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Daily Digest - Apr 2

Thursday, April 2, 2009, 9:52 AM
  • Financial Rescue Nears GDP as Pledges Top $12.8 Trillion
  • Curtain May be Rising on a New Toxic Asset Mess
  • U.S. private sector axes 742,000 jobs in March
  • NBER: Household and NFP Differences Are Cyclical
  • Eastern Europe Update
  • Ford U.S. March sales fall 40.9%
  • New Home Sales (Chart)
  • Return Breakdown (Chart)
  • ADP Payroll, Change in: Goods vs. Service Jobs
  • Moody's downgraded $1.76 trln U.S. corp debt in

Economy

Financial Rescue Nears GDP as Pledges Top $12.8 Trillion 

March 31 (Bloomberg) -- The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s. 

New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation's gross domestic product was $14.2 trillion in 2008.

President Barack Obama and Treasury Secretary Timothy Geithner met with the chief executives of the nation's 12 biggest banks on March 27 at the White House to enlist their support to thaw a 20-month freeze in bank lending.

"The president and Treasury Secretary Geithner have said they will do what it takes," Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said after the meeting. "If it is enough, that will be great. If it is not enough, they will have to do more."

Martin references numerous cases nationwide where judges threw out foreclosures where lenders had brought action against "illegally securitized loans and are no longer current holders of the notes."

Martin sees another problem where homeowners have a defense against foreclosure or avenues for redress when they have already lost their homes. These cases would be based on the more familiar type of mortgage fraud, predatory lending. She quotes one litigator from California who states that predatory lending claims, which can not only free the homeowner from the mortgage but result in substantial damages, can be won if the homeowner can provide that the loan was made purely for the lender's sole benefit.

A Wisconsin couple recently won such a case charging fraudulent misrepresentation and predatory practices. Now their attorney is fighting his way through the courts to convert the suit to class action status.

Ms. Martin maintains that there is not enough money in the world - or even from the government - to save lenders from their eventual fate as homeowners sue en masse to remove lenders from the titles to their homes.

Ms. Martin's book, which appears to be a do-it-yourself manual for homeowners to fight their mortgagees, will certainly attract wide attention even months before its publication. If she is right, the outcome is too terrible to contemplate. Even if she is wrong, her book may push enough people toward litigating their fate to become a self-fulfilling prophecy.

U.S. private sector axes 742,000 jobs in March

NEW YORK (Reuters) - Job losses in the U.S. private sector accelerated in March, more than economists' expectations, according to a report by ADP Employer Services on Wednesday.

Private employers cut jobs by a record 742,000 in March versus a 706,000 revised cut in February that was originally reported at 697,000 jobs, said ADP, which has been carrying out the survey since 2001.

The big drop foreshadows a huge decline in the non-farm payroll reading in the government's employment report that will be released on Friday, some analysts said.

NBER: Household and NFP Differences Are Cyclical

Longer version:

This may be a bit wonky for some of you, but its quite fascinating:

One of my longstanding peeves has been the way some bulltards cherry pick between the Household Survey (which measures Unemployment) and the Establishment Survey (which measures non-farm payroll, occasionally called job creation). Whichever is bigger is what they choose to emphasize. The folks who abuse the data that way are economic charlatans, and should be cast out as pariahs - or at the very least, ignored. Here's why:

These two reports measure very different things. The numbers can be off by 100s of 1,000s of jobs - and still be consistent with each other. As we have discussed all too many times, the Household survey measures:

- Agriculture and related employment;
- Uncompensated Workers;
- Unpaid Family Employees;
- Part Time Workers;
- Workers absent without pay from their jobs;
- Self employed, Work-at-home Contractors;

Eastern Europe Update

[A]ccording to the latest report on the region from Fitch:

Many countries in EE are relatively open, so the global recession has been rapidly transmitted to exports. The Czech Republic, Hungary, Slovakia and Slovenia are particularly open economies and closely integrated within the EU economy (particularly Germany): exports of goods are equivalent to 79% of GDP in Slovakia, 70% in the Czech Republic and 68% in Hungary (2007 data). That said, exports typically have a high import content, so the effect on value‐added is much lower.

So you can forget about foreign exchange-denominated loan exposure at this point in the likes of Hungary, Czech Republic and Poland. While this is still obviously a concern (and regional currency euro cross-rates are creeping back to the lows of February which previously set off the EE panic) the escalation of the crisis into the real economy and trade decline is now the key vulnerability.


with export volumes crashing, as best illustrated by the difficulties of (erstwhile) trade-surplus nations like germany, japan and china, these small open economies are facing a devastating twin blow -- massive private sector balance sheet damage related to forex, and a titanic collapse in trade and therefore income.

Ford U.S. March sales fall 40.9%

Update2: Toyota sales off 36.6%. GM Sales off 47%. Chrysler off 39%. From MarketWatch:

Chrysler LLC on Wednesday reported a 39% drop in March U.S. sales to 101,001 cars and trucks from 166,386 a year earlier.

