NEWS #94

May 16, 2010

Red and White D notes that I have been very pessimistic lately. Here is a link to a cheerier kind of article, a treat for the technicians out there.

'Stock Market Crashes: A Technical Timeline' by Smita Sadana on Minyanville.Com.

Here is a less than gloomy article: 'Fear of a Double Dip Could Cause One' by Robert J. Shiller on NYTimes.Com. I quote the article extensively below.

"I use a definition of a double-dip recession that doesn't emphasize the short term. Instead, I see it as beginning with a recession in which unemployment rises to a high level and then falls at a disappointingly slow rate. Before employment returns to normal, there is a second recession. As long as economic recovery isn't complete, that’s a double-dip recession, even if there are years between the declines.

Under that definition, there has been only one serious double-dip recession in the last century — and it was serious indeed. It started with the 1929-33 recession, which was followed by a recession in 1937-38. Between those declines, the unemployment rate never moved below 12.2 percent. Those two recessions, four years apart, are now typically lumped together as one event, the Great Depression.

Many negative factors persisted between those dips. High among them was a widespread sense then that something was amiss with the economy. There was a feeling of uncertainty that discouraged entrepreneurship, lending and spending, and most important, hiring.

...There has been a similar historical example. On Sept. 11, 1986, the Standard & Poor's 500-stock index fell 4.8 percent, then the biggest one-day percentage drop since April 21, 1933. It called public attention back to the Great Depression, even though the decline was reversed within a couple of weeks. The New York Times attributed that one-day drop to 'anxiety, with computer spin,' referring to trading programs that generated huge sales. Readers were left with ambiguous interpretations of that drop, as they have been in the wake of the recent one-day decline.

That 1986 event stuck in people's minds. It was followed a year later by several aftershocks, then by what is still the biggest one-day drop in history, the 20.5 percent fall in the S.& P. 500 on Oct. 19, 1987."

I think Mr. Shiller nails the real potential for disaster: INVESTOR PSYCHOLOGY. I quote again what I think is his critical comment: "Many negative factors persisted between those dips. High among them was a widespread sense then that something was amiss with the economy."

Great minds may think alike...maybe. But, markets, ad naseum, reflect the herd mentality. The U.S. solution to the 'Recession' has been to pump liquidity back into markets, via the Banks that caused much of the problem in the first place, by having the Central Bank add some more zeroes to the ledger (and now the Senate passes a bill to let all of us find out HOW MANY zeroes got added). The strategy is to create more inflation, to re-inflate the bubble, to lower the value of the dollar - and thus boost exports due to that lower dollar.

Guess what the Europeans, the South Americans, the Chinese, Indians, Russians, etc. have been doing? Same damned thing! Value, it turns out, is a relational thing, and if we all to the same thing, the relational values will stay the same. It's a zero sum game.

Ah but, we now have the bankers of the world awash in money. That's what is driving the bull markets, not the wonderful conditions in the real economy. I liken many consumers to fighters who have just finished a tough match in the ring. They are up on their feet now, but things still ache. A house is the most expensive thing the average consumer ever buys, it is the critical purchase of his/her lifetime. Consumers have not all been in the ring, but they know plenty of others who have. They can see the swollen, bruised faces. They can see the pain of broken ribs that still have not healed.

Not only does construction suck (one of three legs of the economy), but the consumers who drive that leg are in a terrible psychological state. And, the bad news is that foreclosure rates do nothing but go up from here in both residential and commercial markets. That, my fellow investors, is the pychological backdrop...the playing field upon which future market decisions will be made.

The critical decisions will be made this time around by the folks holding the cash: the banks...'cause they 'got the juice.' And who are these people? They are a well-educated bunch with one eye on the real economy and the other on the S&P 500. They know how bad it still is on Main Street, and how it could, and probably will, get worse before it gets better there. They also know that markets are divorced from reality, and there is a lot of money to be made in the markets. So, betting on the market bull, when there is an economy bear, makes sense to them.

