Bill Zielinski

Sorry Geithner, The Market Is Not That into You

Well crafted article with great writing style.

But you need to be careful - if you keep slicing and dicing him like this, he might just quit! No more Geithner comedy. Then again, not a problem. I can give you a short list of 50 other bumbling idiots in Washington to write about.

Will 2009 Bring Ring Three of the Financial Circus?

A very well written piece. I agree that the many problems you list will not be solved overnight and we will have a lot of bad news on the economy this year.

I guess the big questions is, to what extent have the markets already discounted these issues?

Gold Marks Two Important Milestones

The advantage of owning gold has also increased recently due to the fact that most "safe" financial assets now yield zero interest.

So what is better to own? "Safe" treasury bills that yield zero interest while dollars fly off the printing press by the trillions or gold? An easy choice in my book.

Also, gold is a relatively small asset class compared to the value of holdings in stocks, real estate, money funds, etc. Even a small reallocation of funds from paper assets to gold would have a huge impact. At some point i would not be surprised to see the value of gold quickly double in a short period of time.

Alt-A Loans Spiraling Downward

In the long run efforts by the Fed to prop up the price of housing with rate cuts and loan modifications will merely prolong the slide in values. If the Fed had the power to prevent a decline in housing prices, they would have done so. In a free market economy, prices will eventually reflect the reality of matching home ownership with income.

The lending distortions of the past that created the bubble in housing are now gone. It is no longer enough to say that you make $150,000 - you need to prove it. It is no longer possible to get 100% financing with poor credit. The poor lending decisions of the past are causing pain for both borrowers, banks and the economy at large, but ower rates alone will not clear the market.

The free market has solutions to over leverage and poor lending decisions. The solutions are called write offs, bankruptcy and foreclosure. As painful as these measures are, they are the mechanism for building a financially strong base of homeowners who will be far less likely to default on their mortgages.

During the height of the housing bubble several years back, only 10% of California households qualified for a conventional 30 year fixed rate mortgage. The bubble prices were nurtured and sustained by exotic lending programs with no income verification. Fast food workers bought $1,000,000 homes. Now the bubble has burst.

Priced properly, houses will sell. Time and price will accomplish what the Fed cannot. There are oceans of private money looking for an adequate return on capital. Let the free markets do their work - and the pain of the housing bust will soon be solved.

How We Can Avoid Another Tragic Ponzi Scheme

Another classic article by Mr. Quinn. The analogy of the Ponzi schemes of the US Government and Madoff is right on the money.

This country’s pattern of civil and fiscal decline echoes the warnings issued by David Walker, of the Peterson Foundation, an organization that has been trying to educate America about the fiscal emergency we face due to reckless borrowing.
As noted in Barron's this week:

Walker compares our nation’s fiscal morass to the one that helped topple the Roman Empire. In one speech he argued, “Rome fell for at least four reasons, and please listen carefully: A decline in moral values and political civility at home, an overconfident and overextended military, fiscal irresponsibility by the central government and inability to control one’s borders. Does that sound familiar?”

Is this democracy at its worst with a betrayal by our elected leaders, or is it a failure equally shared by both the voters and its elected leaders?

Is America on a Downward Slope?

An incredibly well written dissertation on the financial disaster that the Fed and our political leadership have brought down upon us.

This country is incapable of accepting the fact that the cure to our financial fiasco involves pain and sacrifice rather than more borrowing. The illusion of prosperity, promoted by unsavory and deceitful political and business leaders is still accepted by an uninformed public.

The monetary authorities will do whatever they need to do to keep the bubble from bursting but their success is subject to much doubt. If they are "successful" it only means that they have postponed the real day of reckoning to a later date and increased our debt levels beyond what can ever be managed or repaid.

Maybe some day before it is too late, an uncommon leader will rise to the occasion and talk straight to the American public. Maybe someday this honest man will explain how we have spent our future and that the cure is not more borrowing but pain and sacrifice so that we can have some hope of a better future for our children.

Time is running short.

Here Comes the Foreclosure Cavalry

There will be foreclosures and mortgage delinquencies until we get to the point where only those with sufficient income to actually service their debt are allowed to borrow money to buy a home.

The government seems to be obsessed with making everyone a homeowner when in fact this is not a desirable for many individuals. By the time this crisis is resolved, we may all decide that we would have been better off as renters!

Why Isn't the Market Seeking Safety in Gold?

Great comment by User. Every asset class except government paper has been vaporized.

I am thinking that the incredibly bad economic news has already been somewhat priced into the markets. Given the effective zero return on short term treasuries and not much more on the long end, it's time to start deploying capital into the asset classes that have taken the biggest hits?

Gold is a total enigma. Huge physical demand but the price does not go up. It is assumed that "quantitative easing" will be employed by central banks worldwide yet gold does not skyrocket. I am guessing that we will have a delayed reaction to the upside in the gold markets.

