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Tuesday, March 30, 2010

Bread and Circus

Items of Interest:

The WilliamBanzai7 Blog:
MUNI-MAYHEM -- plus more songs in the key of low finance...

Financial Armageddon:
Odd One Out  --  OK, class, time for another Financial Armageddon brain teaser. Can you tell which of the following recent reports is the odd one out? ...
Mark Fisher / Bloomberg:
U.S. Decline, Sloth Look a Lot Like End of Rome -- The U.S. today is a mirror image of the Roman Empire as it tipped into chaos. Whether we blame our bloated government, a greedy elite or a lethargic population, the similarities between the two foreshadow a gruesome future...

Americans have become less productive while relying more on social safety-net programs such as Medicare, Medicaid and Social Security -- and now expanded health-care insurance. Worse, like the ancient Romans, a sense of entitlement has replaced the drive and motivation we once championed. With easy access to abundant government handouts, it’s no wonder so many jobless people have stopped looking for work.

Bread and Circuses...
Larry Kudlow / Real Clear Markets:
Lower Prices, More Foreclosures Will Solve Housing -- With everybody focused on Obamacare, and its new entitlement spending and taxing, the administration has tried to sneak in yet another bailout for housing. Yet again, Team Obama is rewarding reckless behavior, punishing the 90 percent of responsible homeowners who are making good on their mortgages, and setting up a greater moral hazard that will surely lead to an expansion of bailout nation.

I'm talking about an add-on to HAMP, the $75 billion Home Affordable Modification Program, which has been a dismal failure. In fact, the entire foreclosure-prevention effort -- including forgiveness of mortgage-loan principal -- has been a failure.

The Office of the Comptroller of the Currency reports that nearly 60 percent of modified mortgages re-default within a year. And now comes a new brilliant idea that if you live in your main residence, have a mortgage balance of less than $729,750, owe monthly mortgage payments that are not affordable (meaning greater than 31 percent of income), and you demonstrate a financial hardship, the government will subsidize you by offering TARP money to banks and other lenders to reduce your outstanding mortgage balance...
Investors Business Daily:
Social Security Is Running Out of Money -- Entitlements: Social Security's chief actuary reports that the social safety net will run a deficit for 2010, nine years earlier than predicted. Put down that big gavel, Madam Speaker, we're about to hit the iceberg.

No sooner had House Speaker Nancy Pelosi, carrying the gavel used when Medicare was enacted, taken a victory lap around the Capitol Building after passage of the health care bill than did the chief actuary of the Social Security Administration report that his part of the social safety net had a big hole in it and would run a deficit for all of 2010.

Stephen C. Goss said that payments rose "unexpectedly" during the economic downturn as jobs disappeared and people feeling no hope and seeing little change opted to apply for benefits sooner than planned. Revenues also shrank due to fewer paychecks to tax...
NY Post:
Fannie & Freddie: The biggest bailout -- Fannie Mae and Freddie Mac recently announced fresh losses, bringing their total since the fall of 2008 to $126 billion.

It barely registered as news -- although taxpayers are completely on the line for the bad debt of these government-sponsored enterprises...

But the chances are slim to none that Fannie or Freddie will be able to pay back the funds. It is highly likely that taxpayers will lose well over $200 billion -- and it may well pass $300 billion...
Bill Fleckenstein / MSN Money:
And now, the great health care bailout -- We protect the big banks and Wall Street, so why not protect everyone with health care reform? Because, like the other bailouts, this will be a financial disaster.

To probably no one's surprise but against the hopes of many, the House has passed one of the costliest pieces of legislation, potentially, of the past 40 years.

What's really in the health care bill? To be clear: I am for reforming the health care system and trying to help those truly in need. But I'm against this political fiasco that's being called reform.

