Daily Digest - Jan 23

Thursday, January 22, 2009, 7:49 PM
  • Historic Chart, Dow
  • Historic Chart S&P 1929/1962/1987/2008
  • Market Prediction USA Default on Debt (Chart)
  • Pick Your Poison: Stocks or Bonds
  • Initial Jobless Claims (Chart)
  • Unemployment: How do We Measure A Shortage of Work? 
  • Microsoft Lays Off (Table) 
  • Can the UK government stop the UK banking system going down the snyrting without risking a sovereign debt crisis  
  • Russian Reserves Plunge $30 Billion on Ruble Support (Update2) 
  • Economic collapse fuels bitter protests in Iceland (Hat Tip DamTheMatrix, Good Picture on Page) 
  • Irish budget deficit could be highest in EU by 2010 
  • Brink of Debt Disaster By Mike Shedlock
  • Something fishy? Counterfeit foods enter the U.S. market
  • A few quick words on the November TIC data 
  • Repossessions show Britain's deepening financial crisis (Hat Tip DamTheMatrix) 
  • Vehicle Miles: Year-over-year Change in Rolling 12 Months Miles Driven (Chart)
  • Geithner pledges ‘dramatic' action 
  • West Goshen widow's riches-to-rags story 
  • Apple health reports may be examined by Securities and Exchange Commission 
  • Regional Banks Already Registering TARP Shares & Warrants
  • U.S. bank results plummet as credit problems soar 
  • Bank Failures by Year (Video)


Historic Chart, Dow

Historic Chart S&P 1929/1962/1987/2008

Market Prediction USA Default on Debt (Chart)

Pick Your Poison: Stocks or Bonds

Initial Jobless Claims (Chart)

Unemployment: How do We Measure A Shortage of Work? 

Using DOL/BLS* A Table data, we start with a total labor force (age 16 or older) of 154,349,000 workers. Of this number: 

9,468,000 are looking for full time work

1,531,000 are looking for part time work

That gives us a total unemployment figure of 10,999,000, or 7.1 %.

To this we add:

1,200,000 estimated number of people who have become discouraged and are no longer looking for work, or have been unable to find a job they able to take;
3,186,000 estimated number of people who usually work full time, but are working part time because they can not find full time employment;
1,562,000 estimated number of people who are working part time, but would like to find a full time job;
829,000 estimated number of self-employed persons who left the labor force in 2008 because they could not find work;
5,711,000 estimated number of self-employed persons who are unable to find enough work to keep them employed on a full time basis.
That gives a total of 23,487,000 unemployed or under-employed persons, and a Work Shortage Index of 15.2%.

Think about it. That's over 23 million people, and their families, whose financial wellbeing has been restricted by a shortage of work. Worse, the longer the recession - the higher this index. As the recession drags on, employers tend to schedule fewer hours of work, place additional workers on part time employment, and find ways to eliminate jobs. Self-employed persons find it increasingly difficult to find productive work. And another key point: Under-employment increases faster than unemployment as earning power erodes. 

Microsoft Lays Off (Table) 

While we all know that investing in stocks has been painful, some readers may be surprised to learn that Treasuries haven't provided a much better alternative. While the S&P 500 is down 8% so far this year, long-term Treasuries (as measured by the US Long Bond future) are down almost 6%. With the recent break below their 50-day moving average, bonds are hardly looking like a 'safe' alternative in the current environment.


Can the UK government stop the UK banking system going down the snyrting without risking a sovereign debt crisis  

From Reykjavik 

Late last night I returned from a four-day visit to Iceland with Professor Anne Sibert, co-author of a report anticipating the collapse of the Icelandic banking system and joint carer for our cats and children.

Iceland's largest three banks with border-crossing activities collapsed last fall, as did its currency. The three banks are in administration and new state-owned banks with a purely domestic focus have been set up. Strict capital controls make external borrowing all but impossible and discourage foreign investment. The country now has an IMF program. Strangely enough, the programme does not impose any fiscal pain until 2010. This year the fiscal automatic stabilisers are allowed to work freely, although no further discretionary expansionary fiscal measures are being proposed. Starting in 2010, under the programme, discretionary fiscal tightening of more than 8 per cent of GDP is envisaged between now and 2013. That number could be higher if the external indebtedness of the state turns out to be higher than the 110 per cent of annual GDP estimate of the IMF.

