Financial Crisis - 2010-2012

[American Patriot]

The new thread begins here.

I have locked the "Finacial Crisis - 2008-2010" thread. It can be found here:

http://www.transasianaxis.com/vb/showthread.php?t=5220

[American Patriot]

I just wanted to mention... I just got off the phone with my financial adviser.

Like me, she says "There's a 'bubble' coming with gold. Be very, very careful."

[vector7]

National Debt Up $3 Trillion on Obama's Watch

Posted by Mark Knoller 123 comments

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(Credit: CBS/iStockPhoto)

New numbers posted today on the Treasury Department website show the National Debt has increased by more than $3 trillion since President Obama took office.

The National Debt stood at $10.626 trillion the day Mr. Obama was inaugurated. The Bureau of Public Debt reported today that the National Debt had hit an all time high of $13.665 trillion.

The Debt increased $4.9 trillion during President Bush's two terms. The Administration has projected the National Debt will soar in Mr. Obama's fourth year in office to nearly $16.5-trillion in 2012. That's more than 100 percent of the value of the nation's economy and $5.9-trillion above what it was his first day on the job.

Mr. Obama frequently lays blame for soaring federal deficits on his predecessor.

"By the time I got into office we already had a $1.3 trillion deficit and we had exploded the national debt," he said last month during one of his backyard chats with Americans.

Just last Friday, the Treasury Department portrayed it as good news when it reported that the federal deficit in the fiscal year that ended September 30th was $1.294 trillion. That's less than the $1.416 trillion deficit accrued in 2009 - the largest federal deficit ever recorded. It was also less than the $1.556 trillion that had been initially projected for 2010.

The soaring deficit and Debt is one of the reasons Mr. Obama is adamantly opposed to extending tax cuts for Americans earning over $250,000 a year.

Critical Contests: CBS News Election 2010 Race Ratings



See all Ratings for Senate, House and Governors in an Interactive Map (Updated Oct. 18)

The ten year cost would total $700-billion and Mr. Obama says it would needlessly add to the deficit and Debt. "And then we've got to pay interest to China or whoever else is willing to buy our debt," he repeatedly argued in recent weeks.

President Obama and Congress await recommendations on ways to reduce federal deficits from the National Commission on Fiscal Responsibility and Reform.

The 18-member panel will report December 1st - after the midterm election.

The Commission, chaired by Democrat Erskine Bowles and Republican Alan Simpson, was established by Mr. Obama to provide recommendations on how to "put the budget into primary balance, meaning that the federal government will pay for all of its programmatic obligations."

The federal budget was last in balance from 1998 to 2001.

[vector7]

Ok Obama, Make Good On Your Promise

This is what he said:

The White House warned banks Tuesday it would pursue them for any mortgage practices that violated the law, piling pressure on the financial sector after two institutions lifted their freezes on home foreclosures.

Ok, here's 102,000 felonies.

The nation's largest bank, which was the only mortgage lender to temporarily stop foreclosures in all 50 states while it investigates problems, will begin refiling paperwork in those 102,000 cases that require a judge's approval next Monday. About 30,000 foreclosures will remain on hold in the 27 states where a judge's approval isn't necessary.

Proof of 102,000 Felonies by Bank of America in one day; Holder does nothing


That's an admission that 102,000 cases had falsely-sworn documents submitted to courts.
Perjury is a felony:

Whoever—

(1) having taken an oath before a competent tribunal, officer, or person, in any case in which a law of the United States authorizes an oath to be administered, that he will testify, declare, depose, or certify truly, or that any written testimony, declaration, deposition, or certificate by him subscribed, is true, willfully and contrary to such oath states or subscribes any material matter which he does not believe to be true; or

(2) in any declaration, certificate, verification, or statement under penalty of perjury as permitted under section 1746 of title 28, United States Code, willfully subscribes as true any material matter which he does not believe to be true;

is guilty of perjury and shall, except as otherwise expressly provided by law, be fined under this title or imprisoned not more than five years, or both. This section is applicable whether the statement or subscription is made within or without the United States.

Are you lying Mr. President?


Because if you are not, I fully expect that within the next 24 hours Eric Holder will issue a 102,000-count indictment.

If he doesn't, and you and I both know he won't, you will once again be shown to be a bald-faced LIAR.

[American Patriot]

So... Let me ask this... just out of curiousity.

You're about to default on your loan because the interest rate went up and you didnt KNOW it was going to. But the bank says "Ok, you can live in the house while we work this out"

Are you going to COMPLAIN????

Hell no, you're going to live in the house and if possible a real person, one with honesty in their heart will try to pay what they can, when they can.

Some will try to get away with not paying.

Others will pay.

You still gonna kick them all to the curb if you're the bank???

[vector7]

The U.S. Public Is About To Revolt

Gregory White | Oct. 20, 2010, 12:16 PM | 4,453 | 66

Albert Edwards of Societe Generale thinks U.S. citizens are on the brink of a political revolt, based on a declining standard of living brought on by an inefficient economic relationship with China.

Here's why, according to Edwards:

This would happen in any nation where a vision of prosperity has been shown to be a Ponzi sham, engineered by the authorities to help disguise the fact that the rich have been getting a whole lot richer.

What Edwards sees is the depressed state of the U.S. citizen getting worse. He sees unemployment rising and another recession near.
From Albert Edwards:

The latest US poverty data is staggering. Some 42 million Americans were in receipt of food stamps in July, up some 18% yoy (see chart below). Make no mistake, the government isn't throwing money at people willy-nilly those in receipt of stamps are on the poverty line, currently defined as a 2 adult and 2 children household having a net income of $22,056 p.a. (£14,000, 16,000)

The staggering food stamp chart Edwards mentions:

Image: Societe Generale

So how are the two linked? China continues to amass more reserves and experience an advantageous exchange rate with the U.S. The country is "hooked on" an investment led economy, and is now only making small moves, like trying to grow consumer spending, to counter, according to Edwards.

China just isn't moving fast enough for the U.S. public.

