According to the National Association of Realtors (NAR), about 1.8 million people have taken advantage of the first-time homebuyer credit. They claim that the credit has increased sales in the stricken industry by 350,000 homes. The National Association of Home Builders (NAHB) agrees with the 1.8 million figure but calculates that the credit has increased total home sales by only 150,000. In determining who to believe, as to the difference in numbers, historically, I’ve always found the NAHB to be a more reliable source of statistical data. Just a few years ago, in 2005, the NAR’s chief economist was declaring that the housing boom would never end. NAR has little credibility left.

Both trade organizations are associations of persons whose businesses greatly benefit from such government largess. Both support the existing credit, and want to expand it. The first-time homebuyer credit phases out for a couple making more than $150,000 or a single person making more than $75,000. But, those who "qualify" can get $8,000 in “free” money from the government, if they buy a house, so long as they have not owned a home for a minimum of 3 years. The idea is to stimulate the sale of homes, and the economy, in the midst of the biggest collapse of home prices in history.

In the past, the SEC, CFTC, and other supposed regulators became accustomed to rubber stamps on numerous settlements that have whitewashed executive misconduct, at the expense of shareholders. This process, encouraged by the fact that many so-called "regulators" look forward to quickly return to the banking industry after their stay in government, appears to be changing.

The Oligarchs of Wall Street, their pawns at the Federal Reserve, and the revolving door “regulators” have lost credibility. The first blow came in a Manhattan courtroom at the U.S. Federal Court for the Southern District of New York, a few weeks ago. Chief Judge Loretta A. Preska, in a well reasoned opinion, required a recalcitrant Federal Reserve to disclose details of its stealth bailout of the big Wall Street banks. The Fed sought to illegally hide the details behind trillions of dollars of cash giveaways, from a duly filed “Freedom of Information Act” request, made by Bloomberg News. That order is now on appeal.

If you examine second quarter earnings reports carefully, you’ll discover no basis for enthusiasm. The so-called “improved” bank earnings we’ve seen, over the last two quarters, are mainly the result of creative accounting. There has been a widespread failure to mark down the value of assets deeply in the red.

The “mark to market” rule is gone[i], and banks are taking full advantage. However, since 1993, they have been required to report the fair market value of their holdings annually. A new rule requires the disclosure every quarter. So, in spite of the removal of mark to market accounting practices, we’ve got more data to work with now than ever before. Big banks are adept at changing the rules of the game, but the numbers disclosed in many recent 10Q quarterly earnings reports tell a very depressing tale.

The "Cash for Clunkers" program has been a "great success", at least according to the government, and the auto industry. Within days of its kickoff, all $1 billion allocated to the program has been used up by Americans who have eagerly lined up to trade their clunkers for new vehicles.

Some refreshingly honest reporting has come from Edmunds.com, a car buying site that is telling the truth, in spite of benefiting from an increase in business and site traffic, due to the program. According to Edmunds, about 200,000 old low mileage cars would normally be traded in, every 3 months, in exchange for more efficient higher mileage cars, without this program.

According to information released by the office of the Honorable Andrew Cuomo, Attorney General of the State of New York, as published in the Wall Street Journal, yesterday:

Nine banks that received government aid money paid out bonuses of nearly $33 billion last year -- including more than $1 million apiece to nearly 5,000 employees -- despite huge losses that plunged the U.S. into economic turmoil.

Many expert commentators believe that prices in various markets, especially at the futures exchanges, are being increasingly manipulated. The Commodities Futures Trading Commission (CFTC) has recently begun to hold hearings, ostensibly to consider imposing position limits on bank-based speculators who are falsely posing as commercial hedgers. Position limits were imposed many years ago, in order to stop speculators from gaining enough control over a market to dictate the price.

Big banks, however, have managed to use their influence to get special exemptions and exceptions in order to avoid the limits.

This week, yet again, the Wall Street spinsters were making hay while the sun shines.

The Marketwatch headline reads “Initial jobless claims lowest since January.”[i] Bloomberg reported that “U.S. Initial Jobless Claims Decreased Last Week”.[ii] CNBC ran the headline “New Jobless Claims Plunge; Continuing Claims Hit Record”[iii].

I have a very strong suspicion that this is going to be a very unpopular article. No one likes it when the market falls. A stock market crash evokes images of the Great Depression, but the reality is that history never repeats itself exactly. When the S&P 500 (SPY) broke below the 200 day moving average last week, given the fundamentals of an economy in deep trouble, a lot of economists were shivering in their boots. People assume that whenever share prices go down, the event is bad for the economy.

But, what if the market does collapse? What if it really does breaks below the previous lows? Will that be bad...or could it be good for the economy?

It is fascinating to watch irrational exuberance at work. People seem to always be jumping on bandwagons, grasping at straws, and driving stock prices up or down for no rational reason. So it was on Wednesday, Thursday, and, then, again, in the morning on Friday. By the end of the day on Friday, of course, some measure of reality prevailed and many of the retail and building company stocks that had started skyrocketing, had fallen back to earth, at least somewhat.