The true state of the gross and net external indebtedness, including contingent off-balance sheet exposure, of the Icelandic state is a mystery even now. In addition to sovereign debt and sovereign-guaranteed debt, there are credit lines and possibly other contingent external liabilities whose take-up has to be estimated/guessed to get an accurate view of the state's external obligations. It is possible that the IMF figures include an offset against the sovereign's external liabilities in the form of an estimate of the recovery value of some of the external assets of the sovereign (e.g. its share in the assets of the UK subsidiaries of Kaupthing and Landsbanki). Assigning any positive value to these assets is an act of faith. In any case, it would be helpful to have the hard external liabilities and the soft external assets reported separately. 

Russian Reserves Plunge $30 Billion on Ruble Support (Update2) 

Jan. 22 (Bloomberg) -- Russia's international reserves tumbled $30.3 billion last week, the second-biggest drop on record, as the central bank accelerated the pace of the ruble's devaluation and sold more foreign currency to manage the decline. 

The value of the stockpile, the world's largest after China's and Japan's, fell to $396.2 billion, after dropping $11.7 billion between Dec. 26 and Jan. 9, when there were 2 1/2 official currency trading days.

Russia's reserves have slumped 34 percent from a record $598.1 billion in August as Bank Rossii strove to control the ruble's 29 percent drop against the dollar in that period. Russia needs to devalue the ruble to reignite an economy that may fall into a recession in the first half of the year, President Dmitry Medvedev's economic adviser Arkady Dvorkovich said last month.

"The central bank was intervening heavily on the market last week, selling foreign currency," said Natalia Orlova, chief economist at Moscow's Alfa Bank, the country's largest privately owned lender. "They quickened the pace of the step-by-step ruble depreciation, so everyone rushed for foreign currency." 

Economic collapse fuels bitter protests in Iceland (Hat Tip DamTheMatrix, Good Picture on Page) 

ICELAND: Riot police rescued the Prime Minister, Geir Haarde, from his official limousine after it was surrounded by protesters. 

Demonstrators, enraged by the Government's handling of the financial crisis, banged on the car with drink cans and pelted it with eggs. Bodyguards tried to keep them away before riot police arrived to clear a path.

Protests have become a regular feature of life in the capital, Reykjavik, since Parliament reopened after the Christmas break.

On Wednesday demonstrators splattered government buildings with eggs and paint before moving on to Parliament, the scene of violent clashes with police a day before. They lit fires in front of the entrance to Parliament and set fire to park benches.

"There is still turbulence, but we are going to try to take it easy and not arrest anyone - now they just throw snowballs, banging on drums and making noise," said the chief police inspector, Johann Thorisson.

Mr Haarde had not been harmed in the earlier incident, he said.

Hordur Torfason, 63, a musician, has organized weekly protests in front of Parliament since October.

"The Government isn't listening," he said. "They act like we don't exist. As long as they keep this up, the protests will continue."

Iceland's financial system collapsed in October, owing foreign creditors billions of dollars.

Unemployment, once at zero, was expected to rise as the nation with the world's fifth highest per capita income in 2007 sought a bail-out from the International Monetary Fund. Even its £4 billion ($8.5 billion) loan will not prevent an economic contraction of 9.6 per cent this year.

The latest protest rally is thought to be the biggest since 1949, when Iceland joined the North Atlantic Treaty Organisation.

On Tuesday night crowds lit a bonfire and tore down the Christmas tree in the town square to use as firewood. Nearby benches were also thrown into the pyre.

The financial collapse was triggered when a huge housing and consumer bubble burst last year.

Irish budget deficit could be highest in EU by 2010 

He made the comments as economists begin to question the stability of the single currency in the face of mounting economic problems in euro zone states such as Ireland, Spain, Greece and Portugal. 

Spain yesterday became the second euro zone country in less than a week to have its credit rating cut by Standard Poor's (SP), stoking fears of more downgrades in the recession-hit currency bloc as public finances decay. Following its relegation of Greece's sovereign rating last Wednesday, SP said Spanish government policy looked insufficient to prevent years of weak growth and a ballooning budget deficit.

The cut in Spain's rating to AA+ from AAA, a level Spain had held since late 2004, sent the euro to a session low against the dollar as investors feared Portugal and Ireland would suffer the same fate after receiving SP warnings.