But the weakness to having the banks make the markets is this: Herd Instinct. They will all move together, they will all make the same decision around the same time. That will make for a lot of volitility and some spectacular market swings in our not-too-distant future. It's going to be a great ride. Choose your horses carefully.

May 14, 2010

Duncan" sends this link to 'Housing Optimists Are "Not Paying Attention" to the Facts, Says Dean Baker' on Yahoo.Com. I quote the article below.

"'I think we're going to see a big fall-off in purchases for the rest of 2010 and even into 2011,' Baker says. 'So the idea that somehow the market is stable, that housing prices will rise anytime soon - it's really hard to make a case for that.'

...* Programs that lifted the market, including the tax credit for first-time buyers, have expired.

* The Federal Reserve is exiting the mortgage market, which will likely push rates to 5.5% to 6% by the end of the year.

* There's still an inventory glut and rental rates are falling in many markets, notes Baker, author of 'False Profits: Recovering from the Bubble Economy.' He says the rental market doesn't lie."

Here is a related link to 'Housing Market Poised for Another Leg Down' by Richard Suttmeier on Minyanville.Com. I quote the article below.

"Foreclosure filings may have fallen 2% year over year in April for the first such decline in five years, but that's because bankers cannot keep up with the number of distressed homeowners. Many Americans are in 'modification limbo,' waiting for decisions with regard to getting a temporary loan modification; others are in temporary modifications hoping that they become permanent. While this backlog grows, bankers are allowing other homeowners to stay in their homes even as mortgage payments are in arrears, as the process of foreclosures has a building backlog of its own.

As the government programs wind down, there will likely be a deluge of foreclosures in the months ahead leading to anther leg down for home prices in many locations throughout the United States. The number of new delinquencies may have stabilized, but banks seized a record 92,000 homes in April, and there are millions of potential foreclosures still to come. According to Lender Processing Services, nearly 7.4 million homeowners with a mortgage have missed at least one mortgage payment through March. RealtyTrac reports that 334,000 households received a foreclosure notice in April, which is a big number, but down 9% from March."

Here is a link to 'Europe Is Going Down' by James Kostohryz on Minyanville.Com. I quote the article below.

"However, the notion that the 20+ countries in the EU can simultaneously go on an austerity plan, maintain a fixed exchange rate between them, and, in this manner, spur confidence and growth, is insane. It's the principle of extrapolation, gone wild. EU countries all export to one another and they all use the same currency; who is going to pull whom out? And in terms of financing, there are no excess funds to go around. They all have huge deficits and they have to borrow from abroad."

And here is a related link to 'Central Banks Can't Always Get What They Want' by Mike Mish Shedlock on Minyanville.Com.

May 12, 2010

Here is a link to 'Gold Scents', by Toby Connor. I quote the article below.

"These are just a few sectors, but the picture is the same no matter where you look. Steadily declining volume. Only miners are showing heavy accumulation.

I'm even seeing analysts touting the energy sector as the place to be. It's not unusual to see traders flock back into the leading sector of the prior bull, but if history is any indication energy will not lead this bull."

Rich Kolon sends this link to 'Feds probing JPMorgan trades in silver pit', by Michael Gray on NYPost.Com.

Rich Kolon also sends this link to 'Unfuckingbelievable: Goldman Has Zero Trading Loss Days In Last Quarter', by Tyler Durden on ZeroHedge.Com. I quote the article below.

"In the quarter ended March 31, Goldman made money on every single trading day. The firm did not record a loss of even $0.01 on even one day in the last quarter. That's 63 days profitable out of 63 trading days. The statistic probability of this event is itself statistically undefined. Goldman is now the market - or, in keeping with modern market reality, Goldman is the house, it controls the casino, and always wins. Congratulations America: you now have far, far better odds in Las Vegas that you have making money with your E-Trade account.

