Week of June 30, 2008

Thursday, July 3, 2008, 2:42 PM


July 3

Small Banks' Reckoning Day Is Coming (July 2 -WSJ)

Wall Street is bracing for regional and small banks
to fess up to large losses from their mounting volume of soured
construction loans made primarily to home builders.

to the Federal Deposit Insurance Corp., $45.4 billion of the $631.8
billion in construction loans outstanding at the end of the first
quarter were delinquent. When banks announce second-quarter results in
coming weeks, they are expected to report sharp increases in loans that
builders can't repay. Banks are also facing intensifying pressure from
federal and state regulators to deal with the problem loans on their

That will put additional pressure on an already
stressed financial system. Banks have begun to dump bad construction
and land loans at discounts, curtail new lending and halt construction
projects that are under way to preserve capital. Some analysts even see
a wave of bank failures as a possibility.

Lacking Structure

This is one of the next shoes to drop….commercial loan failures.

This is the
thing that concerns me the most about local and regional (read:
smaller) banks, as they are the ones that are going to take the biggest
hit on these loans. And look at that chart of delinquencies!

If your bank has heavy exposure to condo or single family construction loans, there could be trouble brewing.

How Lehman lost its way (July 3 – Fortune)

The venerable Wall Street firm once looked like it
would escape the worst of the credit crisis. Now there's talk of a Bear
Stearns-like collapse - or a sale.

[A] significant part of
Lehman's problem doesn't stem from Fuld's management - it's because the
firm suffered collateral damage from Washington's decision a decade ago
to repeal the Glass-Steagall Act, adopted during the Great Depression
to separate investment banking from commercial banking.

Glass-Steagall disappeared, one of the attractions of owning a piece of
an investment bank was that it was asset-lite. The major asset - the
firm's people - went home at night. The financial assets were generally
liquid (which means easily sellable at the market price). And because
they weren't burdened with multibillion-dollar investments in real
estate or corporations, investment banks had staying power and could
wait for bad markets to recover.

"Of course, the minute
Glass-Steagall was repealed, the commercial banks began using their
balance sheets to compete, offering loans if they also got to do equity
offerings as well as arranging public debt financials for
transactions," says Andersen. At the end of 2003, Lehman had $11.9
billion of tangible capital and $308.5 billion of assets on its balance
sheet. The ratio: just under 26 to 1. As of the first quarter of this
year, it showed $786 billion of assets and less than $18 billion of
capital. Ratio: around 44 to 1, leaving relatively little cushion to
absorb losses.

This is a very nice article detailing exactly how bad of a pickle Lehman is in (pretty bad) and detailing the reasons why.

The part I chose
to highlight concerns the repeal of the Glass-Steagall Act, which was
put in place to prevent the exact trouble we are now in.

The repeal was
accomplished by the passage of the Gramm-Leach-Bliley Financial
Services Modernization Act, which should have been named the Corrupt
Senator Financial Throwback Act.

In fact, our
country would do well to repeal every single law that was either
proposed by or favorably voted for by Phil Gramm. What a piece of work
that guy was!

A cursory glance at the campaign donations of these Senators reveals how this banking-friendly Act got passed.

At any rate,
this law allowed commercial and investment banks to merge their
operating styles, with entirely predictable results.

The untold
billions in profits that resulted between 2000 and 2008 are the banks'
to keep, but their losses are now being peddled as yours to pay.

Muni Market `Fire in the Disco' Burns Hospitals, Schools, Towns (July 3 – Bloomberg)

MBIA Inc. and Ambac Financial Group Inc. lost their
AAA credit ratings. The biggest hospital in Sarasota, Florida, is
paying the price.

David Verinder, chief financial officer of
the Sarasota Memorial Health Care System, received daily e-mail
messages last month informing him that interest costs on an $83 million
bond issue were rising to 1.45 percent, to 1.75 percent, to 3.25
percent, to 5.9 percent, and finally to 9 percent by June 24, a more
than fivefold increase.

