MACRO ANALYSIS REPORT
ECONOMICS, CENTRAL BANK POLICY
BANKS, BONDS, GEOPOLITICS
HAT TRICK LETTER
* Miscellaneous Morsels
* California & Acute State Distress
* Money Supply Paradox
* Acceleration of Bank Failures
* Sluggish USEconomy in a Stall
* The Great Mortgage Hemorrhage
Issue #74
Jim Willie CB,
“the Golden Jackass”
8 May 2010
"By a continuing process of inflation, governments can confiscate, secretly and unobserved,
an important part of the wealth of their citizens ... in a manner which not one man in a
million can diagnose." -- John Maynard Keynes
"Four sorrows are certain to be visited on the United States. Their cumulative effect
guarantees that the US will cease to resemble the country outlined in the Constitution of
1787. 1) A state of perpetual war, 2) a loss of democracy [with a] transformation into a
military junta, 3) the replacement of truth by propaganda, disinformation and the
glorification of war, and 4) bankruptcy [from] more grandiose military projects." -Chalmers Johnson (Sorrows of Empire)
MISCELLANEOUS MORSELS
◄$$$ THE MAINSTREAM STARTS TO COMPREHEND THE DEPTH OF THE
FINANCIAL CRISIS. AS STRATEGIST, BUITER EXPECTS HYPER-INFLATION IN
THE UNITED STATES AND A GRAND FISCAL CRISIS, A KEY FACTOR TO BREAK
POLITICAL GRIDLOCK. $$$
Willem Buiter in his recent Global Economic View has issued a very dire outlook and
forecast.
He predicts unprecedented fiscal crises directly ahead. He anticipates mammoth monetary
inflation stemming from USGovt debt issuance, resulting in powerful USFed
monetization. Buiter works within the marbled Citigroup halls, the site of gross insolvency
and wreckage. The mainstream media would normally be hectic and busy refuting the
disaster scenarios and minimizing the problems that beset the nation. Instead, from his post
as strategist at Citigroup, Buiter has produced a very bearish negative outlook. He presents a
game theory type analysis, one that concludes the United States and other sovereign
nations will soon be forced into fiscal austerity. See Greece for clues. Among his critical
observations are that the US is highly polarized, and that the USFed will soon unleash large
scale inflationary monetization of public debt and deficits. He calls the US Federal
Reserve the least independent of leading central banks. The next step of course would be
hyper-inflation. Buiter regards the United States as the one country the most likely to
follow this pathway to ruinous hyper-inflation. More filled with intrigue, and surely
climactic in nature is his conclusion. Buiter predicts that a massive upcoming fiscal crisis
is the only event with the potential to break the political gridlock in the USGovt, and
move the nation toward a legitimate realistic path toward a solution of the broken
national fiscal condition. See the Zero Hedge article (CLICK HERE). Buiter overlooks
corruption and horrific bond fraud, a formidable obstacle to reform and any progress
whatsoever. The solution will unfortunately contain numerous Third World features, like
higher interest rates, lower wages, greater unemployment, reduced commodity supply, and
less economic development.
◄$$$ CLINTON REGARDS THE ORIGINAL SOURCE OF FINANCIAL CRISIS TO BE
THE DEPARTURE FROM THE GOLD STANDARD, A REMARKABLE CONCLUSION.
HE IS A SMART, IF NOT CORRUPTLY DEVIOUS FELLOW. $$$
Former President Bill Clinton can be filed under the ranks of the Gold Advocate column. In
a highly unexpected admission, Clinton blamed the current financial crisis on the
United States leaving the gold standard in 1971. Bob Schaeffer conducted the interview at
the Peterson Institute. Clinton explained his perception that the problems in the USEconomy
began when Nixon went off the gold standard. He offered the party line justification that the
USGovt abandoned the gold standard for economic management reasons. Obviously, since
management wanted to spend multiples more money than it had available, and vast (now
sprawling) fraudulent financial platform enterprises were hatched and planned. Nonetheless,
the Clinton statement implies that he has a solid comprehension of how gold is a safeguard
restraint on USGovt printing of money, firmly out of control. See the Real Clear Politics
video (CLICK HERE), where 2:00 minutes into the clip, Clinton mentions the gold standard,
and Schaeffer shows alarm if not shock. See the Economic Policy Journal article (CLICK
HERE). One must wonder if certain syndicate chambers wish either to come clean on the
gold story or to pump public demand for their gold investments! Some analysts including the
Jackass believe that the Clinton & Rubin tagteam is very likely in possession of vast
quantities of Fort Knox gold, swapped for tungsten. Well, maybe not, since that would be a
high crime treason.
◄$$$ A GIANT CANCER RESTS ON THE USGOVT BODY, NOT SO WELL HIDDEN.
NUMEROUS NARCO FACTORS DIRECT AFFECT NATIONAL INTEGRITY. MANY
QUESTIONS REMAIN, WHOSE ANSWERS ARE NOT PRETTY. $$$
When the USGovt national security agencies were permitted in the 1970 decade to establish
a narcotics trafficking business, after justification before the USCongress, a cancer began to
grow. They operated above the law, which opened the door to full flourish development. The
justification actually was given to defend liberty for the United States. Instead, in my view
its purpose was to create a foundation for the syndicate that now has spread from the
military to the defense contractors to the big banks and even to the press media
networks. In recent years it has spread to the pharmaceutical firms. The overall effect is
strangulation of the nation and a forced death march to totalitarianism. The rest of the world
is far more aware of the syndicate and its narcotics business than the American people, who
are shielded by a well controlled press. Over $2.2 trillion is missing from Pentagon
appropriations over the last 20 years. Over $500 billion is missing from the Iraqi
Reconstruction Fund. Over $2.0 trillion in excess USTreasury Bonds have been sold by
JPMorgan, over and above the amount issued by the USDept Treasury. Over $1.9 trillion is
missing from the Fannie Mae funds during the Papa Bush and Clinton Admins. Over $700
billion in TARP Funds remains unexplained for its usage from 2008 disbursement.
Templates taken from the USDept Treasury for $100 bills are missing routinely, used
allegedly by the CIA. The CIA narcotics business brings over $350 billion in revenue per
year to the syndicate. These are symptoms of the cancer. The following questions have
answers, mostly ugly. We is the United States of America.
1) Why is it legal for the CIA and the Bush Family to traffic in narcotics with impunity?
2) Why do we have a heroin war in Afghanistan and state-of-the-art heroin vertically
integrated factories run by the CIA there?
3) Why are we now constructing seven new USA-manned military bases in Colombia?
4) What is the real purpose of the USMilitary raids against narcotic competitors of the CIA
drug cartels?
5) Why is the Drug Enforcement Agency permitted to operate as a private security force to
confiscate competitor narcotics inventory?
6) Why is the US Coast Guard permitted to operate as a private delivery contractor for the
CIA and a seacoast monitor against its competitors?
7) Why does the media not check whether drug confiscations are destroyed or put into CIA
drug cartel inventory?
8) Why is no coverage given to CIA boats coming to shore from oil rigs carrying hundreds of
kilos of heroin & cocaine?