Over time, this bill is going to be an epic financial disaster. And the accounting by which the Obama administration claims to pay for it sets a new low in financial honesty (or, said differently, a new high in government financial chicanery)...
Global Guerillas:
JOURNAL: Militia Fantasies -- The arrest of a heavily armed Christian militia in Michigan, beyond what it tells us about where the US is headed, provides a great example of how NOT to conduct insurgency. Lots of small unit training (weapons and camouflage), a Web site (including YouTube videos) that states intent/shows preparations, and the planning of fantasy attacks on police with IEDs will result in one thing: rapid arrest/death. It's just pathetic.
The war on WikiLeaks and why it matters -- A newly leaked CIA report prepared earlier this month (.pdf) analyzes how the U.S. Government can best manipulate public opinion in Germany and France -- in order to ensure that those countries continue to fight in Afghanistan...

"Public Apathy Enables Leaders to Ignore Voters," proclaims the title of one section...

Prank goes bad. Real bad.

Friday, March 26, 2010

Free Money for the Delinquent

Are only fools continuing to pay their mortgage, if it's underwater, when the government is rewarding those who don't?

Zero Hedge:
A New Wave of Defaults? -- I have been working with a young couple for a year now. They have been up against it. They look pretty typical. They bought an apartment with a first mortgage and low down payment. Then they made improvements with a HELOC. He lost his good job and now works for less. She works long hours and they have a kid.

They are underwater on the 1st mortgage so the HELOC is worthless...

I sent them a link to last week’s Barney Frank letter to the big banks telling them to write down non performing second mortgages. I sent them the link for the BoA story and their program to write down principal for delinquent mortgage debt.

They called just now. They made up their minds. They will not pay either the 1st or the 2nd this month. The “entrance fee” to getting the debt relief they need is to not pay any longer. The cost will be a tarnished credit. They no longer care.

Does this story mean anything in the Macro Big Picture of defaults? I am certain that it does. A rising trend is about to become a rogue wave.

Realty Check / CNBC:
Principal Forgiveness: And Now We All Pay -- The government is officially giving borrowers back home equity. Yep, somewhere between $35 and $50 billion worth. Of course we've all lost over $5 trillion, but who's counting? Lenders still aren't required to do it, but they're going to get an awful lot of taxpayer-funded incentives to do it...

Let's face it, the underwater issue (that is borrowers owing more on their loans than their homes are worth) is now far bigger than the subprime issue and the unemployment issue. Yes, it's concentrated heavily in five states, but it still manages to plague home prices nationwide. People are walking away in greater numbers than ever before, and people who want to stay are unable to get into modification programs because of their overwhelming negative equity...

And for those of us who acted responsibly? No pain no gain.

As I tell my kids every day, life isn't fair.
Calculated Risk:
HAMP Principal Write-downs -- There are a number of changes to HAMP (Home Affordable Modification Program) announced today...

The key changes are principal reductions and larger payments to 2nd liens (including for HAFA short sales). For short sales, the 2nd lien payment has been doubled from 3% of the outstanding balance to 6% - although this is probably still below the typical recovery rate for 2nd liens...
Megan McArdle / The Atlantic Online:
More Mortgage Meddling: Will it Work This Time? -- The easier you make this, the more moral hazard there will be. You may not care, thinking that this is just about transferring money from banks to needy people--but with the aggressive deployment of FHA loans, that ultimately means the taxpayers are going to be on the hook for a lot of marginal mortgages. Given how badly the FHA has already been overstretched by the collapse of the private market, this is worrisome...
The Corner / The National Review:
Herb Allison's Lapidary Words -- Indeed, the administration is clearly having night terrors about a second financial crisis being spurred by a deepening wave of mortgage defaults, so the program is full of Rube Goldberg stuff to bribe and cajole bankers and keep them from foreclosing on defaulting borrowers. The Post reports that the "new effort also increases the incentives paid to those lenders who find a way to avoid foreclosing on delinquent borrowers even if they can't qualify for mortgage relief."

