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"All truth passes through three stages:
First, it is ridiculed.
Second, it is violently opposed.
Third, it is accepted as being self-evident."
Arthur Schopenhauer, (1788 - 1860)


David Stanowski
David Stanowski

MoneySolve Debt Management

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Bank Run Underway!
23 May 2012

"A bank run is now happening within the eurozone. So far it has been relatively slow and prolonged, but it is a run nonetheless. And last week, it showed signs of accelerating sharply, in a way which demands an urgent response from policy-makers."
The anatomy of the eurozone bank run

Note the accelerating deposit flows out of Spain and Italy and into Germany!

Click for larger imageBank Run

Best Savings Rates

Compare a wide variety of savings accounts including fixed rate, ISA’s, saving rates, building society rates and bonds. Just enter the amount you want to save and we will find the best savings rates offered by the best financial insitituions.

Debt Management

Debt Management consolidates debt in to one low affordable payment without further borrowing. If yor debt are spiralling out of control then maybe you should consider an IVA.

Credit Card Deals

Transfer your existing store or credit by using a Balance Transfer Credit Card. Find the best credit card offers and deals in the UK including prepaid and cashback and receive 0% rate on credit card balance transfers.

Debt versus Growth
20 May 2012

From 1975 to 1981, it “only” required between 20 cents and 52 cents of new debt to help increase the GDP by $1.00.

Since 2009, however, it has required more than $2.00 of new debt to help increase the GDP by $1.00; a mammoth increase!

New debt is having less and less beneficial effect and is doing more and more harm.

At some point, the amount of debt required to generate $1.00 of GDP will reach a point where it will suffocate growth!

Click for larger imageDebt versus Growth

Texas Ratios of
Banks and Credit Unions

13 December 2010

"The Texas ratio is a measure of a bank's credit troubles. Developed by Gerard Cassidy and others at RBC Capital Markets, it is calculated by dividing the value of the lender's non-performing assets (Non performing loans + Real Estate Owned) by the sum of its tangible common equity capital and loan loss reserves.

In analyzing Texas banks during the early 1980s recession, Cassidy noted that banks tended to fail when this ratio reached 1:1, or 100%. He noted a similar pattern among New England banks during the recession of the early 1990s."

The higher the Texas Ratio; the higher the risk of failure. To check the latest (Q3 2010) Texas Ratio of your bank or credit union Click Here.

Also see the following article:

Is Your Bank Safe?
30 August 2010

Due to the existence of the FDIC, many people have failed to do the necessary due diligence on their bank. With this "insurance fund", it would seem to be unnecessary to be concerned about the safety of bank deposits, because if the bank fails, the FDIC will bail out the depositors. However, since the FDIC became essentially insolvent a year ago, it has been relying on "stimulus funds" to bail out banks, and should Congress slow down or curtail this funding process, at some future date, depositors could be in for a very unpleasant surprise! The best strategy is to only do business with the safest banks.
The FDIC is Broke
As of Friday, August 14, 2009, FDIC is Bankrupt

118 banks have already failed this year which means that it is very likely that total failures will exceed the 140 for all of last year. Only 3 banks failed in 2007, and 25 failed in 2008, so it is clear that the failure rate is picking up!

Bank Failures

Calculated Risk now lists 840 more potential failures
on its "problem list", so the bank failures should continue to increase for the foreseeable future.

This is the list of the weakest U.S. banks and S&Ls. Weakest Banks and S&Ls

This is the list of the strongest U.S. banks and S&Ls. Strongest Banks and S&Ls

If your bank or S&L did not make either list, it can be found at the individual institution lookup link.
Lookup Banks and S&Ls

This alternate source has ratings for banks and S&Ls AND credit unions.
Lookup Banks, S&Ls, and Credit Unions

Is Your Money Safe?
Will Your Bank Fail?

Best Savings Rates

Compare a wide variety of savings accounts including fixed rate, ISA’s, saving rates, building society rates and bonds. Just enter the amount you want to save and we will find the best savings rates offered by the best financial insitituions.

Debt Management

Debt Management consolidates debt in to one low affordable payment without further borrowing. If yor debt are spiralling out of control then maybe you should consider an IVA.

Credit Card Deals

Transfer your existing store or credit by using a Balance Transfer Credit Card. Find the best credit card offers and deals in the UK including prepaid and cashback and receive 0% rate on credit card balance transfers.

Unemployment Deception?
08 January 2010

The federal government generates most of the data and statistics used to measure and analyze the economy. This is unfortunate, because politicians are in the business of convincing the public that conditions are better than seem to be in order to stay in office. As the country began its decline, about 40 years ago (see below); the government had greater and greater incentives to fudge the numbers, so the amount of deception continued to grow.

The statistics that they are most concerned about are unemployment, inflation, and GDP; but unemployment is definitely the most critical. When the government is forced to acknowledge a high degree of unemployment, the people grow very angry and restless, and are apt to be in the mood to "throw the bums out".

Former efforts to manipulate unemployment data have been chronicled in "Numbers Racket: Why the Economy is Worse than we Know". Everyone needs to become familiar with the issues described in this article.

The web site Zero Hedge has apparently uncovered a new effort to grossly understate the current unemployment rate. By examining reports showing what the Treasury is actually paying out in unemployment benefits, Zero Hedge estimates that unemployment may be understated by as much as 32%! This would put the headline unemployment rate at about 13.2%, instead of 10%, and the broadest measure, U-6, at 22.4%, instead of 17%!

The fallout from the real estate bubble is making the matter even worse. Not only have Trillions of Dollars of precious capital been trapped in unneeded residential and commercial real estate, but the inability to sell houses has made the workforce much more immobile than any time since WWII which will delay the recovery even longer. "Job Growth Erodes as Housing Bust Pushes Mobility to Record Low"

When Did the Decline
Really Begin?
 21 September 2009

Most people think that our current economic "troubles" began in 2008. Some would point to the stock market top in October 2007, but a few would recognize that the overall market really topped in 2000, because the NASDAQ did not come close to making a new high in 2007.

The latest data from the Census Bureau certainly supports a start date long before 2008. Their analysis, that was shocking to some, found that real median household income in 2008 ($50,303) was LOWER than it was in 1998 ($51,295)! The typical American household made less than the typical household did a decade ago! 

Census Bureau Annual Report
(see Table A-1)

"In the four decades that the Census Bureau has been tracking household income, there has never before been a full decade in which median income failed to rise. (The previous record was seven years, ending in 1985.) Other Census data suggest that it also never happened between the late 1940s and the late 1960s. So it doesn’t seem to have happened since at least the 1930s.

And the streak probably won’t end in 2009, either. Unemployment has been rising all year, which is a strong sign income will fall.

What’s going on here? It’s a combination of two trends. One, economic growth in the current decade has been slower than in any decade since before World War II. Two, inequality has risen sharply, so much of the bounty from our growth has gone to a relatively small slice of the population."  A Decade with No Income Gain

However, examining the Annual Report in more detail, using Table A-2, shows that the median real earnings for men peaked in 1973 ($48,452), and they were actually down to $46,367 in 2008. This means that the real (inflation-adjusted) earnings of the typical American man have declined 4.3% over the last 35 years!