Hang on to Your Gold

Another excellent article by SW Richmond.
It would take a politician of outstanding courage and foresight to honesty address the issues covered in this article with the American public.

Hopefully, one day we will have someone acknowledge the fact that we have spent our future and that all we have to show for it is a mountain of debt that we will bestow upon our children and future generations.


Americans have a history of overcoming adversity if we truthfully confront the issues. Maybe someday, someone will honestly tell us that there are no simple solutions and that the government cannot painlessly cover all losses.

Maybe someone will explain to us that yes, there will be hard times, yes, we will need to be frugal and work hard together and yes, eventually we will solve our financial crisis and put our financial house back in order.

Maybe someday, we will learn that a sense of material entitlement, allowed by easy credit does not create prosperity.

So far, I have only heard about bailouts and "stimulation".

Low Rates, Big Problems

A significant number of the foreclosures that we are seeing now were the result of the ridiculous leverage and lack of sound underwriting policies that were the norm during the bubble years of mortgage lending. Mortgage loans were being made almost regardless of credit, with no income verification and no down payment. It should not be a surprise that once the bubble popped and prices started dropping that we would experience a large number of foreclosures.
There's a lot of different parties to blame for the housing fiasco but I would tend to blame the lenders more than the borrowers. Given the widely held belief that real estate prices would only go up and with easy no money down financing available, many buyers were acting rationally since they were receiving a risk free long term call on the price of real estate. If prices kept going higher, you sell or refinance and make a killing; if prices dropped you simply walk away.
I would say that the government's attempt to prop up the artificial prices of the past by delaying inevitable foreclosures will only prolong the time it takes to eventually reach a bottom in housing. If someone is in foreclosure, that would generally mean that the homeowner, for whatever reason, can't make the payment or prefers to simply walk away due to negative equity, etc. These people become renters, the foreclosed home is sold at a market clearing price and eventually supply and demand in housing is balanced.
Going forward, if the mortgage industry can restrain itself to lend money only to those that have a documented ability to service the debt, another housing bust will be avoided. Unfortunately in the meantime, there are many innocent homeowners paying a very dear price for the lending insanity that brought this housing crisis upon us all.

Analysts Are Bullish on Gold: Should You Be Worried?

Great article and although I am a long term gold stock and bullion investor, I get nervous when everyone is shouting to buy gold and predicting big price increases. Nonetheless, I don't believe the timing is important here; the smart move is to increase your positions on sell offs. The central banks of the world will engage in "quantitative easing" to whatever extent necessary in an attempt to provide more credit to an already over leveraged world, ultimately debasing the value of most currencies.
Gold investors have been laughed at for years and there have been long periods of declines and/or under performance in price versus other asset classes. Gold, however, is the only monetary asset where the ultimate value of your investment is not subject to someone’s else’s promise or ability to pay. I view gold as the ultimate insurance hedge against a government’s propensity to spend itself into insolvency and, accordingly, I believe that gold should constitute 10 to 20% of one’s core investment assets. Historically, governments have regularly and repeatedly defaulted on their sovereign debts. In every such case of default, the citizens of those nations would have been far better off holding gold rather than government paper.

Are Loan Modifications a Salvation for Former Mortgage Brokers?

Bluesbuff,
I can assure you that I have nothing to do with loanmod.com
I was generally assessing what appears to be a new get rich quick business which is somewhat related to the mortgage industry, which I am involved in.
I think most readers reading my post would pick up on my general disapproval of this loan mod business, especially when I say that this field is populated with "coarse idiots"!
If you visit my site you will see that I cover a wide range of topics on the economy, mortgage industry and current financial issues.
Thanks
Bill Zielinski


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Banks Forgiving Mortgage Principle: Reward for Bad Behavior?

I think it likely that the trend towards loan modifications will have unintended adverse consequences such as prolonging and increasing the value erosion of residential real estate. How often do big government sponsored programs work, especially when attempting to interrupt free market forces? The moral hazard is obvious and this program institutionalizes the repudiation of debt on a massive scale, thereby creating more losses for a broad spectrum of debt holders.
There is also a movement to change the bankruptcy laws and allow the courts to forgive mortgage debt. When you combine these factors, lending or investing in mortgages has become very high risk. To compensate properly for the higher risk, mortgage lending by private capital will either disappear or demand an appropriately high risk adjustment factored into the lending rate.

General Electric: Genuine Risk of Collapse?

exceptionally well written and reasoned article that gives fair warning to all those invested in GE. the fact that GE was so blindsided is testament to poor risk management and the rapidly imploding world economy. expanding the loan portfolio during the credit boom will cost GE dearly. GE should have already cut the dividend to preserve cash; obviously with almost a 9% yield, investors don't believe the dividend can be maintained. if this stock rallies on a dead cat bounce, short with a price objective around $5.