The insanity started Wednesday morning, with the release of "better than expected" durable goods orders. Orders for non-defense capital goods rose by 4.8%. The vast majority of this increase was composed of ultra-volatile transportation sector goods, like airplanes. Boeing has now seen the cancellation of about seventy 787 "Dreamliner" orders, and the drop in such orders will surely take a toll in June (see here). Excluding transportation, durable goods orders increased only by 1.1% in May. More important, that increase reflects replenishment of drawn down inventories, rather than demand increases. But, no one was thinking too deeply, it seems, and people were in the mood to have a party.

Nowadays, it is often wise to step away from business news sources, and look at original data sources, in order to learn the truth.

If we look carefully at the original information published by the U.S. Department of Labor, we see some surprises. The news stories which have run in CNBC, Marketwatch and Bloomberg, hailing "good unemployment numbers" were not conveying accurate information. Here is the real truth (source):

The housing numbers are as bad as they could possibly be. They show year-over- year housing starts to be down by 45.2% from May 2008. I cannot recall the numbers, but, if memory serves me, this decline is of the same magnitude as the housing decline which occured during the Great Depression of the 1930s.

Housing sales always are greater in April than in February. Furthermore, people almost always buy more houses in May than in April. The fact that they repeated that pattern in 2009 is not surprising. It's been happening since the days of the Roman Republic.

The United States of America has committed about $12.8 trillion dollars in cash, new money printing, loan guarantees and other bailouts. That is an irresponsible amount of spending. However, it is small potatoes compared to what is going on in some of the smaller nations of Europe.

Europe has generally shown restraint. The Eurozone, as a whole, has committed less than half the sum committed by America. However, Europe is made up of a conglomeration of separate nation states, and each has a separate and distinct economic, tax and public policy concerning bailouts. Certain small European nations are at far greater risk of sovereign default than anyone realizes or currently admits.

JPMorgan Chase (JPM), Goldman Sachs (GS), State Street Bank (STT), Morgan Stanley (MS) and Bank of America (BAC) are all taking the opportunity to raise big money by selling shares into this bear market rally. They are also all talking about paying back the "TARP" bailout money with which they were endowed at taxpayer expense. The sudden desire to give back these funds, once so fervently coveted, seems to arise mostly from fear that restraints will be placed on excessive executive compensation.

The last I heard, giving all of these banks their TARP allocations was going to save the world. These are allegedly "systemically important" institutions that cannot be allowed to fail. Now, apparently, they are going to pay back this allegedly critical bailout money, for which former Treasury Secretary Henry Paulson got on his knees to beg for, in front of certain female members of Congress.

Contrary to the claims of current Treasury Secretary Timothy Geithner, Federal Reserve Chairman Benjamin Bernanke, former Treasury Secretary Henry Paulson, and so many economists, the fundamental reason that our economy is falling apart is NOT subprime mortgages, or insolvent banks. The problems are far deeper than that, because such things are only symptoms of the underlying disease.

History teaches us that economic depression and/or hyperinflations are NOT caused by banks or the money supply. Such events, whether they occured in ancient Rome, or the modern United States of America, are caused by a perception, by the People, that their leaders are lying, cheating, stealing, and cannot be trusted. The Great Depression of the 1930s, is a modern case in point. Contrary to the claims of Benjamin Bernanke, and most mainstram economists, it was NOT caused by a “credit contraction” or a “contraction in the money supply”. These were merely symptoms. It was caused by broken promises and lies.

I am an amateur economist. But, one doesn't need years of schooling to be a better "economist" than Ben Bernanke. One merely needs to take the blinders off and release common sense. A broad background in law, economics and history helps, but it is not absolutely necessary. Economics is the study of human nature as it applies to money. So, it is precisely those who are narrowly educated, like some professional economists who don't study enough history, take an intensely academic viewpoint on things, and who don't understand fundamental human nature, who get things wrong. A narrowness of outlook and training may be blinding people like Ben Bernanke from reality, but, if they are operating knowingly and intentionally, as some claim, the situation is even more frightening.

Unfortunately, Ben Bernanke has been wrong on almost all his predictions concerning the course of this crisis. That has been true since the beginning. Where, then, can we obtain the confidence that he knows what he is doing, or, frankly, that he knows more than we do, as he should? Many wrong-headed people seem to believe that we must throw away common sense and listen to him, and the others who think like him, even though we have been consistently correct, over the past 4 years, and he has been consistently wrong. The American people understandably have little confidence in the Washington crowd. Is this surprising in light of the events? What assurance is there that they know how to address this situation, when they first failed to regulate the financial madness, and, then, afterward, were completely wrong on almost all economic projections, one after another?