During this same period, the median real earnings of women INCREASED 30%! This huge difference in earnings growth seems to be due primarily to the number of women who have chosen jobs in education, government, and medical care; which have shown the most income growth as the private-sector has gone into decline. This disparity also provides a hint as to how far back the national decline really began!   
Census Bureau Annual Report (see Table A-2)
Census Bureau Slide Show

A more thorough analysis of existing data finds that the decline actually started about 1966, and by 1973,
the country had entered an unmistakable downtrend. There have been a lot of deceptive ups and downs since then, but the long-term trend seems clear. 

Look at how government employment has been replacing private-sector employment.

Private Versus Public Employment

After the immediate post WWII boom had faded, the 10-year rate of change of private-sector job growth hit its peak in 1973, along with real median income for men. It's just about to turn negative!

!0 Year Rate of Change: Job Growth

Notice how payroll growth has declined in every decade since the 1960's. The current decade is the weakest of the bunch, by far!

Payroll Growth by Decade

The next graph tells the tale of the private-sector employment decline. Capacity utilization, the percentage use of the country's manufacturing base, was 90% in 1967, but it has declined steadily, and has never come close to 90% again since 1973. Today it stands at less than 70%!

Capacity Utilization

As the long decline set in, governments, businesses, and households began their reliance on more and more debt to make up for their losses in real income. From 1966 to 1973, households kept their debt, as a percent of their disposable income, well below 70%. Since then, it has doubled!

Household Debt as % of Disposable Income

As real income fell, and more and more debt was used to make up the difference, the personal savings rate declined so much that it went negative in 2005 right at the peak of the real estate bubble. A low rate leaves households with no cash cushion during economic hard times. Since then, it has climbed back up to 6% as people try to adjust to the new economic reality.

Savings Rate

Even with all of the debt consumers piled up over the last 40 years, to maintain their spending, the rate of change of retail sales peaked way back in 1973, and hasn't come close to the 16% registered, at that time, in recent years. In 2008, retail sales collapsed to the highest negative rate of change in the last 60 years!

Retail Sales

The massive downside momentum shown by all of this data began to take hold 35-40 years ago, and it will require major changes, over many years, to begin to reverse this decline!

Why does a great nation fall into decline?

In this case, there are two reasons. Socialism has corrupted the character of the American people. It has changed us from self-reliant and independent to dependent and helpless. In addition, the Federal Reserve and the fractional-reserve banking system has corrupted the money of the American people. As the money steadily loses its value, it has changed us from savers, investors, and manufacturers to borrowers, speculators, and importers.

Historians will most likely recognize that our fatal mistake, and our ultimate folly, was in re-directing Trillions of Dollars of needed investment from our manufacturing base into residential real estate. Away from productive investment and into consumption. 

There is no reason to believe that this decline will be reversed until the things that caused it are changed.

 The P/E Ratio
Explodes Upward!
 17 September 2009

The P/E ratio is calculated by taking the price of a stock and dividing it by its earnings. The P/E ratio for a stock index, like the S&P 500, can also be computed by using the index's price level divided by the earnings for all the stocks in the index.

A high P/E shows that a stock or index is over valued, a low P/E indicates that bargains are to be had. The ratio rises when prices rise, and/or earnings fall. There is never a dispute over the price of a stock or index, at any given point in time, but there is often disagreement on how to quantify earnings. When the P/E is high, it is difficult to make a bullish case, so bulls play games with the earnings to try to make them look as high as possible, in order to lower the P/E ratio.

Sometimes trailings earnings are used for the prior five or ten years, instead of current earnings, but the real controversy is between "operating" earnings, and "reported" earnings.

"Operating earnings exclude write-offs, while reported earnings include write-offs. That is the only difference, but it's a difference that is getting much more important. As recently as the early 1990s, operating and reported earnings were virtually the same. But then we entered the greatest financial mania of all time, and the earnings numbers diverged.

There were so many write-offs by companies making unwise investments and then undoing them that operating earnings grew much faster than reported earnings. The write-offs that had been sporadic and unusual became common for many companies.

Using operating earnings is now like playing in a golf tournament that doesn't count any penalty strokes for hitting the ball into a water hazard or out of bounds." Barons

Standard & Poors shows that the second quarter P/E, using operating earnings, was 26.24, but using reported earnings, it hit an all-time high of 139.03! They estimate that the third quarter numbers will be about the same. S&P Spreadsheet

S&P 500 P/E Ratio

Bulls try to make the case that the P/E of 26.24, using operating earnings, shows that the market is "undervalued". The following tables clearly demonstrate that a P/E of 26 is near the levels of the great 1929 and 1966 Bull Market highs, when there was no difference between operating and reported earnings. The S&P is not truly under valued until the P/E drops below 8!

Bull Market Highs - Start of Bear Markets
Dates 1929 1966 2000
P/E Ratio 32.56 24.06 42.87
Source: Robert Shiller

Bear Market Lows - Start of Bull Markets
Dates 1932 1982 2012 ?
P/E Ratio 5.57 6.64 5.57 to 6.64 ?
Source: Robert Shiller

What the bulls really want everyone to ignore is the fact that the more accurate P/E, using as reported earnings, has exploded to an all-time high of 139.03! Four times as high as in 1929, almost six times as high as 1966, and three times as high as in 2000! This should provide a hint of how much downside risk now exists.

Oh yes, the P/E on the NASDAQ did spike to about 250, in 2000, versus only 42.87 on the S&P 500. That extreme P/E, on the NASDAQ, lead to a 78% collapse between 2000 and 2002, while the lower P/E on the S&P 500 "only" lead to a 50% plunge; demonstrating how an extremely high P/E eventually leads to extremely large losses. Now that the P/E on the S&P 500 has exceeded its level in 2000, by a factor of 3 to 1, due to collapsing earnings; the next leg down in the bear market has more than the necessary and sufficient conditions to begin.

In other words, the Bear Market rally, since March, has not been a sign that things are getting better, it merely served to put the market in the perfect position for another major decline. 

Some believe that if they select sectors or individual stocks with low P/E ratios, they will be protected, if and when a major collapse begins. They could be right, but it is highly unlikely; a plunge in the major averages should create so much downward pull that it will take everything down with it.

This is also true of foreign stock markets. They may be acting as temporary lifeboats near the ship that is taking on water, i.e the U.S. market, but when the ship finally goes down, the undertow will probably suck them under, too!

The Dividend Yield on the S&P 500 is currently 2.05%, much lower than at the 1929 and 1966 Bull Market tops, confirming the message of the P/E ratio.

The Case for a Super Bear Market

Buyer's Remorse!
 26 August 2009

Market technicians follow many measures of sentiment with great interest. The sentiment of traders and investors towards a specific market is the most important indicator, so we pay very close attention to sentiment measures like the Daily Sentiment Index (DSI) as applied to the gold market, the bond market, the specific commodity markets, each foreign currency market, and, of course, the stock market. However, the stock market is also often a good proxy for the public mood toward the economy, and the prospects for the country, so stock market sentiment can apply to issues beyond this specific market.

As expected, the Daily Sentiment Index, shown in the following graph, registered only 2% Bulls at the stock market bottom in March, and since then has pushed to 89% Bulls which now exceeds the number of Bulls at the October 2007 all-time highs! Therefore, traders are wildly optimistic about further gains in the stock market, in part, because they believe that the U.S. is coming out of the recession, and will easily solve the problems that it now faces, but, primarily, because rising prices make people Bullish, if they ignore everything else.

The second type of sentiment is the so-called "consumer confidence" indexes which attempt to measure consumer attitudes toward spending money, job security, if the country is on the right track, as well as many other similar metrics.