Update: from MarketWatch: Ford U.S. March sales drop 40.9%

Ford Motor Co. said Wednesday that U.S. March sales fell 40.9% ... At the end of March, Ford said that Ford, Lincoln and Mercury inventories totaled 408,000 units, about 27% lower than a year ago.

This is reported as Year-over-year (March 2009 vs. March 2008)

Last month (February) Ford sales were off 46.3% YoY

And in January Ford sales were off 42.1%

December: 32.4%

November: 31%

Ford's numbers will probably be better than GM or Chrysler!

New Home Sales (Chart)

Return Breakdown (Chart)

ADP Payroll, Change in: Goods vs. Service Jobs

Moody's downgraded $1.76 trln U.S. corp debt in

The downgrades included a record number to the lowest rating categories, signaling the approach of the worst defaults since at least World War Two, Moody's chief economist John Lonski said in an interview.

"These are numbers that just underscore how risky both the financial and economic environment remain," Lonski said.

The downgrades reflect how badly corporate balance sheets have been hurt by the slump in consumer spending amid the deepest economic contraction since 1982.

"Business sales and profits fell off the table in general during the final quarter of last year and have continued to deteriorate in the first quarter in 2009," Lonski said.

U.S. corporate profits plunged a record $120.1 billion in the fourth quarter, depressed by tumbling consumer spending and exports.

Downgrades of investment-grade companies shot up by 153 percent from the year-ago quarter to a record 96, while downgrades of junk-rated companies surged by 147 percent to 287.

The rating downgrades were led by industries with exposure to the ailing housing industry, including homebuilders, mortgage insurers and major money center banks. Some 70 of the quarter's downgrades were housing related.

"The most prominent new driving force behind credit rating reductions would be deterioration of commercial real estate," Lonski said. That is taking a toll on regional banks and companies that manufacture equipment and material used in construction, he said.

The downgrades included one of the largest on record, $326 billion of bonds and preferred shares of General Electric Co (GE.N) and its units. Other major borrowers downgraded included Ford Motor Co (F.N), Citigroup (C.N) and Bank of America (BAC.N).

In addition to housing, sectors under rating pressure included automakers and auto parts suppliers, media companies, casinos and retailers.

Among the downgrades were 22 fallen angels, or companies cut to junk status. In addition, 82 ratings were downgraded to the lowest categories, Caa3 or lower. That means that the U.S. high-yield default rate, which stood at 5.7 percent in February, is destined to climb sharply in short order, Lonski said.

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31 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Apr 2

How to create a banana republic (these people shouldn't be allowed to run a lemonade stand let alone our economy).

=========================================================== --- Amounts (Billions)--- Limit Current =========================================================== Total $12,798.14 $4,169.71 ----------------------------------------------------------- Federal Reserve Total $7,765.64 $1,678.71 Primary Credit Discount $110.74 $61.31 Secondary Credit $0.19 $1.00 Primary dealer and others $147.00 $20.18 ABCP Liquidity $152.11 $6.85 AIG Credit $60.00 $43.19 Net Portfolio CP Funding $1,800.00 $241.31 Maiden Lane (Bear Stearns) $29.50 $28.82 Maiden Lane II (AIG) $22.50 $18.54 Maiden Lane III (AIG) $30.00 $24.04 Term Securities Lending $250.00 $88.55 Term Auction Facility $900.00 $468.59 Securities lending overnight $10.00 $4.41 Term Asset-Backed Loan Facility $900.00 $4.71 Currency Swaps/Other Assets $606.00 $377.87 MMIFF $540.00 $0.00 GSE Debt Purchases $600.00 $50.39 GSE Mortgage-Backed Securities $1,000.00 $236.16 Citigroup Bailout Fed Portion $220.40 $0.00 Bank of America Bailout $87.20 $0.00 Commitment to Buy Treasuries $300.00 $7.50 ----------------------------------------------------------- FDIC Total $2,038.50 $357.50 Public-Private Investment* $500.00 0.00 FDIC Liquidity Guarantees $1,400.00 $316.50 GE $126.00 $41.00 Citigroup Bailout FDIC $10.00 $0.00 Bank of America Bailout FDIC $2.50 $0.00 ----------------------------------------------------------- Treasury Total $2,694.00 $1,833.50 TARP $700.00 $599.50 Tax Break for Banks $29.00 $29.00 Stimulus Package (Bush) $168.00 $168.00 Stimulus II (Obama) $787.00 $787.00 Treasury Exchange Stabilization $50.00 $50.00 Student Loan Purchases $60.00 $0.00 Support for Fannie/Freddie $400.00 $200.00 Line of Credit for FDIC* $500.00 $0.00 ----------------------------------------------------------- HUD Total $300.00 $300.00 Hope for Homeowners FHA $300.00 $300.00 -----------------------------------------------------------

Subprime JD's picture
Subprime JD
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Posts: 562
Re: Daily Digest - Apr 2

Congress basically forced the FASB (Financial accounting standards board) to relax mark to market rules in favor of mark to model accounting.