Adding to the alice in wonderland insanity of this announcement, the firm made over $100 million daily on 35 different days. Of Goldman's $9.7 billion in total Q1 revenue, 76% came from trading. Forget investment banking, forget underwriting, forget advisory: over three quarters of the firm's value is based on being the house to the biggest corrupt casino in existence. Ever. "

Rich also sends this note:

"Patrick Pulatie is the CEO of Loan Fraud Investigations.

"Predatory loan modifications come in many disguises and may include the actual offer, or just the negotiations of the loan modification. The purpose of the modification is ... (whether now or in the future) to cause the borrower to lose the home. It has no other purpose than that." (Sentence reformatted for clarity.)

He lists a bunch of examples of how the banksters have used these various schemes.

http://blog.ml-implode.com/2010/05/predatory-loan-modifications/

Rich"

Here is a link to 'Fannie, Freddie Losses Rise Under Market Radar', by Richard Suttmeier on Minyanville.Com.

Here is a link to 'Asset Prices Being Driven by Governments', by Mr. Practical on Minyanville.Com. I quote the article below.

"Seventy-eight percent of the entire rally from the 2008 lows in US stocks occurred in overnight trading. This means it has occurred on virtually no volume. Additionally, real economic activity, significantly curtailed from deflationary forces (too much debt), has been replaced by government programs while income has been replaced by transfer payments."

Red and White D sends this note:

"Get used to the pain as world tackles debt crisis.

Australia is a giant Wyoming. Much of their wealth is derived from mineral extraction and export. Theirs was the last economy to recede and the first to begin looking up recently. They have a lot of socialism in their government but they still seem to have common sense in their public affairs and they have a bit of hard headed intellect. They are attempting to levy what amounts to a "super" severance tax on minerals extraction. This tax is creating quite a stir.

Here is a point of view from The Australian which demonstrates their common sense attitude and concerns.

http://www.theaustralian.com.au/news/opinion/get-used-to-the-pain-as-world-tackles-debt-crisis/story-e6frg71x-1225863819674



May 8, 2010

Bill Gross on Pimco.Com has interesting comments this month.

Bill Gross says that to be successful in investing one needs a teaspoon of IQ and a tablespoon of CQ (Common Sense Quotient - and three times the volume of a teaspoon)

"Whatever the future holds, remember that a tablespoon is larger than a teaspoon, and that CQ beats IQ most of the time in the investment world. 'Two plus two equals four' needs a lot of CQ, but requires only a second grader's IQ.

...Back in July of 2007 some of you will remember my description of their role in the subprime crisis. 'Many of these good-looking girls are not high-class assets worth 100 cents on the dollar. You were wooed, Mr. Moody’s and Mr. Poor's, by the makeup, those six-inch hooker heels and a 'tramp stamp.'' Now, it seems, I was a little long on humor and a little short on the reality. Tramp stamp and hooker heels do not begin to describe the sordid, nonsensical role that the rating services performed in perpetrating and perpetuating the subprime craze, as well as reflecting the general deterioration of investment common sense during the past several decades. Their warnings were more than tardy when it came to the Enrons and the Worldcoms of ten years past, and most recently their blind faith in sovereign solvency has led to egregious excess in Greece and their southern neighbors. The result has been the foisting of AAA ratings on an unsuspecting (and ignorant) investment public who bought the rating service Kool-Aid that housing prices could never really go down or that countries don't go bankrupt. Their quantitative models appeared to have a Mensa-like IQ of at least 160, but their common sense rating was closer to 60, resembling an idiot savant with a full command of the mathematics, but no idea of how to apply them.

...S&P just this past week downgraded Spain 'one notch' to AA from AA+, cautioning that they could face another downgrade if they weren't careful. Oooh – so tough! And believe it or not, Moody's and Fitch still have them as AAAs. Here's a country with 20% unemployment, a recent current account deficit of 10%, that has defaulted 13 times in the past two centuries, whose bonds are already trading at Baa levels, and whose fate is increasingly dependent on the kindness of the EU and IMF to bail them out. Some AAA!