Let's repeat that. These borrowers: A., are delinquent; B., don't qualify for any existing mortgage-restructuring programs; so, C., Uncle Sam is just going to keep throwing money at the bankers, basically shelling out whatever it takes to keep these delinquent borrowers in their houses, these delinquent loans on the books, and housing prices leaning on yet another political manipulation of the real-estate marketplace. And the theory is: this will stabilize the market. Real-estate investors may seem kind of stupid sometimes, but they are not that stupid...
Principal forgiveness 'reignites' home-equity loan debate -- Balances on first mortgages can't be cut without extinguishing second loans

Before first mortgages can be dramatically modified in such a way, any home-equity loans that stand behind those assets have to undergo painful changes too. In theory, these second liens may have to be wiped out before principal on first mortgages is cut.

U.S. banks have roughly $1.5 trillion of residential mortgages on their balance sheets, but they also hold another $600 billion or so of home-equity loans, according to Barclays Capital data.

The prospect of having to write off a chunk of that $600 billion may be making some banks reluctant to cut principal on first mortgages...
Money Blog / Consumer Reports:
Will other banks follow B of A's mortgage forgiveness program? -- Is this a good move for B of A and its mortgage customers? Should other lenders do the same? Or is loan forgiveness of this kind likely to encourage people to default in the hope of getting a similar break?...
Housing Wire:
FHA Mortgage Workout Lacks Incentives and Creates Problems: Industry Sources -- New plans to push lenders to offer principal forgiveness and originate Federal Housing Administration (FHA)-backed refinance mortgages are leading borrower advocates to argue that the program isn’t enough to entice lenders and servicers to participate. Additionally, industry players are concerned over the potential moral hazard the initiative potentially presents.

The Obama Administration announced the allocation of $14bn in Troubled Asset Relief Program (TARP) funds to incentivize lenders to provide principal reductions and refinance underwater borrowers into FHA-backed mortgages.

Under the terms of the voluntary program, lenders will be required to write down at least 10% of the mortgage principal for borrowers who are current on their payments. The program is open to borrowers whose mortgage isn’t currently insured by the FHA. The principal reduction must bring the new FHA loan to value (LTV) to 97.75% and make the new payments account for 31% of the borrower’s monthly income...
The Big Picture:
Delinquencies Continue Rising -- Serious delinquencies continue to rise – in the 64% of the market covered by Mortgage Metrics, there are now about 3.4 million loans either seriously delinquent or in the process of foreclosures. Completed modifications actually declined in each of Q2-Q4 of 2009. (Foreclosures have been flat).

Thus, as this chart suggests, the various programs amount to little more than window dressing hiding the underlying weakness of the Real Estate market...

Thursday, March 25, 2010

Please Bail Me Out and Pay My Mortgage

Items of Interest:

Washington Post:
Obama administration to order lenders to cut mortgage payments for jobless — The Obama administration plans to overhaul how it's tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday...

UNCOVERAGE.net: Flashback and Forward: Obama's Gonna Pay My Mortage!
Daniel Indiviglio / The Atlantic Online: 5 Questions about Obama's New Plan to Slow Foreclosures
Robin Koerner / The Moderate Voice: Obama; If This Is True, then Shame on You
Dan / Riehl World View: Obamerika: No Slacker Left Behind
Bill Hennessy / St. Louis Tea Party: Why you should sell your banking stocks
Realty Check:
Treasury Confirms Underwater Help -- I want to start with Neil Barofsky, Special Inspector General of TARP, who in no uncertain terms, call the Treasury's $75 billion Home Affordable Modification Program a failure. He cited the 3-4 million borrowers that the Administration initially claimed it would help and added, "if this was the goal, absent some unexpected or unanticipated change in circumstances, it will not be met."

He went on to detail troubles with HAMP's implementation: Computer issues, Treasury continually changing the process. Then he hit on the real issue: Initially, Treasury pressured servicers to just get borrowers into trial modifications even without verified documentation. "This created a huge backlog of trial modifications and diverted scarce resources, and worst of all may have actually harmed the people this program was intended to help."...

NY Times:
U.S. Plans Big Expansion in Effort to Aid Homeowners
The Big Picture:
More Foreclosures, Please . . . -- I have been dismayed about the latest actions out of Washington and Wall Street. The banks are now pushing all manner of mortgage mods and foreclosure abatements. These are little more than “extend & pretend” measures, designed to put off the day of reckoning. They are not only ineffective, they are counter-productive. They reward the reckless and punish the responsible, and create a moral hazard. Worse yet, they penalize middle America for the sake of giant Wall Street banks.