Losses suffered by bond insurers on
securities tied to U.S. home loans have cascaded through financial
markets to hurt local governments whose budgets are already being
squeezed by the slowest pace of economic growth in five years.

Here is another consequence of the Corrupt Senator Financial Throwback Act.

There is a major
funding crisis going on at every level - society, state, municipal,
personal, and corporate - and this will certainly impact the economy.

Things that can’t be funded tend not to get done.

U.S. Loses 62,000 Jobs, Jobless Rate Holds at 5.5% (July 3 – Bloomberg)

U.S. employers cut jobs in June for a sixth
consecutive month as soaring fuel prices and a slowing economy forced
companies to reduce costs.

Payrolls fell by 62,000, close to
economists' median forecast, after a 62,000 drop in May that was
greater than initially reported, the Labor Department said today in
Washington. The jobless rate remained at 5.5 percent after jumping in
May by the most in two decades.

As usual,
this jobs report is only useful to those seeking to make a political
point or to score a few cheap gains in the stock market.

The data is suspiciously off-base when compared with all other data.

As always, the
trick lies with the way the government (the BLS department,
specifically) collects, models, and reports the data.

Once again,
something known as the “birth-death model” has added tens of thousands
of jobs that, in all likelihood, do not exist and will quietly be
removed from the report at a later, less sensitive date.

Here’s the data:

This is so far off base, it’s kind of funny. 29,400 new jobs created in construction?

If I were
building this model, I would use construction spending or housing
starts as my input variable, but I suspect they are using something
else like “29,400,” because there’s no possible way that construction
jobs are being created at that pace right now.

Ditto for
“Leisure & Hospitality,” which allegedly added 86,000 jobs even as
restaurant chains are shedding locations and workers at a pretty good

As always, I
don’t want to belabor the point, because I am sure you already
understand that we are regularly fed economic numbers that are more
closely aligned with political desires than actual reality.

Without these
177,800 “modeled” jobs, the reported job losses would have been closer
to -230,000 which paints a very different picture than -62,000, no?

ECB hikes key rate to 4.25% (July 3 – MarketWatch LONDON)

The European Central Bank on Thursday made good on
a threat to hike its key interest rate for the first time in 13 months
in a bid to tamp down inflation expectations.

announced it had boosted its key lending rate by 25 basis points, or a
quarter of a percentage point, to 4.25%. Attention turns now to ECB
President Jean-Claude Trichet's monthly news conference at 8:30 a.m.

"While there appears to be a wide range of views
between the ECB governing council members, the majority of recent
comments have noted that the expected rise today does not necessarily
indicate the start of a series of hikes," said economists at Bank of

I love a good policy dispute.

Even as the US
keeps its key inflation rate pegged several points below inflation,
Europe is busy trying to actually combat inflation in both word and

Symbolic though
it may be (0.25% is not much), this is the first time in a long time
that the two most powerful central banks have departed in such a
significant manner. It is these sorts of disputes that can serve to
speed up a necessary readjustment of imbalances.

This is a fancy way of saying that if this keeps up, the dollar could be toast.


July 2

Gas hits another all-time high (July 1 – CNNMoney NEW YORK)

Retail gas prices have risen to a new record high
while diesel prices have held steady, according to a daily survey by
AAA Tuesday.

The national average price for a gallon of
regular gas rose overnight to an all-time high of $4.087, topping the
previous record high of $4.086 set Monday.

Gas prices are now 2.8% higher than they were last month and 38% higher than year-ago levels.

Oil is
setting new records even as I type this (at $143.65), meaning that
gasoline prices are almost certain to climb higher from here. Not to
mention heating oil, as well as anything else tied to or made from oil.
Which is pretty much everything, when you think about it.