But Mr Almunia said there was no threat to the euro and played down the risk of any euro zone country defaulting on its debt. "I don't think at all the risk of default is important. Risk of default . . . always exists in the private and public sectors, but in the case of euro area members I don't think the risks are high or are significant," he said.

Asked about last week's rumours sparked by an incorrect report by RTÉ that Ireland may need to be bailed out by the International Monetary Fund (IMF) he replied: "I fully endorse the denial from the Irish Government. I don't think it is a risk at all."

Nevertheless, the commission is clearly anxious that the Government get its ballooning budget deficit under control. The issue was raised at a bilateral meeting between Mr Almunia and Minister for Finance Brian Lenihan in Brussels shortly after the publication of the commission's interim economic forecasts. 

Brink of Debt Disaster By Mike Shedlock

John Kemp at the Guardian is making a case that the US and UK are on the brink of a debt disaster. Let's investigate the discussion and charts. 

Something fishy? Counterfeit foods enter the U.S. market

Some of your favorite foods may be fakes.
Foods masquerading as something else - a more nutritious something else - have been big news in the past two years. Chinese food companies in particular have been blamed for making deadly alterations to dairy, baby and pet foods by adding melamine. The chemical makes it appear that the food or beverage has the required level of protein.

But what about food producers in this country? What fraudulent foods do U.S. consumers have to fear from American companies?

Experts say dangerous U.S.-produced foods are comparatively few, but producers have been known to practice "economic adulteration" - adding a little to their bottom line by padding, thinning or substituting something cheap for something expensive.

The U.S. Department of Agriculture and the Food and Drug Administration regulate the food industry, but with safety issues to deal with, economic adulteration has "really been back-burnered," says Bruce Silverglade of the non-profit Center for Science in the Public Interest. So in a caveat emptor world, what should consumers look out for?

Fish is the most frequently faked food Americans buy. In the business, it's called "species adulteration" - selling a cheaper fish such as pen-raised Atlantic salmon as wild Alaska salmon.

A few quick words on the November TIC data 

China sold $9.2 billion of long-term Treasuries. But it also bought $38.2b of short-term Treasuries. China's total Treasury holdings are up by $29.1b. By contrast it sold $3.1b of long-term Agencies and also reduced its short-term holdings by about $5 billion. China reallocated its US portfolio, but it hasn't cut back on its dollar purchases. 

The following graph, prepared with help from Arpana Pandey, plots the average increase in China's reserves (defined broadly, to include hidden reserves) over the last 3 months v my best estimate (taking flows through London into account*) of China's Treasury and Agency purchases. It speaks for itself. 

Repossessions show Britain's deepening financial crisis (Hat Tip DamTheMatrix) 

Home repossessions in the UK almost doubled in the three months to September. 

Figures released by the Financial Services Authority (FSA) show that 13,000 homes were repossessed by mortgage lenders in the third quarter of last year representing a 92 per cent jump on the same period in 2007.

There was also a sharp rise in the number of people in arrears on their mortgages.

Vehicle Miles: Year-over-year Change in Rolling 12 Months Miles Driven (Chart)

Geithner pledges ‘dramatic' action 

The Obama administration will take action on a "dramatic scale" to revive credit markets and strengthen banks so they are able to lend, Treasury secretary- designate Tim Geithner said on Wednesday.

Testifying to the Senate committee considering his nomination, Mr Geithner said the Obama team was working on a "comprehensive plan" to deal with the banks and hoped to unveil it soon.

"We're going to have to do more to make sure that the institutions at the core of our system are strong enough that they can lend."

He refused to offer any insight into how this might work, in spite of pressure from the markets, saying: "We have seen the costs in terms of uncertainty created by tentative signals not followed up with clear actions."

His remarks came as he repeatedly apologised for underpaying taxes in the early 2000s - a revelation that had delayed his confirmation hearing. The vast majority of members of the committee appeared willing to accept his apology.

He added: "We are also going to have to provide much more substantial direct support to credit markets" in order to "get risk premia down, interest rates down and get that basic mechanism of credit markets going again."

This suggests the Obama team will collaborate with the Federal Reserve to provide finance for securitised markets on a much expanded scale, probably building on the existing model of the Term Asset-backed Securities Lending Facility.