Edwards is confident what is next for the U.S. is an even more inflamed populace that targets tariff actions against China in a spiraling upwards of the current currency war.
Click here for 15 cities with huge populations living on foodstamps >

[vector7]

Oct. 24, 2010
99 Weeks: When Unemployment Benefits Run Out

Scott Pelley Reports On The Growing Number of Americans Who Are Exhausting Their Benefits




Video Extra: Wiping Out Savings Long-term unemployment is wrecking years of saving and planning by people like Lisa and Doug Francone. They tell Scott Pelley they have had to tap into the 401(k) and their kids' college funds.


Video Extra: San Jose and the Recession San Jose Mayor Chuck Reed explains to Scott Pelley how not one but two recessions have hit his city, destroying thousands of jobs.


Scott Pelley, meeting people attending a workshop called "Job Connections."

(CBS) The economic jam we're in has topped even the Great Depression in one respect: never have we had a recession this deep with a recovery this flat. Unemployment has been at nine and a half percent or above for 14 months.

Congress did something that it has never done before - it extended unemployment benefits to 99 weeks. That cost more than $100 billion, a huge expense for a government in debt.

But now, for many Americans 99 weeks have passed and there's still no job in sight. Some have taken to calling themselves the "99ers."

"60 Minutes" and correspondent Scott Pelley went to several communities in search of the 99ers, but we didn't expect to find such a crisis in Silicon Valley, the high tech capital that many people hoped would be creating jobs.

Extra: Wiping Out Savings
Extra: San Jose and the Recession
Link: Job Connections
Link: Second Harvest Food Bank
Link: Martha's Soup Kitchen

If you want to understand why the economy is stalled, come to San Jose, Calif., and talk with 99ers like Marianne Rose. "I remember it coming close to like six months. I was saying, 'I can't believe I'm out of work this long.' Then the year mark hit. And I just started just panicking seriously. Now that it's over two years I can't believe it. I just, I can't believe it," she told Pelley.

Rose was a financial analyst at a real estate firm. Age 54, she's single with a grown daughter. After being laid off with about 100 co-workers, she spent her savings, lost her home and finally found herself sitting in a truck with her dog and all of her possessions.

She made a desperate call to a friend and found refuge upstairs in the home of strangers, her friend's brother and sister-in-law.

"How long did you think you would be in here?" Pelley asked.

"Two weeks really. That's all I thought," she replied.

But she told Pelley it has been six month. "And not really an end in sight, yet."

"What sort of things would you be willing to do at this point?" Pelley asked.

"Well, I can say that probably the lowest level position for me has been now to apply for a clerk, a county clerk and I just realized the competition is pretty stiff out there," she replied.

Asked what she meant by stiff competition, Rose explained, "There's a lot of people, speaking of the county. I had applied to those clerk positions. There's actually four positions that were open. I found there were over 2,000 people that applied for those four positions."

Rose is one of at least a million and a half Americans who've exhausted their unemployment checks.

Now, Silicon Valley, the capital of American innovation has a new creation: revival meetings for the unemployed. On weekends, they come by the hundreds.

"60 Minutes" joined a gathering called "Job Connections," held inside a local church.

It's part how-to-find-a-job workshop, part networking opportunity with the feel of a 12-step program.

The people in the group are the faces of unemployment in Silicon Valley, people in their 40s, 50s and 60s who thought they had done everything right: earned a degree, stayed with their company, saved for retirement.

"I'm curious. How many PhDs in this room?" Pelley asked. "One, two, three, four… several. Now leave your hands up. How many master's degrees? Oh boy. And how many of you went to college. Everybody keep your hands up if you have a college degree, a master's degree or a PhD."

Many in the room had their hands up.

"How many of you expected to retire from the company where you were working?" he then asked.

"More than half the room," he noted.

"How many of you have cashed out your 401ks? IRAs? Savings accounts?" Pelley asked.

Again, many hands went up.

A lot of them are too young to retire and, maybe, too old to rehire. The longer they're out, the tougher it gets.

Judy Thompson was marking the time before she loses her home. "Three months maybe, and I've been in that house since 1982. I don't want to move," she said.

Asked where she is going to go, Thompson told Pelley, "I don't know. I'm trying' not to think that far ahead. But anyway, didn't mean to get emotional. Sorry."

Sara Huber may lose her family business of 23 years. "Everything's gone and we can't survive 'cause these people can't survive," she explained.

"Because these people don't have jobs, they're not coming to your business?" Pelley asked.

"The equity lines are frozen, Right. People don't have credit. There's nothing there," she replied.

When asked how long her business can go on, Huber said, "We're going month to month, literally. I'm praying for more work."

Jim Wild has been applying for jobs two years. "I've gone through the tier one companies. I've gone through the tier two companies and now I'm down to Target. I just got a job offer from Target to work a part-time job at 9.50 or 9.25 an hour," he explained.

The Target job is floor sales; previously, Wild was a fiber optics engineering manager.

He's taking the job at Target and he's glad to get it.

These folks aren't that unusual: today, nearly 20 percent of the unemployed in America have college degrees.

Silicon Valley lost its jobs in construction, manufacturing and in high-tech engineering that went overseas. San Jose looks the same, but it shrank by 75,000 jobs. Many buildings there stand empty.

The national unemployment rate of about nine and a half percent sounds incredibly high and of course it is. But it doesn't nearly capture the depth of the trouble. It doesn't count the people who've seen their hours cut to part time. It doesn't count the people who have quit looking for work.

If you add all of that together, the unemployed and the underemployed, it's not nine and a half percent, it's 17 percent; and in California it's 22 percent.

And what makes it so much worse is that, nationwide, one third of the unemployed have been out of work more than a year. That hasn't happened since the Depression.

"60 Minutes" stopped by the soup kitchen in San Jose. Many folks used to think that they could see all the way to retirement. But now long-term unemployment is wrecking years of saving and planning by people like Lisa and Doug Francone.

Doug was a $200,000-a-year personnel executive.

"You must have thought that you'd get another job pretty quickly," Pelley remarked.