9) Why is no coverage given to USMilitary defense contractors coming to airports carrying
hundreds of kilos of heroin & cocaine?
10) Why do US NATO allies not object more openly to the abuse of airbases on their soil,
used to transport hundreds of kilos of heroin & cocaine to Western locations?
11) Why are major US banks not scrutinized for money laundering of CIA narco money?
12) To what extent are insolvent major US banks currently supported by CIA narco money?
13) What is the function of the US Federal Reserve itself in coordinating and covering up
CIA money laundering?
14) Was Fort Knox gold stolen and being held by the CIA and syndicate?
◄$$$ CITIGROUP ASPIRES TO REVIVE ITS SAUDI PRESENCE IN BANKS AS AN
ATTEMPT TO RETURN TO PAST NORMALCY. THE EFFORT IS DOOMED TO FAIL,
SINCE PRINCE ALWALEED CANNOT INFLUENCE THE REGION ANY LONGER.
$$$
Citigroup aims to re-open businesses in Saudi Arabia six years after selling a major stake in a
bank. A return might not be as easy as a departure. Since leaving the country in 2004, the
crippled sprawling US bank giant has said it would like to regain a foothold. Saudi officials,
though, are protecting banks from new competition, according to Jean-Francois Seznec,
visiting associate professor at Georgetown University Center for Contemporary Arab
Studies. See the Bloomberg article (CLICK HERE). The Saudis might reinstate the 51%
local ownership rule, in a maneuver to obstruct Citigroup. A contact from the UAE banking
center wrote a message directly. In it he said, "This was a subject of discussions here in
Dubai. CITI will not be successful in its effort to rekindle its Saudi fire. It is the Prince Al
Waleed who would like them to return, since has juiced the local banks to the hilt." The good
prince might soon be hung out to dry. The Citigroup return is an intriguing test of US
influence in Saudi Arabia, and whether the winds are changing.
CALIFORNIA & ACUTE STATE DISTRESS
◄$$$ CALIFORNIA PENSION LIABILITY IS 6X THEIR ANNUAL BUDGET, OUT OF
CONTROL. SERVICES LIKE EDUCATION AND PARKS ARE BEING SACRIFICED.
NEW YORK IS IN A SIMILAR SITUATION. $$$
The entire California pension fund liability stands at 6x the size of the entire California
state budget. At grave risk is the future income stream of hundreds of thousands, if not
millions, of Californian retirees. The USGovt might be forced to pick up the tab, or else
retirees in the Golden State will end up with none of their promised expected retirement
benefits. Two alternatives exist. First, the USGovt could fund this huge obligation, along
with a few dozen other state obligations. The resultant monetary inflation would aggravate
the already huge USGovt debt issuance. The monetary inflation in time converts to price
inflation, and the defined pension benefit is reduced markedly in value. Second, the state of
California could issue a gaggle supply of IOU coupons that quickly are legal tender on a
broad redemption basis. Not just for utility bills and food purchase, the coupons could
produce a local variety of price inflation within the state borders. In the current fiscal year,
$5.5 billion was diverted from other programs such as higher education and parks to
cover the shortfall in California's retiree pension and health care benefits. The
Governor's office projects that this figure will escalate to over $15 billion in the next 10
years, without any beneficial reform. See the Wall Street Journal article (CLICK HERE).
Enormous demands cometh soon to the USGovt for a California bailout, the biggest state in
the union.
◄$$$ HUNDREDS OF THOUSANDS OF TEACHER JOBS ARE AT RISK
NATIONWIDE. REGARD THIS AS A THIRD WORLD SIGNAL, A LOUD ONE FELT
CLOSE TO HOME. DEVASTATION COMES TO THE SCHOOL DISTRICTS, BESET
BY RAPIDLY FALLING REVENUE AND NEGLECT FROM THE FEDERAL FUNDS.
$$$
Districts in California have given job cut notices to 22,000 teachers. Illinois authorities are
predicting 17,000 job cuts in the public schools. And New York has warned nearly 15,000
teachers that their jobs could disappear in June. New York State Secretary of Education
Arne Duncan estimated that state budget cuts could require a reduction of between 100
and 300 thousand public school jobs. He called it an 'Education Catastrophe' and urged the
USCongress to approve additional stimulus funds to save school jobs. He must not be aware
that they only fund Wall Street and the Pentagon, the heart & soul of the syndicate. Watch a
proposed educational emergency bill hatched by Senator Tom Harkin of Iowa, valued at $23
billion to provide more stopgap educational financing. Expect his pet bill to fail, as suddenly
the USCongress cares about budget deficits spiraling out of control. The Pentagon receives
$30 billion by mere mention of the word SURGE, in its sacred budget. Remember the days
of President Bush II and his call to leave no child behind. What a farce! Michael Petrilli
served in the USDept Education under President George W Bush. He urges the school
districts to learn to live with less. One can conclude the national priority is more guns and
fewer books. See the Chalmers Johnson quote at the beginning of the report.
School districts around the nation are reacting to severe revenue constraints, as they are
compelled to enact drastic cuts to save money. The usual sources of revenue, state budget
funds and local property taxes, have been hit hard by the recession. About one quarter of
all state spending is devoted to public school systems. The federal stimulus money
earmarked for education has been exhausted this year. In the USGovt Stimulus Bill passed in
February 2009, about $100 billion in emergency education financing was appropriated.
States spent much of that in the current fiscal year, rescuing more than 342,000 school jobs,
about 5.5% of all the positions in the nation's 15,000 school systems, according to a study by
the University of Washington. The States will face budget shortfalls by some $144 billion,
according to the Center on Budget & Policy Priorities.
The usual first cuts come to teacher positions, but districts are planning to close schools, cut
curriculum (like fringe topics or non-scholastic programs), enlarge classes, and shorten the
school day, in desperate attempts to save money. Districts are struggling with legal
requirements on job cut notifications, the pink slip lead time. Negotiations are underway in
hundreds of districts, with votes on school tax levy proposals in many states and towns. A
survey by the American Assn of School Administrators found that 9 of 10 superintendents
expected to furlough school workers for the autumn season, up from 2 of 3 superintendents
last year. The survey also found that the percentage of districts considering a 4-day school
week had jumped to 13%, up from 2% a year ago. More deep cuts are to come in Los
Angeles, where job cut notices were sent to 5200 of the 80,000 employees in the district last
month. Officials called the magntiude devastating. Their $12 billion school budget was cut
by a full $1 billion. The trend in cuts is expected to continue through to year 2015. See the
New York Times article (CLICK HERE). Enormous demands cometh soon to the USGovt
for state bailouts. Cutting education budgets is a clear Third World reaction.
◄$$$ CALIFORNIA HAS FILED LAWSUIT AGAINST ITS OWN STATE PENSION
FUND MANAGERS FOR FRAUD AND FAILURE OF FIDUCIARY DUTY. GOOD
LUCK IN COLLECTING, AS CASINOS WERE THE MAIN HAUNT OF HIS CROOK.
$$$
A lawsuit filed by the state of California has charged former CalPERS board member
Alfred Villalobos for gross misuse of funds. Money was paid for the wedding of former
CEO Fred Buenrostro, who was flown around the world and promised a Lake Tahoe condo
when he left the pension fund. The promises were kept. Villalobos has earned tens of
million$ as an agent better described as a parasite. As middleman, working his personal
angle and not the best interests of the state pension fund, he won fund investments for clients
in a role after his departure from the California Public Employees Retirement System
(CalPERS) board in 1995. State officials succeeded in securing a court order that froze
Villalobos assets so as to prevent him from paying casino debts. Court papers black out
details of his gambling in a redacting process worthy of USDept Treasury documents.