So now the government has given more flexibility to financial institutions regarding how they mark their assets. Before this ruling the banks had to price their assets based on the market price. Now they get to price the assets based on some fantasy models the banks wish to use. Wasnt it the banks original CDO models that presumed a 10% annual increase in home values that caused the banks their current predicament? Its amazing how the government is acting. They will do WHATEVER it takes to maintain the status quo, choosing the path of least resistance to "fix" the current abnormalty in their eyes.

Even IF the bailouts, fantasy accounting rules, Fed money printing operations do somehow work (nearly impossible) the economy will get knocked right back down as oil is ominously following the equity markets. The DJIA broke 8000 this morning with oil hanging around the $52 range. If investors believe the crisis is past and recovery is on the way then oil will immediately fly to $100, in turn hurting the weakened economy's prospect of recovery. 34 to 54 happened in no time.

 

 

http://www.marketwatch.com/news/story/FASB-approves-more-mark-market/story.aspx?guid=%7B33F70684-4207-4EDD-B7C3-1B82B7A7F6B6%7D

bobb dobbs's picture
bobb dobbs
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Re: Daily Digest - Apr 2

Headline and link to story re: 'Ms. Martin' is missing.

Might be story referenced in TOC as "Curtain May be Rising on a New Toxic Asset Mess "

Snip refering to 'Ms. Martin' appears in body of "Financial Rescue Nears GDP as Pledges Top $12.8 Trillion"

 

Michael Höhne's picture
Michael Höhne
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Re: Daily Digest - Apr 2

I wonder what the seasonally adjusted unemployment rate will be. In January 2007 and January 2008, an adjustment of 8,1% was made. In January 2009, the adjustment was 10,7%! February 2007 shows 6,93%, February 2008 was 6,66% and, surprisingly, February 2009 used 9%. March 2007 ans 2008 was about 2,55%. If that is used in 2009, even the adjusted unemployment rate should reach 9,1%. I have a feeling that this time something along 4-5% may be used to have an unemployment rate of say 8,9%. Just a guess though.

 

 

Soulmaster's picture
Soulmaster
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Re: Daily Digest - Apr 2
Michael Höhne wrote:

I have a feeling that this time something along 4-5% may be used to have an unemployment rate of say 8,9%. Just a guess though.

 

 

I wouldn't be surprised!  Anything to keep it below 9%, right?

 

Why use such intense adjusting though?  It seems as though being anything less than honest, especially in reporting where people often assume honesty, is doing a disservice to the American public.  I think most people would agree that 'sugar coating' the difficult-to-swallow facts often leads to a rough landing.

gregoro's picture
gregoro
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Re: Daily Digest - Apr 2

http://www.timesonline.co.uk/tol/news/politics/G20/article6025542.ece 

"All leaders, particularly Mr Brown, Mr Obama and Nicolas Sarkozy, the French President, heralded a successful outcome. The boost was completed by a $6 billion sale of IMF gold reserves to help the poorest countries."

Six Billion didn't seem to hurt the price of gold too much. 

"Mr Obama said that the agreement marked “a turning point in our pursuit of global economic recovery."

I don't have a TV.  Can anyone tell me if the "turning point" comment was made while standing in front of a big banner on an aircraft carrier?

 Greg

FireJack's picture
FireJack
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Re: Daily Digest - Apr 2

Anyone reading the market ticker today. Two very intersting articles:

 

Flash: AIG called criminal scam!

In fact, our investigation suggests that by the time AIG had entered
the CDS fray in a serious way more than five years ago, the firm was
already doomed. No longer able to prop up its earnings using
reinsurance because of growing scrutiny from state insurance regulators
and federal law enforcement agencies, AIG’s foray into CDS was really
the grand finale. AIG was a Ponzi scheme plain and simple, yet
the Obama Administration still thinks of AIG as a real company that
simply took excessive risks. No, to us what the fraud Bernard Madoff is
to individual investors, AIG is to the global financial community.

As with the phony reinsurance
contracts that AIG and other insurers wrote for decades, when AIG wrote
hundreds of billions of dollars in CDS contracts, neither AIG nor the
counterparties believed that the CDS would ever be paid. Indeed, one
source with personal knowledge of the matter suggests that there may be
emails and actual side letters between AIG and its counterparties that
could prove conclusively that AIG never intended to pay out on any of
its CDS contracts.

 

Then there's Ticking Financial Nukes (OTC Derivatives)

There is some gross "notional" (or face) value of $683.7 trillion dollars outstanding as of the end of June 08 (last data available.)

The lions share of those are not "CDS" on individual names
or CDOs like what is going on here with AIG.  They are instead
interest-rate and/or FX products of one sort or another; $458 trillion worth.