"Yeah. It really didn't cross my mind that I wouldn't find something. The question was trying to take the time to find the right job," he replied.

"You'd have a job in six months, a job that you liked in six months, and how long has it been?" Pelley asked Lisa Francone.

"Two years and three months," she replied.

They had saved for retirement and college for their son and daughter. But most of that is gone. "The unemployment checks were tiny, I can't remember what they were but…," Francone said.

"$475," his wife said.

"Lisa, what were you doing with $475 a week?" Pelley asked.

"Well, by the time we paid benefits, we had enough to pay a bill or two but certainly not meet the mortgage or property taxes or groceries," she replied.

Now their son is going to the military instead of college; selling the house will be next.

Doug Francone took matters into his own hands: he created jobs for him and his son, buying a franchise that cleans air ducts. He spent his 401(k) on this. But, there hasn't been enough business to make money.

"I don't wanna come off like 'Oh you know, woe is us.' There's other people struggling a lot worse than we are. But it's certainly very different for us," he told Pelley.

"You're surprised to be in this place?" Pelley asked.

"Oh, absolutely. Yeah. Shocked really," Francone replied.

Like the Francones, four and a half million Americans have taken hardship withdrawals from their 401(k)s. With savings gone, unemployment checks exhausted, many are coming to charities including the CALL Primrose Center, a pantry of free food.

Mary Watts has run CALL Primrose for 11 years.

"Before the Great Recession began, you were sending out how many bags of groceries in a year? Pelley asked.

"When I started in '99 it was 4,000 bags a year," she replied. "It's going to be 32, to 35,000 bags this year."

"You know these people coming into the pantry now, they must look like professionals," Pelley remarked.

"Oh absolutely, yes, absolutely professionals. Career professionals, people that never, ever would have thought they would be coming in our door other than perhaps as a donor," Watts said.

We met Claudia Bruce at the center. She was an office manager making $70,000 a year when she was laid off. Now her 99 weeks of unemployment checks are running out. She never imagined she'd need free food. But then, she never imagined she would be picking out trash to sell to the recycler.

"You do what you have to do. I'm not delighted, but I'm happy to have the money that it provides," she told Pelley.

"The day before you were laid off, what was your lifestyle?" Pelley asked.

"I was a shop-a-holic. Yeah. I was trying to reform myself, but there's nothing like losing your job for a long period of time to completely reform a shop-a-holic," she replied.

Her car has turned into a garbage truck, filled with recyclables.

She's learned a lot. Glass pays more than cans, and she has to be quick to beat the neighborhood homeless guy to the good stuff.

She estimated her haul would bring in $28; instead, she got $33.81.

"Personal record," she told Pelley.

"Did you ever think that $33 would mean so much?" he asked.

"No. But then, I never thought $5 would mean so much either," Bruce replied.

She has applied for hundreds of jobs, from office manager to clerical work. She's had four interviews in two years. She has kept a small apartment with help to pay the rent.

"I do get some help from my mom," Bruce said.

Her mother is 83.

"And so, she's helping you out even now," Pelley remarked.

"Yeah, I'm her baby still, you know," Bruce said.

"You didn't expect to be her baby at this point in your life?" Pelley asked.

"Absolutely not. I thought I'd be helping her now, that she wouldn't be helping me," she replied.

Her benefits will end when she hits 99 weeks soon. No one is expecting Congress to vote another extension of unemployment checks given our historic budget deficits.

As government benefits run out, a lot of people are depending on kindness to take their place.

Marianne Rose lived with her friend's brother for seven months, insisting on cooking and cleaning to earn her keep. In recent days she found a job in a public school. It'll pay about one third what she used to make. It's the best thing to happen in two years, but it's little and late.

"Do you imagine getting your lifestyle back?" Pelley asked.

"No," Rose replied. "Not to the same point now because now I would have to worry about, you know, my old age, in my old age you know its rebuild a nest egg, pay off my debts that I have. That has to happen so now, my lifestyle will not be the same ever, ever again."

[Ryan Ruck]

I DVR'd the 60 Minutes this showed on last night because I wanted to watch their segment on Top Gear ()and saw this. One disingenuous thing I noticed about this piece is that not once were the Democrats or Obama named as having a hand in this.

Now, one could argue that any reasonably smart person could correctly assign blame since they have been at the wheel for the last 2 years. I say, you have to remember the typical 60 Minutes audience member!

[Backstop]

Well, here comes a lot of opinion.

I saw a few minutes of that 60 Minutes piece, and some of those folks are stupid and deserve the wake up call.

Many people spend every dime they make, and don't plan for hardship.

Got off my high horse and deleted 3 paragraphs, as I'm sure you get my view from the above.

[American Patriot]

I feel bad for people who are out of jobs... through no fault of their own. I've been there. It's a bad, bad feeling to have someone fire you especially when they originally hired you because you have specific skills they require for their companies.

Then to suddenly "not need those skills" and BLAME IT ON YOU for not having skills you said you had (even though it wasn't true) is enough to make people reconsider their own personal worth.

On the other hand, when someone is fired for truly being a waste of air - that's another story. They should take that wake up call and get to school, get an apprenticeship or something to learn a trade. I guess if I had to start ALL over again, I could now, knowing the things I know.

I don't want to, and I want to get to the point of retirement with some money in the bank. I'm doing the latter, slowly but surely and without anyone's help.

Those who want a government hand out though are messing the system up, destroying the dreams of others in the process and living life day to day with no true future in mind.

[vector7]

One disingenuous thing I noticed about this piece is that not once were the Democrats or Obama named as having a hand in this.

Now, one could argue that any reasonably smart person could correctly assign blame since they have been at the wheel for the last 2 years. I say, you have to remember the typical 60 Minutes audience member!

The economy is much weaker now than it was 24 months ago.

Watch how the MSM still lays this financial debacle on the GOP even when they are powerless to stop the insane spending.

Over the past 24 months while the Left are in power the MSM has masked and buried the true outcomes of their socialist fiscal policies. They tell everyone the economy is rosy and we are in the midst of a recovery with games and bread.