However, copies of canceled checks obtained by the Sacramento Bee show payments in 2005
of nearly $1.3 million to Harrahs and $530k to Caesars. The court order freezes an
assortment of Villalobos assets, such as 21 bank accounts, five luxury cars, and 16 properties
in Lake Tahoe, Hawaii, and elsewhere. The account freeze was deemed necessary to prevent
the high stakes gambler from squandering ill-gotten state money before the state can collect a
judgment. Seemingly as a rejoinder to the complaint, the lawsuit declared that "Villalobos
compromised the integrity of CalPERS investment process." Investment decisions were
clearly motivated by kickbacks and favors, rather than wise allocations. See the Sacramento
Bee article (CLICK HERE).
MONEY SUPPLY PARADOX
◄$$$ MONEY SUPPLY SKYROCKETS, LENDING CEASES, AS MONEY VELOCITY
CAREENS DOWNWARD. THE MONETARISTS FOCUS ALMOST ENTIRELY ON
THE QUANTITY OF MONEY AND THE MANY CHANNELS TO SUPPLY THE
BIGGEST BANKS THAT PROVIDE AMPLE LIQUIDITY. THEY IGNORE THE
VELOCITY WARNINGS, DRAGGED DOWN BY LACK OF DEMAND. $$$
A fundamental human flaw comes as a result of minimizing the distress in the US banking
industry from official posts tied to policy making. A problem not addressed is a problem not
treated. A crisis minimized receives less than its requirements. The arrogance of the US-UK
bankers comes with braggadocio that they can meet any funding need. Yet they do not. They
ignore the badly harmed demand for money. They ignore the inability of many banks to
approve loans, given their insolvent condition. While the money supply has skyrocketed, the
reason for being among bankers is to hoard cash, store it in the USFed, neglect loan loss
reserves, shut down lending (almost), and hope for the best. In the process, money velocity,
the pace at which money makes round trips within the USEconomy, has sharply
declined, enough to issue warnings never mentioned to the public. It is their job to protect
themselves, to leave the people exposed, rarely even to honor share holders, and to plan for
greater power grabs. Check out the extreme anomaly at work, covered from three important
sides.
Colleague Craig McC wrote, "Now & The Futures normally calculates the broad M3 money
supply on a weekly basis and utilizes slightly different methodology than John Williams at
Shadow Govt Statistics. Hence, their weekly charts are more volatile than SGS. However,
their longer term chart below [oops, above here] sure tells the story of Bernanke's bottling
up of the broad money supply. Unless Bernanke suddenly shifts (unlikely), I do not see how
a Double-Dip recession or depression can be avoided. All incumbents should be shaking in
their boats regarding the upcoming November elections. The asset deflation is hitting more
than consumers, i.e. commercial real estate, the trucking industry, Just In Time inventory
systems, and more." Notice the M3 longer term chart shown above, whose annual rate of
change has sounded loud alarms leading into the fateful 2008 year when the US banking
system died. See the Now & Futures article (CLICK HERE). Yet the money supply, the
monetary base, the monetary aggregate, it has gone vertical. USFed Chairman Bernanke has
released all the money valves at a time when the USGovt has been compelled to issue a flood
of new debt securities. So money has been created, but obstacles prevent it from being put to
work in the financial system or economy. It is not reaching the broad money supply.
Analyst and colleague Rob Kirby paints a dismal picture, as he responds to the falling money
velocity. Such a signal almost always results in an economic recession that hits hard and fast.
Kirby wrote in a private exchange, "But juxtapose broader money against the monetary base.
The monetary base IS NOW and will continue to grow VERTICALLY, or else our financial
system collapses. Notice how the monetary base can grow vertically while the broader
measure collapses. The VELOCITY is non-existent. The willingness of banks to lend and
create credit is not there, because the FED has told them NOT TO LEND. The story line that
individuals cannot qualify for loans is BOGUS. Their balance sheets are no worse than the
banks who have had money heaped on them." Imagine a car racing its engine, burning it up
from generated heat, but no traction and no locomotion. The car does not move.
Kirby explains the outcome, a theme of his that he has remained steadfast and unswerving
for over a year with personal exchanges. In time, eventually, inexorably, unstoppably, the
money that floods the system will eventually reach the streets. It does not all offset the Black
Hole needs like with credit derivatives and impaired bond redemptions. The USFed and
USDept Treasury will continue to direct new money into the system until a tipping point is
reached, in Kirby's opinion. At that time, the price structures will react rapidly, turn on a
dime, with sharp price increases across the spectrum resulting. That includes housing prices,
and certainly stock prices.
Kirby wrote about the outcome after the tipping point, with a hint of an agenda. He wrote, "A
more suitable description might be targeted consumer credit deflation coupled with
unavoidable and necessary monetary hyper-inflation, unless you want the whole financial
system to implode. This would be akin to the parasite, namely the FED, killing the host.
Parasites NEVER knowingly or willingly kill their hosts. The Fed is PAYING commercial
banks for excess reserves held at the FED. Prior to the financial crisis the commercial banks
received NOTHING on these funds. If the FED wanted banks to lend money, they would
AT LEAST revert to paying the commercial banks nothing on excess reserves they are
compelled to leave on deposit at the FED. The notion that Joe SixPack cannot get credit
because his balance sheet is too impaired is ridiculous. Collectively, the bank balance sheets
were WORSE with multi trillion$ of toxic derivatives on their books. And yet the FED heaped
TRILLIONS on them carte blanche, with no questions asked. The financial crisis has been
engineered by the FED & Anglo American Banking Axis. The hard core GLOBALISTS
intend to consolidate their wealth and power. Their goal is and has been to DESTROY
AMERICA. This is all consistent with the globalist dogma of one world government
controlled by BANKS. I should expand those targeted for financial genocide is ANYTHING
and ANYONE beyond what seems to be the chosen ones, like the select commercial banks."
These are harsh words, but little in the last few years seems to contradict or refute his
perspective. Words spoken in recent weeks by JPMorgan CEO Jamie Dimon actually
reinforce the Kirby perspective. Dimon, without remorse or a responsible vein, indicated that
the bankers would do a much better job at running governments. One must wonder if he
slipped in making the comments.
Notice the pattern of money velocity. The historical mean is soon to be breached on the
downside. The dark decades of 1930 and 1940 might be repeated. The 1990 decade, in my
view the Stolen Decade of Prosperity, has yielded to a powerful whiplash whose momentum
has yet to dissipate. That decade was stolen since Clinton & Rubin swiped the gold supply,
exploited it for Wall Street gain, and produced a powerful USTreasury Bond rally. Since
borrowing costs are the most important cost component, more than labor or materials in a
debt driven financial ecosystem that is the United States, the USEconomy flourished but in a
queer false manner. The hangover decade was the 2000 ten year span. The death process has
been in high gear since autumn 2008. The Bretton Woods Accord abrogation in 1971
unleashed instability, produced a pair of decades filled with crisis, only to result in systemic
breakdown.