The Federal Reserve is a unit of quasi-government, with no taxing authority or income of any kind, except that obtained from the U.S. Treasury and its client banks. However, it can and does create money, in the form of liquidity, which it then sends to banks. The liquidity that it releases into the market has the net effect of diluting the value of the U.S. dollar.

The Fed has extended credit to Fannie Mae, Freddie Mac, various banks, and insurance companies. It has “borrowed” this money from itself by increasing its balance sheet from $900 billion to the current $2.1 trillion. According to a speech given by Ben Bernanke to his client banks on April 3, 2009, the Federal Reserve will purchase cumulative amounts of up to $1.25 trillion of agency MBS and up to $200 billion of agency debt by the end of the year, and up to $300 billion of longer-term Treasury securities over the next six months, for a total increase in Fed spending of $2.95 trillion. This information is repeated in the Fed Minutes, today.

I find myself compelled to write this part 2 of my earlier article with several goals in mind. First, I intend to establish that the historical references in the original article are entirely correct. Second, I intend to prove that the fundamental purpose (not being achieved) of the futures market regulatory scheme is NOT to facilitate buying and selling on futures markets, but, rather to tie prices on those markets to real world supply and demand (also not being achieved). Third, and, perhaps, most important, although I am an amateur historian, I am also a professional lawyer, and I am embarrassed to say that I need to correct a serious error in legal analysis that exists in the original piece, even though no commentator pointed it out, lest it send people to seek redress in the wrong venues.

Anyone confused about the historical basis for regulation of the futures markets should note that the “Commodities Futures Trading Act of 1974” is simply the enabling act that created the current Commodity Futures Trading Commission (CFTC). It is not the first, nor the only, attempt to bring honesty to the futures markets, nor is it likely to be the last. The principles and practices set out in the Act have their foundation in earlier legislation. In its day, the 1974 Act represented a well meaning, but futile attempt to reign in manipulative activity. The intent was to reform the previously existing “Commodities Futures Trading Act of 1936”.

On Tuesday morning, gold derivatives dealers, who had sold short in the face of a fast rising gold price, faced a serious predicament. Some 27,000 + contracts, representing about 15% of the April COMEX gold futures contracts remained open. Technically, short sellers are required to give “notice” of delivery to long buyers. However, in reality, buyers are the ones who control the amount of gold to be delivered. They “demand” delivery of physical gold by holding futures contracts past the expiration date. This time, long buyers were demanding in droves.

In normal times, very few people do this. Only about 1% or less of gold contracts must be delivered. The lack of delivery demand allows the casino-like world of paper gold futures contracts to operate. Very few short sellers actually expect or intend to deliver real gold. They are, mostly, merely playing with paper. It was amazing, therefore, when March 30, 2009 came and passed, and so many people stood for delivery, refusing to part with their long gold futures positions.

In the first Great Depression, the government tried, for several years, between 1929 and 1933, to maintain a fiction that the U.S. dollar was still convertible and as “good as gold”, in spite of having irresponsibly printed more dollars than they had gold to back them. Back in the 1920s, just like during the last 22 years, the Federal Reserve had run its printing press overtime, and, as a result, it couldn’t deliver. The U.S. Treasury eventually ran out of the gold, in the face of overwhelming public demand, resulting in the infamous gold confiscation order, by President Franklin Roosevelt, in 1933. History may be repeating itself, except that the government no longer makes any pretension to maintaining a gold standard, or any standards at all. Instead, nowadays, the futures exchanges offer to trade gold for a floating number of dollars, and, it appears, they have printed more paper contracts than they can redeem, at least when it comes to 1 kilogram bars.

The NYSE-Liffe futures exchange has, it seems, run out of 1 kg bars of gold. Futures markets, like NYSE-Liffe and COMEX, try hard to maintain the fiction that they will deliver physical gold, in completion of executed contracts. Indeed, to prevent fraud, U.S. law requires clearing members to keep a stockpile, of one kind or another, consisting of a minimum of 90% of metal. Up until October, 2008, it didn’t matter. Only about 1% of long buyers of paper gold futures contracts typically took delivery. Now, the situation is very different. Demand has surged and, it appears, one major futures exchange, NYSE-Liffe, and by extension, the COMEX gold warehouses it shares with its larger cousin, are unable to meet the requirements of their contracts, vis-a-vis, delivery of 1 kg. bars.

The idea that AIG’s “financial services” executives are going to get $170+ in bonus payments, on the taxpayers' dime, is more than outrageous. It is criminal. It is my understanding that many of the people set to receive these bonuses are the very same ones who wrote the derivatives that have caused the world financial system to collapse. In other words, they are being rewarded for misconduct. If ever one can speak of so-called “moral hazard”, now is the time. This is yet another illustration of the reason I have steadfastly opposed these bailouts from the very beginning. I warned, back in September, in an article written for Seeking Alpha, that former Treasury Secretary Henry Paulson would use control over the bailout process in a nepotistic manner. That prediction came true.