Estate scheduled for default in the next 4 years. Things are about to get really interesting, so I’ll get back on my horse and keep you all up-to-date.
Happy Navigating, Jason Pickle