◄$$$ THE RELATION BETWEEN MONEY SUPPLY DECLINE AND LABOR
MARKET DETERIORATION IS HISTORICALLY CLEAR. FOLLOW THE SHADOW
GOVT STATISTICS GUIDE. A SHARP DECLINE IN THE USECONOMY COMES. $$$
Let John Williams make the point, from ShadowGovt Statistics. The main point is that as the
money supply declines, wait a few months and expect jobs to suffer as the effect hits the
labor market and actual payrolls. The March and April Payrolls reports are badly skewed.
Even with skew and doctoring, the upcoming decline will be impossible to conceal. The
pattern is clear from past economic cycles dating back to the 1960 decade. This graph has
been shown on past occasions in Hat Trick reports, since it is so razor sharp effective.
Williams wrote in a recent issue, "As discussed in recent Commentaries, declining year-toyear change in real (inflation-adjusted) M3 signals a pending economic downturn or
pending intensification of an existing economic contraction. The following updated graph
reflects both the annual payroll change and the approximate annual real contraction in the
SGS Ongoing-M3 Estimate as of April 2010. The M3 plot is shifted forward on the time scale
by six months so as to show its leading relationship to payrolls. The April real M3 estimate is
based on approximations of 4.8% annual nominal M3 contraction and 2.1% annual CPI-U,
for a total 6.9% contraction, versus a 5.0% contraction in March. Assuming the April
estimate holds, such would be a new record annual decline in the modern reporting of real
M3. A formal preliminary estimate for the SGS Ongoing M3 measure for April will be
published over this weekend."
ACCELERATION OF BANK FAILURES
◄$$$ MORE BANK FAILURES IN EARLY MAY OCCURRED, WITH VERY
SUBSTANTIAL DAMAGE. INCLUDE PUERTO RICO IN THE KILL ZONE. THE
PATTERN IS CLEAR OF BANK ASSETS ROUTINELY OVER-VALUED BY 100%.
THE BANK BUSTS EXPOSE THE ACCOUNTING FRAUD FULLY SANCTIONED.
THE ENTIRE U.S. BANKING SYSTEM IS INSOLVENT IN SIMILAR FASHION. $$$
Bank losses were extremely serious two weeks ago. The Federal Deposit Insurance Corp
decided to bring Puerto Rican bank losses into the fold. Without much of any press
coverage, the largest single week of bank losses were recorded since the IndyMac Bank
failure in July 2008. Recall that wayward crooked bloated pig had assets of $32 billion and
$19 billion in deposits against them. That loud failure cost the FDIC a cool $8 billion. The
damage in the last week of April was big. Seven banks failed with combined assets of $25.8
billion and deposits of $19.6 billion. The toll to the FDIC from the failures was reported
to be $7.33 billion. Put it into perspective. In the nearly four months of 2010 up to then, 57
bank failures resulted in $8.6 billion losses. In a single week, the failures practically
doubled the FDIC total loss to $15.93 billion. No recovery is evident within the banking
sector, despite the continual propaganda. The rooted problems in the banking sector appear
to be growing worse over time.
The Deposit Insurance Fund for the FDIC sinks deeper into the red. As of the end of 2009,
the fund went negative and reached a $20.9 billion deficit. With this year's losses, the
deficit has grown to over $36.8 billion. The story is worse than the topline figures indicate.
The FDIC carries a huge exposure for losses worse than anticipated for $165 billion of assets
taken over by acquiring banks, that have yet to be recorded in writedowns. Recall the FDIC
required banks to pre-pay their premiums for the period 2010 through 2012. That revenue for
the insurance fund, a 13-fold increase from just two to three years ago, has been exhausted
on paper already. The FDIC front loaded premiums to make sure they had a sufficient
buffer to combat the continuing bank collapses, yet that is depleted. The next dreaded
phase for FDIC Chair Sheila Bair is to saddle obligations to the USGovt and taxpayer,
adding billion$ to the spiraling federal deficits.
A closer look at the five dead banks reveals a pattern. Westernbank Puerto Rico of Mayaguez
Puerto Rico appeared healthy. It racked up a $3.31 billion loss after its supposed $11.94
billion in stated assets were determined to be over-valued by 125%. R-G Premier Bank of
Puerto Rico in Hato Rey racked up a $1.23 billion loss after its supposed $5.92 billion in
stated assets were over-valued by 96%. Eurobank of San Juan Puerto Rico racked up a $0.74
billion loss after its supposed $2.56 billion in stated assets were over-valued by 109%.
Frontier Bank of Everett Washington racked up a $1.37 billion loss after its supposed $3.50
billion in stated assets were over-valued by 99%. CF Bankcorp of Port Huron Michigan
racked up a $0.62 billion loss after its supposed $1.65 billion in stated assets were overvalued by 102%. My writing style is repeated for effect, a powerful effect actually to make
the point. The pattern is vividly clear.
Two important points must be made. First, the bank insolvency is a common problem far
more systemic than is reported (except by the Hat Trick Letter and other journals). Banks are
operating as zombies, insolvent to the core, which explains their lack of lending or deep
reluctance often described as stricter lending standards. The bank assets are grossly overvalued, known as accounting fraud, but systemically sanctioned. Second, these bank
failures are being reported with no allegations of accounting fraud or management
negligence. Bank assets might routinely be over-valued by nearly 100%. Such accounting
practices have been fully sanctioned by the Financial Accounting Standards Board since
April 2009. That event marked the beginning of the US stock market recovery. Therefore the
recovery itself is a fraud.
◄$$$ THE PACE OF BANK FAILURES IS ACCELERATING, WITH THE RISE
PICKING UP SPEED EACH YEAR. ANY HINT OF RECOVERY IS CONTRADICTED
BY A SIMPLE PICTURE. THE STRUCTURAL DEFECTS OF THE U.S. BANKING
SYSTEM HAVE NOT BEEN ADDRESSED. THEREFORE, NO RECOVERY IS
POSSIBLE. $$$
When placed on an embedded chart, the graphical evidence of accelerated bank failures is
obvious in just the last three years. The Hat Trick Letter does not begin with a platitude, call
it a principal, and dismiss evidence in clear violation. Instead, the HTL builds a case from
evidence, and takes the path to its logical conclusion. The sheer number of bank failures
began to accelerate in mid-2008, shown in the black series. The bank failures again
accelerated in mid-2009, shown in the green series. In 2010, an even more rapid acceleration
is evident, faster than last year. Each year begins with the same starting point, so as to
provide proper perspective on each yearly acceleration. The effect is amazing, startling, and
discouraging. Thanks to the Chart Store for a great graph.
Neither USGovt officials, nor USFed bankers, nor Wall Street bond fraud kings, nor FDIC
bank insurers even bother to attempt to explain the acceleration in bank failures. Simply
stated, my attitude is to work off the opposite of their pronouncements since they protect the
banking interests using lies and deception. My viewpoint is that in autumn 2008, the US
banking system died. It has been writhing ever since, even though a great deal of tainted
money has been pumped into its sclerotic veins.