Now let's go the other way. GMAC, that only too recently near-bankrupt finance company, carries recently upgraded B ratings from the rating services. Profiles in courage for all three, I say! I mean the U.S. government has injected $20 billion of capital and owns 65% of the company. It's the auto industry's equivalent of FNMA and FHLMC, except those are AAA and GMAC is B with a 'positive outlook!' For that, you can buy a GMAC two-year bond at 6½% (8% with what are called 'smart notes' that Investment Outlook readers can buy through their broker), while you receive only 1.2% at Fannie and Freddie. Vive la différence!"



May 7, 2010

Here are links:

'U.S. Stocks Plunge Most in Year as 'Panic Selling' Grips Market ', by Michael P. Regan and Rita Nazareth on Bloomberg.Com.

'Nasdaq Says Investigating Erroneous Trades After Market Plunge', by Michael Tsang and Elizabeth Stanton on Bloomberg.Com.

'Banks Hemorrhage Cash With Cards Wanting to Be American Express', by Lisa Kassenaar on Bloomberg.Com.

Ben Smith sends this enlightening article:

'Mr. President, Unplug the F*ing Computers', on Denninger.Net.

Here is a link to 'Reviewing Themes for 2010', by Richard Suttmeier on Minyanville.Com. I quote it below. Bolding is my own.

"As a result, the upside for the Dow Jones Industrial Average should be limited to 11,250 to 11,500. ValuEngine showed 10 of 11 sectors overvalued and the weekly chart for the Dow was extremely overbought. When the Dow has a weekly close below 10,375 the risk is to at least 7,500. Since the beginning of the year I refined this to 'Dow 8,500 before Dow 11,500.'

...9. The FDIC Quarterly Banking Profile is the balance sheet for the US economy and its deterioration is a leading indicator that economic growth will be muted to negative in 2010. In the first three quarters of 2009 total assets declined $596 billion to $13.25 trillion. I see bad loans rising throughout 2010 and beyond. Commercial real estate will be the subprime of 2010. GDP has been up for three consecutive quarters, but the NBER has not yet time-stamped the end of recession. The recession began with 4.6% unemployment and today its 9.7%. We will likely see bad loans rising when we see the FDIC Quarterly Banking Profile for the first quarter of 2010 later this month.

10. The multi-year bear market for stocks is over, but a new bull market is not in the cards. There can't be a bull market for stocks with 10 of 11 sectors overvalued according to ValuEngine. The Dow could trade to 11,250 to 11,500, but a weekly close below 10,379 signals at least 20% of downside risk. At the April 26 market high, all 11 sectors were overvalued and the Dow was overbought in all three time horizons -- daily, weekly, and monthly."

Red and White D sends this thought provoking note:

"Linked below is an interesting point of view about the powers and forces acting on the world today. I heard this lecture on the Australian Radio National last week. Perhaps while you are waiting for the weather to warm up so you can plant your maters and other garden goodies you might browse this.

http://www.nybooks.com/articles/archives/2009/dec/17/what-is-living-and-what-is-dead-in-social-democrac/Rich Kolon

I firmly believe that ALL current events have historical roots that can not be escaped. The Toby Conner piece you posted made perfect sense to me. There are inescapable realities in life and no amount of fiddling with the knobs and buttons can change that reality. There Is No Free Lunch!"

I read the linked article. There is much truth contained therein. But I find much of it disturbing. The references to old John Maynard are not complete. He did advocate massive government spending during recessions. He also advocated heavy taxation during the good times that followed to pay back the borrowing. That is the part most heads of states don't get. What seems to happen is that taxation relaxes during the good times (Bush) and then increases during the bad times (Obama). Which is just the opposite of what government should be doing.



May 4, 2010

The markets tumbled today, and there were many excuses given. Duncan nailed this one with his call (above).

And here is a link to 'China May 'Crash' in Next 9 to 12 Months, Faber Says (Update3)', by Shiyin Chen and Haslinda Amin on Bloomberg.Com.

Rich Kolon sends this link to 'Food Prices Will Rise', by George Washington on ZeroHedge.Com.

