Lawrence York

Geithner's Financial Reform Is Doomed to Fail

Bravo and well stated! Banks, with the Fed and Treasury as their salesforce, want to keep the competitive advantage of placing public money at risk to make profits. It is incredulous that Congress can't or won't see this point. We either need to be a capitalistic system or not and the promise of guarantees by the taxpayer has no role.

The U.S. Is Losing the Economic Cold War

Our first reactions are anger and denial. Its time to move to acceptance and resolution. SB was one of the first the call the Recession and foretold the Banking industries' insolvency and lack of capital to lend. Now, though we are not yet in a Depression, we are accelerating toward one because of the emotional hard coding that drives most to hang on to wishes instead of reality and take corrective action.
The truth of the matter is that we need lending and it is not necessary to save the too big to fail banks.The Fed and Treasury have already begun cirucumventing them with their 'quantitative easing' policies that have racked up $8.5 trillion in security purchases (note I don't use the words 'asset purchases'). My statement is that the US is likely to end up with a $15 trillion dollar deficit-or debt-but the choice of deficit is best because constantly rolling the debt, will have the burden on-going deficit spending as the debt must be serviced. My major point though is that policy makers must look a little futher down the road and think strategically instead of tactically--just fixing the problem of day. That would lead them to seeing that denial and tactical spending is aimless and will ultimately indenture the US beyond its capacity. SB argues instead for Growth, agreeing that foreclosure is not the answer. With policies consistently focused on tactical needs, policy makers have ingored the demand side of the equation exacerbating the problem causing job losses. Now handing out tax cuts, money to cities and spending on infrastructure, instead of empowering growth via small businesses that create jobs, is another example of a policy designed to keep what you had and it is a policy that will do more to run up deficits and debt than one to solve the problem.
US GDP was indeed goosed and balooned by the use of securitization iand leverage. The math of losses applies. The paradyme of chucking original research and credit analysis for statistical modeling is dead because most everyone outside the US will not soon be fooled again.
US GDP will slow massively then, because we will not be able to package and sell crap securities and leverage in any case will be curtailed. The risk of denial is the risk that others act and the US experiences a lost decade. Japan finally emerged from their ruins by exporting their electronics and auto expertise. Unfortunately the US has long ago sold its crown jewel exports. Now SB uses the word 'Growth' to convey new technologies and invention. SB argues that it is only by Growth and far-sighted policies empowering businesses that we can pay the enormous tab--a tab conservatively estimated to sum to $15 trillion. No Way. My friend, go through the arithmatic. We officially acknowledged the Recession at $10 trillion. The Government has nationalized Fannie Mae and Freddie Mac, bailed out the 'too big to fail' banks and AIG while keeping quiet on Ginnie Mae. The $12 trillion in mortgages held in these government entities have inflated principal values by and large and represent sub-prime and moderate income loans. The Fed has bought or holds as collateral, $8.5 trillion in securities, some percentage of which are not worth their principal value and no one but the government will buy them without a discount in their price. The Obama administration is fast at work getting a $820 billion stimulus program launched and has forecast that the US will run double or back to back (oct 2008-Oct-2010) trillion dollar deficits. Since the Treasury is outsourcing management (disposal) of the securities it is purchasing via TARP and TALF for a fee and these are held at real, inflated values, since China, Russia, the UK, etc. are demanding being made whole on the fraudulent securities they bought, since it is not unreasonable to estimate that the Treasury will ultimately lose 15-20 percent in the final accounting (if we get one) when housing prices will average that or more, then settling out at the 7/15 GDP/Deficit ratio is not KOOK forecasting. Moreover, it will be the rate of change in recovery and the years to get back even that will punish the US. And that is why I reaffirm that 'Growth' is the only answer.

The 'Melt-Up' Rally Continues

The market is rising on the bet that their is going to be a bailout for mortgages. Barney Frank is readying it as we speak.

Market Insights From Master Minds

Good article to ponder. Black Swan events do occur and it would certainly not be an unprobable event to see a 12 P/E on the S&P. One must remember we are experiencing the inverse reaction to the multiplier effect of excessive leverage. The better part of prudence is to stay hedged, leave some powder dry, and cut your losses.

Warning Signs of a Modern Depression: See 1990 Japan

Unfortunately this is all true. Japan dealt with it by cutting rates to 0 to stop accurals of liability--every debtor became current. The US is headed there. Of course, the markets have devalued the dollar, but there are two options: US Dollar devaluation--say 4:1 or selling America by inviting unprecitented Petro and China dollars back. I look for the latter as soon as the election is over.

UBS: U.S. Bailout for Homeowners Will Arrive by October

The losses are massive because of the leverage and securitization. Can anyone estimate Ginnie Mae's losses that the US Taxpayer owes?

Futures Down Triple Digits on Hedge Fund Collapse

Maybe it will be the Financial Times that calcs the losses in Ginnie Mae. No one in the American Press, including Seeking Alpha, will pubish anything about it. Except for my articles, the last article when googling the subject of GNMA defaults is an article in 1989. And guess what? It runs a close parallel with with what caused the mess today. Maybe that's why the eerie silence.

