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Excellent study of how we got into this problem that the socialist are now using to kill forever the American Dream: "..... Forty years ago, depository institutions handled mortgage credit risk very differently than they do today. Back then, the depository institution, which was typically a savings and loan association, held mortgages that were underwritten by its own employees, given to borrowers and backed by homes in its own community. These were almost always 30-year, fixed-rate loans, with borrowers having made a significant down payment, often 20 percent of the price of the home. Call this approach to mortgage lending "Method A." Today, mortgage loans held by depository institutions are often in the form of securities. These securities are backed by loans originated in distant communities by unknown borrowers, underwritten by mortgage brokers or other personnel not employed by the depository institution. The loans are often not 30-year fixed-rate loans, and the borrowers have typically made down payments of 5 percent or less, including loans with no down payment at all. Call this approach to mortgage lending "Method B." If you compare the two methods using common sense, then Method B does not pass a simple sanity check. In fact, the current financial crisis consists of banks that are up to their necks in Method B......"

Excellent review of Japan's "Lost Decade" and the current Obama socialist folly of creating similar "Zombie Banks". Baker sites the evidence of ".... a mountain of toxic assets, housing market declines, a sharp economic recession, rising unemployment and increasing taxpayer exposure through guarantees, loans, and infusion of capital - strongly suggests that some American banks face a solvency problem and not merely a liquidity one...." He recommends the Nouriel Roubini plan, a harsh course of action but one that would get the job done. "......This approach is not pretty or easy. It will cost a lot of money, with the lion's share coming from US taxpayers, at least in the short to medium term. But the alternative - a piecemeal pumping of more public money into insolvent banks in the vague hope that things will improve down the road - could truly be historic folly. Eventually our banks and economy will start to recover. When they do, we would be wise to avoid another Japanese mistake - raising taxes. To counter mounting debt created by government stimulus packages, Japan increased taxes in 1997. Consumption dropped and the country's economy collapsed. Our ad hoc approach to the banking crisis has helped financial institutions conceal losses, favoured shareholders over taxpayers, and protected senior bank managers from the consequences of their mistakes. Worst of all, it has crippled our credit system just at a time when the US and the world need to see it healthy.

Good explanation of this 2007 FASB accounting rule that wrecked havoc in September of 2008 when GSA subprime mortgage giants Fannie Mae and Freddie Mac both failed. When the bottom fell out from under the government backed securitized mortgage pools, banks were forced by this accounting rule to radically downgrade their assets. Since banks can only lend against their assets using government controlled ratios, as the asset value was marked to a market decimated by Fannie and Freddie failures and falling housing values, this accounting rule triggered the failure of Lehman Brothers. Because of credit default swaps used to insure these thought to be publicly guaranteed securities, the Lehman failure triggered a massive default at AIG as all Lehman security holders filed insurance claims. What a mess. The authors here propose an end or at the least suspension of mark-to-market accounting rules as an immediate solution. ".... In the 1930s, because mark-to-market accounting existed, we limited the amount of time available to fix problems. At the same time, the U.S. raised taxes, increased spending and economic interference, and became protectionist. This hurt growth. The reason the Great Depression was so bad is that we took away time and growth.

As Congressional moron after Congressional moron goes on the usual Sunday talk show circuit and says we must stop home prices from falling, I wonder whether these people took basic math in high school. Are they capable of looking at a chart and understanding a long-term average? The median value of a U.S. home in 2000 was $119,600. It peaked at $221,900 in 2006. Historically, home prices have risen annually in line with CPI. If they had followed the long-term trend, they would have increased by 17% to $140,000. Instead, they skyrocketed by 86% due to Alan Greenspan's irrational lowering of interest rates to 1%, the criminal pushing of loans by lowlife mortgage brokers, the greed and hubris of investment bankers and the foolishness and stupidity of home buyers. It is now 2009 and the median value should be $150,000 based on historical precedent. The median value at the end of 2008 was $180,100. Therefore, home prices are still 20% overvalued. Long-term averages are created by periods of overvaluation followed by periods of undervaluation. Prices need to fall 20% and could fall 30%. Instead of allowing the housing market to correct to its fair value, President Obama and Barney Frank will attempt to "mitigate" foreclosures. Mr. Frank has big plans for your tax dollars, "We may need more than $50 billion for foreclosure [mitigation]". What this means is that you will be making your monthly mortgage payment and in addition you will be making a $100 payment per month for a deadbeat who bought more house than they could afford, is still watching a 52 inch HDTV, still eating in their perfect kitchens with granite countertops and stainless steel appliances. Barney thinks he can reverse the law of supply and demand by throwing your money at the problem. He will succeed in wasting billions of tax dollars and home prices will still fall 20% to 30%. Unsustainably high home prices can not be sustained. I would normally say that even a 3rd grader could understand this conce