Interestingly, a
gallon of gasoline costs the same amount in silver coin as it did back
in 1964 (the last year of silver coinage in America). It is my view
that your best bet to avoid the ravages of inflation is to trade your
rapidly depreciating paper dollars for hard goods. Silver and gold come
to mind. So does food and fuel.

Ford vehicle sales plunge 28% in June (July 1 – MarketWatch)

Ford, Lincoln and Mercury car sales fell 12.1% to
65,109 as Ford was unable to make enough smaller cars to meet rising
demand for more fuel-efficient vehicles. The Focus sedan, for instance,
posted a 53% surge in retail sales in the first half of the year.

sales fell 35.6% to 101,981, with the flagship F-Series, the one-time
industry sales leader, posting a 40.5% decline amid record-high gas
costs and the persistent housing slump. Smaller passenger cars from
Toyota and Honda now own the top spots.

Ford sales
confirm just how rapidly the real economy is crumbling even as Bush
administration officials try to paint a happier picture. 28% is a
pretty big decline.

Deepening Cycle of Job Loss Seen Lasting Into ’09 (July 2 – NYT)

As automakers dropped their latest batch of awful
sales numbers on the market on Tuesday, reinforcing the gloom spreading
across the economy, the troubles confronting American workers seemed to

Joblessness has accelerated, and employers have
slashed working hours even for those on their payrolls, shrinking the
size of paychecks just as workers need them the most.

"It’s a
slow-motion recession," said Ethan Harris, chief United States
economist for Lehman Brothers. Mr. Harris expects tepid economic growth
and a shrinking labor market to persist through the fall of 2009.

The only
wonder to me is how the BEA manages to keep a straight face while
claiming that our economy is still growing, even if only nominally. I
mean, both housing and autos are in deep, deep recessionary territory.
Those are two very large components of our economy, so I wonder, what
exactly is it that’s growing so much right now to offset those

Beats me, but
Mr. Harris (above) guesses that job losses will accelerate to the
downside and not recover until 2009. I think he’s being optimistic,
because I view the chances of digging out from the bursting of the
largest credit bubble in all of history in only one more year as rather

At any rate,
tomorrow we will be treated to another jobs report by the BLS, which
should be good for some humor. In the last two reports they claimed
that construction jobs were actually expanding in each of those months.

Saudi Oil Project Brings Skepticism to the Surface (July 1 – NYT)

Khurais, about 90 miles east of Riyadh, the Saudi
capital, is one of the planet’s last giant oil fields. The Saudis say
that it holds 27 billion barrels of oil — more oil than all the proven
reserves of the United States — and that it will significantly bolster
the kingdom’s production capacity once it starts pumping a year from
now, easing global need.

Some oil traders and analysts doubt
that. Their pessimistic forecasts of dwindling oil supplies have helped
propel the current increase in prices, which pushed past $140 a barrel
last week and seem to be heading higher. To help counter the skeptics,
the Saudis flew a contingent of journalists from Jidda, on the Red Sea
coast, to Khurais last week. The tour was largely a scripted one, with
little opportunity to wander the grounds or verify official claims.

I am
skeptical for two reasons. First, because I wonder why the Saudis would
bring in 20,000 workers to rapidly develop the Khurais field if the
Ghawar field is not already in decline, as they’ve consistently

And second, I
find it quite odd that they would be moving straight to sea water
injection on this project – normally such a move signals an ageing
field. Again, this would not seem to be consistent with the actions of
a country that claims to already have massive reserves under

Instead, this
signals to me that there is likely already trouble at their other
fields, raising the prospect that Saudi Arabia is at or past peak on
its existing fields. If this is true, then the Khurais field will
represent not an incremental addition of 1.2 million barrels of new oil
to the market in 2009, but some number smaller than that, to account
for the lost production in their existing fields.

Got oil? Consumer delinquencies up in first quarter (July 2 – MarketWatch WASHINGTON)

Delinquency rates for home-equity lines of credit
and bank cards rose during the first quarter, the American Bankers
Association reported Wednesday, citing ongoing stress in the nation's
housing market as well as general economic weakness.