The Rasmussen Consumer Index registered its all time high of 127.0 on 06 January 2004, but more recently hit a high water mark of 89.5 in January 2008. From there it declined into its all-time low of 54.7, on 10 March 2009. Like the DSI, the Rasmussen CI has climbed off of its March low, and recently hit 80.0 in mid-August, but it has not equaled its previous levels of optimism. This tells us that the average consumer is not nearly as optimistic about his economic situation, as the typical stock market investor is about the stock market, due to the current Bear Market rally.

Rasmussen Consumer Index

The third type of sentiment index is the Presidential Approval Index (PAI). The country's attitude toward the President is the best indication of the national mood. It represents how people feel about the state of the nation, and they express that as their feelings about the President whether or not he deserves the blame or the credit for how things are going.

Last year's election was unprecedented in many ways. Obama had the total and unwavering support of the mainstream media, as well as the usual liberal institutions, so he was able to run on the theme of "Hope and Change" without defining what he intended to do in any specific way. Since many of his followers treated him as some kind of Messiah, market technicians could naturally expect that his PAI would remain very high unless and until conditions got very bad.

After the election, with the mainstream media continuing to play cheerleader, and with the difficulty of criticizing the President without being labeled a racist; it was reasonable to assume that Obama's PAI would keep climbing at least until the Bear Market rally ended.

However, 3-4 weeks after election, far left Bush hater James Howard Kunstler began to express some profound buyer's remorse. The evil Bush had started meaningless wars in Iraq and Afghanistan, had pushed through the Patriot Act, and had allowed his Wall Street appointees to bailout their buddies. He was finally gone, but Obama was NOT reversing any of these policies! In fact, his bailouts were even more ridiculous. As time wore on, Kunstler became more and more disillusioned by the lack of positive change, but was he representative of the country as a whole?   

The following graph of the Rasmussen Presidential Approval Index shows that Kunstler was indeed the canary in the coal mine, because something completely unexpected was happening! Even with the cult-of-personality that assisted his victory, the day after the election the PAI only reached +8. From there, "Hope" pushed it up dramatically to +30, on 22 January. However, even after one of the most dramatic Bear Market rallies in history, the PAI has continued to decline from this high water mark. With the DSI on the stock market sitting at a new high of 89%, Obama's PAI is now at a new low of -14! That is an unbelievable divergence!

It must be remembered that this collapse on the PAI of 44 points (+30 to -14) has taken place even as the mainstream media continue lockstep support for this President and most criticism on alternative outlets is still very muted in fear being labeled as racist. Many pollsters say that the current collapse in the PAI is the most dramatic in history! What happened to Hope and Change? Can you imagine what may happen to the national mood, as expressed by the PAI, if and when things turn really bad, and the self-censorship of Presidential criticism ends?

A similar divergence between the DSI, on the stock market, and the PAI occurred between 2004 and 2007, when Bush was in office. The DSI followed the stock market up to 88% at the October 2007 highs, even as Bush's PAI plunged. That divergence ultimately resolved itself in favor of the PAI, with the start of the Bear Market, and the current divergence will most likely do the same, with a second leg down beginning soon.

No matter which side of the political barricades you are on, this data shows a tsunami of unacknowledged negative mood running through the nation that will profoundly impact our businesses, our investments, our culture, our freedom, and our political system. When you see a wave of this size, it is time to take action.

My good friend, Curt, lives on a volcano in the middle of the Pacific Ocean known as Maui. He tells me that when they issue a tsunami warning, everyone runs for higher ground. That seems like good advice at this point!

The FDIC is Broke!
19 August 2009

Last week, the FDIC had about $641 million in its insurance pool. On Friday, the 14th, they liquidated five banks for a total cost of $3,674 million. They're out of money!

I never thought this would happen this fast! 77 banks have failed so far this year, and hundreds more are waiting to be shut down. Nothing will appear to be different, for now. They will just go quietly to Congress for a bailout. However, down the road, when things get really tough, they will likely apply for more bailouts that may not be forthcoming.

Be careful about putting money in banks. Use TBills when possible, and check bank ratings at: 

Will Your Bank Fail?
Is Your Money Safe?

The FDIC is Broke
As of Friday, August 14, 2009, FDIC is Bankrupt

Consumer Credit Collapsing!
17 August 2009

Consumer credit is collapsing at its fastest pace in 50 years. In the long run, this is very good news as people pay down their debt. In the short run, it is going to create a stiff headwind for any recovery.

Consumer Credit Collapse
Consumer Credit: Federal Reserve

Then and Now
01 July 2009

In a recent article, two economists, Barry Eichengreen and Kevin O'Rourke, remind their readers that the Great Depression was a worldwide phenomena, and that the current decline should be looked at in the same way, instead of just focusing on the U.S.

All of their graphs track the changes after the peaks in worldwide industrial production which occurred in June 1929, during the Great Depression, and April 2008, in the current decline, rather than stock market peaks.

Notice that the graph of world industrial output shows the current output in red, with the last two months updated in green, versus the blue line representing output during the Great Depression. At this point, world industrial output is right in line with what happened during the 1930's!

World Industrial Output

Although U.S. stock declines have not yet exceeded those of the 1930's, the composite action of the world stock markets shows a decline much more severe than during the Great Depression.

World Stock Markets

World trade is falling much faster than during the Great Depression.

World Trade Volume

Other graphs in the article show:
"German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse.

The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.

Japan's industrial output in February was 25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March."

"To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimize this alarming fact. The "Great Recession" label may turn out to be too optimistic. This is a Depression-sized event."
A Tale of Two Depressions

Even though the authors demonstrate that worldwide conditions are currently worse than in the Great Depression, they believe that central banks and federal governments are responding better than they did back then. I do NOT share that opinion!

Most measures of the U.S. economy are faring better than in other parts of the world, but many are already at their worst levels since the Great Depression. If there is a second leg down, they should easily exceed the measures of the 1930's.

Cocooning and Crime
19 June 2009

Reports from retailers paint a fascinating picture of how consumers are reacting to the Great Recession. Most purchases are centering on the home, and keeping their vehicles running. However, many humans continue to spend more lavishly on their pets than they do on themselves!

People clearly see that they need to stay at home and cut spending drastically on vacations and travel, as well as entertainment in their own city. They are making their homes as comfortable as possible through home-improvement projects, and by purchasing things like high-end TVs to allow them to enjoy movies and programs at home so they don't have to go out. Even sales of popcorn poppers and popcorn are up.

More money is being spent on dining at home, and consumers are trading down to lower grades of meat, and eating more carbohydrates in lieu of protein. Some are growing vegetables and herbs to save money, and many are buying more vitamins in a move to stay healthy.

Sales of alcohol and prescription drugs are rising in an apparent attempt to cope with rising stress, although there seems to be a shift to drinking at home rather than in bars.

This move to "Cocooning" does not bode well for restaurants, and other leisure and travel industries, which is confirmed by very weak sales of luggage.
The Recession; Walmart Style

"Most people do not commit crimes because they have controls in their lives which mean that the costs of crime far outweigh the benefits of crime. Such controls include attachment to family (e.g., marriage and children), commitment to a career, active involvement in a community and reputation, and belief in rules and discipline. Certain groups, i.e., the young, the working class, the underclass, etc. are less likely to have such controls in their lives and the benefits of crime clearly outweigh the risks of being caught and punished."
"Sociology", by Steve Chapman

With more and more of people being forced into a lower economic strata or worrying about their family's survival rather than "career commitment" or personal reputation, we can expect to see more and more people turning to crime as an acceptable alternative. The security business that centers on protecting the home should be a big beneficiary of these trends!