U.S. in 2008: A Chance to Learn From Japan's Lost Decade

I agree with you, but want to add that Japan cut interest rates to zero to stop default--no accrued interest and everybody's current on there loans. By this action Japan sought to buy themselves time to let assets re-appreciate. They had engineered a 'kieretsu' between banks, corporations and government permitting, for example, permitting equity to be used as reserve capital thinking that inflation would always increase prices years later having observed the 'indexing to inflation' policies of the US. In the US we are now, because of our financial condition due to the excess of leverage, finding that to engineer a V-shaped recovery by accelerating the devaluation of homes is not possible because our banks would fail, pensions implode, and US Debt related to GNMA bankrupt us. So not much different than in Japan's situation you can understand the reason for the denials, back-peddling, and procrastination to act hoping for a short U-shaped recovery.

Alpha's Not Earned From Riding the Tides

I have to agree with you one must wear a harness until some of the excess and leverage is washed out. I also believe you said it well above when you said its hard to beleive invesors are willin to ignore such negative factual economic news. I'll say it again, until we have transparency and discussion of how much GNMA has lost and the taxpayer now additionally owes, this crisis will not be over.

The Fed's Lose-Lose Decision

Dear not on my account,

I agree with you. Read my post today entitled: Will we learn from the lessons of the past. (hint inside: buy mbia and ambac)

Greenspan: U.S. Recession Far From A Done Deal

If there is justice, the maestro will fall off his pedestal and all will glare. This man is nothing more than a paid lobbyist. He lobbied before he was the Fed Chairman that it was a good idea to permit the mismatch of short term deposits to long term liabilities at S&L's. He advised Congress that hege funds and derivative securities should not be regulated as they were mere tools for banks to diversify risk. He ignored the excessive speculation of banks when they made ridiculous telecom loans. He bull shitted Congress to keep them in the dark and bragged about it to sell his book. And he ignored the exotica mortgage packages banks guaranteed and hawked around the world that have destabilized not only the US financial system but that of the world. Those who respect him should buy the monoline insurers' guaranteed debt for both are fools.

The Stock Market: An Excellent Predictor of U.S. Recessions

As to the question of where are the markets headed, I have to say I prefer using the Average PE of the market indicator. We closed 2007 with the S&P500 at a PE of 18.8. To get back to the average from the the 1465 recent high we would expect a 18.6% decline. We are down 9.5% from this high so we have another 9.1% to go. We're halfway to a S&P 1193. Yet support is around 1230. That's my bet.

Staunch Government Intervention Needed to Avoid Full-Blown Depression

Hey don't shoot the messenger. Fed Chairman Bernanke just chronicalled how the credit crisis has unfolded disclosing exotica lending practices and how securitization of inflated mortgages into derivative security packages guaranteed by banks and sold around the world has made the US financial system and economy "fragile." What teh Fed has not yet tallied is the total risk exposure to the financial system largely because it is probablly unknowable. We do know that typical loan to value ratios are 20:1 and we know that bets were made on both sides of various economic events (somebody loses). Therefore we know that "Events" will trigger (or not) guarantees over time and losses will be realized (or not). Banks will certainly have to continue to inventory homes that have considerably less value than the loans made against them and therefore have write-offs, many of them. It is the uncertainty and consequential loss of faith in the financial system as disclosure is gradually made (as triggers occur) that feeds on itself and exacerbates financial problems. There is an estimated 10-20 percent further decline in home values likely to yet be realized. The negative multiplier effect impacting capital reserves at financial institutions combined with the added requirement to set aside loan loss reserves for coming legal liabilites are likely to push a US recession into a US depression if mishandled as it seems to be. Since consumer spending accounts for some two-thirds of US GDP, I believe it would be more preferable to once again stimulate consumer spending by capping credit card interest rates to accomplish this. It would come at a cost to Credit Card issuers (banks, AMEX & MC) but would great a positive, offsetting multiplier effect stimulating our economy. It might also preclude some foreclosures by providing more discretionary income to pay a mortgage rather than default on a home. Moreover, the US is attractive to Asia because of our consumer spending and sharply curtailing that factor might trigger any number of additional adverse consequences. Seems to me extending consumer spending and opening up our markets to let them buy our troubled banks and inflated real esate is a good solution. What's really 'nutso' is thinking nothings really all that serious and cutting interest rates will solve this problem.

2008 Economic Outlook: Dominoes All in a Row

Another possible scenario is an increase in foreign investment in the US due to the favorable foreign currency exchange and comparatively low US asset values of real estate and financial institutions. In this scenario, which I shall call "America on Sale," the US muddles through offsetting weak consumer growth with M&A transactions that repatriate foreign (China) trade surpluses and Oil dollars. Indeed, this scenario is already underway with buyers from Dubai and Netherlands accounting for $106 billion of $230 billion in 4th quarter 2007 deals and Europe accounting for the rest.(data from Bloomberg). The only thing that could derail this scenario from unfolding is prejudicial politics coming out of Washington. However against the backdrop of the Dubai Port fiasco, experience has been gained and "suitable" purchasers will partner to make it all happen (think ABM Ambro, USB, Carlyle Group, Blackstone and Goldman Sachs). The result then is a 'palatable' rescue of US financial institutions in 2008 by foreign investors bidding up US assets. The US Government will bless these deals because its really the only acceptable solution.