SLUGGISH USECONOMY IN A STALL
◄$$$ TAX RECEIPTS FOR THE USGOVT CONTINUE DOWN ON YEARLY
COMPARISONS, SO AS TO REFUTE ANY CLAIM OF RECOVERY. $$$
Federal tax receipts are a nice statistic almost impossible to doctor or alter, thus a Hat Trick
Letter favorite. Week 16 data was released on USTreasury individual tax withholdings. The
comparison between 2009 and 2010 by four week buckets is given. The weeks 1-4 showed a
huge downdraft of minus 7.8% to kick off the new year. Slight repair came in weeks 5-8 with
minus 2.3% and in weeks 9-12 with plus 3.0%, but a turn downward has come. Weeks 13-16
showed minus 0.4%, a small negative again. With individual tax receipts down, one cannot
make any legitimate argument for a recovery. The corporate tax picture is similar.
◄$$$ CONSUMER PRICE INFLATION CONFLICTS WITH THE REAL WORLD. THE
BREAK FROM REALITY HAS BECOME ABSURD AND RECOGNIZED. PRICES ARE
ACCELERATING UPWARD. ANECDOTES ARE PREVALENT. $$$
March's Consumer Price Index (CPI) data showed a core price inflation rate increase of a
modest 0.1%, nearly zero. But reality clashes! The contrast with the real world has become a
gross absurdity. The USGovt in its many chambers prefers to ignore the rising price
phenomena in order to provide political cover for historically unprecedented monetary
inflation used to finance unspeakable federal deficits. Any economic participant, who buys
things or runs a business, can recognize the rising price trend. It is in acceleration. Here is an
assortment of examples. They are taken from a week ago, the point of reference.
The price of crude oil is up 14.9% since the first week of February. A gallon of unleaded gas
is up over 10% since February. In the recent weeks one can notice that soybean prices are up
7%, cotton is up 20%, copper is up 13%, and lumber is up a whopping 50%. Such staples
within the USEconomy are on the move upward, hardly tame. The Commodity Research
Bureau (CRB) Index of 19 diverse resources and commodities shows an 8.5% price rise
since February, not consistent with the more costly individual items that should
comprise its makeup. College tuitions are expected to increase by over 10% at many
colleges for the 2010-2011 school year. Even the price of a first class postage stamp
increased 4.8% in 2009. Car insurance rates in the United States are up nearly 12% in the
past year. Health care costs are on a relentless upward path. Despite lower property values,
the property taxes and city service costs are still rising, in response to city & state fiscal
distress.
A report from London covers the entire spectrum of metals prices, issued by the UK-based
steel consultancy M EPS. Most global metal prices are on the sharp rise. Their price
locations (continents) vary and are not cited here. Stainless steel final transaction prices have
climbed steeply over the past twelve months, up 74% on an annual basis. Rising nickel prices
is the major influence, up 131.6% from one year earlier. The molybdenum price is 93.4%
higher than twelve months ago. MEPS reported both ferrous and stainless scrap have been in
relatively short supply, but the economic downturn has reduced recycling due to low prices.
Benchmark hot rolled steel prices increased by 58% year on year, while rolled coil prices
rose 11.4% only. In Canada, the bridge building and wind tower industries have brought
strong demand, so the steelmakers are busy meeting project demand. Steady car demand is
not driving the steel prices. Hardening scrap costs and tight supply are mainly to blame.
Sales of coated steel to the general market remain subdued, particularly from the still
depressed construction industry. Both hot dipped galvanized and electro-zinc coated coil
transaction figures have been rising slowly. Although rebar (steel reinforcement bars, like
used in cement forms) sales have failed to resurge in the US, producers have secured a hike
of $50 per ton that was tabled to become effective April 1st. Nucor has kept prices fixed for
May shipments.
◄$$$ EMERGENCY EXTENSIONS TO JOBLESS BENEFITS ARE SET TO END AT 99
WEEKS, AS A LIMIT HAS BEEN DETERMINED. OVER A MILLION AMERICANS
ARE DUE TO FALL OFF THE INSURANCE WAGON RUN BY THE USGOVT.
IMPACT TO THE USECONOMY IS TO BE IMMEDIATE. $$$
Over a million US citizens are scheduled to lose emergency jobless benefits. When the
USEconomic recession began in December 2007, the USCongress extended the length of
unemployment benefits for the jobless a total of three times. Finally the USGovt has reached
its limit. Without fanfare, without publicity, but with a cold stroke of hand, the USGovt
has quietly drawn the line at 99 weeks of aid, called emergency extended benefits.
Hundreds of thousands of Americans have already reached that mark. In coming months, the
proejcted number of workers who will be cut off is estimated to exceed one million.
Republicans have delayed aid due to cost, while Democrats lack the consensus to push
through another extension. The mounting concerns over the federal deficit have weighed
down the generosity, expected to reach $1.5 trillion this year. Unemployment aid has
become one of the federal budget's most substantial component, and one of the fastest
growing. This year its costs will hit $200 billion. That figure is an incredible six times
what was typical in previous recessions.
Sounds like the recession is declared over, victory is claimed, but dead proletariat soldiers
litter the field and countless more are set to die in triage. In past recessions, only 26 weeks of
payments had been delivered to furloughed workers. The limit has been declared at 99
weeks. In March, the total victims tallied to about 11 million Americans, roughly 70%
of the national jobless count, who received unemployment checks. They averaged $320
per week. According to the Bureau of Labor Statistics, 44% of the jobless have been out of
work for at least six months. That level stands as the biggest share since the USGovt began
keeping track in 1948. Worse, 3.4 million Americans have been out of work for more
than a year, according to a study by the Pew Fiscal Analysis Initiative. A parade comes.
Interviews with state officials produced state estimated counts who will fall off the
emergency support. In New York 57 thousand, in Florida 130 thousand, and in Ohio 30
thousand have exhausted their benefits and will not receive any further insurance. Goldman
Sachs analysts expect nationwide more than 400 thousand will soon begin losing benefits
every month. See the Bloomberg article (CLICK HERE).
◄$$$ JOBLESS CLAIMS CONTINUE TO HURTLE ALONG, BUT SLIGHTLY
LOWER, STILL HORRIBLE. THIS GOOD INDICATOR CONTINUALLY
CONTRADICTS THE PROPAGANDA HORNBLOWERS. THE OFFICIAL JOBS
REPORT HAS BECOME A JOKE, WORTHY OF OPEN DERISION. IT IS RIDDLED
WITH CONTRADICTIONS AND PHONY LIFTS. THE JOB GROWTH IS LED BY THE
CENSUS PROJECT. $$$
Despite a slight downtrend in weekly jobless claims, the news continues to be bad enough to
remind of the human tragedy and recession firmly in place. A lift in the labor market is the
general message trumpeted, but the jobless claim magnitude is sufficiently high to contradict
any claim of recovery. A rebirth of the USEconomy requires the hire of a couple million
people, not the ongoing slow hemorrhage of over 400 thousand workers on a weekly basis.