More on Deflation
15 June 2009

There is still a great deal of confusion and controversy about inflationary versus deflationary forces in the economy. Some prices are rising, at least temporarily, but the focus needs to be on the total amount of currency and credit, i.e. Dollars, in the system. As mentioned in previous articles, the data will prove that the issue has nothing to do with "printing money", because there is very little of that going on.

The graph below shows that "Currency in Circulation" grew from $792 Billion at the end of 2007 to $853 Billion at the end of 2008; an increase of 7.7%. Hardly the stuff of legends that created the "wheelbarrows full of money" which plagued the Wiemar Republic.

Data from the FED's 1Q 2009 Flow of Funds Report
page 84, Table L.204 estimates that the Currency in Circulation will only grow a minuscule $20 Billion in 2009! This is not going to lead to hyperinflation!

Regardless of all of the talk about "printing money", what the government is actually trying to do is to create Trillions of dollars of new credit to offset the credit that is being destroyed. How well are they doing?
The 1Q 2009 Flow of Funds Report shows a continuing credit collapse of unprecedented proportions!

"First and foremost, the Fed's numbers demonstrate, beyond a shadow of a doubt, that the credit market meltdown, which struck with full force after the Lehman Brothers failure last September, actually got a lot worse in the first quarter of this year.

This directly contradicts Washington's thesis that the government's TARP program and the Fed's massive rescue efforts began to have an impact early in the year.

In reality, the credit market shutdown actually gained tremendous momentum in the first quarter. And although it's natural to expect some temporary stabilization from the government's massive interventions, the first quarter was so bad, it's impossible for me to imagine any scenario in which the crisis could be declared over."
Martin Weiss

Look at what Table F.4 reveals:

We witnessed one of the biggest collapses of all time in "open market paper" — mostly short-term credit provided to finance mortgages, auto loans, and other businesses. Instead of growing as it had in almost every prior quarter in history, it collapsed at the annual rate of $662.5 billion. (See line 2.)

Banks lending went into the toilet. Even in the fourth quarter, when the meltdown struck, banks were still growing their loan portfolios at an annual pace of $839.7 billion. But in the first quarter, they did far more than just cut back on new lending. They actually took in loan repayments (or called in existing loans) at a much faster pace than they extended new ones! They literally pulled out of the credit markets at the astonishing pace of $856.4 billion per year, their biggest cutback of all time (line 7).

Meanwhile, non bank lenders (line 8) pulled out at the annual rate of $468 billion, also the worst on record.

Mortgage lenders (line 9) pulled out for a third straight month. (Their worst on record was in the prior quarter.)

And consumers (line 10) were shoved out of the market for credit at the annual pace of $90.7 billion, the worst on record.

The ONLY major player still borrowing money in big amounts was the United States Treasury Department (line 3), sopping up $1,442.8 billion of the credit available — and leaving LESS than nothing for the private sector as a whole.

Excluding public sector borrowing (by the Treasury, government agencies, states, and municipalities), private sector credit was reduced at a mind boggling pace of $1,851.2 billion per year!

And even if you include all the government borrowing, the overall debt pyramid in America shrunk at an annual rate of $255.3 billion (line 1)!

The first quarter brought the greatest credit collapse of all time!

"With ALL of these figures, we're not talking about a decline in new credit being provided, which would be bad enough. We're talking about a collapse that's so deep and pervasive, it actually wipes out 100 percent of the new credit and brings about a net reduction in the credit outstanding — a veritable dismantling of America's once-immutable debt pyramid!

For the long-term health of our country, less debt is not a bad thing. But for 2009 and the years ahead, it's likely to be traumatic"
Martin Weiss

What is the result of the credit collapse so far? The FED reports that the net worth of households + non-profits has declined $13.87 TRILLION since the top! Table R.100 This does not include losses of at least $3 Trillion to businesses.

The bottom line is this:

1. The economy does not suffer this kind of "body blow", hit bottom, and bounce off the bottom into an energetic recovery. If we have already seen the low, it could take years to start a real recovery. Japan hit its high in 1989, and has had several false starts but no recovery after 20 years; so far!

2. Virtually all government actions since the decline began in earnest last year have made matters worse. The current administration has elevated bad judgment to an art form. There seem to be no limits to what they will do to cripple the economy in the name of fixing it!

3. The forecast remains in place for a second, and more severe leg in the credit collapse and economic contraction to begin, probably before year end. There is nothing that would force a change in this outlook at this time!

Forewarned is forearmed.

Crude Oil Blowoff?
12 June 2008

If you've never watched a blowoff in the commodity markets, it looks something like this:

Soybeans Blowoff

Tops in commodities are usually propelled by fear, not by the greed that builds stock market tops, so the final move goes vertical. After the top is reached, prices crash back to the basing area.

If crude oil follows this pattern, the final high projects to between $160 and $189 per barrel, which is 17-38% higher than today's price; or roughly $4.68 to $5.52 per gallon of gasoline.

Crude Oil

If crude oil prices do follow this pattern, it's going to be a very expensive summer, but the post blowoff collapse could bring crude back to $50-79 per barrel, which could take gasoline down to around $2.00 per gallon. Is that possible? It has happened before!

Where's The Plunge?
02 June 2008

Some people claim that the credit crisis is over and point to the fact that the stock market hasn't plunged, yet; to prove their point. Do you want to see the first plunge from the effects of the credit crisis?

House Prices

The Economist is out with an article called "Dropping a Brick" commenting on the graph shown above. It seems that housing prices have already fallen more in the last 12 months than they ever did in any previous 12-month period, including 1932; the bottom of the great Depression!

"And things are even worse than they look. In the deflationary 1930s, America's general price level was falling, so in real terms home prices declined much less than they did nominally. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year. In nominal terms, the average home is now worth 16% less than at the peak in 2006, and the large overhang of unsold houses suggests that prices have further to fall. If so, this housing bust could well see a bigger cumulative fall in prices than the 26% real drop over the five years to 1933. Most people would call that a pretty destabilizing contraction."

And, keep in mind that the current recession is still in its early stages!

On another front, the FDIC is gearing up for rising bank failures. They are calling retired staffers and asking them to come back to work, because they see big trouble in the near future!


House of Cards
28 January 2008

MBIA and Ambac Bankruptcy?
19 January 2008

Cramer comments further on the crisis with bond insurance companies, and what it will most likely do to the stock market, and the states and cities who use their insurance for muni bonds.

I do NOT agree with Cramer that the government, i.e. the tax payers, should bail out these insurers!

Play Cramer video

For an update on problems that the current economic situation is causing for states and cities CLICK HERE.

A Complete Fiction!
18 January 2008

If you don't have the time or the inclination to follow the intricacies of the financial markets, then you will not be aware of this very important story, because the Mainstream Media have chosen to ignore it.

Here's the problem: bond insurers, like MBIA and AMBAC, insure about $2.4 Trillion of debt, mostly muni bonds issued by cities and states. However, the insurers are basically bankrupt, so they don't have the money to make good on any defaults. The rating agencies, S&P, Moodys and Fitch, are ignoring the situation by maintaining their AAA credit ratings on these insurers.