It may sound counter-intuitive, but the best thing for the nation (but not necessarily the banks) is to allow the foreclosure process to proceed unimpeded. We need more, not less foreclosures. . . Punishing the Prudent . . . Rewarding Bad Banks ...

Seeking Alpha:
On Principal Reduction and Social Acrimony -- We often like to talk about "benefit-benefit" analysis versus "cost-benefit" analysis. On Wall Street, it's almost always benefit-benefit because almost every "solution" the US has come up with in the past few years to this economic disaster has pulled in benefits with the costs pushed out (onto the public at large) to a future date. So we do not "feel" the negatives now, and only enjoy the positives. Bailouts, handouts, subsidization, easy money, the whole cadre of "good times."Specific to the housing market, we have seen a litany of solutions which, frankly, are unfair to the "responsible" and reward the not so responsible*...
LA Times:
Bank of America to reduce mortgage principal for some borrowers -- Amid increasing government pressure to stem foreclosures, Bank of America Corp. said Wednesday that it would offer to erase as much as $3 billion in principal owed by thousands of severely delinquent borrowers who owe more than their homes are worth...
Recession Wire:
Declining Mortgage Performance in Q409 Means More Foreclosures Ahead: Feds -- In Q409, the amount of mortgages falling behind by 90 or more days increased 21.1%, resulting in more foreclosures ahead, according to a study from the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS).

The OCC and the OTS report covers nearly 34m loans totaling $6trn in principal balances, representing 64% of all outstanding mortgages in the US. Overall mortgage performance declined for the seventh consecutive quarter, as 86.4% of the mortgages studied were current and performing at the end of Q409...

Sense of Smell

Sense of Smell w/ Bryan Cranston

FYI: Bryan Cranston is a two time Emmy winner who plays protagonist Walter White on the AMC TV series Breaking Bad. White is a chemistry teacher who lives in New Mexico with his wife and teenage son who has cerebral palsy. White is diagnosed with Stage III cancer and given a prognosis of two years left to live. With a new sense of fearlessness based on his medical prognosis, and a desire to secure his family's financial security, White chooses to enter a dangerous world of drugs and crime and ascends to power in this world. The series explores how a fatal diagnosis such as White's releases a typical man from the daily concerns and constraints of normal society and follows his transformation from mild family man to a kingpin of the drug trade.

Wednesday, March 24, 2010

Double Dip For Home Prices

Zillow blog:
More Markets Head Into Double Dip -- Last month, we reported in our Q4 Real Estate Market Reports that five of the 143 markets we covered were in the throes of a “double dip,” meaning home values showed sustained monthly increases sometime during the year, but have been falling again, for at least five months in a row, on a month-over-month basis.

Some additional markets were on the double-dip watch list. Home values, measured by the Zillow Home Value Index, were falling after earlier increases, but the falls hadn’t yet gone on long enough to constitute a real trend.

One month later, and 12 markets have made it onto the official double-dip list. The Providence, R.I. and Boulder, Colo. metropolitan statistical areas (MSAs) are among them.

The watch list has shrunk a bit, as many markets that were on it last month sunk firmly into double dip territory after January. Ten markets, including the Boston and Denver MSAs, seem poised for a double dip. Here’s the full list:

12 U.S. Cities with double dip in home prices----
Home Prices Have ‘Double Dip’ in 12 U.S. Cities, Zillow Says -- Twelve U.S. cities, including Boulder, Colorado, and Providence, Rhode Island, are showing extended declines in housing values, reversing signs of a sustained recovery last year, according to Zillow.com.

The number of markets in a “double dip” jumped in January from five in December, data released today by Seattle-based Zillow show. The real estate information provider defines a double dip as five consecutive price drops after at least five straight monthly increases. The gains must be preceded by a period where values fell in at least 10 of 12 months.