Tim Geithner's appearance in front of the committee was the kind of self-abasing mixture of conciliation and contrition that generally goes down well in the Senate

This combines equity from the Treasury with loans from the Fed to provide low- cost funding for investors willing to purchase new securities that bundle up the cash flow from consumer loans. New models could also be deployed, possibly with some element of government guarantees on types of lending.

Mr Geithner cited small business funding, student loans, car finance and commercial and residential real estate loans as priority areas.

Asked about the idea of creating a so-called "bad bank" to take on the toxic assets in the banking system, he said "good bank, bad bank-type solutions have been present at the solution to most financial crises around the world".

The government would not chose between helping the banks and restoring the flow of credit through securitised financial markets. "You have to do both," he said

He refused to give any flavour of the approach towards the banking sector, saying only that "we have been carefully reviewing a broad range of proposals."

But he said: "It is very important that we look carefully at whether they're going to be as effective in this context as they have been in some past cases".

"It is possible that something like that will be part of the solution going forward," he said. But bad bank models were "enormously complicated to get right".

Some analysts interpreted this as suggesting that the Obama administration had not yet settled on this model as the linchpin of its approach to strengthen and clean up the banking sector. 

West Goshen widow's riches-to-rags story 

When Maureen Ebel's uncle called her at 10:45 p.m. Dec. 11, she feared a death in the family.

Instead, her Uncle Leonard gave Ebel news of another kind of disaster that would upend her life: New York investment manager Bernard L. Madoff had been charged with massive fraud. 

Ebel, 60, a widow who lives outside West Chester and winters near West Palm Beach, thought she had $7.3 million with Madoff.

It became sickeningly clear over the next day or so that all her money was gone. "The thought that I have to work now as long as I can stand up to feed myself" shattered her comfortable world, she said.

Six days after Madoff's arrest for allegedly bilking investors in a $50 billion Ponzi scheme, Ebel had a strenuous temporary job caring for a wealthy friend's 93-year-old mother and keeping her house, pushing the vacuum cleaner and ironing.

"The first day, I went home and cried," Ebel said.

Ebel, a retired nurse with blond hair and big blue eyes set on a broad face that turns red with emotion, is no stranger to hard work. She got her first job at age 14. But she believed she had moved on for good.

Not so.

"This is my fate," said Ebel, who is still pained by her husband's death in 2000, when he was just 53.

"I was married, had a fabulous marriage to a man I loved and worshiped, a physician. We traveled. We had a very fine life. And he's dead. He died, and every penny I had in the world has been stolen."


Apple health reports may be examined by Securities and Exchange Commission 

America's top securities regulator is understood to be investigating Apple's recent disclosures about the health of Steve Jobs, its chief executive. 

The Securities and Exchange Commission is thought to be responding to pressure from investors infuriated by the technology group's surprise about-face on the seriousness of the illness affecting Mr Jobs.

Regional Banks Already Registering TARP Shares & Warrants 

We have perused many SEC filings over the years, but it seems that the flood gates are starting to open where regional banks and smaller banks are filing with the SEC to raise capital. Each one of these look like the securities being registered are cumulative preferred shares and warrants to buy stock under the Fed's Troubled Asset Relief Program. But seeing the magnitude of filers and the nominal amounts mentioned is starting to show just how widespread this need for capital is. Below is a list of the filings we saw from today alone: 

U.S. bank results plummet as credit problems soar 

NEW YORK (Reuters) - A series of large U.S. regional banks on Thursday said rising credit losses led to lower fourth-quarter earnings, illustrating the breadth and depth of the nation's credit crisis and recession. 

The Ohio lenders Fifth Third Bancorp, Huntington Bancshares Inc and KeyCorp posted quarterly losses, as did Southeast lender SunTrust Banks Inc. Profit fell at BB&T Corp and Comerica Inc, while New York's M&T Bank Corp posted higher earnings.

Results fell short of analysts' average forecasts except at BB&T, which matched the consensus, and M&T, which topped forecasts, according to Reuters Estimates.

Comerica announced job cuts, and Huntington and SunTrust lowered their dividends.

"We are under no illusions as to the severity of this credit cycle," SunTrust Chief Executive James Wells said. 