If there is a Republican Revolution in the coming days the MSM will no soon longer be hiding the true state of the economy.

They'll be gearing up to open all salvo's on just how bad the economy is by blaming the GOP every step they take to try and overturn 24 months of their socialist agenda.


Obama promises 'hand to hand combat' if GOP wins

"The reason we won [in 2008] is because young people, African Americans, Latinos -- people who traditionally don't vote in high numbers -- voted in record numbers. We've got to have that same kind of turnout in this election," he said. "If we think that we can just vote one time, then we have a nice party at Obama's inauguration, and then we can kind of sit back and suddenly everything's going to change - that's just not how it works."

Should the GOP retake the House and Senate as a result of the November midterms, an article yesterday in the latimes.com quotes our president as saying "...we are going to have just hand-to-hand combat up here on Capitol Hill."

Watch Out America: Republicans Will Overturn Wall Street Reform And Let Foreclosures Run Wild

Barack Obama, The White House | Oct. 24, 2010, 6:15 PM | 1,506 |


Image: The White House

The following is the text of the President's weekly radio address.
Over the past two years, we’ve won a number of battles to defend the interests of the middle class. One of the most important victories we achieved was the passage of Wall Street Reform.

This was a bill designed to rein in the secret deals and reckless gambling that nearly brought down the financial system. It set new rules so that taxpayers would never again be on the hook for a bailout if a big financial company went under. And reform included the strongest consumer protections in history – to put an end to a lot of the hidden fees, deceptive mortgages, and other abusive practices used to tilt the tables against ordinary people in their financial dealings.

It was a tough fight. The special interests poured millions into a lobbying campaign to prevent us from reforming the system – a system that worked a lot better for them than for middle class families. Some in the financial industry were eager to protect a status quo that basically allowed them to play by their own rules. And these interests held common cause with Republican leaders in Washington who were looking to score a political victory in an election year.

But their efforts failed. And we succeeded in passing reform in the hopes of ensuring that we never again face a crisis like the one we’ve been through – a crisis that unleashed an economic downturn as deep as any since the Great Depression. Even today, we are still digging out of the damage it unleashed on the economy. Millions of people are still out of work. Millions of families are still hurting.

We’re also seeing the reverberations of this crisis with the rise in foreclosures. And recently, we’ve seen problems in foreclosure proceedings – mistakes that have led to disruptions in the housing markets. This is only one more piece of evidence as to why Wall Street Reform is so necessary. In fact, as part of reform, a new consumer watchdog is now standing up. It will have just one job: looking out for ordinary consumers in the financial system. And this watchdog will have the authority to guard against unfair practices in mortgage transactions and foreclosures.

Yet despite the importance of this law – and despite the terrible economic dislocation caused by the failures in our financial system under the old rules – top Republicans in Congress are now beating the drum to repeal all of these reforms and consumer protections. Recently, one of the Republican leaders in the Senate said that if Republicans take charge of Congress, repeal would be one of the first orders of business. And he joins the top Republican in the House who actually called for the law to be repealed even before it passed.

I think that would be a terrible mistake. Our economy depends on a financial system in which everyone competes on a level playing field, and everyone is held to the same rules – whether you’re a big bank, a small business owner, or a family looking to buy a house or open a credit card. And as we saw, without sound oversight and common-sense protections for consumers, the whole economy is put in jeopardy. That doesn’t serve Main Street. That doesn’t serve Wall Street. That doesn’t serve anyone. And that’s why I think it’s so important that we not take this country backward – that we don’t go back to the broken system we had before. We’ve got to keep moving forward.

Thanks.

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Sunday, October 24, 2010

The Government Pulls a Bernie Madoff on Social Security and Lays Out the Sad Truth


When Bernie Madoff realized he could no longer meet all the demands of his investors that wanted their money, he walked into the offices of the SEC and admitted as much.

The government has just pulled a Madoff. They have admitted that they don't have the money to pay everyone out they have promised to pay out via Social Security. Specifically, those under 30 are going to get really screwed.

Business Insider's Bruce Kasting explains how bad the situation is, but keep in mind that this is based on CBO projections, and there is no chance the CBO has run the truly negative scenarios, where the government can't pay its Treasury debt--which is mostly what the Social Security Trust fund holds. Factor that in and the odds drop for everyone that they are going to get paid in full :

CBO looked at all of the scenarios regarding Social Security. They ran a total of 500 simulations that reflect the different variables of the puzzle. The analysis assumed that there would be no changes in current law on SS. The objective of the exercise was to quantify the probabilities of which generation would most likely not get the benefits they were (A) paying for, (B) entitled to and (C) expecting.

The results of the CBO analysis is that there is societal/economic trouble in front of us on this issue. It should come as no surprise to readers that if you are young, you have a problem. The CBO report defines which generation(s) will be hurt and by how much. I found their conclusions to be very troubling.

If you were born in the 1940’s the probability that you will receive 100% of your scheduled benefits is nearly 100%. The people in this age group will die before SS is forced to make cuts in scheduled benefits.

If you were born in the Sixties things still do not look so bad. Depending on how long you will live the odds (76+%) are pretty good that you will get all of your scheduled benefits. However, if you were born in the Eighties you have a problem. The numbers fall off a cliff if you are between 30 and 40 years old today. In only 13% of the possible scenarios you will get what you are currently expecting from SS. If you were born after 1990 you simply have no statistical chance of getting what you are paying for. The full CBO report can be found here. This (hard to read) chart is from that report.

Posted by Robert Wenzel at 8:13 AM

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4.5 Year TIPS Auction Closes At -0.55%, First Ever Negative Yield

Submitted by Tyler Durden on 10/25/2010 12:09 -0500

• CPI

As we reported some time ago, the weird stuff in TIPS land continues, and was brought to the surface during today's 4 Year 6 Month TIPS auction, which closed at, drumroll, -0.55%. That's right, a yield of negative 0.55%. This compares to +0.55% in April. TIPS Investors better hope that the CPI eventually captures all the fun that is happening in the Rare Minerals space.