The prospect of rising interest rates may be reducing home prices after the government boosted sales in 2009 with tax credits, increased federal housing agency lending and purchases of mortgage-backed securities by the Federal Reserve, said Stan Humphries, Zillow’s director of advanced analytics.

“It’s not great news,” Humphries said in a telephone interview. “The market continues to be quite weak and the overall housing recovery continues to be fragile.” ...
American Apocalypse:
Homeless -- This photo is from the work of photographer Tom Stone. Click here for more. Browse his photos. Read the stories. Here is hers:

homeless robin from sonoma sitting in a doorway on the outskirts of hayes valley; she has two grown sons still there (one 22 and one 35). she doesn't see them much; but they speak often.
she recently got caught in the cross fire of a gang shooting. one bullet went through her arm. the other went through her groin and is lodged near her spine.
she says it's only by god's grace that she survived.
she lives on her ssi benefits; she chooses to live on the street rather than give it all over for housing.
homeless robin from sonoma sitting in a doorway

Monday, March 22, 2010

Double Dip Recession Data Shows Up

A very useful snapshot of the health of the U.S. economy with a tight focus on the U.S. consumer, which is the driving force behind 70% of the U.S. economy's activity.

Consumer Metrics Institute: Home of Daily Consumer Leading Indicators... Bringing the measurements of critical economic activities into the twenty-first century by mining tracking data for an understanding of what American consumers were doing yesterday.

Growth Index past 4 years
Growth Index Past 4 Years
(1) The Consumer Metrics Institute's 91-day 'Trailing Quarter' Growth Index -vs- U.S. Department of Commerce's Quarterly GDP Growth Rates over past 4 years.
The quarterly GDP growth rates are shown as 3-month plateaus in the graph. The Consumer Metrics Institute's Growth Index is plotted as a monthly average.
(2) The daily values for the Consumer Metrics Institute's 91-day 'Trailing Quarter' Growth Index over the past 60 days.
We feel that investors deserve information that is upstream economically, has daily resolution, isn't noisy or frequently revised, and is measuring what Consumers are actually doing in the current century. As one example of the net result of the above differences, the BEA's (U.S. Department of Commerce - Bureau of Economic Analysis) measurement of the 4th Quarter 2009 U.S. GDP lagged our trailing 'quarter' Growth Index by about 17 weeks...
Another early measure of the 'double dip' possibility is shown in our 'Consumer Metrics Institute Trailing Two Quarters Growth Index Over Past 60 Days' chart (below). This chart measures the average growth reflected in our 'Weighted Composite Index' over the preceding rolling 183 day period, which corresponds to the 'two consecutive quarters' time span used in classical definitions of a recession. That 183-Day Growth Index slipped into net contraction on March 19th, 2010. Although the 183-Day Growth Index is a very aggressive and preliminary indicator for a recession, it is at least a sign that the much touted 'recovery' is not currently driven by enthusiastic consumers. We have always felt that consumers are not idiots and they understand what they see going on around them; they are unlikely to start another spending spree until the 'jobless' part of the 'jobless recovery' clearly begins to subside...

Consumer Metrics Institute Trailing Two Quarters Growth Index Over  Past 60 Days

Friday, March 19, 2010

'Octomom' Could Lose Her House

Lansner on Real Estate:
‘Octomom’ faces foreclosure in La Habra? -- TMZ is reporting that Nadya Suleman — the woman with 14 kids made famous by her octuplets — faces foreclosure on her $565,000 La Habra home she acquired a year ago.

Apparently, TMZ learned that the woman dubbed “Octomom” missed a $450,000 balloon payment on the home due this month. TMZ was unable to reach Suleman for comment.

Octomom’s family bought the house in March 2009 for $565,000 apparently financed by the seller, Amer Haddadin. TMZ reports that Haddadin intends to begin foreclosure proceedings...

Octomom faces foreclosure in La Habra----
Octomom Could Lose Her House -- Octomom Nadya Suleman and her 14 kids may become homeless ... because she's fallen behind on mortgage payments to the tune of more than $450,000 ... this according to the person who holds the note on the property...