Bank Failures by Year (Video)

Banks Selling Crown Jewels

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joemanc's picture
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Re: Daily Digest - Jan 23

People selling their cemetary plots to make money...


As the economy continues to falter, forcing people to be more creative in their efforts to make money, the resale of cemetery plots on the Internet is on the rise.,0,6079034.story

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Re: Daily Digest - Jan 23

So what is the conclusion to all this? Japan style recession? Debt collapse with new currency? Are banks going to be nationalized now that there is no way to repay all the debts outstanding? How do we profit going forward? Short the market? Currently I am Short IYR Dow jones Real estate index.

Seriously is there any solution or just collapse?  I can not find a solution or anyway out of this but forgiveness of debts and a whole new money system. thoughts anyone?

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Re: Daily Digest - Jan 23

Hello advoking, welcome to the fray....

In my opinion, there is no solution, as in fix the problem and return to Business as Usual solution.  BAU is finished.  I actually think Capitalism is finished.  I want to make it quite clear that I do not advocate Socialsim or Communism, at least in their historic forms, we need a New World Order, and fast.

The MAJOR conclusion I have made from doing the Crash Course is that the debts can NEVER be repaid.  It is simply impossible, we don't have the resources to do it anymore, exponential growth has finally (just about) filled the stadium, and it's all blowing up in our faces.  We need to pull the plug on the stadium, and empty it.....


Well that's the $64,000 question.  Or maybe today, it's the $64 TRILLION dollar question!  I like the KISS principle (Keep It Simple Stupid), so I advocate canceling all debts.  I know I'm constantly criticised for this here, but no one's yet come up with a better idea.

Let's face it...  we already have everything we need, all we have to do is put a stop to unsustainable growth.

So when the car companies go belly up sometimes in March or April, we could use the cash releasd by the Jubilee, and retool the factories to build the new energy system we desperately require.  Cars are finished, those we have now will last until the oil runs out altogether, and then they can all be melted down to make new wind turbines, or whatever...

I also think all taxes should be removed, and replaced by one single Carbon tax.

When the stock market collapses altogether, it should be restructure completely to what it USED TO BE, somewhere where one could invest in companies to do things with, and all speculation (like the shorting you mention) abolished.  Income should be REAL income, a result of WORK....  not sitting at a computer and gambling!


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Mergers in pipeline as oil industry's fairytale era ends

Mergers in pipeline as oil industry's fairytale era ends

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navigating the collapse

Mining sector shocks threat mineral discoveries

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‘UK has nothing to sell’

Jim Rogers: ‘UK has nothing to sell’

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Sharp drop in US demand for petrol

Sharp drop in US demand for petrol

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Re: Daily Digest - Jan 23

Interesting take on the recent uptick on foreclosures from CNBC

The banks are cutting out the foreclosure related RE industry from their relationship with distressed homeowners using the deed in lieu of foreclosure process.

 Smart move from the banks, bummer for RE industry.

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Re: Daily Digest - Jan 23


You certainly share the same questions as the rest of us after completing the Crash Course. My take on it is rather stark but I welcome the challenge. I think we will rid ourselves of all manner of ills in the process but  there will be unavoidable shrinking pains. In the end it will be much improved.

Economy: Total collapse of the existing system(s), forgiveness of debt and emergence of a new system. This will include a new set of social values as well with emphasis on future rather than "now" needs.

Energy: Not enough to go around and difficulties in fair distribution of what is left. At some point the realization that what we do have left we need to save for vital support systems. Here a voluntary reduction in use of fossil fuels, development of local permaculture and reallocation of local recources will greatly help the transition. The sooner we get started the better.

If you look at the big picture, the world will look at the US as allready having it's infrastructure in place and its share of world resources consumed. Others will want their fair share of what remains.

Environment: Taking stock of what we have left and a spartan approach to consumption so that current use will not deplete future needs.

 Lots of work to do!


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Iceland PM calls early election

Iceland PM calls early election

Iceland's Prime Minister Geir Haarde has called a general election for May, two years early.

There have been repeated demonstrations outside Parliament this week
calling on his conservative Independence Party and its coalition
partners to resign over the island's economic meltdown.

Mr Haarde also said he would stand down as party leader at its annual congress in March for health reasons.