Just another
sign of consumer stress. As if we needed another one. The interesting
bit here is that such things as mortgage defaults and loan
delinquencies have, in the past,
almost always been
lagging indicators. That is, we’d see them at the tail end of a
recession, not at the front end. Right now we are not even officially
in recession (which I contest vigorously), so these sorts of signs of
trouble seem out of place.

If it’s true
that we are seeing formerly lagging indicators at the front end of a
recession, it means that this recession is going to behave very
differently from past recessions.

Non-Agency REO Volume Jumps 441 Percent (July 1 – Housing Wire)

It looks like investors and rating agencies alike are discovering REO, finally.

growth of U.S. real estate-owned [REO] property volumes and the costs
needed to maintain these assets are hindering recoveries and may
increase loss severities upon liquidation, presenting a lofty task
ahead for RMBS servicers, according to Fitch Ratings in a new report
released Tuesday morning.

By the end of last year, REO volumes
for non-agency RMBS were up 441 percent over year-end 2005 levels, the
rating agency said in a press statement. Such a rapid rise in inventory
is leading to escalating loss severities, especially on subprime
assets, which jumped to more than 54 percent for the 12-month period
ended May 2008.

I’ve been
commenting on the “Real Estate-Owned” (REO) property issue for some
time mainly as a means of pointing out that the official housing sales
numbers are heavily skewed by REO activity.
In my mind there are
organic sales (from one private seller to one willing buyer) and forced
sales (foreclosures and repossessions), and keeping these two separate
only makes sense. For some reason (wink, wink), the real estate
industry insists on reporting existing house sales numbers with both
REO and organic sales all mixed together.

Mortgage ruling could shock U.S. banking industry (June 30 – Reuters LOS ANGELES)

A lawsuit filed by a Wisconsin couple against their
mortgage lender could have major implications for banks should a U.S.
appeals court agree that borrowers can cancel their loans en masse when
their lenders violate a federal lending disclosure law. The judge
transformed the case from a run-of-the-mill class action to a potential
nightmare for the U.S. banking industry by also finding that the
borrowers could force the bank to cancel, or rescind, their loans. That
decision was stayed pending an appeal to the 7th U.S. Circuit Court of
Appeals, which is expected to rule any day.

The case began
like hundreds of others filed since the U.S. housing boom spawned a
rise in sales of adjustable rate loans. Susan and Bryan Andrews of
Cedarburg, Wisconsin, claimed that lender Chevy Chase Bank FSB
(CCX_pc.N: Quote, Profile, Research) had hidden the true terms of what
they believed was a good deal on a low-interest loan.

It’s not
entirely clear to me what the cancelling of tainted loans would
actually mean, but it sounds like a nightmare. One of the key shortages
we’ll be facing as things progress is legal and judicial bandwidth, and
this ruling is accompanied by the sound of thousands of briefcases
snapping shut. Normally the “right of rescission” refers to a three day
cooling off period after signing a mortgage, during which time a
consumer can terminate, or rescind, the loan without penalty. I’ll have
to assume that what it means here for loans that are already in effect
that the loans can be cancelled but that a new loan will have to be
secured to cover the balance. One guarantee, if this ruling stands, is
that the already heavily damaged mortgage pools that have gone sour for
Wall Street will take another turn for the worse.


July 1

Israeli Attack on Iran Likely, Pentagon Official Tells ABC News (July 1 – Bloomberg)

Israel is increasingly likely to attack Iran's
nuclear facilities this year, ABC News reported, citing an unidentified
Pentagon official.

Okay, this is an unnamed official, but still it is ratcheting up the tension at the worst possible time.
Again, I have to wonder why?

Wait until you see the
destruction in the financial stocks over the past couple of
days…something is very close to breaking in the US financial markets,
and all our government/press can manage to do is crank up the tension
on Iran? I mean, seriously.