When this fiction can't be maintained any longer, the loss of their AAA rating will cripple the bond insurers, and throw doubt on the ratings of the debt the industry guarantees, which should cause the prices of these bonds to drop. This means that when cities and states go to issue new debt, without the ability to insure their bonds, they will have to pay higher interest rates, which will put a strain on their budgets, in the face of falling property and sales tax revenue.

Wall Street, the ratings agencies, and regulators, like the SEC, have been pretending that this problem doesn't exist, while insiders try to unload their holdings on unknowing customers. The Mainstream Media didn't have much to say about this, until yesterday, when Jim Cramer "spilled the beans". After his comments, the DJIA closed down 306 points! Click on this link to see what Cramer had to say.

The International Residential Real Estate Bubble!
02 January 2008

There are enormous bubbles in the UK, Spain, Canada, China, Greece, Portugal, Italy, France and Ireland, to name just a few. See video below:

Emerald by the Sea: Update!
23 December 2007

After yesterday's front-page story, in the Daily News, that this condo development was headed into foreclosure auction, developer Namir Faidi has now told the paper that this is not true! Despite repeated delays, today's article says that the building will be completed in "about two more months", and that the Emerald is in no financial jeopardy!

The best thing that can happen to the local real estate market, and the community as a whole, is to have every housing unit that is started to be completed, and occupied, so I can only hope that today's revision is true, and that the Emerald will be filled with happy homeowners in 2008!

We will wait and see!

Home Owner Equity!
21 November 2007

There was an interesting commentary on one of the Blogs, yesterday. The writer said, "Any analysis of home owner equity is a farce without pulling out the homes owned outright, i.e. those with no mortgages". If you don't do this, the effect of the debt on the mortgaged properties is underestimated.

Federal Reserve data shows: the total aggregate value of all homes is $22 Trillion, and the amount owed on these homes is $14 Trillion, leaving $8 Trillion in home owner equity.

However, approximately, $7 Trillion worth of all homes are owned outright. This means that only $22 Trillion - $7 Trillion = $15 Trillion worth of all homes are mortgaged. If the total aggregate value of all mortgaged homes is $15 Trillion, and the total amount of all mortgages is $14 Trillion; then mortgaged homes have $1 Trillion in total home owner equity.

$1 Trillion is certainly a lot of money, but these homes are leveraged at an incredible ratio of 14 to 1!! If the aggregate value of all mortgaged homes, in the U.S., declines just 6.67%; ALL OF THE AGGREGATE HOMEOWNER EQUITY, IN MORTGAGED HOMES, WILL BE WIPED OUT!

Based on the early declines from the bubble highs, this seems almost certain to happen!

A 20% decline in prices reduces the aggregate value of all mortgaged houses to $12 Trillion, leaving $2 Trillion in NEGATIVE EQUITY!

A 30% decline in prices reduces the aggregate value of all mortgaged houses to $10.5 Trillion, leaving $3.5 Trillion in NEGATIVE EQUITY!   

This is how leverage acts when prices move against your position. This extreme amount leverage will most likely produce millions more defaults and foreclosures, which will add millions of houses to the already high inventory. The added downside pressure on prices should be very dramatic! 

It's going to be a wild ride!!

06 November 2007

The most critical economic factor in the lives of most Americans has to be their employment status. The falling value of their house, their high level of debt, and the rising cost of the necessities of life, become of little concern if they don't have a job! But, don't worry, the government says that job growth is robust! The only problem is that it's not true!

With current population growth, the U.S. is adding about 2,000,000 people to the Labor Force each year. This is the number of people who need jobs. If the economy does not create at least 2,000,000 jobs, this year, it will not be growing; it will be adding people to the ranks of the unemployed. To add this many jobs, in 2007, the economy will need to add about 166,666 jobs each month, just to stay at this zero growth rate!

Last Friday, the government released their Non-Farm Payroll report, and it said that 166,000 jobs were created in October. This was hailed as great news, because the estimates had been for it to be as low as 80,000. However, since 166,000 jobs is still below the anemic zero growth rate, why is this good news?

To make matters worse, there weren't really 166,000 jobs created. The NFP report uses a combination of actual payroll counting along with an estimate of job creation. Their Birth/Death model of job creation, is about as accurate as the CPI in measuring inflation, and over the last few years, the B/D adjustment has become the dominant factor in the NFP count! This means that the number of new jobs actually counted was about 100,000. A number showing definite negative job growth, i.e. more unemployment.

The details of the report showed that Manufacturing lost another 21,000 jobs; adding to their losses from virtually every month this year. However, Government, at all levels, added 36,000 jobs which will just increase the burden already faced by tax payers, and Leisure & Hospitality added 56,000, mostly low-paying jobs.

These negative trends have been in place for sometime! In 2006, there were an average of 226,000 new jobs created each month. So far, in 2007, 
there were an average of 122,000 new jobs created each month. In Q3 2007, there were an average of 74,000 new jobs created each month. These numbers show a clear decline in job creation, and growing unemployment in 2007!

In addition, temporary jobs are down 70,000 from a year ago; the biggest decline in 5 years!

The flip side of payroll reports are unemployment reports. These reports are showing a slight rise, but they are grossly understating the real numbers by using their famous Not-in-Labor-Force adjustment. This means that once the government decides that a worker can't find a job, they remove them from the Labor Force, so they don't have to be counted as unemployed!! Currently, there are a lot of people classified as NILF!

Weakening job growth is a problem that has been plaguing the economy for a very long time! The Economic Policy Institute just did a study on job growth during the four major post WWII business cycles. They found that job growth from beginning to end of each cycle was:

Beginning Date Overall Job Growth
April 1960 18.3%
July 1981 13.2%
July 1990 10.4%
March 2001 4.3%

This data shows that Reagan did indeed bring back robust growth after the Stagflation of the 1970's, but it was still not as good as in the 1960's! Later, Clinton claimed to have engineered "the strongest economy in history", which was clearly not true. Currently, Bush says we are enjoying a "strong economy", as job growth is turning negative.

In reality, the economy has been in a long decline, ever since the gold backing was completely removed from the Dollar, in 1971. Since then, this long-term trend has been punctuated by strong periods and weak periods, but the trend continues to be down!

Potential Supply!
30 October 2007

The Census Bureau just reported that 17,900,000 houses are currently vacant in this country! That's up 7.8% from the 16,600,000 that were vacant in 3Q 2006. However, the most shocking statistic, in this report, was the fact that ONLY 2,070,0000 of these vacant homes were for sale! This means that an incredible 15,830,000 vacant houses are currently not on the market! With the negative cash flow, or lost income, associated with each of these houses, how much longer can owners hold these units off the market hoping for higher prices? These 15,830,000 houses represent a HUGE increase in potential supply in an already glutted market!

The current inventory of houses for sale includes all the occupied homes for sale, plus the 2,070,000 vacant homes for sale, which has produced a record 10 months of supply of inventory, on a nationwide basis. However, this figure does not include the 15,830,000 vacant houses that are currently on the sidelines! What will happen when these owners capitulate and try to sell?

There are also another $800,000,000,000 worth of ARMs that will reset, between October 2007 and December 2008, that are going to create a lot more supply, as owners are forced to sell or lose them through foreclosure!

