September 7, 2008 is the day our country turned Socialist. We are capitalists when our fat cat CEO's are getting rich. We are socialists when their reckless bets go bad. Catastrophe is in our future. by Jim Quinn
(libertarian)
Tuesday, September 9, 2008
Government - "If you think the problems we create are bad, just wait until you see our solutions." Source: Despair.com
September 7, 2008, the 10th anniversary of the Federal Reserve arranged bailout of the infamous hedge fund Long-Term Capital, is now a more infamous date. This is the day that our government became Socialist. Free market capitalism is dead. Our elected leaders just increased the national debt from $9.6 trillion to $15 trillion, a 56% increase in one weekend. Hank Paulson seems to like dishing out our tax dollars on weekends. He bailed out Bear Stearns on a weekend and previously tried to save Fannie Mae and Freddie Mac over a weekend. But, this was his best work yet. He arranged for the takeover of two of the worst run financial institutions on the planet. They hold or guarantee $5.4 trillion of mortgages. There is a clear distinction between those who saw this coming and those who were lying to the American public.
Those Who Saw It Coming
"Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks - when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur - I shiver at the thought."
Nicholas Taleb in The Black Swan, written in 2006
"Banks are now more vulnerable to the Black Swan than ever before with -scientists' among their staff taking care of exposures. The government sponsored institution Fanny Mae, when I look at their risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events - unlikely'."
Nicholas Taleb in The Black Swan, written in 2006
"Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich."
James Grant, Grant's Interest Rate Observer 2007
"The US financial system is teetering. Its US Dollar currency is losing global support, with some outright revolts in crucial territories. The chief private sector export from the US financial sector has been fraud-ridden asset-backed bonds and their toxic credit derivatives. What should anyone expect? For years an institutional dishonesty within all things financial in the United States has been engrained, spreading, and become integrated with high levels of the US Govt. The Wall Street hucksters exported fraud. The backlash might be more severe than the soft soap gurus anticipate. Look for an international boycott. The shock waves in the US financial markets are preliminary symptoms of bigger events soon to come. Stability identified is nothing but quiet between tremors."
Jim Willie, Hat Trick Letter 2007
"The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion. America has become shackled by an immovable mountain of debt that endangers its prosperity and threatens to bring the rest of the world economy crashing down with it. The ongoing sub-prime mortgage crisis, a result of irresponsible lending policies designed to generate commissions for unscrupulous brokers, presages far deeper problems in a U.S. economy that is beginning to resemble a giant smoke-and-mirrors Ponzi scheme. And this has not been lost on the rest of the world."
Hamid Varzi, International Tribune 2007
"As calamitous as the sub-prime blowup seems, it is only the beginning. The credit bubble spawned abuses throughout the system. Sub-prime lending just happened to be the most egregious of the lot, and thus the first to have the cockroaches scurrying out in plain view. The housing market will collapse. New-home construction will collapse. Consumer pocketbooks will be pinched. The consumer spending binge will be over. The U.S. economy will enter a recession."
Eric Sprott, Sprott Asset Management 2007
Those Who Lied
Treasury Secretary Henry Paulson said U.S. financial markets are emerging from the credit crunch and that "the worst is likely to be behind us," marking possibly the most optimistic comments yet from the Bush administration on the financial crisis.
Wall Street Journal, May 7, 2008
My Comment: I think the next time Paulson will be optimistic is January 20, 2009 when he can run, not walk, out of Washington DC and start enjoying his $700 million net worth again. He has certainly made his mark in two years on the job.
"If you've got a squirt gun in your pocket, you may have to take it out.- If you've got a bazooka, and people know you've got it...you're not likely to take it out."
Secretary of the Treasury Henry Paulson, July 15, 2008 (testifying before the Senate Banking Committee about government support of mortgage lenders Freddie Mac and Fannie Mae).
My Comment: Hank evidently had a squirt gun in his pocket.