Rich also sends this note:

"Despite Alan Greenspan's unwillingness to admit he was instrumental in creating the housing bubble, transcripts of Fed meetings now show he was made aware of the problem, and chose to downplay it.

'Greenspan Wanted Housing-Bubble Dissent Kept Secret', by Ryan Grim on HuffingtonPost.Com."

The Orange section sends this link to 'Obamacon Doves vs Hard-Money Hearland Hawks', by Larry Kudlow on BigGovernment.Com. I quote this article extensively below. Bolding is my own.

"California economist Scott Grannis recently blogged about 'easy Fed, strong gold.' The yellow metal, which has proven to be the best indicator of currency confidence, continues its upward trend against the dollar, and for that matter against the euro and Japanese yen. Grannis also has been writing about the surge in commodity prices, which are marching onward and upward in a V-shaped recovery. Grannis, in other words, is tracking the appropriate indicators.

Many supply-siders, including myself, believe that commodity prices in the open market are the best measures of whether money is too tight or too loose. But no one on this new Obama monetary team will be paying much attention to gold and commodities. They believe in the so-called Phillips Curve tradeoff between inflation and unemployment, despite the breakdown of that model back in the 1970s, when both measures rose together, and for most of the 1980s and 1990s, when both measures fell together.

Indeed, more people working more productively will create more economic growth to absorb the money supply and maintain very low inflation. On the other hand, the $2 trillion Fed balance sheet - which embodies the creation of a massive new volume of the high-powered monetary base, to draw on Milton Friedman's analysis - sets the stage for too much money chasing too few goods and a steady depreciation of the dollar."

And here is a link to 'On the Verge of an Inflationary Surge', by Toby Connor on Minyanville.Com. I quote the article below.

"I'm going to start off by stating that I don't think Fed Chairman Ben Bernanke is going to 'get away with' the insane monetary policy he's chosen. Printing trillions of dollars, cutting rates to zero, trying to manipulate the bond market, and generally tampering with the natural market forces is going to have consequences.

There is a price that will have to be paid for this madness. Just like there was a price we had to pay for Alan Greenspan's reckless attempt to avoid a recession when the tech bubble burst. Greenspan certainly bought some time and a brief period of illusionary prosperity. But he did so by creating a housing and credit bubble. When those burst, as all bubbles do, the fallout was much worse than if we had just weathered the recession to begin with.

Ultimately all of Greenspan's and Bernanke's efforts have just loaded the nation with a monstrous debt burden that we'll never be able to repay and soaring unemployment that isn't going away anytime soon.

Now I'm afraid Bernanke has probably let the inflation genie out of the bottle with his reckless actions. That means surging commodity prices. The fact that almost all commodities resisted the stock market decline on Friday is an ominous warning sign."

Here are the important points I'd like you to carry away.

• China's economy is pulling in. It won't save us.

• Rising food prices will be both a symptom of, and cause for, other comodity prices rising.

• There are no free lunches, not even for the FED. The idea that Bubble Boy Bernanke has, that the FED can reign in inflation any time it wants, is crazy. Inflation is already here. Comodity prices are marching upward. Everything to do with automobiles has gone up sharply in price in the past quarter. How can the FED 'do something' about inflation when it can not even see it? The FED did not see the asset bubble created by Greenspan. The idea that the FED sees now, what it could not see before, is ludicrous. Did you ever see a plastic packet of ketchup get run over by the tire of a car? When overwhelming force is applied, ketchup will flow at a very high rate of speed. And the direction can be quite unpredictable. Money and markets are like that. Everytime a FED gets too heavy handed, tries too hard to control markets, something 'unexpected' squishes out in a new direction, creating the next problem. Bubble Boy is using a jack hammer, where a tack hammer would be more appropriate.

• No one on the Obama monetary team will be paying much attention to gold and commodities. They believe in the so-called Phillips Curve tradeoff between inflation and unemployment. The key word is: believe. They believe. But the overwhelming force being applied to our economy by the FED right now (zero interest rates and the printing of trillions of dollars), like the tire of the car, will produce a squish, a 'new' phenomena that will catch the FED by surprise. The FED will not see it coming. But you can.