The bottom line is that there are millions of housing units, in this country, that are unneeded, when current demand is considered, and with builders still building, it should be clear that this mess will take several more years to resolve!

Tapped Out?
10 October 2007

For the last few years, home owners have been using their houses as ATM's, and then using the cash to increase their spending. With tighter lending standards, and declining available equity, that well is running dry!

Home Equity Extraction

Now consumers are borrowing more heavily from their pension plans, and turning to their last resort; credit cards!

In August, non-mortgage consumer debt rose at an annual rate of 5.9%, up from 4.7% in July. The bulk of the increase came from revolving credit, primarily credit cards, which rose 8.1% versus 7.5% in July. Notice how revolving credit has been growing since the housing bubble topped in 2005!

Revolving Credit
Year Annual Growth Rate
2003 2.3%
2004 3.8%
2005 3.1%
2006 6.3%
June 2007 7.1%
July 2007 7.5%
August 2007 8.1%

Since retail sales are slowing, and growing at a much lower rate, than revolving credit, it must mean that more and more consumers are being forced to use their credit cards just to pay their monthly bills!

When will the consumer throw in the towel and admit that they are tapped out? With job losses mounting, it shouldn't be too much longer.

03 October 2007

Real estate auctions should be a very good price discovery and sales tool, but buyers are showing that they think prices have a long way to go on the down side, with their low bids; or no bids. The three auctions, of Galveston properties, this year, did not go well, a large auction in Naples, Florida, sold few of the listings, and now Myrtle Beach suffered that same fate last weekend.

From the Myrtle Beach Sun News:

A real estate auction Saturday morning at the Myrtle Beach Marriott Resort at Grande Dunes had plenty of ammunition for those who want to say the Myrtle Beach housing market is in the tank.

Only a few of the 50 properties offered had final bids above what the auctioneer sought as opening bids, a number were withdrawn because they had no bids at all and others likely won't make it to the closing table.

The auctioneer refused to even consider a $1 million bid on a 7.5-acre Myrtle Beach property with a 3,700-square-foot house. The property was estimated to be worth $10 million and the auctioneer was looking for a $4.5 million opening bid.

"I think the good that happened today," said Joe Exum, one of the owners of Coastal Auction Co., "is our sellers saw what the market perception of value is now."

That doesn't mean the auction was a true reflection of the overall market, though. Investor Alain Wiseman, who walked away the high bidder on a number of the properties, said he could build homes on the six Intracoastal Waterway-front lots for which he registered the high bid and find plenty of sellers willing to pay the $400,000 to $500,000 he guessed he would ask.

Except for two condominiums near Coastal Carolina University, sellers didn't have to accept the final bids. The two condominiums, two bedroom/two bathroom units in a building on S.C. 544, were sold as absolute, meaning sellers agreed to accept the final bids before the bidding began. The sellers got $70,000 and $71,000 for the units, $5,000 to $10,000 above what was bid for two other condominiums in the same building.

Bidding opened to a crowd of a couple hundred, at least, but most ended up as lookers, not buyers.

It was a debut auction for Coastal, and Exum said what may result from the auction does not forecast what will happen with the company.

Auction companies do well in both slow and fast real estate markets, he said.

The company has another multiple-property auction Oct. 27 focusing on south-end and Waccamaw Neck properties, including lots in Murrells Inlet and DeBordieu. In between, the company is scheduled to auction the El Dorado Motel on Oct. 18 and a home in Lake Arrowhead on Oct. 20.

Exum said he expected more activity at Saturday's auction from a variety of buyers, but what he saw was a roomful of hesitant buyers and sellers.

Exum said his company spent an estimated $150,000 advertising for and staging the auction. Sellers paid a fee to have their properties as part of the event, he said.

But he didn't know after the auction if it was a moneymaker. Agents will be working for more than a week to try to close the properties, which may be done for a price different from the final bids.

If successful, Wiseman will pay $165,000 for each of the Intracoastal Waterway lots in the Socastee area. Besides the lots, he was the high bidder at $750,000 on a 4,800-square-foot oceanfront house in Myrtle Beach, at $500,000 on a 3,300-square-foot condominium at Ambassador Villas and at $460,000 on a building and a 12-unit motel in Atlantic Beach.

Properties that got no bids included several multimillion dollar homes in Grande Dunes and two vacant, oceanfront lots in Atlantic Beach.

Ashok Patel, a hotel owner in Charlotte, N.C., said he came to the auction to see what the Myrtle Beach market was like and walked away with a firm impression.

"I hope it doesn't come to Charlotte," he said.

Here are some interesting graphs of median listing prices, from the highs, to the present time. Click on the graphs for a larger image.

17 September 2007

What's wrong with this picture?

As the DJIA approached its new all-time high, on 17 July, the bulls trumpeted their beliefs that: this market would push ever higher, we were blessed with a strong economy, and the sub-prime crisis was "contained"! By 16 August, the DJIA hit an intra-day low, ONLY 10.73% below the all-time high, and then rebounded 328 points, before the close. However, even after this strong snap-back rally, the bulls were screaming for the FED to cut interest rates, to "save the market"! Why?

In the past, you had to be deep into a bear market, at least 20% below the high, before there was any perceived need for "intervention" by the FED! If it's still a bull market, and the economy is still strong, how could there possibly be a need for interest-rate cuts, at this point; so soon after an all-time high?

From the 16 August low, the market has rallied for almost a month to a point where it closed a mere 4.13% below its all-time high, on Friday. However, we go into next week with the bulls DEMANDING interest-rate cuts from the FED, at its meeting on Tuesday, AND a bailout, 
from the federal government, for "the victims" of the housing bubble; or, they say, the stock market, and the economy will collapse! I ask again; if the stock market, and the economy are so strong, why will they collapse without cutting rates, and a housing bailout?

It looks like the bulls are REALLY WORRIED, about the basis for their own arguments, no matter how much they claim things are just fine! They seem to be trying to maintain their state of denial, so that they don't have to face the ugly truth!

We are currently in the final stages of the biggest credit bubble in history! It is a global phenomena, and there are even 2 or 3 countries where house prices are more inflated than in the U.S.! Note the plots for Britain, and the U.S., below.

Global House Prices

The U.K. portion of the bubble sprang its first major leak, on Friday, when there was a run on Northern Rock Bank. After the run on Countrywide, in the U.S., a few weeks ago, this is not a good sign!

The U.K. FTSE Stock Index peaked on 18 June, and then bottomed on 17 August, ONLY 14.07% below its high. From there it rallied back to close just 7.08% below the peak, on Friday.

Earlier in the week, the Bank of England said it would NOT consider any bailout like the one being demanded in the U.S.! However, as the crowds grew more and more restless in front of Northern Rock branches, around the country, demanding their money; the BoE stepped in, and bailed them out! They clearly showed their fear that a failure to do so could threaten their entire financial system!

Northern Rock

How could things be this bad, when we are just below the highs in the U.S., and U.K. stock market indexes? What will happen, if, and when they move lower?

Our "correspondent", on the ground, in the U.K., said it was chilling to watch a bank run up close and personal. Click here for the video.    

As you watch the news, in the coming days and weeks, ask yourself two questions:

1. If the bulls have so much confidence in the stock market, and the economy, why are they in such a PANIC?

2. Why do the bulls believe that the FED can "save" the stock market, and the economy, by lowering interest rates? It didn't work in 1929 (U.S.), for the 1989 Japanese market, or during the 2000 NASDAQ bubble (U.S.) (see below).