Thursday, March 18, 2010

WikiLeaks.org: Secret Weapon for Whistle Blowers

WikiLeaks.org is the vanguard of journalism.

NY Times:
Pentagon Sees a Threat From Online Muckrakers -- To the list of the enemies threatening the security of the United States, the Pentagon has added WikiLeaks.org, a tiny online source of information and documents that governments and corporations around the world would prefer to keep secret.

The Pentagon assessed the danger WikiLeaks.org posed to the Army in a report marked “unauthorized disclosure subject to criminal sanctions.” It concluded that “WikiLeaks.org represents a potential force protection, counterintelligence, OPSEC and INFOSEC threat to the U.S. Army” — or, in plain English, a threat to Army operations and information.

WikiLeaks, true to its mission to publish materials that expose secrets of all kinds, published the 2008 Pentagon report about itself on Monday.

Lt. Col. Lee Packnett, an Army spokesman, confirmed that the report was real. Julian Assange, the editor of WikiLeaks, said the concerns the report raised were hypothetical...


U.S. Intelligence planned to destroy WikiLeaks, 18 Mar 2008 (pdf) -- This document is a classifed (SECRET/NOFORN) 32 page U.S. counterintelligence investigation into WikiLeaks. “The possibility that current employees or moles within DoD or elsewhere in the U.S. government are providing sensitive or classified information to Wikileaks.org cannot be ruled out”. It concocts a plan to fatally marginalize the organization. Since WikiLeaks uses “trust as a center of gravity by protecting the anonymity and identity of the insiders, leakers or whisteblowers” ...
Did Uncle Sam try to kill Wikileaks? -- A leaked document reveals a strategy by the U.S. Army to hack the Web site and take it down. Read on for the chilling details...

Julian Assange WikiLeaks.org co-founderWired:
Immune to Critics, Secret-Spilling Wikileaks Plans to Save Journalism... and the World -- When online troublemaker Julian Assange co-founded Wikileaks, the net's premiere document-leaking site last year, some were skeptical that the service would produce anything of interest.

Now, after 18 months of publishing government, industry and military secrets that have sparked international scandals, led to takedown threats and briefly gotten the site banned in the United States, Assange says Wikileaks is just getting started changing the world...

Launched in January 2007, Wikileaks was conceived as a safe place for whistle-blowers to reveal their secrets to the world. Today, nobody doubts that the site has had an enormous impact -- much of it good.

Monday, March 15, 2010

Junior Girlieman Lewis Gores the Goldy Girliemen

Items of Interest:

CBS 60 Minutes:
Wall Street: Inside the Collapse -- Author Michael Lewis On Wall St's Delusion... Author Tells "60 Minutes" What Led to Wall Street Collapse and Who Predicted It

If you had to pick someone to write the autopsy report on the Wall Street financial collapse 18 months ago, you couldn't do any better than Michael Lewis. He is one of the country's preeminent non-fiction writers with a knack for turning complicated, mind numbing material into fascinating yarns...

His new book, called "The Big Short: Inside the Doomsday Machine," comes out later this week and it explains how some of Wall Street's finest minds managed to destroy $1.75 trillion of wealth in the subprime mortgage markets...

Part 2

Janet Tavakoli / Huffington Post:
Michael Lewis: Junior Salesgirlieman -- I was in the Salomon Brothers' 1985 training class that Michael Lewis lampooned in his amusing book, Liar's Poker. Imagine my surprise to see him billed as a trader on 60 Minutes, since he was actually a junior salesman. Well-heeled male peacocks strutted the trading floor, and junior salesmen were girlie-men, mere eunuchs serving their pashas.