"We've got strong financial institutions . . . Our markets are the envy of the world. They're resilient, they're...innovative, they're flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong."
US Treasury Secretary Henry Paulson on Sunday, 3/16/2008
My Comment: Now that we've turned Socialist, I'm sure Sweden and Denmark will welcome us into their economic circle.
"In my judgment, we are closer to the end of the market turmoil than the beginning," he said. "Looking forward, I expect that financial markets will be driven less by the recent turmoil and more by broader economic conditions and, specifically, by the recovery of the housing sector."
US Treasury Secretary Henry Paulson, 5/16/2008
My Comment: In my judgment, Hank may have been a little premature.Hank appears to have the same economic instincts as Greenspan. I can't wait to read his book.
"I think it's going to be months that we're working our way through this period, clearly months. Of course the list [of difficulties] is going to grow longer given the stresses we have in the marketplace, given the housing correction - but again, it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."
US Treasury Secretary Henry Paulson, 7/21/08
My Comment: When you receive a blank check from Congress everything is manageable. Hank just increased the debt burden of every person in America by $17,400 ($5.4 trillion/310 million people).
"This is not a time to be panicking about this. These are viable, strong institutions," Sen. Christopher Dodd, D-Conn., said at a Capitol Hill press conference. "The economics are fine in these institutions and people need to know that," Dodd said. There's no reason "to talk about failure," he added. "These two institutions are fundamentally, fundamentally strong," Dodd said. "There's no reason for the kind of reaction we're getting."
Senator Christopher Dodd, July 11, 2008
My Comment: Can you believe this fool could have been our President?
"I believe Fannie and Freddie are better off than the market thinks. Over the long term the market is a very rational distributor of resources, but in the short term it can fall prey to hysteria. Sometimes you need to deal with that. Part of the problem is rumor mongering by short-sellers. Our hope is that just by making U.S. financial support available, we'll quiet the fears and eliminate any need for that support."
Rep. Barney Frank, chairman of the House Financial Services Committee, April 25, 2008
My Comment: Those damn short sellers have ruined Fannie Mae and Freddie Mac. It doesn't have anything to do with fraudulent books, $12 billion in losses, bribing Congressmen with cushy jobs and $175 million in lobbying, and absolutely no risk management or management competence.
"And by the way, the decisions on Fannie Mae and Freddie Mac - I hear some say bailout, I don't think it's a bailout."
President Bush after signing homeowner bailout bill in July 2008
My Comment: MISSION ACCOMPLISHED!!!!!!
"At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."
Fed chairman, Ben Bernanke, Congressional testimony, March, 2007
My Comment: Yes, contained within this planet. Mars does not appear to be having any problems. Of course, if we allow Fannie & Freddie to lend to Martians, they would.
"Capping the size" of their portfolios is important for "controlling potential systemic risk"
Ben Bernanke's written response to Senator Jim Bunning.
My Comment: Great idea Ben. So why are we now allowing them to expand their lending by $320 billion over the next 16 months?
"It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions."
Ben Bernanke, August 31, 2007
My Comment: We've now protected Bear Stearns, Fannie Mae, and Freddie Mac from the consequences of their financial decisions. They have all been deemed too big to fail. Who let them get too big to fail? You did Ben.
CBO and the Joint Committee on Taxation (JCT) estimate that enacting this legislation would:
Increase direct spending by $41.7 billion over the 2008-2018 period, and
Increase revenues by about $16.8 billion over the 2008-2018 period.
In total, those changes would increase budget deficits (or reduce future surpluses) by about $24.9 billion over the 2008-2018 period.
Congressional Budget Office Estimate of cost of Homeowner Bailout Bill, July 23, 2008
My Comment: The good old Congressional Budget Office got there best people on this job. They estimated that the total cost to taxpayers of the homeowner bailout bill to be $25 billion, with only a 5% chance of the cost reaching $100 billion. Experts are now estimating the cost to taxpayers at $200 to $300 billion. I bet these CBO analysts could get really high paying jobs at Fannie Mae and Freddie Mac with their keen abilities to predict the future.