FED Interest Rates

Is Your Money Safe?

Where Did It Begin?
12 September 2007

In my article, Inflation, the Big Lie, I made the point that virtually ALL of the economic statistics that were created by the government have been manipulated, for decades, to create a falsely positive picture of the economy! Currently, many independent analysts agree that the inflation rate, and the unemployment rate are MUCH HIGHER than the government statistics say, and that economic growth is MUCH LOWER! This excerpt from "The Daily Reckoning" speaks to the issue of how housing costs are misrepresented in the CPI!

..... I am even more proud to present Robert Hardaway, who is a professor of law at the University of Denver Sturm College of Law, to tell how this started.

He relates, "In 1983, the Bureau of Labor Statistics was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15 percent, thereby making the country's economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2 percent real return after inflation, that would mean that bond and money market yields could climb as high as 17 percent."

Yikes! What to do, what to do, what to do whattodowhattodo? "The BLS's solution was as simple as it was shocking: Exclude the cost of housing as a component in the CPI, and substitute a so-called 'Owner Equivalent Rent' component based on what a homeowner might 'rent' his house for." Hahaha! The government resorts to lying! "Wow! Why didn't we think of this before?" they are heard to ask among themselves.

Fortunately for the government, it worked. "The result of this statistical sleight of hand was immediate and gratifying," Mr. Hardaway writes, "for the reported inflation index quickly dropped to 2 percent", down from the real, and horrifying, 15 percent, which was due "in part" to the drop in rents caused by speculators wanting to "offset their holding costs by renting out their homes while their prices skyrocketed, thereby flooding the market with rentals that pushed down the cost of renting a house or apartment." Hahaha!

You can almost hear the contempt in his voice when he says, "While the BLS was correct in assuming that this statistical ruse would fool the average citizen into believing that inflation was only 2 percent (and therefore be willing to accept a meager 4 percent return on his bank savings), what is remarkable is that the ruse also fooled the bond traders, and apparently continues to do so, leading analyst Peter Schiff to describe these supposed savvy bond traders as the 'hormonal teenagers of the capital markets.'"

Putting it all together, he concludes, "The present subprime credit crisis can be directly traced back to the BLS decision to exclude the price of housing from the CPI. It is now clear that the 'benign' inflation figures reported over the last 10 years" were, (using my awesome editorial powers to insert my own words for special emphasis), "A big stinking load of lying crap by the corrupt Federal Reserve and the despicable government (except Ron Paul)."

The Daily

10 September 2007

Last week, the consensus thinking of most economists was that the jobs report would show an increase of about 120,000, in August. They were shocked when it came in with a loss of 4,000 jobs! This is the first reported loss in jobs since August 2003!

Even worse was the fact that the June employment number was revised down from 132,000 to 69,000, 63,000 fewer jobs than first reported; and July employment was revised down from 92,000 to 68,000, 24,000
fewer jobs than first reported! This report was nothing short of a disaster!

The bulls have been saying, for months, that manufacturing is "recovering". The August report showed a loss of 46,000 manufacturing jobs, and 22,000 construction jobs, and everyone knows that the losses in construction are far worse than reported since so many jobs were held by illegal aliens! Data on the temporary work force, which almost always leads the official reports, show job growth topping two years ago, and getting weaker ever since then! For this reason, the August employment report should NOT have been a big surprise!

It is difficult to tell how many jobs were lost due to the new minimum wage law that went into effect on 24 July.

It has been 3-4 weeks since we've heard any more talk that the sub-prime mess was "contained", and even many bulls are now discussing the probability of a recession. Layoffs in the financial services sector are just beginning, so it's hard to imagine that future employment reports are going to improve!

With retail sales looking weaker, too, the economic "hurricane flags" are flying, so it's time to prepare for the coming storm!

The Wizard!
04 September 2007

In "The Wizard of Oz", Dorothy, the Scarecrow, the Tin Man, and the Cowardly Lion all make their way to the Emerald City, to see the Wizard, because they believe that he can magically give each of them what they desire. Eventually they discover that the "The Wizard" isn't a wizard at all, but just an ordinary man behind a curtain with no special powers.

Over the last few weeks, many market players have been screeching that Federal Reserve Chairman Bernanke should assume his role as "the Wizard of the economy and the markets", so he can pull some magic levers, and make all of their losses from ill-advised speculation go away. They are about to find out, like the characters in the movie, that Bernanke has no magic powers! In fact, the Federal Reserve often doesn't even understand the problems in the economy and the markets, let alone know how to fix them! Recently, some of the best comments on "the magic powers of the Fed came from Mike "Mish" Sherlock, which are reprinted below:

August 26

Bernanke Proves he is a Complete Fool!

There really should have been no doubt about this before, but there was and by someone whose opinion I highly respect as well. Just two days ago this person asked "Mish, what's your gripe with Bernanke?"

Bernanke Gripe List:
  • I think interest rate targeting to the CPI is complete foolishness.
  • I think ignoring asset bubbles and dealing with them later is complete foolishness.
  • I think he set very bad precedent about what the Fed is willing to hold as collateral.
  • I think he is an extremely poor study of the causes and cures of the great depression.
  • I think a policy of positive inflation is a policy of blatant theft that benefits those with first access to the money (banks and the wealthy) to the detriment of everyone else.
Other than that what's not to like?

Of course the big market participants like what he has done. Bailing out the markets on options expiry open.... What's not to like about that? Taking risky collateral and being willing to roll it over forever.... What's not to like about that? (For more on this topic please see Now we know who and why.)

But today we get to add to the list. Please consider New mortgage products could help, Bernanke says.

"The private sector and Congress should create new, affordable mortgage products that would help some homeowners refinance their mortgages and keep their homes," Federal Reserve Chairman Ben Bernanke suggested in a letter released Wednesday.

In the letter to Sen. Charles Schumer, D-NY, Bernanke repeated that the Fed is closely monitoring markets and stands ready to act if needed. The Fed issued a statement with almost identical wording on Aug. 17 after it cut the discount lending rate to 5.75%. The letter from Bernanke was dated Aug. 27 and released by Schumer's office on Wednesday.

In his letter, Bernanke called for creative thinking to get the nation out of its subprime mess.
"It might be worth considering at this juncture whether the private and public sectors, separately or in collaboration, could help the situation by developing a broader range of mortgage products which are appropriate for low-and moderate-income borrowers, including those seeking to refinance," Bernanke wrote.
"Such products could be designed to avoid or mitigate the risk of payment shock and to be more transparent with respect to their terms," Bernanke wrote. "They might also contain features to improve affordability, such as variable maturities or shared-appreciation provisions for example."

Congress is considering legislation that would reform the Federal Housing Administration, which is a federal agency that provides mortgages to low-income buyers. FHA loans have been largely supplanted by subprime lending from the private-sector. But FHA loans, with tighter lending standards and less onerous terms, have not defaulted at the rates recently seen in subprime loans.

Under current law, the FHA cannot lend to those who are behind on their mortgage payments.

Bernanke cannot Distinguish Problem from Solution

With that proposed "solution" Bernanke proves he is a complete fool. Once again we see he is totally incapable of distinguishing the problem from the solution. That is why he is wrong about the great depression and that is why he is wrong again now.

The cause of the great depression was an enormous expansion of money supply and credit leading up to the economic collapse. Bernanke insists the solution was more monetary stimulus by the Fed. He is completely misguided.