Your rating: None Average: 5 (13 votes)

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A European Lynch Mob Is Coming For Bank of
America

Oct. 25 2010 - 1:01 am | 5,504 views | 2 recommendations | 7 comments
By MATT SCHIFRIN

A European Lynch Mob Is Coming For Bank of America

Oct. 25 2010 - 1:01 am | 7,058 views | 2 recommendations | 8 comments
By MATT SCHIFRIN


The BAC mess may be too much for Moynihan.

I pity CEO Brian Moynihan and the 284,000 other employees of Bank of America Corp (BAC). That includes 15,000 Merrill Lynch brokers who are still recovering from the financial crisis and now have to explain to their clients why they work for a firm that is at the epicenter of America’s housing crisis.

Not only have they seen $80 billion in stock market value evaporate since April but they also have to suffer the humiliation of having a parent company bone-headed enough to pay $4 billion for Countrywide, the financial firm created by subprime mortgage pimp Angelo Mozilo. That mess could wind up costing BAC $50 billion, excluding legal fees and brand value deterioration. Remember Countrywide originated $1.4 trillion in mortgages from 2005 to 2007 alone.

The latest ugly news for Bank of America is actually coming from Europe, where big institutional money managers and other mortgage securities buyers are now beginning to organize for an assault. This information comes from John Mauldin’s, Thoughts from the Frontline Weekly Newsletter. His e-letter is a must-read for many money managers and serious investors.

This week he devotes a lot of his letter to testimony that seems to prove that big banks like Citigroup (C) and BAC were negligent and even willfully careless in underwriting subprime mortgages. He also reports on some new ominous developments brewing overseas and that law firm Quinn Emanuel Urquhart & Sullivan, which specializes in going after money center banks, has been hired by Fannie Mae and Freddie Mac parent, the FHFA. Below is an excerpt of his newsletter, if you want the full version, click here.

Mauldin: Investment banks large and small originated a lot of subprime garbage in the 2005-2007 era. This week PIMCO, Black Rock, Freddie Mac, the New York Fed, and – what I think is key and no one has picked up on – Neuberger Berman Europe, Ltd., an investment manager to a managed-account client, came together and sued Countrywide for not putting back bad mortgages to its parent, Bank of America. This is the first of what will be a series of suits aimed at getting control of the portfolio and peeking into the mortgages.

Basically, if buyers of 25% or more of a mortgage-backed security can come together, they have standing to sue the mortgage servicer to do its duty to the investors and make putbacks of bad mortgages, and if they fail to do so the plaintiffs can take control of the process and take the issuer to court directly (that’s a very simplistic description but roughly accurate).

There are two key take-aways. First, note that a European entity is involved. Hundreds of billions of dollars of this junk was sold to European banks and funds. And these guys get together at conferences (sometimes they even invite me to speak). So Helmut will be talking to Lars who will talk to Jean Pierre and they will realize they all own some of this junk. They will be watching with very real interest to see how the big boys at PIMCO and Black Rock and the New York Fed fare in their efforts. And then you can count on them all piling on (more later on this).

Second, little noticed this week was the fact that The Litigation Daily wrote that Philippe Selendy of Quinn Emanuel Urquhart & Sullivan has been retained by the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, to investigate billions of dollars in potential claims against banks and other issuers of mortgage-backed securities.
Who? Not on your celebrity list? Just wait. He will soon be getting the best tables everywhere. He and his firm are the guys representing MBIA in all their cases against Countrywide and Merrill Lynch. And they are kicking ass. Slowly to be sure, but very steady. That means Fannie and Freddie are getting ready to get serious.

They were sold well over $227 billion of the subprime garbage issued in 2006 and 2007. And the bad stuff started before then. But they have one advantage that the guys at PIMCO, et al. don’t have: they (or actually the FHFA) are a federal agency. That means they have subpoena power. The agency has sent 64 subpoenas to issuers of mortgage-backed securities, and although they have not said who they went to, they obviously include almost everyone and clearly all the big players. (They couldn’t have ignored Goldman, could they? Naah. Too obvious.)

From American Lawyer.com (I know, this website is probably already on your favorites list, but for those souls who actually have a life I provide the text):

“Through those subpoenas, the agency could gain access to the loan files for the mortgages that backed the securities it bought and thus establish whether the mortgages were what the issuers represented them to be in securities contracts. According to the Journal, the difficulty of obtaining loan files has been a big obstacle for investors trying to force issuers to repurchase bonds.

If it all plays out the way Mauldin is predicting, there is a lynch mob gathering and Bank of America and other big subprime pushers like Citigroup are firmly in their sights. It is no wonder John Paulson is apparently getting a bit nervous about BAC’s prospects [see article].

Since April, Bank of America has lost about $80 billion in stock market capitalization. Contrast this to the $67.5 million (not billion) punishment the SEC has arranged for former CEO Angelo Mozilo. It’s kind of a joke considering that Countrywide is paying for $20 million of the settlement and Bank of America (current owner of Countrywide) is paying Mozilo’s legal fees.

I asked Scott DeCarlo, chief statistician at Forbes, for the tally on Mozilo’s compensation from Countrywide alone. He figured that from 1999 through 2007 Mozilo took down more than $540 million in salary, bonus and stock options. Thus the SEC’s great settlement victory of $67.5 million won’t really affect Angelo day-to day. His fine is like a slap on the wrist. It won’t crimp the Mozolo family’s lifestyle for one minute while there are thousands of families devastated by this debacle. I think that super wealthy, rogue executives like Angelo should be forced to do mandatory jail time. A year or so inside of prison is a real punishment for a rich guy, and it is something they will never forget, or live down.

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Goldman says Fed faces $4 trillion hole

Posted by Colin Barr
October 25, 2010 6:42 am

Talk about shock and awe.

Economists at Goldman Sachs estimate the Federal Reserve may need to buy a staggering $4 trillion worth of assets such as Treasury securities to get the economy rolling again.