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Re: Daily Digest - Jan 23

Substituting pen-raised Atlantic Salmon for wild Alaskan Salmon is hardly the same as using melamine to give a false protein reading.  The same type of thing happened not too long ago with candies that were made in Mexico--people were getting sick from the candy.  Again, very similar with the peanut butter...all that was offered from the company that shipped out the tainted peanut butter was a refund if a washed cap and label was mailed back to the company...thanks for the 2 bucks for almost killing me!  It is really too bad that "it's gotta go! ship ship ship!" usually takes preference over "hold on, we have to test this stuff"...or in the worst possible scenario cheap substitutes are made but the common denominator is still sales--quantity over quality

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Re: Daily Digest - Jan 23

Waiting for everyone to get on board the crash train. Seems funny to me that this whole world recession began with the U.S. real estate bubble.

If I were to take a guess, which is what I do most of the time, I would guess that the elites are waiting for everyone to drop to their knees and beg for a new world currency.

Which would probably be a good idea.

Imagine traveling to another country and whipping out a universal dollar to pay a universal value. Sounds good to me and it will probably get us through the next 1000 years or so.

ckessel's picture
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Re: Daily Digest - Jan 23


The real estate bubble burst is the begining of the end. The begining of the begining was the creation of the Fed.


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Re: Daily Digest - Jan 23

US 10 year bond price fell 6.9% on the day.
NYMEX WTI future rose 7.6% on the day.
Gold rose an exact 5% on the day.
That looks like an outright devaluation by Washington.
It makes Geithner's charge of China "manipulating its currency" look pretty ridiclous.
Things are now poised for the Treasuries Bubble to burstand for the great hyperinflation to begin.


U.S. Treasury 30-Year Bonds Post Biggest Weekly Loss Since 1987
By Dakin Campbell

Jan. 23 (Bloomberg) -- Treasuries fell, with 30-year bonds posting
the biggest weekly loss in almost 22 years, on concern that debt sales
will increase as the government boosts spending to ease the deepening
economic slump.

Ten-year yields touched a six-week high amid speculation President Barack Obama’s
administration will join governments around the world in selling record
amounts of bonds to rescue banking systems and battle a global
recession. Goldman Sachs Group Inc. yesterday raised its 2009 Treasury
borrowing estimate to $2.5 trillion.

“Supply is a concern for this year,” said Michael Pond,
interest-rate strategist in New York at Barclays Capital Inc., one of
17 primary dealers required to bid at U.S. debt auctions. “We are
approaching the refunding period where we will get long-dated issuance,
so it’s not surprising that it is weighing on investors’ minds.”

Thirty-year yields increased six basis points, or 0.06 percentage
point, to 3.32 percent at 4:04 p.m. in New York, according to BGCantor
Market Data. For the week, the bond’s yields were up 43 basis points,
the most since the five days ended April 24, 1987. The price of the 4.5
percent security maturing in May 2038 tumbled 1 7/32 today, or $12.19
per $1,000 face amount, to 122.

The benchmark 10-year note yield, used to set corporate borrowing
costs and mortgage rates, rose one basis point to 2.61 percent. It
touched 2.68 percent, the highest since Dec. 12. The note’s yield
increased 28 basis points this week, the most since the five days ended
June 13.

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Re: Daily Digest - Jan 23
TrAd wrote:

Waiting for everyone to get on board the crash train. Seems funny to me that this whole world recession began with the U.S. real estate bubble.

If I were to take a guess, which is what I do most of the time, I would guess that the elites are waiting for everyone to drop to their knees and beg for a new world currency.

Which would probably be a good idea.

Imagine traveling to another country and whipping out a universal dollar to pay a universal value. Sounds good to me and it will probably get us through the next 1000 years or so.


I'll take a pass on the new world currency....  and the new world government that goes with it.

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Re: Daily Digest - Jan 23

DamnThe Matrix,

A math teacher I thought of as very wise told my class when I was 13 years old that we would reach a peak in the production of oil worldwide by the time my grand-children were in their 40's. How much I would like to meet with that teacher now, who used the model he was sold by politicians of present day usage without using his simple math and exponential growth!! I'm now 41...


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Re: Daily Digest - Jan 23

Hi Mike,

I always enjoy your comments.  Let's just be careful using the term "New World Order."  If I understand it, that's approximately what the financial/huge corporate interests want.....only it'll ALL be under THEIR control.  