Michael hit the roof when I ribbed him about the mischaracterization.* Yet, in January 2007 he didn't spare the "wimps, ninnies, and pointless skeptics" at Davos. I wasn't at Davos (Michael wasn't either), but he derided people who staked their reputations--as I staked mine--on the fact that the financial system was in peril. One might think he'd have a thicker skin, when turnabout was fairplay and truth was his casualty...
Michael Lewis / Bloomberg (Jan 2007):
Davos Is for Wimps, Ninnies, Pointless Skeptics -- “None of them seemed to understand that when you create a derivative you don’t add to the sum of total risk in the financial world; you merely create a means for redistributing that risk. They have no evidence that financial risk is being redistributed in ways we should all worry about.” ...
The Big Picture:
Smackdown! Tavakoli Calls Lewis a GirlieMan -- Score this one for Tavakoli . . .

Lewis Faults ‘Short-Term Greedy,’ Cites Goldman

Friday, March 12, 2010

Lehman Brothers Cooked The Books

Items of Interest:

Barry Ritholtz / The Big Picture:
Accounting Fraud, Short Sellers & the SEC -- The bankruptcy report on Lehman is both revealing and damning. Once again, the investing public learns — after the fact — the basic truisms of modern markets:

-Major accounting firms are worthless to investors. They were either unable or unwilling to detect fraud amounting to 50 billion dollars. The incompetents at Ernst & Young deserve the same fiery death as Arthur Anderson; Whether they are hired guns or paid whores, they — like the rating agencies — are worthless to investors.

-Corporate management engages in fraud all too regularly: Am I reading this correctly — that Dick Fuld’s defense will be “I didn’t know that Lehman was a giant Ponzi scheme, and I was unaware we were hiding billions in bad debt and leverage off balance sheet?”

Based on the release of the bankruptcy court report, LEH was technically insolvent perhaps years before it collapsed;

-The Shortsellers turn out to be the good guys. Consider the absurdity fraud of “protecting” the bankster frauds — fromt he truth, as revelaed by Einhorn et. al.

-The SEC is utterly incapable of comprehending how markets function. They believe the criminals who commit the fraud, and ignore the whistleblowers who uncover it;

-The ban on short selling is an indictment of the inability of the SEC to understand WTF is going on, and a reward tot he criminal corporate management teams;

-The Media did a terrible job uncovering the fraud as well. Some media folk were used by CEOs. Some of the TV press who relied on access to their subjects, actually rallied to the defense of these CEOs, including Fuld, and trashed the short sellers. Most notably Charlie Gasparino from his CNBC days, but their were others as well.

-The Analyst community, for the most part, failed as well. The few who publicly acknowledged the debacle were notable for being so far outside of the herd. 95% of them were wrong.


The Big Picture: Charlie Gasparino Owes David Einhorn (and me) an Apology
The Big Picture: Did JPM and Citi Cause Lehman’s Collapse?
The Big Picture: Coroner’s Post Mortem on Lehman
New York Times:
Report Details How Lehman Hid Its Woes as It Collapsed — It is the Wall Street equivalent of a coroner's report — a 2,200-page document that lays out, in new and startling detail, how Lehman Brothers used accounting sleight of hand to conceal the bad investments that led to its undoing. …
Yves Smith / naked capitalism:
There's no way like the American Way

Wednesday, March 10, 2010

Thieves at Night

Items of Interest:

Paul B. Farrell / Yahoo.com:
Collapse of the American Empire: Swift, Silent, Certain -- Historians Warning of a Sudden 'Thief at Night,' an 'Accelerating Car Crash'

"One of the disturbing facts of history is that so many civilizations collapse," warns anthropologist Jared Diamond in Collapse: How Societies Choose to Fail or Succeed. Many "civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

Now, Harvard's Niall Ferguson, one of the world's leading financial historians, echoes Diamond's warning: "Imperial collapse may come much more suddenly than many historians imagine. A combination of fiscal deficits and military overstretch suggests that the United States may be the next empire on the precipice." Yes, America is on the edge...

German Weimar Republic in the early 1920s and the U.S. - Troubling similarities -- here's a possibility of something similar (but not as severe) happening in the U.S. - we'd rather at least mention it than not. The parallel to the German war reparations is the derivatives area today.