In the week ended April 24th, a list of 448 thousand workers filed jobless claims, 11k less
than the previous week. In the week of May 1st, 444 thousand workers filed jobless
claims. The weekly job losses stubbornly remain well over 400 thousand. The trend is down,
but the declining trajectory needs to be several times greater. The continuing claims are also
on a downtrend. What was once 5.186 million in mid-December has fallen to 4.594 million
in the last plumb read. Still, these figures are not recovery levels.
So the April official Jobs Report is out, claiming to reflect 290 thousand net job growth, and
upward revisions to the last two months of over 100k job growth. What nonsense! What
desperate deception! The official jobless rate grew from 9.7% to 9.9% during this net job
growth episode, a testimony to its fabrication. Also, the under-employment rate, as the
U-6 series is called nowadays, rose from 16.9% to 17.1% in the last month. The SGS
Alternative Jobless rate (free from all types of accounting fraud) rose from 21.7% to
22.0% in the last month. Higher jobless rates but more net jobs, total deception and works
of fiction. The official explanation, again twisted logic passing for analysis, is that formerly
discouraged workers have lifted themselves to go seek work, encouraged by the expanding
economy, and thus are considered jobless again. Worse, the mythical Birth-Death Model
that receives hardly a peep of mention, is responsible for 188k of the 290k in net job
growth. Last year, it contributed only 62k fewer mythical jobs in April, so it is leaned upon
more heavily. This has taken place while consumption is down, home sales are flat, and
lending is curtailed. It is important not to give such reports too much credibility, since so
easily dismissed with a little thought! Shadow Govt Statistics actually estimates that a
baseline 230k phantom jobs are integrated every month generally from the Birth-Death
Model overall distortions.
The April Jobs Report seems quite contradictory to the respected Conference Board Help
Wanted index, which fell to 9 in March from 10 in February. It leads the labor market in
reliable fashion. The Conference Board new On-Line Help Wanted advertising declined by
1.0% in April, for the first time in five months. Also the ISP Services index showed falling
employment. Note that the services sector is twice the size of manufacturing in the
USEconomy. Then came the Census contribution that was sizeable in itself. It added 66k
jobs to the April total. Another 450 thousand census jobs are expected to be registered in the
months ahead, surely to be touted as a wondrous economic recovery. Let's do some easy
arithmetic. Remove the 188k jobs from the Birth-Death Model. Remove the 66k jobs
from the Census project. One is left with only 36k jobs in the April tally, a far cry from
the 290k posted in the official USGovt Jobs Report. Furthermore, every February, the
USGovt does a quiet benchmark correction of past exaggerations. Last year, it resulted in a
few hundred thousand in reductions. Expect the same next February.
◄$$$ CONSUMER SPENDING IS AGAIN ON THE DECLINE, DESPITE
PROPAGANDA. THE DECLINE HAS TURNED SLUGGISH, AFTER THE 2008
CONTRACTION NEVER RECOVERED AT ALL. $$$
Contrary to the popular propaganda promulgated by the intrepid lapdog US press networks,
consumer demand has been on the decline in nearly non-stop fashion since 2008. It has
merely varied in the speed of the downward trajectory. Green Shoots were a convenient
fiction. In 2009, a pause was seen, due to rampant USGovt stopgap and incentive programs.
They have since come to an end. With banks unwilling to loan, and M2 and M3 plunging, it
will not be long before wider recognition comes. Notice how the 2008 recovery turned up
only slightly, but the 2010 recovery is caught in a sluggish pattern lasting 60 to 80 days. No
economic recovery is remotely evident.
THE GREAT MORTGAGE HEMORRHAGE
◄$$$ COMMERCIAL MORTGAGE DELINQUENCIES CONTINUE TO RISE,
SETTING THE STAGE FOR A DEEPER BANK SECTOR CRISIS. FRESH BANK
LOSSES LIE DEAD AHEAD, UNAVOIDABLE. $$$
Commercial property mortgage delinquencies hit a new record in March. Unlike the
residential mortgage market, where properties have a reasonably tight price range, the
commercial arena reports data in asset valued volume. Some commercial mortgage backed
securities (CMBS) are 100x the size of others. The latest RealPoint monthly CMBS
delinquency report cites the situation as worsening. In March, the total volume of
delinquent CMBS increased by $3.2 billion to $51.5 billion, or 6.4% of the total notional
outstanding. The details are horrific! The RealPoint report wrote, "Overall, the delinquent
unpaid balance is up almost 268% from one year ago, when only $13.89 billion of delinquent
unpaid balance was reported for March 2009. It is now over 23 times the low point of $2.21
billion in March 2007. The distressed 90-day, Foreclosure, and REO categories grew in
aggregate for the 27th straight month, up by $2.57 billion (7%) from the previous month and
up by $30.31 billion (352%) in the past year."
A footnote. The data excludes the recently defaulted Peter Cooper Village & Stuyvesant
Town in Manhattan which still remained current in March, thanks to tapping its reserve. This
loan will effectively go into default in April or May, enough to send the total delinquencies
up at least another $3 billion. Their forecast is for much worse. RealPoint forecasts the
total delinquency rate surpassing 12% under a more stressed scenario, or almost
double from the current volume rate. RealPoint explains their dire forecast for the coming
months. They wrote, "With the combined potential for large loan delinquency in the coming
months and the recently experienced average growth month over month, RealPoint now
projects the delinquent unpaid CMBS balance to continue along its current trend and
grow to between $60 and $70 billion by mid 2010. Based upon an updated trend analysis,
we now project the delinquency percentage to grow to between 8% and 9% through mid2010, potentially approaching and surpassing 11% to 12% under more heavily stressed
scenarios through the yearend 2010. This forecast & outlook is driven by the watchlist
reporting of several Realpoint identified High Risk Loans from recent vintage transactions
that continue to show signs of stress and are on the verge of delinquency, along with
continued balloon maturity defaults from more seasoned transactions." Recent vintage refers
to mortgage loans originated late in the property bubble when prices were much higher than
nowadays. Prices have fallen by 30% to 50% in the last two years. See the Zero Hedge
article (CLICK HERE).
A great comment came from the bloggers. One stuck out as a laser beam. "We are curious
just how much of the ongoing deterioration trend in CMBS was taken into account by banks,
all of which decided to reduce the loss reserves in the prior quarter." Banks are leaving
themselves very vulnerable to obvious upcoming losses within easy view. A disaster builds,
after past disasters occurred, none of which were remedied as impaired bank assets were not
liquidated to any great extent.
◄$$$ COMMERCIAL PROPERTY PRICES CONTINUE TO PLUNGE. THEIR PRICE
DECLINE IS WORSE THAN RESIDENTIAL, WHICH HAS BEEN BUOYED BY
FEDERAL PROGRAMS. THE COMMERCIAL ARENA IS RECEIVING STEADY
COVERAGE AS A DISASTER ZONE. ITS SHORT-TERM FINANCE REQUIREMENTS
HAVE FORCED THE ISSUE WITHOUT RECOURSE. $$$
The commercial real estate (CRE) sector is in turmoil. Commercial aggregate property
values are not the listed $6 trillion nationwide on the balance sheets. Instead their value
is closer to $3 trillion. Portfolios for the entire commercial market are close to being
underwater on aggregate. The giant defaults in CRE bring on two unique problems not
shared by the residential sector. No buyers can relieve the problem for CRE properties at the
current prices. Then the banks holding the CRE loans use fictional mark to market methods
at lofty exaggerated prices, elevated even though many of these current CRE note holders are
delinquent on their loans. In most cases, regional banks are involved, not the big Wall Street
banks. The regional banks lack the political connections and access to funds from the
USTreasury and US Federal Reserve. Increasingly, these smaller banks are entering failure.