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Re: Daily Digest - Jan 23

for anyone else who was at home babysitting (supposedly) this afternoon and caught c-spans two hour panel about deregulations role in the current market crisis was well rewarded. the headliner was phil gramm and he took quite a beating during the q & a portion but brushed it off as you would expect a politico to do.

the real highlight was former fed economist adam posen at the 1:25:00 mark and it lasts :15 minutes but it's so well worth it.

brief synopsis: i've been in the camp that deregulation has been a disaster over the past decade and that dereg's have been the 'cause of the market meltdown, but after listening to adam posen i'm taking his opinion as my own, and that is there were very few deregulatory measures and they did cause harm (Gramm-Leach-Bliley Act to be specific) but the real harm came from the fact that the bush administration failed to enact new financial regulations that could keep up with the massive growth in the financial industry. washingtons laissez-faire attitude towards wall street might stem from the fact that the largest campaign contributions came from.... wall street, hmmm.

my belief now is that it was not so much a deregulatory problem but an insufficient regulatory environment.

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Re: Daily Digest - Jan 23

The only international currency that will not get me up in arms is a fully redeemable gold standard. Even that would leave me considering potential methods of manipulation, but anything other than that has no integrity because it is based on the whims of greedy power-mongers.

I believe that the graph Davos posted on miles driven basically says it all. Being perfectly accurate, the change in the rate of contraction is not as great as in the late 70s, but the absolute rate of contraction is the greatest its been in the entire span on time shown on that graph...This is a pretty powerful statement and let's bear in mind that it continues to contract well after prices have plummeted.

Remember, less energy: less prosperity, harder life. It all fits in!

Now see the latest Oil Watch:

It seems that we could be starting the decline in non-OPEC crude oil production. That's not good. And when you look at the rather large recent increases in OPEC crude production, it's clear that the majority of it went to offset the declines in non-OPEC, despite record high prices at the time.


kemosavvy's picture
Status: Martenson Brigade Member (Offline)
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Posts: 254
Re: Daily Digest - Jan 23

could someone please explain to me the Regional banks registering for TARP warrants story to me?

i can't figure out just exactly how this program works,



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Posts: 3998
Financial Coup d’Etat & Your 401(k)

Financial Coup d’Etat & Your 401(k)

Financial Coup d’Etat & Your 401(k)

In 1997, I had approximately $500,000 of assets sitting in a 401(k)
at T. Rowe Price. The funds represented a portion of the money I saved
while working on Wall Street. After I left the Bush Administration, I used these funds, along with the proceeds of the sale of my house, to start a company called the Hamilton Securities Group.

It was not long before Hamilton Securities was successful and repaid my 401(k) the funds that had given it life.

A few years later, the federal loan sale program for which Hamilton
served as financial advisor was the target of a highly politicized
“investigation” by the federal government. A new Housing Secretary
was eager to assist the Federal Reserve and Treasury in engineering a
housing bubble: honest people had to go.

After a year of beating back false allegations, the government put
my 401(k) under audit. My company’s chief financial officer and I
looked at each other and said, “Uh-oh.” Somebody was trying to prevent
me from borrowing the money.


Sure enough, a few months later the U.S. Department of Housing and Urban Development (HUD)
created a pretext to withhold monies owed to Hamilton and demanded
several hundred thousand dollars of contract close-outs. Our bank
received anonymous tips which persuaded them to pull our credit line.
Our insurance company breached its obligation to fund our attorneys.
And (surprise, surprise) our auditors said that the audit meant I could
not arrange a loan from my 401(k) to Hamilton Securities. We were to
learn in time that the auditors were quite dirty in the affair.

Fearless by nature, I closed out my 401(k) without blinking an eye,
paid $225,000 in taxes and penalties, and loaned the remaining money to
Hamilton Securities for contract compliance and legal expenses. I hired
an excellent attorney on contingency and sued the federal government
for the monies owed.

And we eventually won.

The moral of the story was that if you stand in the way of the
largest housing bubble and pump and dump in history, it pays to have a
nest egg.