His burden is heavy

The Goldman economists, Jan Hatzius and Sven Jari Stehn, don't expect the Federal Reserve to go nearly that far when it resumes its asset-purchasing quantitative easing policy. Citing many officials' unease with the prospect of adding significantly to the Fed's already bloated balance sheet, Goldman expects the Fed to end up buying around $2 trillion worth of assets over the next few years.

But even the lower Goldman estimate at least doubles the size of the purchases most observers have been saying they expect the Fed to target when it unveils so-called QE2 at its meeting next week.

"The key strategic question is not the size of the first step, but how far Fed officials will ultimately need to move in order to achieve their dual mandate of low inflation and maximum sustainable employment," Hatzius and Stehn write.

Hatzius and Stehn say that with unemployment near 10% and inflation falling, there is no reason to believe the widely anticipated, modest second round of quantitative easing will pull the economy out of its funk.

Economists have been bandying about figures between $500 billion and $1 trillion, though some suspect the Fed will stop short of using numbers even that large and simply announce a plan to buy $80 billion to $100 billion worth of Treasurys till conditions improve.

The Fed has been complaining in recent weeks that inflation is falling too low, in a development that threatens to raise real borrowing costs for households and businesses, further slowing an already anemic recovery. Meanwhile, Fed chief Ben Bernanke said in a speech this month that joblessness "is clearly too high relative to estimates of its sustainable rate."

Those comments point to a building consensus at the Fed for another round of monetary stimulus in a bid to boost demand for goods and services. At the same time, commodity prices have surged over the past three months and interest rates have plunged, leading some observers to question whether the market has already priced in next week's announcement -- and raising fears that an all-in approach such as the one described in Goldman's $4 trillion scenario could lead to a destabilizing surge in goods prices.

But for now, the burning question is why all the stimulus the Fed has provided over the past few years has eased financial conditions without aiding the actual economy. The Goldman economists answer that while the Fed's current policy is "very easy," that's not nearly loose enough.
"Instead, policy should be massively easy to facilitate growth and job creation, fill in the output gap, and ultimately raise inflation to a mandate-consistent level," they say.

The Goldman economists acknowledge the risks the Fed faces in doing new asset purchases, such as rising friction with critics in Congress and fears that the massively expanded monetary base will make it impossible to avoid a large dose of inflation down the road.

But skeptics of the Fed's firepower, and by now there are many, say the bigger problem is that the benefits of QE will simply be siphoned off by unfair traders such as China. They say the answer to our economic morass thus must come from the White House and Congress rather than from the Federal Reserve.

"China's yuan policy and trade barriers make the Fed nearly irrelevant," writes University of Maryland business professor Peter Morici.

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Bernanke Asset Purchases Risk Unleashing 1970s Inflation Genie

October 26, 2010, 12:09 AM EDT More From Businessweek

By Craig Torres



Oct. 26 (Bloomberg) -- For the second time since he became chairman in 2006, Ben S. Bernanke is leading the Federal Reserve into uncharted monetary territory.

Bernanke next week is likely to preside over a decision to launch another round of large-scale asset purchases after deploying $1.7 trillion to pull the economy out of the financial crisis, comments from policy makers over the past week indicate. This time, with interest rates already near zero, the Fed will be aiming to increase the rate of inflation and reduce the cost of borrowing in real terms. The goal is to unlock consumer spending and jump-start an economy that’s growing too slowly to push unemployment lower.

Estimates for the ultimate size of the asset-purchase program range from $1 trillion at Bank of America-Merrill Lynch Global Research to $2 trillion at Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely start by announcing $500 billion after the Nov. 2-3 meeting. The danger is that once the Fed kindles price increases, inflation will be difficult to control.

“By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “The risk is a late 1970s type of scenario where the inflation genie gets out of the bottle.”

The U.S. Treasury Department yesterday sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Fed will be successful in sparking inflation. The securities drew a yield of negative 0.55 percent.

‘Unacceptable’ Inflation

William Dudley, president of the New York Fed and vice chairman of the Federal Open Market Committee, yesterday repeated that current levels of inflation and a 9.6 percent unemployment rate are “unacceptable” and said the Fed needs to take action, even though expanding the balance sheet isn’t a “perfect tool.”

“To the extent that we can do things to improve the economic environment, we certainly owe it to the millions of people who are unemployed to do so,” Dudley said in response to audience questions after a speech in Ithaca, New York. Policy makers haven’t yet decided whether to buy additional assets, he said.

A second jolt of monetary stimulus would expand the Fed’s $2.3 trillion balance sheet to a record and likely work through the exchange rate as well as interest rates, said former Fed governor Lyle Gramley. A weaker dollar would boost U.S. exports and push prices higher as the cost of imported goods rises.

Competitive Exports

“It is a channel that works not only from the standpoint of encouraging more growth and making exports more competitive, but if you’re worried about inflation getting too low, this tends to put a little upward pressure” on it, said Gramley, a senior adviser at Potomac Research Group in Washington.

An index of the dollar versus six major currencies is down 5.2 percent since Sept. 20, the day before Fed officials concluded their last meeting by saying inflation measures were “somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.” The Standard and Poor’s 500 Index is up 3.8 percent since then.

A 10 percent decline in the dollar in the first six months of next year would push the economy above estimates of trend growth, moving indicators on inflation and employment more rapidly toward the Fed’s policy goals, according to a simulation run by Macroeconomic Advisers LLC on their model of the U.S. economy.

Effect on GDP

Gross domestic product would rise 1.1 percentage points more than the St. Louis-based firm’s baseline forecast for next year, to 4.8 percent. In 2012, growth of 5.7 percent would exceed the baseline forecast by 1.3 percentage points.

Unemployment would fall to 7 percent by the end of 2012, 1.4 points lower than the firm’s baseline forecast. The consumer price index, minus food and energy, would rise 0.4 percent and 0.7 percent more each year.

A continuing rally in stocks could also provide an added lift to growth, the firm’s simulation showed.

The firm, co-founded by former Fed governor Laurence Meyer, predicts the Wilshire 5000 stock index will jump 14 percent next year and 16 percent in 2012. The index tracks the impact of rising asset prices on household net worth. An additional 10 percent gain in the stock index in the first half of 2011 boosts growth by 0.1 percentage point and 0.3 percentage point more than the firm’s baseline forecast.