• As far as I can tell, the two best hedges agains runaway inflation will be GOLD and OIL. You will want to own some.

• Stocks prices will also inflate with comodities. You will want to own some.


April 29, 2010

Here is a link to 'Barofsky Says Criminal Charges Possible in Alleged AIG Coverup ', by Richard Teitelbaum on Bloomberg.Com.

Here is a link to 'More Than a Million in U.S. May Lose Jobless Benefits (Update1)', by Brian Faler on Bloomberg.Com. Now the system spits these workers/consumers out the other end.

Here is a link to 'Recessions Getting Longer and Worse', by Reid Holloway on Minyanville.Com.

Here is a link to 'Signs of Risk Aversion Return', by Richard Suttmeier on Minyanville.Com. I quote the article below. Bolding is my own.

"The issue with Goldman isn't making undisclosed bets on the short side, but creating synthetic financial instruments that should be banned, as investors cannot fully understand the risk/reward. The institutional sales force at Goldman is instructed to sell a structure, and may not know that the market maker is shorting. The sales force is selling the potential positives of the structure not knowing that the trading desk created a monster designed to implode. These types of products need to be banned. We didn't need them or use them 10 to 20 years ago, and given the fragility of the global debt markets today, we need to de-lever not add leverage. The global pools of notional amounts of derivatives are just too big, and as we're seeing today, countries and states are at risk. Bank exposures to all such structures must be returned to bank balance sheets and marked to market daily. If that's not possible for a certain type of structure, they should be banned with global exposures unwound. This should be the priority of financial reform!"

Here here! The guy just nailed it.

Here is a link to 'Being green, staying mean', by Annie Snider, Medill News Service on AL.Com. So, finally, the U.S. Army has declared that energy dependence is a bad thing. Yes, Virginia, it's been a bad thing since Nixon was President.

I estimate that in 36 months we, the United States, could have 40 spanking new nuclear power plants up and running. Now that would put a serious dent in our energy dependence. But, of course, we won't ever see that because Congress (both parties) and the White House (past and present) are not really serious about energy independence. They pay lip service. That's about it. Big Oil has a powerful lobby. Because it does, expect us to be involved in more troubles in the Middle East in the future.



April 27, 2010

Here is a link to 'Bank Failure Friday Strikes Again', by Richard Suttmeier on Minyanville.Com.

Here is a link to 'Goldman Sachs Executives Grilled in Senate Hearing (Update1)', by Jody Shenn and Michael J. Moore. on Bloomberg.Com.

Here is a link to 'Skirmishing Continues Over Financial Reform Bill', by Edward Wyatt on NYTimes.Com.

Here is a link to 'Potential IBM Crowd Sourcing Indicates Deflationary Trend', by Mike Mish Shedlock on Minyanville.Com. I quote this article below.

"'IT giant IBM (IBM) told Personnel Today that the firm's global workforce of 399,000 permanent employees could reduce to 100,000 by 2017, the date by which the firm is due to complete its HR transformation program.

Tim Ringo, head of IBM Human Capital Management, the consultancy arm of the IT conglomerate, said the firm would re-hire the workers as contractors for specific projects as and when necessary, a concept dubbed 'crowd sourcing.'

'There would be no buildings costs, no pensions and no health-care costs, making huge savings,' he said

When asked how many permanent people IBM could potentially employ in 2017, Ringo said: '100,000 people. I think crowd sourcing is really important, where you would have a core set of employees but the vast majority are sub-contracted out.'"



April 26, 2010

From Rich Kolon come these two notes.

1.

"More on how computers now dominate trading to the disadvantage of the public.

http://www.webofdebt.com/articles/computerized_front_running.php

2.