If even a couple of percent of those swaps are in fact "private lettered" out in the fashion that AIG is alleged to have done with their CDS.....

(Hint: This is how "notional" amounts end up becoming realized losses!)

Our Congress had better dig into this hornets nest right damn now because if in fact there is any
material amount of this crap going on in the OTC derivative market the
$170+ billion blown on AIG trying to cover it up will be a mosquito on
an elephant's ass in comparison to what's about to happen to the
world's economy and banking system.

If, in fact, it cannot be proved that this is not the
case, given the extraordinary lengths that both government and private
parties have gone to in order to cover up what IRA alleges AIG was
actually up to, we must ring-fence and cut off any part of the
financial system impacted by a potential detonation of that market
right now, including the US Federal Government, as such a detonation will, if it occurs, destroy any part of the financial system it infests at the time the unwind occurs.

 

 Time to stock up on food and get that garden going.

ashtonw's picture
ashtonw
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Re: Daily Digest - Apr 2

"14 times the $899.8 billion of currency in circulation"

 

How on earth is that not hyper-inflationary?????

bobb dobbs's picture
bobb dobbs
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Re: Daily Digest - Apr 2

Here is a link to the article "Curtain May be Rising on a New Toxic Asset Mess" shown as the second item in today's Table of Contents:

http://www.mortgagenewsdaily.com/04012009_imperfect_title_problem.asp

 

Bhanja's picture
Bhanja
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Re: Daily Digest - Apr 2

 I hope by now everybody is aware that Obama is the pupet of wallstreet. Yes we (wallstreet) can !!!

Expect more lies and broken promises. There is no light at the end of the tunnel. Time is right for revolution. 

Davos's picture
Davos
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Re: Daily Digest - Apr 2

Insane asylum: crashing the database with too many earmark requests. Almost as good as crashing the unemployment database with too many claims. KenLay and Madoff are starting to look like chior boys.

http://www.politico.com/blogs/anneschroeder/0409/There_are_so_many_earma...

RNcarl's picture
RNcarl
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Posts: 382
Re: Daily Digest - Apr 2
bobb dobbs wrote:

Here is a link to the article "Curtain May be Rising on a New Toxic Asset Mess" shown as the second item in today's Table of Contents:

http://www.mortgagenewsdaily.com/04012009_imperfect_title_problem.asp

 

 

Do you really think she is right???

My gawd! No wonder Timmy is pi$$ing in his pants!

I have a conventional mortgage that citi is now "servicing". I wonder if my little mortgage - never late - huge (or should I say small) LTV ratio... Yes small is it <50%LTV with 8 years left was one that was bundled with some "stinkers" in an attempt to keep them from reeking so much! If... just if... if what she is saying is true, and that is my case... Surprised  OMG theoretically, i wonder if I could stop paying, or just file a suit that says there is no longer a recourse (what ever the verbage is) and no longer have a mortgage??? Nnnnooooooo...... How would that be possible?

 

My gawd, quieting my mortgage now, giving me clear title... this would go a long way to prepare me for when TSHTF!

 

Mortgage amounts used to retire the rest of my debt!The thought is staggering!

If this is true, and if I can make this happen. I don't know how, but I WILL make sure the crash course is in every-one's hands that I am in contact with. This one piece of information if it is true, could simply wipe out a huge chunk of debt faced by the people of the united states. Of course it will be instant ruin for the toxic bankers.

 

Could this possibly be true???

 

C.

SkylightMT's picture
SkylightMT
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Re: Daily Digest - Apr 2
RNcarl wrote:
bobb dobbs wrote:

Here is a link to the article "Curtain May be Rising on a New Toxic Asset Mess" shown as the second item in today's Table of Contents:

http://www.mortgagenewsdaily.com/04012009_imperfect_title_problem.asp

 

 

Do you really think she is right???

Seriously, no.

First of all, she writes for the Huffington Post.

Second of all, she is trying to sell her book.

RNcarl's picture
RNcarl
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Posts: 382
Re: Daily Digest - Apr 2
SkylightMT wrote:
RNcarl wrote:
bobb dobbs wrote:

Here is a link to the article "Curtain May be Rising on a New Toxic Asset Mess" shown as the second item in today's Table of Contents:

http://www.mortgagenewsdaily.com/04012009_imperfect_title_problem.asp

 

 

Do you really think she is right???

Seriously, no.

First of all, she writes for the Huffington Post.

Second of all, she is trying to sell her book.

 

Well,

It was a nice dream while it lasted. I took one look at her picture on the book site and went,"oh gawd, what a bimbo." <sigh>

Gee, and I was making plans for that remainder of the mortgage money!

bobb dobbs's picture
bobb dobbs
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Posts: 31
Re: Daily Digest - Apr 2

@RNcarl

Whoa down there, pardner!

The Crash Course can stand on its own whether Ms. Miller's story is 'right' or not.