Crude Oil Rises on Concern Israel Attack Will Cut Iran Supply (July 1 – Bloomberg)

Oil rose, extending this year's 48 percent gain,
after ABC News reported Israel is increasingly likely to attack Iran
this year, starting a conflict that would threaten supplies from the
Middle East.

The U.S. won't allow Iran to shut the Strait of
Hormuz, through which about 40 percent of Middle East oil is shipped, a
spokesman for the Fifth Fleet said yesterday. Among the Organization of
Petroleum Exporting Countries only Saudi Arabia produces more than Iran.

I’m glad the US
has such confidence in its ability to enforce our military will on a
small stretch of water, easily reachable by missiles from Iran’s

I am less
sanguine, having observed back in the early 1980s that relatively cheap
French Exocet missiles pretty much ruined Britain’s modern navy during
the Falklands conflict.

As always,
offense is much, much cheaper than defense, and it would seem that
modern missiles are more than a match for modern navies.

U.K. House Prices Drop Most Since 1992, Manufacturing Contracts (July 1 – Bloomberg)

U.K. house prices fell by the most since 1992 and
manufacturing unexpectedly contracted in June as banks starved the
economy of loans and commodity prices soared, bringing the nation
closer to a recession.

The price of an average home declined
6.3 percent from a year earlier to 172,415 pounds ($343,278), the
biggest drop since November 1992, Nationwide Building Society,
Britain's fourth- biggest mortgage lender, said today. An index of
manufacturing fell to 45.8, the least since 2001, according to the
Chartered Institute of Purchasing and Supply.

Yes, this problem is global. I harp on the US plenty, but our friends over in the UK are facing the same struggles.

Actually, I’d be a bit more worried, because the UK energy situation is slightly more precarious than our own.

This could be a difficult winter.

Detroit car sales set to be ‘worst since 1990s’ (June 30 – FT)

June car sales data, due out on Tuesday, are
expected to show the US auto market heading for its worst year in more
than a decade.

The figures could also mark a milestone for
Detroit’s struggling producers if they show Toyota outselling General
Motors in its home market for the first time, although sales incentives
recently introduced by GM could yet keep it ahead of its rival. GM’s
shares on Monday hit their lowest level in half a century as investors
sold them ahead of Tuesday’s sales results.

GM is in deep trouble, and so is Ford.

While they are
desperately dropping gas-guzzling product lines, they need lots of
money to bring new products to market. Their timing could not possibly
be worse.

The sad part is that this crisis was pretty much obvious many years ago and only now are they taking it seriously.

Why do CEOs earn 400x more than the lowest workers?

Beats me, but it isn’t because of vision and leadership.

And now for some breaking news that isn’t covered in any article I can find.

Even as the
stock market wallows around somewhat weakly, what I can only term as
enormous destruction has been occurring in the financial stocks.

As I wrote nearly two weeks ago, the place to keep your attention tightly focused is in this area.

Here are a few
select stocks that I want you to take a look at. These are all
signaling that there’s something quite broken out there in the world of

You need to take
very seriously the prospect that one or more bank failures could happen
over this next weekend (that’s when they happen, read the article on
that posted yesterday).

JP Morgan – the biggest of them all breaks its March lows.


If you’ve got money in IndyMac, get it out now.

This stock is b.r.o.k.e.n.

The CEO came out yesterday and denied that they were facing insolvency.

That’s the scariest thing you can ever hear – an official denial.


Bank of America is another giant.

Crushed to new lows.

If this bank fails, you can pretty much count on a nationwide “banking holiday”.


Firstfed Financial a primarily California based savings-and-loan. If you have money there, get it out.


GM – This company is broken and this stock says as much.

I pity the people holding GM bonds and money market accounts.