Don't shoot the messenger, we didn't invent the facts...
The Raw Story:
FDIC wants pension funds to prop up failed banks -- Over 140 U.S. lenders folded in 2009 alone. To remedy the financial void left in their wake, the Federal Deposit Insurance Corporation wants public pension funds, which safeguard the retirement funds of millions, to buy in part or in whole the banks that couldn't manage to keep their depositors' funds...
Zero Hedge:
As Budget Deficit Hits Record High, Interest On US Public Debt Hits Record Low -- Well: if indeed we are correct that total debt will hit $14.3 trillion in less than a year, it means the marketable debt will be about $10 trillion, and the incremental 250 bps of interest will mean about $250 billion of additional interest outlays a year, or half a trillion annually. That comes to about $42 billion a month. In January this amount would have been double the net withheld income taxes.

It becomes obvious why the Fed simply can not allow rates to go up. It has nothing to do with excess liquidity, which of course is a major concern as America goes from one excess-liquidity bubble to another. The problem is that the surging budget, which will need ridiculous amounts of debt for funding, will truly explode if rates were to go up merely to 5%. What happens if rates hit 7.5%... or 10%? At that point it is game over...
New York Federal Reserve Bank gets tagged "Audit Me"

Kill all the Dogs. . . bring out the Lawyers

Art Cashin / Zero Hedge:
The Bubonic Plague And Healthcare Reform -- ... On this day in 1349, in the midst of the infamous Black Plague epidemic, the forces of government, science and academia came together with a plan to save the people. As you recall from earlier episodes, the Black Plague had spread from the eastern Mediterranean throughout most of Europe killing millions over the preceding three years. People searched everywhere for the source of the plague…..a heavenly curse; a burden of immigrants; the result of spices in the food. It was tough to figure however, since whenever they held a conference either the host area caught the plague or the visitors did…..so…..not too many conferences.

Then in the six months preceding this date the death rate leveled off…..or seemed to. So in castles and universities and town halls across Europe, great minds pondered the cause of the plague. And they came pretty close. The collective governmental/academic wisdom was that the source of the Black Plague was fleas - (absolutely correct). So the word went out from town to town across Europe - to stop the plague - kill the fleas -by killing all the dogs. And immediately the slaughter of all dogs began.

But like lots of well-intentioned governmental/academic ideas it was somewhat wide of the mark...and had unexpected consequences. The cause was fleas alright but not dog fleas…..it was rat fleas. And in the 1300's what was the most effective way to hold down the rat population…..you guessed it - dogs. So by suggesting that townsfolk kill their dogs, the wise authorities had unwittingly allowed the rat population to flourish and thus a new vicious rash of Black Plague began. Before it was over, three years later, nearly 1 out of 3 people in the world had died of the plague.

To mark this eventful period, take time to review your public servant’s plans for your welfare. Whether taxes or healthcare, they'll work night and day for a solution. It may not be as efficient as the way that they handled social security but - what is? Just remember that these public servants have your best interests at heart. Don't dwell on the DARK AGES. Back in those days the seat of government often was filled with rats, vermin and leeches. Thank goodness those days are over.

(Historic footnote…..Published sources say that with so many people dying, millions of estates had to be settled - result…..the fallout of the plague was a huge growth in....the number of lawyers.) ...

Monday, March 8, 2010

University of California campus erupts in riots

University of California campus erupts in riots -- Violence breaks out as students at the flagship school of the University of California protest stiff tuition hikes.

Students at the University of California’s flagship Berkeley campus took to the streets on Friday night, vandalizing university buildings, burning trash cans and clashing with police in the latest expression of frustration over cuts to the educational budget in California.

In November, the University of California Board of Regents voted to raise tuition by 32 percent. At the same time, professors were asked to take pay cuts or be furloughed, classes were eliminated and class size increased. Protests erupted across the University of California system, particularly at UC Davis and UCLA.

The first tuition hikes took place in January, and since then tensions have been on the rise.

“Nobody planned what happened, but anger erupts when it has been building for so long. That’s what happens,” said Callie Maidhof, a student activist at UC Berkeley. “[The regents] are effectively closing off the campus, making it less accessible, and those already here are getting less out of their education.”

via: Mish's Econ Analysis