I do think it is a great idea for you to "make sure the crash course is in every-one's hands that I am in contact with."

I don't think it's fair to make your distribution of the CC contingent on your successful escape from your mortgage.

But, maybe I misunderstood you.

Now back to Ms. Martin's theme.

You might be interested in two items here:

http://www.rickackerman.com/2009/02/calling-all-deflationists/

Scroll way down in the comments to:Susannah 02.03.09 at 12:32 pm

Then read the site owner's response at:Rick Ackerman 02.04.09 at 1:46 am

I'm not sure there's fire and maybe it's only smoke but if my mortgage was burning me up I'd look for the source of that smell.

RNcarl's picture
RNcarl
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Re: Daily Digest - Apr 2

Bobb,

 

Perhaps you did misunderstand me, because I am sure I most likely didn't express the thought right.

I am NOT totally sold on the Crash Course. Way too much "doomer" cultish stuff here.

 

What I meant was, simply, I would try and figure out a way to repay CM for the information I gleened here which would lead to the quieting of my mortgage. That would be/have been quite a windfall in debt reduction. 

 Thereby, I would feel an obligation to the CM (website, company, cult, whatever) to return the favor by directing more folks here. The Crash Course can/does make sense to me, but, I am also the same type of person that has bought into "buy and hold" for the long term.

 

I'm sorry, but putting up a few canned goods, planting a garden and buying a couple guns and ammo while making a sound financial plan does not mean that I am buying into the Maypo. I am hedging my bets is all. If this downturn is simply another cyclical downturn, and things "return to normal" What harm is done? I can eat the food, sell the guns at a profit to serious doomers or red-necks and live happily off my recovered 401K.

C.

bobb dobbs's picture
bobb dobbs
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Re: Daily Digest - Apr 2

Hello C.,

Ya! Communication isn't as easy as we would like, eh?

Heres a link to Judge Boyko's dismissal of the suits referenced in the links I previously supplied:

http://hrubikappraisal.blogspot.com/2007/12/what-judge-boyko-actually-said.html

That'll give you some flavor about what was involved there.

Please remember that the postings on the forums are NOT the CC. You can find the CC link in the upper left corner of the homepage. Takes a couple of hours or more unless you are a 'quick study'.

Please don't sell Chris's work short by judging it solely by the posts in the forums. The posts are not always representative of his presentation style or content.

You dont have to be 'totally sold'. I say better if you aren't.

bobb

 

bobb dobbs's picture
bobb dobbs
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Re: Daily Digest - Apr 2

C,

For the record: none of your post starting with "Thereby" was visible to me when I answered it.

Were you editing it?

bobb

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maveri
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Re: Daily Digest - Apr 2
RNcarl wrote:

I am NOT totally sold on the Crash Course. Way too much "doomer" cultish stuff here.

I think you need to revist the Crash Course to see what Chris is talking about. Chris presents the facts as he see's them with factual backing - as for the more speculative as to how bad things could go - these discussions are seperate to the core of the Crash Course and are postings by others. Just because it appears on the website doesn't mean that Chris advocates the same.

bobb dobbs wrote:

Please remember that the postings on the forums are NOT the CC. You can find the CC link in the upper left corner of the homepage. Takes a couple of hours or more unless you are a 'quick study'.
Please don't sell Chris's work short by judging it solely by the posts in the forums. The posts are not always representative of his presentation style or content.

+1

The site is about to under-go some changes which I hope will address this issue.

There are people who are projecting a whole range of possible outcomes and are valid but are distracting from the message that Chris wants to bring (as perfectly evidenced by your own comments actually - that's not a dig at yourself but it does highlight how people can draw the wrong conclusions) - so from what I understand, the site will be revamped to refocus on the core essentials of the Crash Course and the discussion/projections will continue but will not be the main focus.

Davos's picture
Davos
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Posts: 3620
Re: Daily Digest - Apr 2

Hello RNCarl:

 

  1. Can there really be an economy without the consumer? http://seekingalpha.com/article/103202-the-shallowest-generation
  2. How are the finances of the U.S. any different then those of Enron?
  3. "Gloom and dommer" or a realist?
Cramer always seems cheery and entertaining Smile 
 
Take care
 
PS I wouldn't try this, but so far as I know this case wasn't appealed or overturned and it was before SV's became the rage. http://www.dailypaul.com/node/87184 

 

 

 

CB's picture
CB
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Posts: 365
Re: Daily Digest - Apr 2

 

 http://www.nytimes.com/2009/04/03/business/global/03realestate.html?ref=global-home

Quote:

Banks Face Big Losses From Bets on Chinese Realty

Published: April 2, 2009

SHANGHAI — Back in the good old days — early 2007 — bankers from Merrill Lynch, Deutsche Bank and other financial giants placed their bets on a 48-year-old property tycoon who was supposed to be China’s next billionaire.