Consequences to the U.S. Taxpayer
We now know that our government prefers to screw us on the weekend, while we are distracted by football games, errands, and laundry. I noticed that Paulson didn't mention how much this would cost the American taxpayer during his speech. Two honest Americans, who have been right on this issue for the last two years, John Hussman and William Poole, have concluded that the tax bill will be $250 billion to $300 billion. Mr. Hussman's analysis is as follows:
"A record 9.16% of U.S. mortgages were in delinquency (6.41%) or foreclosure (2.75%) as of June 30. This figure will likely be even worse in the third quarter report. With that January 2009 "sunset" provision now gone, I expect that U.S. taxpayers will be on the hook for about $250 billion in losses. Look - 9.16% of U.S. mortgages are already delinquent or in foreclosure, with the likelihood of further delinquencies and foreclosures in the coming quarters. On a $5.2 trillion book of mortgage loans between Fannie and Freddie, and a prevailing recovery rate of 50% on foreclosed properties, an overall loss of about 5% of this book, or about $250 billion, is a fairly conservative expectation."
In an interview on Bloomberg News yesterday, William Poole had this to say:
William Poole, former president of the Federal Reserve Bank of St. Louis, said taxpayers may face a $300 billion bill to revive Fannie Mae and Freddie Mac, the mortgage giants being taken over by the Federal government. "I would not be surprised if their total losses aggregate about 5 percent of their obligations'' of about $6 trillion, Poole said today in an interview on Bloomberg Radio. ``Five percent does not seem to me to be an outrageous guess.''
To put $250 billion of losses in perspective, the tax bill of every household in America just increased by $2,300. You will not get a bill from the IRS because the government has chosen the immoral route of shifting this burden to your children and grandchildren. The U.S. Government has no money. It is broke. The $250 billion will be borrowed from the Chinese and Saudi Arabia, with an annual interest charge of $10 billion. This is $250 billion that will not be spent on education, infrastructure, or energy independence. It is the cost of financial recklessness of banks, greedy CEO's, and Americans who thought you could get something for nothing. Future generations will pay the price of our greed and malfeasance.
These actions by our clueless politician "leaders" will not solve anything. It will just keep this ponzi scheme going for a little while longer. Those who were tipped off of the announcement late Friday, probably made millions. Bank stocks mysteriously started to rise late on Friday. I'm sure the SEC is opening an investigation. These are the things that have not changed:
There are 4.7 million homes for sale representing an 11.2 month supply, the highest in history.
Home prices have fallen 16% in the last year according to the Case Shiller Index.
Foreclosures totaled 1.2 million in the 1st 6 months of 2008, a 100% increase over the prior year, and are accelerating at the fastest pace in 3 decades.
Based on historical home price relationships, we should expect a further 15% decline by 2010. This will result in further foreclosures.
Option ARM and Alt A delinquencies will be accelerating in 2009 based upon their issuance.
Unemployment is accelerating and will not peak until 2009, probably north of 7%.
We are in a recession that is being driven by consumers with too much debt. Consumer spending reductions will hurt retailers and mall developers tremendously.So, enjoy the 300 point rally in the Dow, while it lasts. If you are having some trouble making your mortgage payment, paying that huge electric bill, or making the minimum payment on your credit card, just call Hank Paulson at 1-800-BAILOUT.
The views expressed
in this article are those of Jim Quinn only and
do not represent the views of Nolan Chart, LLC or its affiliates.
Jim Quinn is solely responsible for the contents
of this article and is not an employee or otherwise affiliated
with Nolan Chart, LLC in his/her role as a columnist.
Want to comment on
this article? Leave your comment
here. Your email address is required to track your
comment. However, we will neither publish your email
address nor distribute it to other organizations or
persons. The only reason we might use it would be if
we needed to contact you regarding your comment. All
comments are subject to our
terms of use policy.