‘Transmission Mechanism’

“The transmission mechanisms are risk assets and a lower dollar,” said Steven Einhorn, who helps manage $5 billion at hedge fund Omega Advisors Inc. in New York. “Exports will respond over the next six to 12 months, and a further lift in risk assets will have benefits in more consumer spending as it lifts households’ net worth.”

A weaker dollar won’t be welcomed by U.S. trading partners concerned about the danger of competitive devaluations as nations seek to boost exports and growth.

Bernanke received “criticism” at a meeting of Group of 20 central bankers and finance ministers in South Korea last weekend, said German Economy Minister Rainer Bruederle.

“It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle told reporters. “Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.”
$500 Billion

Economists Jan Hatzius at Goldman Sachs and Ethan Harris at Bank of America predict the Fed will spread an initial $500 billion in asset purchases over six months. That is the figure mentioned in the Oct. 1 speech by Dudley, who said $500 billion in purchases could have the same effect as cutting the benchmark federal funds rate by as much as a 0.75 percentage point.

The FOMC’s meeting next week could be contentious, with regional bank presidents such as Charles Plosser of Philadelphia and Richard Fisher of Dallas expressing concern in public remarks about a second round of asset purchases. Neither is a voting member of the FOMC this year.

Plosser told reporters Oct. 20 that high unemployment may not be “amenable to monetary-policy solutions” and added that he was “less inclined to want to follow a policy that is highly concentrated on raising inflation and raising inflation expectations.”

Fisher said central bank officials must be mindful of the effect their actions are having on the dollar.

Dollar Impact

“We need to be aware of the impact whatever we do has on other variables, and one of the variables is the dollar, the value of the dollar against other currencies,” Fisher said in an Oct. 22 interview in New York.
The prospect of an easier policy for a long period could prompt foreign investors to use Fed purchases as an opportunity to unload longer-term Treasuries, said Vincent Reinhart, former director of the Fed Board’s Division of Monetary Affairs.

“This might put more pressure on the exchange value of the dollar than the Fed is willing to tolerate,” said Reinhart, a resident scholar at the American Enterprise Institute in Washington.

Some commodity prices have already started to move up in anticipation of further Fed stimulus. Gold futures traded on the Comex in New York have risen 22 percent this year to $1,338.90 an ounce, while silver is up 40 percent.

“The Fed would like to talk up as many asset classes as it can,” said Scott Minerd, the Santa Monica-based chief investment officer at Guggenheim Partners LLC, who helps oversee $76 billion.
Asset Bubbles

“The history of the Fed, over the last 20 years, is one of bubble to bubble: one bubble deflates to create another bubble,” Minerd said. “We are certainly heading into the mother of all bubbles with commodities and gold.”

Another danger for the Fed is that its policy fails to have the intended effect, damaging the central bank’s credibility, Reinhart said.

“What happens if they bulk up the portfolio by another $500 billion in the next six months and there is no material change in markets or the outlook,” he said. “Presumably, the Fed will double-down and buy some more, but at some point, people will ask, ‘Is that all there is?’”

U.S. central bankers cut the benchmark lending rate to zero in December 2008. Seeking more stimulus, they launched a $1.7 trillion program to buy mortgage-backed securities, housing agency debt and U.S. Treasuries. The purchases ended in March.

Jackson Hole

Bernanke told central bankers in Jackson Hole, Wyoming, in August that those purchases “pushed investors into holding other assets with similar characteristics,” lowering interest rates on a broad range of debt.

While a second round of Treasury purchases would also lower nominal rates, the FOMC has been explicit about the need to lower real interest rates through higher inflation, minutes of its Sept. 21 meeting show.

The personal consumption expenditures price index, minus food and energy, rose at a 1.4 percent annual rate in August. That’s below the Fed’s long-run preference range of 1.7 percent to 2 percent. The year-over-year increase in consumer prices jumped as high as 14.8 percent in 1980 during the Carter administration.

Even moderate rates of inflation can shift wealth through the economy. Companies can make more money because their prices rise faster than wages. Households can also benefit as incomes eventually rise while costs on fixed-rate debt stay the same.

Chipotle Mexican Grill Inc. chief financial officer John Hartung told Bloomberg Television Oct. 22 that he expects inflation to be in the low-single to mid-single digits next year. “We would welcome modest inflation along with the continued pickup in consumer demand,” Hartung said.

[Ryan Ruck]

This piece from ZeroHedge gives some real world numbers to those increases on food we were discussing in the other thread.

A Quick Glance At Real World Inflation

10/26/2010

The Casey Report provides a useful glance at the real inflation currently ravaging items that are actually purchased by Americans, not those captured by the Fed's BLS statistics: "On average, our basic food costs have increased by an incredible 48% over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23% on average (heating oil, gasoline, natural gas). A little protein at dinner is now 39% higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36% since last October." Of course, the ongoing deflation in items purchases requiring leverage will continue to skew the CPI so far south to make all those who bought 5 Year TIPS yesterday at negative yields end up losing money on the transaction.

Chart of the Week: Inflation in the Real World, by Jake Webber of Casey Report

As is often the case, there is a big difference between what the government statistics are reporting and what’s going on in the real world. According to the most recent inflation reading published by the Bureau of Labor Statistics (BLS), consumer prices grew at an annual rate of just 1.1% in August.

The government has an incentive to distort CPI numbers, for reasons such as keeping the cost-of-living adjustment for Social Security payments low. While there’s no question that you may be able to get a good deal on a new car or a flat-screen TV today, how often are you really buying these things? When you look at the real costs of everyday life, prices have risen sharply over the last year. For simplicity’s sake, consider the cash market prices on some basic commodities.





On average, our basic food costs have increased by an incredible 48% over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23% on average (heating oil, gasoline, natural gas). A little protein at dinner is now 39% higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36% since last October.

You probably aren’t buying new linens or shopping for copper piping at the hardware store every day, but I included these items to show the inflationary pressures on some other basic materials that will likely affect consumer prices down the road.