Yes, for some
reason there is such a thing as a GM money market account, and unless
you read the prospectus for this fund extremely carefully, you might
not know that it is stuffed with GM paper.

Bad paper, obviously.



June 30

Falling Prices Grip Major Stock Markets Around the World (June 30 – NYT)

As the United States markets edge toward bear
territory, losing nearly 20 percent of their value from last fall’s
peak, investors might wonder where they can turn for relief. The gloomy
answer: nowhere.

Many of the major markets in Europe and
around the world have already entered a bear market. Germany and France
are among the markets suffering the most, and once high-flying emerging
markets in countries like China and India have collapsed even more

Higher inflation, exploding energy costs,
troubled credit markets and worries about an inflationary psychology,
it turns out, are global concerns. And fixing these problems — and
bringing optimism back to stock markets worldwide — is proving to be
difficult for central bankers, who are trying to contain inflation
without risking even slower growth.

The credit
bubble, while born in the US, was exported to the rest of the world,
which explains two things. First, it explains why the Federal Reserve
policies were so aggressively supported by foreign central banks.
Believe it or not, the dollar received heavy support over the past few
years, and the reason was that other central banks wanted to keep the
miracle of cheap-money-fueled growth alive in their home countries.

Second, it
explains why foreign stocks are not going to be the safe havens of
diversification that a lot people have assumed they will be. If we were
simply facing a US-only-based credit market adjustment, I could make a
case for ‘decoupling’ and relative outsized performance of foreign
equity markets. But the housing bubble was even more extreme in many
Eurozone countries than it was in the US, and I expect the
corresponding economic pain to be deeper as a result.

Most western
countries now face a period of adjustment as payment for the most
magnificent string of central banking policy failures of all time. The
US bought more than it could afford, and foreign central banks turned
around and loaned that money back to us, thereby keeping interest rates
low so the US could keep on spending beyond its means.

I call this
a policy blunder, because, although it was fun at the time, any sane
person could have realized that it had to end at some point in the
future, yet there was no plan for what to do when this day finally
arrived. It was as if everybody agreed, out of convenience, to act as
if we could all spend beyond our means forever.

Preparing the Battlefield (July 7 – The New Yorker)

Late last year, Congress agreed to a request from
President Bush to fund a major escalation of covert operations against
Iran, according to current and former military, intelligence, and
congressional sources. These operations, for which the President sought
up to four hundred million dollars, were described in a Presidential
Finding signed by Bush, and are designed to destabilize the country’s
religious leadership. The covert activities involve support of the
minority Ahwazi Arab and Baluchi groups and other dissident
organizations. They also include gathering intelligence about Iran’s
suspected nuclear-weapons program.

Clandestine operations
against Iran are not new. United States Special Operations Forces have
been conducting cross-border operations from southern Iraq, with
Presidential authorization, since last year.

This is another must-read article by Seymour Hersh.

It would seem
that the US government, not just the Bush crowd, mind you, has been
committing acts of war against Iran and preparing as if a wider
conflict were both unavoidable and desirable. Such an attack would be
folly of the highest order and would personally cause me to ramp up my
personal preparations for much harder life here in the US marked by
fuel shortages, a more rapid deterioration of our economy, and a
heightened possibility of a major systemic banking crisis. I strongly
recommend that you read this article. For an example of “what could go
wrong” if the US or Israel attacked Iran, read the next article.

Iran ready to strike at Israel’s nuclear heart (June 29 –

Iran has moved ballistic missiles into launch
positions, with Israel’s Dimona nuclear plant among the possible
targets, defence sources said last week.

The movement of
Shahab-3B missiles, which have an estimated range of more than 1,250
miles, followed a large-scale exercise earlier this month in which the
Israeli air force flew en masse over the Mediterranean in an apparent
rehearsal for a threatened attack on Iran’s nuclear installations.
Israel believes Iran’s nuclear programme is aimed at acquiring nuclear

The sources said Iran was preparing to retaliate for
any onslaught by firing missiles at Dimona, where Israel’s own nuclear
weapons are believed to be made.