Farmer Brown's picture
Farmer Brown
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Posts: 1503
Re: Daily Digest - Jan 23


You should read this NYT's (which I usually don't find myself quoting) before you blame the Bush admin for a lack of regulation.  Note the publish date of 1999.  My take on this is that we wouldn't have needed "regulation" to begin with if an artifical money supply hadn't been created.  I love how the politicians want it both ways:  when they want to increase home ownership, they create rediculously cheap credit, funneled via pre-existing government-created institutions (FNMA and FRM), and force them to lend against accusations of discrimination.  When the bubble they created pops, they blame it on the private sector.  What else did they expect regional banks to do when a goverment created money supply guaranteed that their mortgage loans would be bought in days or weeks of funding other than LEND LEND LEND!  So no, we didn't need more regulation, we needed a real monetary system free of manipulation by the Fed.  Too late now.  Anyway, here's the article:


Fannie Mae Eases Credit To Aid Mortgage Lending

Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.


kemosavvy's picture
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Posts: 254
Re: Daily Digest - Jan 23

patrick, i;'ll agree with you that this is a systemic political failure by all parties involved.

back in september i listened to a podcast with arnold kling talking with russ roberts on econtalk. arnold kling was an economist with fannie mae or freddie mac, don't know which. he states that subprime lending did not start with fannie or freddie, it started with wall street banks that were looking for higher returns on plain vanilla mortgage bonds.

back in the early 1990's fannie and freddie discovered that using a newfound technology, fico scores, was pretty accurate at determinig default rates on subprime loans but they considered subprime lending an albatross of lore. the governemnt dictated they purchase a certain percentage becasue of their GSO role. fannie and freddie kept the minimum of subprime loans on the books during that time. the news of fico scores eventaully made it's to way to wall street and the big banks wrapped 'em up, sliced and diced, and sold the securities around the world.

just like in your article, congress and shareholders started leaning on fred and fan to pick up the pace, by the time fannie and freddie got into the game the gig was about up.


Farmer Brown's picture
Farmer Brown
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Posts: 1503
Re: Daily Digest - Jan 23



There is certainly much blame to go around, however I think you are not giving enough weight to FNM and FRM.  They alone are responsible for 50% (not a typo, I mean FIFTY) of all US mortgages.   They are an artifical creation - which by my definition is any service or product that would not have been created by usual (private) market forces.  A mortgage and real estate landscape propped up and created by such a high percentage of artificial lending can only be unrecognizable compared to what private markets would have led to on their own.

The other 800-lb gorilla was the rediculously cheap money available through much of the first half of the decade.  The Fed is responsible for this and this had as much to do with the drunken orgy of lending as everything else combined.

The banks and financial institutions did what they are supposed to do:  they lent money, made money for their shareholders, and they did so at a fantastic pace thanks to the cheap money made available by the Fed.  I don't care how much money they made or how much their executives got paid.  That's for their shareholders to decide.  However, those that screwed up should be allowed to go bankrupt and you and I shouldn't have to foot the bill.

Too big to fail?  I say they're too big to save, at least if it's going to be on my dime.

kemosavvy's picture
Status: Martenson Brigade Member (Offline)
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Posts: 254
Re: Daily Digest - Jan 23

patrick, we may be arguing the nuances of the same point, but i'll say it anyway, don't you think this disaster would've occurred during the 1950's, a time of a massive explosion of homeownership, if fannie and freddie were destined to fail? the reason they did not fail were because of 'conforming loans', ie. 20% down, 30 year fixed rates. no exotic mortgages and insane payment schedules. fannie and freddie couldn't accept anything but conforming until recently. that was a deregulation function by ?. (insert answer here, i think government)

fannie and freddie serve a unique purpose and are vital to the mortgage industry. obviously, the mistakes of the past decade are a good argument as to why they should fail, but regardless, an institution similiar to fan and fred would arise to take it's place. they buy up large illiquid assets off of banks balance sheets so they can continue to lend. you can make a point here about how the fractional reserve banking system is flawed, and i would agree, but this is the system we have. if banks couldn't liquidate those mortgages than they would be less apt to lend to homeowners. therefore home ownership would mostly be for the wealthy.

now, it goes without saying that there are many flaws in the quasi-public fannie and freddie catasrophe, such as moral hazard,  but the most troubling is the government influence on fnm and frm to enact policy.... that was the single worst flaw as it turns out..... hmmm, isn't that exactly whats going on in our banking industry, quasi-public banks and the ability of dodd and barney frank to enact policy through the banks. i think we once again are steering INTO disaster.



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