They lent his company $400 million, encouraged him to acquire large tracts of land and in early 2008 promoted a proposed $2.1 billion public stock offering by the company, the Evergrande Real Estate Group, in Hong Kong.

One year later, China’s housing market has collapsed, Evergrande is mired in debt and the Wall Street bankers are facing huge losses because the company never sold stock to the public.

Now, analysts say, Evergrande has become a symbol of China’s go-go era of investing, when international bankers, private equity deal makers and hedge fund managers rushed here hoping to cash in on the world’s biggest building boom.

By making short-term and sometimes hasty bets on China’s property market, analysts say, some of the world’s biggest financial institutions may have lost as much as $10 billion.

“They were greedy,” says Andy Xie, an independent economist who once served as Morgan Stanley’s chief economist in China.

“They were all in a hurry to make quick money in the stock market. So they were telling developers to go out and buy more land,” he says. “They ruined a lot of good companies.”

While the scale of the property downturn is still unclear — sales have rebounded slightly after falling more than 50 percent in some big cities — investment in big property projects has stalled.

What is clear is that the real estate boom was fueled in part by foreign investors, who over the last four years pumped tens of billions of dollars into the Chinese property market, hoping to snap up office buildings, luxury villas and stakes in big developers.

A Morgan Stanley real estate fund bought a tower in Shanghai for more than $240 million; the Carlyle Group acquired luxury villas; and in 2008 J. P. Morgan Asset Management held a 12 percent stake in R&F Properties, a big Chinese developer.

To earn big returns, many global investors used complex offshore investment vehicles, like convertible bonds and preferred equity, which gave them tax advantages and allowed them to more easily bypass Beijing’s strict controls on investing in Chinese companies listed overseas. Often the investments were routed through places like the Cayman Islands or the British Virgin Islands.

A favorite investment play was the pre-initial public offering deal. Flush with capital, foreign investors would issue convertible bonds through an offshore entity as a way to invest hundreds of millions of dollars in a Chinese property developer. When the developer was ready to sell stock in Hong Kong, it would pay back the initial investment or bond by giving the foreign investor pre-I.P.O. shares at a discount.

Analysts say that foreign investors grew increasingly aggressive about such deals, sometimes failing to weigh the risks.

The investors would typically find a developer, pump huge amounts of capital into the company through the offshore investment vehicles, encourage the developer to use the money to amass a huge land bank to increase the company’s value, then prepare the developer for a Hong Kong stock offering. Less than a year after the stock offering, many investors planned to exit the deal by selling their Hong Kong shares at a huge profit. ........more............

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Goal Digger
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Mortgage Mess

While I cannot say that the book discussed in this thread is a worthy read, or yet another dire prediction, I can tell you that from what I've seen (as a practicing attorney) is that foreclosure proceedings are being tossed by courts because the purported holders of notes do not actually have physical possession of the original signed note and for this reason are failing to comply with court rules, which require the bank to attach a copy of the note to the Complaint for Foreclosure. 

The other area in which I am seeing foreclosure proceedings tossed is by liberal judges who do not believe that individuals who signed written contracts agreeing to make payments on a mortgage in order to purchase a home should lose that home just because the individuals cannot live up to their end of the bargain.  (There are of course some instances of predatory lending, but at the end of the day none of these people had a gun to their head when they signed their names on the notes.)

Some may find it a bit ironic to hear this coming from an attorney, but there is a complete and total breakdown in the enforcement of legal obligations in our country.  Whether its raising your right hand to swear to the tell the truth while testifying in court, or honoring your end of a binding legal instrument, our society is not holding individuals personally responsible for their actions.  There is no more personal responsibility in this country.  At all.

All we have anymore is some subjective "moral code" dictated by narcissistic "power" players.  Respect and personal responsibility are out the window.

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Re: Mortgage Mess
Goal Digger wrote:

Some may find it a bit ironic to hear this coming from an attorney, but there is a complete and total breakdown in the enforcement of legal obligations in our country.  Whether its raising your right hand to swear to the tell the truth while testifying in court, or honoring your end of a binding legal instrument, our society is not holding individuals personally responsible for their actions.  There is no more personal responsibility in this country.  At all.

All we have anymore is some subjective "moral code" dictated by narcissistic "power" players.  Respect and personal responsibility are out the window.

 

Despaireth not, GD.  Regardless of what the Power Players may or may not do/dictate, we are still free to act as we will.  

My wife and I have 2 businesses -- one is making good money, one barely scraping by. Our lease on the latter, effective August '07, is technically for 2 years but either ourselves or our landlord can get out of it by giving 30 days' notice.  We thought about bailing out of it last December.  Even though we're not *losing* money at that location, the hours we spend there just to break even would probably earn us an additional $2-3K/month if we focused on our more profitable location.  But we decided to stick it out (a) because we have some belief we can make it profitable and (b) because we'd technically agreed to 2 years term.  We know that our landlord at that location is in a very tight money spot.  Our sticking it out helps him and his wife to hang in there too.  Right now, I'd say it's 80% likely we'll shut the location down come August.  If there were no other considerations, I'd be lobbying the wife to shut down now.  By August, we could have saved/earned an additional $10K or so and even if that number sounds small to you it's not small to us.  