Here Iran
has claimed that if Israel attacks its treaty-approved civilian nuclear
program, it stands ready to retaliate by bombing Israel’s not-so-secret
nuclear bomb-making facility. Something just doesn’t add up here…

At any rate,
this is just one example of the way in which attacking Iran could go
wrong from the outset. It’s important to remember that Iran is a nation
of 66 million people whose military was largely trained at US
facilities, and it has not been seriously degraded by 15 years of
punishing trade sanctions, as was Iraq’s. However, the most serious
consequence of attacking Iran concerns the flow of fully 25% of the
world’s daily allotment of oil through the extremely narrow Strait of

Anatomy of a bank failure: When the liquidators come calling (June 8 – WSJ STAPLES, Minn.)

At 7 p.m. on Friday, Mayor Chris Etzler walked
through the back door of First Integrity Bank. The lobby should have
been closed for the weekend, but dozens of strangers in dark suits were
bustling about with laptops and file boxes. Someone had just delivered
32 pizzas.

Dan Walker, a top official with the Federal Deposit
Insurance Corp., a Washington, D.C., bank regulator, had summoned
Etzler to explain what was going on: The FDIC had just taken over First

"All the deposits are safe," Walker tried to reassure the mayor. "Nobody is going to have any problems."

isn’t easy for 75 federal officials and contractors to slip into a
small town undetected and liquidate an 89-year-old bank without anyone
knowing. But that’s what just happened in this old railroad town,
population 3,200. It’s a scene that’s likely to repeat itself across
the country as banks struggle through a painful credit cycle,
overwhelmed by troubled mortgages and soured construction loans.

This is a fascinating look into the mechanism of an actual FDIC takeover of a bank.

My take-away
from this is that each bank requires both a large force of regulators
and a willing buyer. As long as both of those things are present, then
an FDIC takeover can be a pretty smooth event for all concerned.
However, I seriously doubt that, in the event of hundreds of bank
failures, sufficient staff and/or willing (or able) bank buyers would
exist. At any rate, a great read.

Global economy faces deep slowdown and deflation threat, BIS warns (June 30 – Telegraph)

The global economy may be heading for a far deeper
crisis than is expected and a bout of deflation in the world's biggest
economies is now a possibility, according to one of the world's most
highly regarded economic institutions.

The Swiss institution - known as the central bankers' bank - issued the alert in its annual report, released today.

The report draws stark comparisons between the current crisis and a variety of others including the Great Depression.

said: "Historians would recall the long recession beginning in 1873,
the global downturn that began in the late 1920s, and the Japanese and
Asian crises of the early and late 1990s respectively."

each episode, a long period of strong credit growth coincided with an
increasingly euphoric upturn in both the real economy and financial
markets, followed by an unexpected crisis and extended downturn.

virtually every instance, some form of new economic discovery or new
financial development provided a further 'new era' justification for
rapid credit expansion, and predictably became a focus for blame in the

I happen to
agree wholeheartedly with the assessment of the BIS, and I am pleased
(if that’s the right word) that the correct analysis is finally
beginning to emerge on the main stage. In particular, I appreciate the
observation that our current crisis is only unique in its depth and
breadth, but otherwise has many historical parallels. Once again,
humans have fallen for the oldest trick in the book; forgetting the
lessons of history in pursuit of ‘the free lunch.’

And once again,
we will discover that the apparent prosperity resulting from reckless
lending and borrowing is an illusion. Your task is to protect yourself
and your assets from the inevitable consequences of this bursting
bubble. The very first task is to give up the belief that we current
humans are somehow smarter and more clever than past humans, and that
because of this we’ll somehow manage to skate by this crisis without
experiencing any real economic pain. Trust me, the current crop of
politicians and Federal Reserve bureaucrats are very, very ordinary.

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