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Great great great thread this one.
Excerpts from an interesting article by Mike Shedlock entitled "You know the banking system is unsound when..."
Fannie and Freddie are casino’s, gambling dens that have been encouraged by the house, in this case the US government, to play double or nothing over the past year, and now count on the same house to cover their blackjack losses. Which the house is about to do, with your money.
And the Congressional Budget Office plays along. They are supposedly independent, but that’s nothing but a stale joke: if they really were, they would have taken their own statements to heart about uncertainties regarding Fannie and Freddie, and presented their paymasters in Congress with at least for instance an "fair estimate" range, not a fixed number .
That fair estimate would state that potential losses to the US taxpayer from the GSE bail-out would be between $25 billion and $2.5 trillion. And still add that the number could be much higher.
Because if - make that when- US home prices go down by 50% or more across the board, when banks open their books and vaults to reveal they have little else but toxic paper left, and unemployment starts hitting prime time, there will be a $5.2 trillion combined Fannie and Freddie portfolio waiting for a "fair estimate".
Today, with memories of the outrage over the $29 billion in public funds used on Bear Stearns still fresh on everyone’s mind, moral hazard will be taken not just to a whole other level, but into a different dimension, and a universe unknown to man. A small step for man, a giant leap for mankind. In hindsight, it now becomes clear that Bear Stearns was used as a test-case, and the timid response to that bail-out directly opened the doors for the biggest heist in the history of America.
But what interest does the public have in protecting the share prices of Fannie and Freddie stock? Don't stockholders understand they take a risk when they buy stock? In this case, the stockholders made a bad investment. They are supposed to lose their money (possibly all of it), right?
I have yet to hear any explanation from anyone as to why the government is supporting the share price. (In an NPR interview this morning, Senator Chris Dodd gave an incoherent answer that implied that supporting the share price was somehow tied to backing up the bonds. It isn't.)
In a country that can't fight a few billion dollars to provide funding for child care or children's health care, this multi-billion dollar affirmative action plan for dumb stockholders deserves a little questioning.
Um, there's bad news to come, but nobody knows where from?There is bad news yet to come, and no-one really knows where from.
Um, there's bad news to come, but nobody knows where from?
Righto.
OMG!
Hahahaha.
I know where bad news is coming from. Having my apartment inspected in an hour and I'm sure there's something wrong with it and the $2000 bond will be raped.
Repeat after me: this is NOT the bottom.
For Each $0.50 growth of GDP, Total debt grows by $2.5
Most of the debt growth has been funded by increases in pools of mortgage money borrowed from foreigners thru GSE's (Fannie & Freddie) and Mortgage pools and growth of home equity loans and consumer debt.
Exponential growth of debt started in early '90's fueled by growth of GSE's and consumer borrowing.
To continue current growth of GDP, debt growth must continue at current accellerated levels.
So if a bear market meets a Kondratieff Winter do we have a polar bear market? It looks to be more like the last rays of a Kondratieff Autumn?
<debt buildup and repudiation>
<stagflation>
<deflation>
When people talk about the current state of the economy they tend to do so in terms of the business cycle, a relatively short-term phenomenon covering maybe three to five years. But some economists believe a far more important type of cycle underlies our economic circumstances. It's called the Kondratiev cycle, or the Kondratiev wave and, if it does exist, we appear to be in a pretty dangerous stage of it at the moment.
Wolfgang Kasper
Professor Emeritus Economics University of New South Wales
Wolfgang Kasper: If you look at these waves they've always affected all the industrial countries and they are in it together sooner or later. But, and that is very important, the new industrial countries of any generation seems to be unfazed and the reason is quite clear; they don't have to destroy old social structures and old industries, that famous creative destruction of Schumpeter's.
Michael Duffy: So they've got a bit more flexibility.
Wolfgang Kasper: They are new and competitive and I think this time many parts of China et cetera will probably just beaver on unaffected.
Well you have to understand as you look at the market going up the US economy was going full blast in real terms. The automobile industry had developed into a major industry, the steel industry, electricity was spreading throughout the country. Railroads were expanding. Obviously things like coal, steel. So, well, the stock market literally doubled from let's say '27 to 1929.
The fact is, that if you looked at any of the appropriate measures of economic vitality, as late as October of 1929, all the signals were good. There was no inherent reason why the market crashed in 1929. You look at automobile production productivity, all the signs were positive, so that when the newspapers in the summer of 1929, magazines, spoke about the economic environment. They were very bullish measures.
Harold Bierman
The Nicholas H. Noyes Professor of Business Administration at Cornell University
Um, there's bad news to come, but nobody knows where from?
Well, please let us know exactly where it's coming from next time so I can trade it. Thanks!As it happens, I wrote that just hours before the NAB announced a $1bn provision for CDO losses, and dropped 13%, takiing the other banks with it. That's exactly the kind of bad news I had in mind, and there is more to come.
The Congress approved a massive housing market rescue bill on Saturday, offering emergency financing to Fannie Mae and Freddie Mac, creating a new regulator for the mortgage titans and setting up a $300 billion fund to help troubled homeowners.
I hear the bottom line is to help the banks/lenders. Taxpayers bailing out poor lending practices.
The big world is a disgusting place.
Well, please let us know exactly where it's coming from next time so I can trade it. Thanks!
By the way how many banks have gone bust so far?
During the S&L crisis in the 80s and 90s I think over 700 went down. A little way to go to match it.
Of course, I think the federal gov bailed most of them using the taxpayers dollars. They'll probably do it again of course, and keep doing it, until ...... eeeek!
If only! The basic principle is that the finance sector is shot to hell, so just keep betting against banks.
In the S&L there were lots more small banks, but the core was barely shaken. This time the core is rotten and the big banks will only survive because of government backing (back door nationalisation). The bill that just passed Congress is another step in the process that started with Bear Stearns.
US regional banks will start failing over the next few months as borrowers default and the collateral is worthless.
Our banks are scared stiff that property here will collapse too. Sub-prime was just a trigger -- it's the collapse of the credit bubble that is the killer, and banks are the front line.
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