But again, we feel as if our struggle is our landlords' struggle is our community's struggle.  What are we getting for our efforts, other than a small chance to turn things around there?  We're earning (hopefully) a rep as people of our word, people you can do biz with and trust that we have more than simply our gain in mind.  In a post-SHTF scenario, such a rep will be as good as money in the bank (assuming we still have banks [grin]).   Even if that location fails, the next time we want to start something up (and there will be a next time, whether or not we close that spot), future potential biz partners can talk to our landlord and his wife and hear that we're trustworthy.  

We used to have biz partners in our profitable location (for the first three years of its five-year life) -- old college buddy of mine and his wife.  (We bought them out 2 years ago.)  We had nothing more than an oral agreement and a handshake for those three years.  Partly that was the long relationship.  And partly we set things up such that we all had the same goals -- a win for them was a win for us.  And partly it was concrete manifestation of our collective belief that business need not be a shark's game. 

FWIW.  YMMV.

Viva -- Sager 

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Re: Daily Digest - Apr 2

Goal Digger:

I found your post the most interesting content on the entire blog of April 2nd.

Take care 

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Re: Daily Digest - Apr 2

Example of one such liberal judge.  The Honorable James Burge, Lorain County, Ohio.

 

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Re: Daily Digest - Apr 2
bobb dobbs wrote:

C,

For the record: none of your post starting with "Thereby" was visible to me when I answered it.

Were you editing it?

bobb

 

bobb,

I dunno... maybe.

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Re: Mortgage Mess
Goal Digger wrote:

While I cannot say that the book discussed in this thread is a worthy read, or yet another dire prediction, I can tell you that from what I've seen (as a practicing attorney) is that foreclosure proceedings are being tossed by courts because the purported holders of notes do not actually have physical possession of the original signed note and for this reason are failing to comply with court rules, which require the bank to attach a copy of the note to the Complaint for Foreclosure. 

The other area in which I am seeing foreclosure proceedings tossed is by liberal judges who do not believe that individuals who signed written contracts agreeing to make payments on a mortgage in order to purchase a home should lose that home just because the individuals cannot live up to their end of the bargain.  (There are of course some instances of predatory lending, but at the end of the day none of these people had a gun to their head when they signed their names on the notes.)

Some may find it a bit ironic to hear this coming from an attorney, but there is a complete and total breakdown in the enforcement of legal obligations in our country.  Whether its raising your right hand to swear to the tell the truth while testifying in court, or honoring your end of a binding legal instrument, our society is not holding individuals personally responsible for their actions.  There is no more personal responsibility in this country.  At all.

All we have anymore is some subjective "moral code" dictated by narcissistic "power" players.  Respect and personal responsibility are out the window.

 

For that reason,  I would not pursue an action to force the quieting of my mortgage. I mentioned the situation to my wife and she said, "Yes, I can see that. But, wow. We still owe the money, right?" I replied, "Yes, to the lawful mortgage holder, whoever that is, yes."

I do now feel that citi most likely, holds my mortgage illegally. If I get in a jam, I hope I can go before one of those liberal judges. But, alas, if I am still able, I will be one that pays the entire thing while others who have made bad decisions are bailed out. 

 

Come on folks, you can't tell me that the Crash Course isn't filled with doom predictions. Peak oil, Peak population, Peak consumption. All to what end? For heavens sake, even the name, "Crash Course." What in the devil do you think that means.

Exponential growth is like an aeroplane climbing ever higher and at an ever steeper rate of accent until the plane stalls. It simply stops flying because there isn't enough lift being generated by the airflow over the wings because of the sharp accent. What the plane does then is governed by the physical laws. The plane is pulled back toward the earth by gravity in a free fall. The speed is ever increasing until either one of two things happen. One, there isn't enough altitude to allow for enough airspeed for the plane to recover flight and it slams into the earth. Or two, the airspeed increases to a point where the pilot can pull the nose of the plane up. enough lift is returned to the wings and the plane begins to fly again. Option one... doomsville. Option two, soiled pants, frayed nerves but life goes on.

I am opting for outcome number two. Pilots train by stalling the plane on purpose during training flights. It's all in learning about how to recover from the stall. Not IF the plane will stall but to prepare for WHEN the plane will stall.

Prepare for the worst, pray for the best and smile while it happens.

C.

P.S. Is there a way that these "banks" will be able to change this law?

 

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Re: Daily Digest - Apr 2

@RNcarl  Posted on: Sun, 04/05/2009 - 00:18

"Exponential growth is like an aeroplane climbing ever higher and at an ever steeper rate of accent until the plane stalls."

C,

Problem is... no one has ever tried this with an airplane/economy fueled by bad debt, bad data and bad faith.