They are largely insolvent. This is an issue of solvency, not liquidity. Notice the downward
price pressure since the January 2008 peak (shown in red). The crisis for commercial
properties was late to make the headline news. The Hat Trick Letter has been warning about
the phenomenon for two years. The CRE price pattern rose to higher heights actually than the
composite residential pattern, and has recently fallen more than the residential. The
comparison is stark and revealing.
Commercial real estate is subject to stricter short-term refinancing windows, like five
or seven years, much more so than residential loans. They tend to come due in full, and
must be paid in full or refinanced every few years. Residential real estate loans typically have
longer 30 year horizons. The due diligence exercised by banks on individual loan refinance
decisions reveals that cash flow and loan to values do not pass the current tests. Thus the
banks stop lending to cover the loan. These properties do not qualify for financing and
borrowers are unable to pay the bill, and certainly not sell the property. The end game is
upon them. Many banks play the Pretend & Extend game, while others are seized by the
FDIC. The banking system has a two-tier hierarchy, with gigantic Wall Street afiliates
contrasted against the scattered regionals, in the midst of being unmasked. Take three
examples. The Ritz-Carlton Highlands Hotel in Lake Tahoe California, the Metro Center III
in Hyattsville Maryland, and the Hyatt Regency in Bethesda Maryland are three examples of
spiffy commercial properties in deep immediate trouble. They will all three likely to bust,
and be part of an FDIC seizure with heavy cost incurred. See the MyBudget360 article
(CLICK HERE).
◄$$$ STRATEGIC HOME MORTGAGE DEFAULTS CONTINUE TO RISE, UP TO 1
IN 8 DEFAULTS. FURTHERMORE, THE STRATEGIC DECISION IS HIGHEST IN THE
CREDIT GROUP WITH THE HIGHEST F.I.C.A SCORE. THEY MUST FEEL TOTALLY
NEGLECTED BY THE FEDERAL PROGRAMS, AND HAVE ENDURED HUGE
LOSSES. $$$
More and more 'Strategic' defaults are occurring. They are identified by borrowers who
choose voluntarily to walk away from underwater mortgage obligations independent of their
ability to make monthly payments. They just quit, stuck in a losing position, unwilling to toss
good money after bad. Two prominent studies provide a contrast to the nature of the
problem, one from academia and one from an investment bank. Strategic defaults account for
more than one third of all defaults, according to fresh research released by the University of
Chicago business schools. The share of mortgage defaults judged as Strategic grew to
31% through March 2010, from 22% a year earlier, professors Paola Sapienza and Luigi
Zingales wrote in the research. See the Financial Trust research report (CLICK HERE).
The research at Univ Chicago revealed interesting perceptions, like how lenders are not
going to pursue borrowers who decide to walk away. In December, the average survey
respondent indicated they believe lenders are 56% probable to chase a borrower, compared
with 54% in March 2010. The results also indicate the likelihood of strategic default grows
23% if a borrower learns of an underwater neighbor receiving partial loan forgiveness.
Furthermore, Strategic default increases by 29% if borrowers can find alternate ways to
finance a new home, as in a different home. In contrast, data from Morgan Stanley claims
only 12% decide not to pay their mortgage. See their chart above. The university research
must use a broader definition. Although the Morgan Stanley separate research puts the share
of strategic defaults at almost 20% less, data shows the rate is growing significantly.
Regardless, the trend is clear, one of defiance, if not outright civil disobedience that would
bring a smile to Henry David Thoreau. Homeowners are increasingly defying the banks,
challenging them to produce property titles. In too many cases, the banks cannot.
The Morgan Stanley research is valuable for a different phenomenon revealed. It found the
highest proportion of Strategic defaults occur with the higher credit score categories.
This is clear evidence of homeowner revolt. Beware that a higher credit score does not mean
a more wealthy borrower, just a more responsible borrower. In general the default rate rises
proportionally with the FICO credit scores. This reverse phenomenon is evident in both
earlier vintage loans made in 2004 and more recent vintage loans made in 2007, shown in the
paired graphs. "While total default percentages drop as credit scores increase, strategic
default percentages in each credit score bucket rise steadily as credit scores increase,
dipping a bit only at the highest end of the credit spectrum," written from the Morgan
Stanley report. Researchers point out that prime jumbo home loans have the greatest
potential to Strategic defaults. The tendency to strategically default is higher in the 2006 and
2007 vintages, late in the housing bubble marred by more extended bloated prices, thus faster
realized equity loss. These vintages might account for over 40% of total defaults on the
jumbo end of the credit spectrum, according to Morgan. They wrote, "This is also the
collateral type that benefits the least from loan modification efforts such as HAMP, and
is the least likely to be eligible for FHA refinancing." See the Housing Wire article
(CLICK HERE).
◄$$$ THE HOME INVENTORY IS 20% HIGHER THAN A YEAR AGO. THE WEIGHT
OF SUPPLY WILL SHOULD HAVE A POWERFUL SUDDEN DOWNWARD EFFECT
ON HOME PRICES. A SHOCK WAVE COULD EASILY STRIKE. EVEN WITHOUT A
PRICE SHOCK, THE POWERFUL ONGOING EFFECT IS TO PREVENT ANY PRICE
RECOVERY WHATSOEVER IN THE HOUSING MARKET. $$$
In my view, the banking system insolvency on the financial side and the housing
inventory surplus on the economic side firmly address the brokenness of the
USEconomy and financial structure. The new phenomenon to the banking woes is not
accounting, but rather bloated home inventory carried on their balance sheets. FASB
accounting rules can permit fraud, but reality of toxic assets and insolvency is hard to step
around. LPS Applied Analytics estimated that foreclosures would create so much market
supply that it would take almost nine years to liquidate. Furthermore, the HAMP (Home
Affordable Modification Program) program started by the Obama Admin is trying to modify
loans so that lenders will not foreclose. But it too is a failure, born out by the data.
The Wall Street Journal wrote, "As of March, banks had an inventory of about 1.1 million
foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied
Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their
payments or in the foreclosure process, meaning their homes were well on their way to the
inventory pile. That Shadow Inventory [of unsold bank owned homes] was up 30% from a
year earlier. Based on the rate at which banks have been selling those foreclosed homes over
the past few months, all that inventory, real and shadow, would take 103 months to unload.