He is now repeating the same mistake. The Housing bubble was created by too loose monetary policy by the Fed in conjunction with Congressional meddling.

Problem or Solution?
  • Fannie Mae and Freddie Mac are the problem not the solution.
  • Innovative lending products are the problem not the solution.
  • 300+ Congressional bills to make housing affordable is the problem not the solution.
  • Repeatedly bailing out the markets is the problem not the solution.
  • Creative thinking sponsored by the Fed and embraced by both Greenspan and Bernanke is the problem not the solution.
  • Greenspan embracing ARMs and derivatives is the problem not the solution.
  • Being "Ready and Willing to Act" is the problem not the solution.
  • The HUD is the problem not the solution.
No Mr. Bernanke, It's most assuredly NOT "worth considering at this juncture whether the private and public sectors, separately or in collaboration, could help the situation by developing a broader range of mortgage products which are appropriate for low-and moderate-income borrowers, including those seeking to refinance."

The Fed and this Congress and that general attitude are the problem not the solution. Every passing day, more and more government intervention is piled on top of government intervention on top of government intervention all in an effort to correct what went wrong with the last government intervention. No one ever bothers to figure out that it was the original government intervention that created the original problem.

The "Original Sin" in this case goes way back, all the way to 1913 when Congress created the Fed. With that in mind, it should be perfectly clear what the problem and the solution is.

THE problem is the Fed.
THE solution is Ron Paul.

It's time to abolish the Fed and restore fiscal and monetary sanity with money backed by hard assets such as gold. Ron Paul will do just that.

Mike Shedlock / Mish

Cuyahoga County:
Coming to Your Town?
23 August 2007

Galveston Already Has Too Many Vacant Houses!
22 August 2007
Galveston County Daily News

David Stanowski recently commented on the blight that vacant houses have become in cities such as Phoenix and Cleveland (“Housing supply too high for more development,” The Daily News, Aug. 16).

Well, the blight is already here, and it’s on Galveston’s East End.

My block of pre-1900 historical homes has two vacant houses, now owned by out-of-town banks. The previous owner of these two fine homes bought a total of six historical properties during the “bubble” and defaulted on all six.

As neither the banks nor the realty companies make any effort at maintenance, “the overgrown landscaping, untended swimming pools breeding mosquitoes and hazards for children and invasion by vagrants” that Stanowski described in other cities are in full evidence here in Galveston.

The only time the weeds are hacked back is when a neighbor pays to have it done.

And who will be closing the shutters and boarding up these homes for the next storm? I wonder.

Stanowski is correct. It is time for the city of Galveston to act to minimize the negative impact of vacant houses and rein-in the developers.

Paul Boor

Real Estate Data?
15 August 2007

It has been very frustrating to get data on the local real estate market. I note in today's Buzz Blog, that Laura Elder, of The Galveston County Daily News, has run into the same problem. What do you think is going on?

Galveston County Daily News

Wouldn't you like to know?
By Laura Elder

Earlier today, the Houston Association of Realtors said the market was holding up pretty well considering the mortgage meltdown. Single-family home sales grew to 6,856 homes in July, a 1.6 percent increase from the month before, the association reported.

While the association’s Multiple Listing Service includes statistics for properties on much of the mainland, it also leaves out a large chunk of Galveston County. That’s where the Galveston Association of Realtors comes in, or in this case, doesn’t. The Galveston MLS includes parts of Bolivar Peninsula, Galveston, Hitchcock, La Marque and San Leon.

The Houston association offers a beautiful array of statistics. But ever since I began reporting for the Daily News, I’ve been baffled by the lack of similarly organized data from the Galveston association.

The Houston association's statistics are helpful. But it doesn't say anything about the island market, comprised largely of second homes and suffering from a condo glut.

I understand the Galveston Association of Realtors is considerably smaller than its Houston counterpart. Money is probably an issue. (I can't be sure because no one was there to take my call Wednesday afternoon.) And to be fair, some members of the association in the past have attempted to help me in my quest to cover real estate. But mostly, I've depended on the kindness of Realtors to offer insight and data on local housing sales.

While housing isn’t the whole economy in the county, it’s a big part of it.

Is it just me? Or wouldn't you like to know more about home sales in Galveston County?

The Lasker Home Auction
14 August 2007

As I predicted, the auction was canceled!! Reality has not set foot on The Island, yet! I couldn't be sure, but I think only one other observer showed up; there were no bidders!

I think that real estate auctions are a very good process for turning very ILLIQUID real estate into cash, quickly, but they are never going to work, in Galveston, until two things happen.

First, the auction companies have to actually market the property well enough to draw a real crowd of interested buyers. Second, sellers have to be willing to set a very low reserve price, or none at all.

Until these things change, auctions will continue to bomb!

The Lasker Home
06 August 2007

We became enchanted with this magnificent Greek Revival house while we were working on our tour of the San Jacinto Neighborhood! It was first known as the Marcus McLemore House, and later the Lasker Home for Homeless Children. This property has been on the market for several months, and now it is up for auction.

San Jacinto
The Marcus McLemore House (1869-70)

We were able to tour this 9,000 square foot house, yesterday, during the first open house. It is well worth the time to see this property, and don't miss the widow's walk on the roof! What a view of The Island!!

There are five more chances to see the Lasker Home, before the auction.

Friday 10 August
Saturday 11 August
Sunday 12 August
Monday 13 August

2-6 pm

Tuesday 14 August:

Open 12 pm, registration 2 pm, auction 3 pm.

When we attended an auction for a house on Ball Street, several months ago, the seller had a reserve as high as their original MLS selling price, and the auction bombed! Buyers want to have a chance of getting a bargain at an auction! A high reserve doesn't help a property move!

This seller has listed his reserve price as $1.18 Million. I will be very surprised if they get any bids!!

For more information.

04 August 2007

I was totally shocked by what happened, yesterday!!

The S&P 500 just made a new all-time high on 16 July, only 18 days ago, then it dropped a mere 7.9% off that high, and Wall Street already appeared to be in a full panic mode!!

Their suggested remedy is what they always want; a bailout from the FED. They want the FED to create a whole lot more easy credit (money), to make it easier for everyone to payoff their debts. Of course, the reason it is easier to pay off your debts is because they increase the number of dollars, which lowers their purchasing power, and this inflation causes prices to rise. Are you ready for $5 or $6 gasoline?

The reason that we are in this mess is because this is exactly what the FED did in 2001-2002, so that the collapsing stock market didn't cause a financial meltdown, at that time. This easy credit brought on the housing bubble, and the 2002-2007 rally in the stock market.

If the FED does flood the market with more easy credit, I don't think it will work this time. The people who have toxic mortgages on their homes will not qualify for refinancing when they have to apply the loan standards that were used before the housing bubble!

Now that it is all falling apart, the mortgage brokers, and Wall Street crowd want to do it again! They are afraid that they are going to lose millions of dollars, be sued for misrepresenting the mortgage instruments they sold, and face criminal indictments! This scandal will make Enron look like a misdemeanor!

Jim Cramer is an analyst and commentator on CNBC. He owns, and he used to run a successful hedge fund. He has been an unremitting bull, on the stock market, and he has mocked everyone who said that the mortgages that were written during the housing bubble, were going to cause a major financial meltdown. Click on the video below to see what Cramer had to say, yesterday!

Jim Cramer video.

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