This is no ordinary well tested commercial vehicle. This is an experimental model with many involuntary passengers and a design team that is overwhelmed by problems of their own making (lying being among the foremost of their activities).

Consider this for a perhaps more fitting aviation metaphor:

 "Flight testing revealed stability problems which could not be corrected with existing technology. The designers had not been able to anticipate the critical control requirements needed for a large all-wing airplane, especially for a system that could anticipate and correct problems before the pilot was aware of them."

http://www.globalsecurity.org/wmd/systems/b-49.htm

It is the presence of the passengers that makes this particular 'test flight' problematical.

bobb dobbs

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Re: Daily Digest - Apr 2

Dear RNCarl:

Oh, where do I begin? First, I appreciate your optimism. I think you nailed though when you said, prepare for the worst and pray for the best and smile no matter what.

I don't think CM's course is doom and gloom. Quite the contrary. I think it is based realism. I think what we have been sold is an over realistic fantasy.

I think there is some sort of law that states when you believe in fantasy reality is going to take a bite out of your a$$. 

Let me better explain. When I was 8 I asked a guy who was 19 and taking flying lessons what makes a plane fly? Is it like when I'm in my parents car and put my hand out the window and the air pushes it up? For that I got a 3 hour lecture on a guy named Bernoulli, low pressure, high pressure, air is fluid, blah, blah, blah.

The guy went on to graduate, I think with some form of cum laud, from one of the countries foremost colleges with an aviation program. I really looked up to him. Thought he knew everything. After 15,000 hours of flight time I realized I had been sold a bunch of sh*|. The cracks in the dam were leaking. The guy got the stick shaker on a plane just like you mentioned, (serv. ceiling varies and is predicated on weight and temp) he crashed another on take off. So I did  a serious gut check. Turns out that my 8 year old version of what makes planes fly is really correct. Coanda effect is really what keeps them up. Burnoulli's &quot;Law&quot; is only 2% of &quot;lift&quot;. So sorry to the many students I instructed during my 2,000 hours as a flight instructor. Amazing that for 15 years I carried almost 1/2 a million passengers and had NO clue to what kept my wings the air.

My point? Things aren't always what you know. Simple is usually correct.

Carl, I look at the morons in the cockpit the way I looked up to my childhood idol. Being a genius and having ZERO common sense is a recipe for disaster. I guarantee they will auger this economy into the ground. You can fly and not know what keeps the plane up - I'm proof of that! Githner, Bernake, Summers - all geniuses but the theory they bought into is like Bernoulli's principle.

Take care 

Reference: ISBN978-0-06-073264-6"Present at the Future" Flatow, Ira Introduction and chapter 32. 

 

 

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Re: Daily Digest - Apr 2

Davos,

 

Ahh.. you brought back memories of ground school. I too had that same 8 year old experience of "lift" (hand out the window)

I used the stall metaphor, because, that is where my flight training ended when I was 16. I loved to fly, all I wanted to do was fly. I hung around the local county airport and bummed a ride from everyone I could. But... then... sadly, came the day I had to take my own lessons and we (the instructor and I) got to the stall. Let's just say, I spent that particular Saturday afternoon "cleaning the plane." That ended my flight school.

My metaphor however, was to relate the same visceral response that I am having to exponential growth and the CC principles. I'd rather have to "clean the plane" again than have the NTSB investigate the crash and determine it was a full-power-on smash!

 

I guess that's the point, I get it. I don't wanna get it. I'd prefer to keep floating down that river in Egypt eating grapes and being fanned by beautiful girls.

 

There is a huge psychological component here that has to be resolved. If I can keep my preparation on the DL and just "happen" to be prepared, that's the way I'd prefer to do it.

 

You MUST admit, there are many, many "Chicken-Little's" out there. 

I have one friend who said to me,"Gee Carl, you would have been one of those guys in the '50s who built a bomb shelter, aren't you?"  Embarassed Yeeaahhh..... And, how did that scenario turn out?

 

FWIW - C.

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Re: Daily Digest - Apr 2

Hello RNCarl:

You didn't miss a thing. I haven't set foot on a plane since 2003 and life is a lot better. I think as bad as this is going to be it will bring about some great things - if we don't lose freedom (what is left of it) in the process.

I invision the outcome being that we will live a more sustainable life, family will be important, no one will trust TV, cable or Cramer, people will read more and realize blogs are more informed then Cramer and company, politicians will be held accountable and I am confident we will come out with some technologies that should have come about during the Carter administration instead of having a measuring contest with who could put a man on the moon first. I think space flight is important but to me that was really putting the cart before the horse.

Things like food we can always eat, that may be yours and my trip down a river with fans. As much as I loved the flick "A Blast From the Past" I see your bomb shelter point. Fortunently this trip around food and a few other things will make excellent insurance.

BTW, what you and I learned in GS was as right as Cramer.

Take care. 

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