Thanks to corrupt accounting allowed by the government, it may take 103 months to sell all the homes that will be foreclosed on, as estimated in a WSJ article.

http://www.zerohedge.com/article/foreclosure-inventory-103-months"

Here are two interesting links:

'Feds viewing porn on gov't computers', by Charlie Butts on OneNewsNow.Com.

'Doubts greet Obama's financial oversight plan', by Bradley Dennis and David Cho on WashingtonPost.Com.

Obama's plan includes a watchdog board to oversee the regulatory agencies. Now that's an advancement! Maybe they can screen the SEC's porn while they're at it. I could comment about the SEC employees supposedly being 'disiplined', but this is a family-friendly site and I will not go there.



April 23, 2010

Red and White D sends this link to 'No room to move as cost of land surges', by Clancy Yeates on SMH.Com. Land prices down under are in a huge bubble. The driver, I speculate, is the Chinese, who since Australian rules were relaxed, have been bidding with both fists stuffed with cash. Now, why would they do that? Maybe because even if it is a bubble that will eventually burst, you still get to trade pieces of paper for something real. Perhaps the Chinese see a wall of inflation heading all our ways.

Here is a link to 'Did Washington Save the Economy? Part 5', by David Stockman on Minyanville.Com. This is the last article in a five part series. Each part is lengthy and makes for good reading if you have the time. I quote the article below.

"The next big private business service category is Finance, Insurance, and Real Estate (abbreviated as FIRE), which posted 7.6 million jobs in March -- nearly the identical number reported a decade ago in January 2000. This flatline outcome seems incongruous but is actually consistent with the essential characteristic of the decade's great financial bubble. The latter materialized almost entirely in the form of rapidly mushrooming bank balance sheets. During the final stages of the bubble, for example, Citigroup's (C) employee count barely grew but its footings exploded from $1.5 trillion to $2.2 trillion, or by nearly 50% in only 24 months. In other words, the decade's easy money-fueled growth in financial institutions was accomplished essentially via book entries in the cybersphere, not expansion of actual operating enterprises, bricks and mortar, or payrolls."

Here is a link to 'Reduction of Loan Balances Isn't Enough', by Peter Atwater on Minyanville.Com. I quote it below.

"First, since last spring, there has been a flood of corporate issuance in the bond market. A significant portion of the proceeds was used to repay bank borrowings at the largest banks.

And in this regard I'd note that for all the talk about 'financial services' reform, what is really developing is just 'banking' reform. By my estimate, banks represent only one-third of total US financial assets, and until reform focuses on the whole, systemic risk will remain high.

To use an analogy, there are lots of pockets on this pair of pants, and I'm afraid that reform of just one will simply end up moving money to another."

Rich Kolon sends this note:

http://www.smirkingchimp.com/thread/mike_whitney/28176/bulletins_from_the_housing_hindenburg

Why are banks letting some people stay in homes without foreclosure?

It's the US government approved false accounting that permits them not to write down a mortgage in default, so that the lender doesn't have to report honest statistics that show they are insolvent from these toxic assets, which would cause bank runs.

Meanwhile it is taking an average 45 months to sell a $400-$600K house in the US.

So why is there a economic 'recovery' in the US now? It's because of the people who stopped paying on their mortgages. The banks don't want to declare a foreclosure, or the loan was pawned off to some other institution (maybe your pension fund as part of a package MBS) that doesn't know they are not paying, or someone has lost track of who the REAL owner of the mortgage is now.

These homeowners may have reasons other than they have no money for paying the mortgage. They may have so much negative equity and so little down payment on a home, that they just cut their losses. Even if they still have jobs. Whatever, they may have an extra $1000 or so a month to spend in other ways.

If the government does find a way to let banks off the insolvency hook thru changing old loans into FHA guaranteed loans, as suggested by the recent increase in this activity, then it looks like the Fannie Mae 'bad bank' scenario will not only save a few banksters, but also stick it again to the public. The reason is the high unemployment rate and eventual defaults on the FHA loans, which the GOVERNMENT would be obligated to pay on, not the originating banksters.

Rich"



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