The jump in gold and silver prices illustrates that it’s not just supply and demand issues driving the precious metals higher – the decline in purchasing power of the dollar is also showing up in the price of physical goods. It is because stashing wheat and cotton in the garage is an impractical way to protect purchasing power that investors are increasingly looking to protect themselves with the monetary metals – a trend that is now very much in motion.

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COP Hearing Today: The Money Quote

If you don't have time for three hours of testimony and questioning, you only need to listen to the this short little clip to "get it."

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Fed accused of ‘playing dangerous game’ with purchase plan

By Paul Vieira, Financial Post October 31, 2010



Federal Reserve Board Chairman Ben Bernanke addresses a symposium at the Federal Deposit Insurance Corporation (FDIC) October 25, 2010 in Arlington, Virginia.

Photograph by: Alex Wong, Getty Images

OTTAWA — With the possibility of political gridlock in Washington looming, the fate of the tepid U.S. recovery rests largely on the shoulders of Federal Reserve chairman Ben Bernanke, who on Wednesday is set to reveal how much more cash he’s prepared to inject to push the lacklustre economy into a higher gear.

This next move, likely to entail a massive purchase of U.S. treasury bonds, is high-risk: Pledging to throw too much cash into the marketplace could cause inflation expectations to swell, driving up bond yields and the cost of borrowing, in essence exacerbating an already-crummy recovery.

“It’s almost a desperation move,” said Andrew Pyle, wealth adviser and markets commentator at ScotiaMcLeod.

Last week, stocks and bonds sold off briefly but deeply on news Fed purchases may not be as robust as anticipated, coming in at a reported clip of a few hundred billion over the coming months as opposed to a $1-trillion US-plus figure that had been bandied about. Worries continued to mount when it emerged that the Fed was polling investment dealers on Wall Street on how large its purchase-plan should be.

“The Fed is engaging in behaviour that is quite curious at this point,” Andrew Busch, global foreign currency and public policy strategist at BMO Capital Markets, said of the polling of dealers.

“This shows the weakness of this policy — and it is a little disconcerting. The Fed risks its hard-fought inflation-fight, Fed-knows-best reputation it has.”

The Fed chairman and a handful of governors have hinted in speeches of the need for a new round of asset purchases, or quantitative easing, to kick-start a recovery that has slowed to a proverbial crawl.

Unemployment, at 9.6 per cent, is at risk of remaining at elevated levels, just as core inflation, at under one per cent and at its lowest level since 1962, runs below the Fed’s preference of 1.5 per cent to two per cent.

Another consideration is the pending change in Congress after Tuesday’s midterm elections. A cadre of new Republicans under the Tea Party banner — capitalizing on voter anger over stimulus spending and banking bailouts with little to show for it in terms of economic gains — is expected to take up residence in Congress, giving the Grand Old Party control of the House of Representatives while also winning big gains in the Senate. Under this scenario, further stimulus via program spending is highly unlikely. It also remains unclear whether Bush-era tax cuts will expire when a lame-duck Congress returns in a couple of weeks.

The Fed is no stranger to quantitative easing, as it undertook $1.7-trillion US in purchases of mortgage-backed securities and Treasuries in an effort to drive down borrowing costs and keep the economy afloat.

Lower long-term borrowing costs would be one goal in a new purchase effort, although corporate bond yields and mortgage rates are already at or near record lows. So another key plank of Bernanke’s plan is to alter rates and inflation expectations.

“Beyond quantitative easing, the Fed’s best hope seems to be trying to convince investors that short-term interest rates are going to remain lower for longer than they currently expect or that inflation is going to be higher,” said Paul Ashworth, senior economist at Capital Economics.

The arrival of newly printed cash has helped propel stock markets higher on the anticipation new liquidity will find its way into riskier but higher-yielding assets.

Other money managers suggest commodities are set to surge as investors seek hard assets in the face of a weakening U.S. dollar, which is a consequence of increasing the money supply. Commodity prices are already up 15 per cent since late August, when Bernanke first signalled the likelihood of further easing.

Higher stock prices could instil increased confidence among consumers and, as a result, prompt more activity.

Still, economists fret that additional asset purchases won’t pay off, again, for the U.S. economy.

“The U.S. economy appears to be mired in problems that monetary policy cannot solve,” said a commentary from e21, a Washington-based economic think-tank. “By attempting to generate inflation to boost current expenditures, the Fed is playing a dangerous game in experimental monetary economics where the benefits are speculative but the downside risks are all too real.”

Pyle added there’s also the risk the Fed goes too far to appease market expectations.

“The risk is you deliver what the market is clamouring for, but it’s almost like giving your kid something every time they ask for it. Where’s the discipline? At some point you have to say no,” he said.

The Fed’s move will also have reverberations across the globe.
Some G20 countries warned further Fed easing would be akin to “indirect” currency manipulation, so there’s the risk the latest Fed foray adds to the already-heightened tensions in foreign-exchange markets.

Plus, the Bank of Japan moved up the date of its next meeting to late this week amid speculation it would follow the Fed and boost its planned asset purchases, announced earlier this month to contain strength in the yen. This speculation was reinforced after a slew of weak Japanese data were released Friday.

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National Debt & Deficit Portal. Bailout News. QE - The New American Bloodsport

Wednesday
Nov 03, 2010

« VIDEO: Rand Paul's Victory Speech - Keith Olbermann & MSNBC Panel Throw A Fit »

Video: Rand Paul's excellent victory speech - Nov. 2, 2010

• "Tonight, there’s a Tea Party tidal wave, and we’re sending a message to them! It’s a message that I will carry with me on day one. It’s a message of fiscal sanity. It’s a message of limited constitutional government, and balanced budgets."

After the speech, watch Lawrence O'Donnell, Olbermann and Rachel Maddow discuss how Rand will destroy the world economy and put the US government into default by filibustering any bill to raise the national debt ceiling.

Bring it on.

Complete transcript and 2-minute highlight clip from the speech are also inside.