That is nearly nine years. According to Goldman Sachs, HAMP started less than 80,000 trial
modifications in March, less than half the number in the peak month of October 2009. At the
same time, a growing number of modifications are being canceled as borrowers prove
unable to pay. By Goldman's count, about 68,000 were canceled in March. All this means
that little can stop the bank inventory of distressed homes from growing. Too many people
owe too much more on their homes than they can afford. For the housing market, that could
mean a long lasting hangover." See the Daily Capitalist article (CLICK HERE). What is not
mentioned is the number of sales that end up as short sales, where people owe more on loans
than the home value. It makes the ratio of 103 of supply all the more dreadful.
◄$$$ FANNIE MAE ADMITS TO A MASSIVE SHADOW INVENTORY, NO LONGER
A HIDDEN SORE ON BALANCE SHEETS. THEIR OFFICIAL ECONOMIC OUTLOOK
EXHIBITS SHALLOW THINKING, CONTRADICTIONS, AND LACK OF
AWARENESS. $$$
The headline on the published story was that excess shadow inventory threatens a fragile
housing recovery. On one side is how the shadow inventory was not in the news at all last
year. On the other side is how the overhang does not factor into most mainstream economic
forecasts. That significant point was lost throughout the entirety of an official economic
outlook that Fannie Mae published. They claim that although the US housing market shows
signs of stabilizing, excess inventory and shadow supply could hinder recovery. Fannie Mae
economists and mortgage market analysis group issued a research report of very shallow
thought process. They said new home sales will likely be slow to recover until inventory of
existing homes and the foreclosure overhang are worked off. They totally overlook how the
housing market needs a near total shutdown of the new home market, if the housing market
glut is to be relieved. They acknowlege how the first time homebuyer tax credit failed to
boost sales, but anticipate home sales to increase. That is cockeyed. They expect the labor
market to struggle as the unemployment rate remains elevated for some time. Due to a perky
return to a baseline growth, their economists project unemployment will decline to 9.4% by
year end, and to 8.5% by the end of 2011. This moderate recovery is all to occur amidst
rising mortgage rates. They forecast mortgage rates are to increase, which should torpedo
any hint of recovery for both the housing market and USEconomy generally. Fixed rate
mortgages are projected to gain 43 basis points in 2010, rising from an average 5% in
1Q2010 to 5.43% in 4Q2010, and later rising further another 38 bpts to an average 5.81% by
year end 2011. Such a forecast is totally inconsistent, contradictory, and foolishly
irresponsible. These guys are hired for perhaps being corrupt rather than adept, maybe
nephews of the management. The intrepid staff at the Fannie Mae financial sewage plant take
a tepid stance of decelerated economic growth, down to a 3.1% forecasted rate of economic
growth for all of 2010. It is always a useful exercise to check in with an official position once
in a while, as a sanity check. These guys are not worth continuation on the payroll, serving
almost no function of value. Flower pots in their office stalls would contain more value.
Fannie Mae chief economist Doug Duncan wrote, "Financial conditions are improving as
seen by the unwinding of various programs, most notably the mortgage backed securities
purchase program which ended in March. This is strong evidence that the Federal Reserve
believes the financial sector can stand on its own. We estimate that June 2009 was the end of
the recession, a good sign that we are moving forward. Nevertheless, significant
improvements in the labor market and consumer spending will be the big hurdles as we move
toward recovery in the housing market and broader economy." Duncan does not see the
lunatic position of believing the financial sector can stand on its own. Huge staggering
financial props and extraordinary liquidity facilities have kept the system afloat in
avoidance of a total collapse. In fact, narcotics funds kept the US banking system alive in
the latter months of 2008, according to the United Nations illicit drug research group. At
least Duncan realizes how important the labor market is, but it is a lagging indicator of failed
remedy and reform to the system. He seems to avoid all relevant points like insolvent banks,
insolvent households, lack of industrial return to US shores, need for reduced USGovt
regulation, and the broken USDollar. He might not even observe shrinking money velocity,
vanishing commercial paper (intermediate commercial lending bond securities held as
collateral), common rejection of small business loans by banks, or the encirclement by China
of the entire USEconomic supply chain. He certainly is forbidden to mention the revolt
among home mortgage holders, who are not making monthly payments, even demanding to
see a produced property title. Then again, he is a government employee who probably could
not find a job in the private sector. See the Housing Wire article (CLICK HERE).
◄$$$ FREDDIE MAC SPOKE FROM WITHIN THE BLACK HOLE. ITS Q1 LOSS WAS
WRETCHED. IT WILL REQUEST OVER $10 BILLION MORE FROM THE USGOVT.
NATIONALIZATION PAYS BIG NEGATIVE DIVIDENDS, WHICH MIGHT
CONTINUE TO PERPETUITY, OR AT LEAST UNTIL THE GRAND USTREASURY
DEFAULT. $$$
Last week Freddie Mac continued to display debris from the great swirl of the Black Hole
firmly rooted on USGovt soil, when it reported a net loss for 1Q2010 of $8 billion, after
accounting for dividend payments of $1.3 billion on its senior preferred stock. Apparently
the financial results were driven significantly by the required adoption of new accounting
standards. The continued weakness in the housing market acted as an additional headwind.
In direct response to profound loss, Freddie Mac has formally requested $10.6 billion in
additional federal aid. Witness this latest signal not of purported cost to stabilize the
housing market, but rather the perpetual cost to finance the Black Hole that contains well
beyond $2 trillion on mortgage fraud, along with the trappings of the mortgage bubble bust.
The new request will bring the total tab for rescuing Freddie Mac to $61.3 billion. The cost
for Fannie Mae is special, and spectacular also. In December, under the cover of the
Christmas holiday, the USDept Treasury pledged to cover unlimited losses through 2012 for
Freddie & Fannie. The Fat F&F Duo will certainly test that unlimited offer. The imminent
request will bring the total taxpayer tab for both companies to about $136.5 billion. The
second shoe from Fannie Mae, to herald its yawning loss, is expected soon, followed by a
certain request for additional financial aid. For perspective, Freddie Mac has lost twice as
much money in the last ten quarters as it earned in the last 30 years.
CEO Charles Haldeman proclaimed his own version of Green Shoots as he said, "We are
seeing some signs of stabilization in the housing market, including house prices and sales in
some key geographic areas. [But the housing market] remains fragile with historically high
delinquency and foreclosure levels." He is delusional, and cannot read evidence of inventory
glut on bank owned properties, and cannot read evidence of the collapse of the commercial
property sector. These executives are as inept as they are corrupt. In a responsible vein not
seen among the bigger banks, Freddie Mac set aside $5.4 billion in loan loss reserves in order
to cover credit losses from bad mortgages. It is seen as good news that the setaside is much
less than the $7.0 billion devoted to reserves in 4Q2009. Again a dying man bleeding less on
the sidewalk.
One can safely conclude that the USGovt represents and serves as the entire mortgage
market, without hesitation. Government institutions, mainly Fannie Mae, Freddie Mac,
the Federal Housing Admin, and the Veterans Admin, underwrote 96.5% of home
loans in Q1 of 2010, according to trade publication Inside Mortgage Finance. See the
Huffington Post article (CLICK HERE). The housing market would collapse without such a
sick prominent role.
Thanks to the following for charts StockCharts, Financial Times, UK Independent, Wall
Street Journal, Northern Trust, Business Week, Merrill Lynch, Shadow Govt Statistics.
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