Troubled assets are just stuff that banks paid too much for. Mostly, that stuff is loans made to people who cannot afford to pay them off, secured by collateral that is worth less than the loan value. Those loans were made so people could buy everything from homes and cars to shopping malls and construction companies. The reason they are financially crippling is that banks don't want to admit how badly they overpaid, so they keep carrying worthless junk at inflated values on their balance sheets.  The "systemic" problems arise because everyone knows the banks are holding junk that they are pretending are jewels. Investors and lenders don't believe the assets are worth what the banks say they are, so they won't lend or invest against the phoney valuations.

Interfluidity has some very "Dark musings" about Treasury Sec Geithner's plan to bailout the big banks with trillions of dollars of taxpayer funds. The plan is "enronic" in that it proposes to use taxpayer funds to create a market for the toxic assets threatening to take down the big banks. The banks need to dump these AAA Fannie-Freddie mortgage securities, but the market has factored in a reality roughly discounting the value by 60% to 70%; Housing values having plummeted across the nation. If the Banks were to take the hit, and sell this GSA crap at true market value, they would not only suffer enormous losses for their high risk gambling, bu they would also be taken out of the lending market. Banks regulations require strict ratios between assets and lending funds.

So the idea is to have the taxpayers create a toxic asset market enabling banks to dump their crap at above market prices, with taxpayers takign the hit. This hit is masked by a tricky equation; Taxpayers will put up 97% of the funds for the overpriced purchase of crap, with private sector banks, hedge funds, and bond holders contributing 3%. Such a deal!

Heads the banks and Hedge funds win; tails the taxpayer loses. And loses to the tune of over $10 Trillion. GSA wonderkinds Fannie and Freddie have put $5 Trillion of securitized mortgages into the secondary money markets. Leverage that out at 40 : 1, and you have a $200 Trillion problem. Hummm, $10 Trillion looks cheap. "....I am filled with despair, not because what we are doing cannot "work", but because it is too unjust. This is not my country. The news of today is the Geithner plan. I think this plan might work very well in terms of repairing bank balance sheets...." Of course the whole notion of repairing bank balance sheet is a lie and misdirection. The balance sheets we should want to see repaired are household balance sheets. Banks have failed us profoundly. We want them reorganized, not repair

Business Insiders John Carney describes what happened at evil doer, AIG. In describing the black hole that is swallowing up endless volumes of taxpayer wealth, Carney points out that AIG is a channel for redistributing American wealth to International Bankers. ".... In last summer's blockbuster "The Dark Knight," the Joker invites one of the top crime lords of Gotham City to the rundown warehouse where he has stashed his ill-gotten gains. The mobster stares in awe at the huge stack of money the arch-criminal has amassed. But a moment later, his awe turns to horror as the Joker sets the money aflame. "This town deserves a better class of criminal," he explains. The exchange reveals the deep evil of the Joker. Unlike a common criminal, he doesn't just want to steal money from others. He wants to destroy their wealth....... At the heart of AIG's problems is a financial product called a credit default swap, which is really just an insurance contract on debt. If a borrower failed to pay off a loan fully, an investor protected by a credit default swap would be able to collect the outstanding amount from the insurance company. The idea was that credit default swaps would reduce the risk to any investor who bought bonds. In the best of worlds, they would reduce risk throughout the financial system by spreading out the costs of defaults. But that's not how things worked out. Instead, credit default swaps came to be used by banks in a way that no one anticipated-to avoid banking regulations. And AIG decided to get into the business of enabling this scheme...... "

Anyone who isn't welded to the Obama-Pelosi-Reid ball and chain has their campaign issue for November's election and 2012: spending. Republicans, Lieberman-Bayh Democrats, tea partiers, it doesn't matter. Spending, spending, spending. This is bigger than drill, drill, drill. Way bigger. Finally, after a nonstop, nearly 80-year upward climb, government spending has hit a wall. It didn't seem possible but this is a big wall. It's the American voter. This has been an unforgettable year in the history of American spending. It began with an eye-popping $800 billion stimulus bill that came from nowhere and went to nowhere. Done with that, the Washington Democrats turned to President Obama's health-care reform, which looked big at first, but turned out to be bigger. A well-publicized June estimate of the Senate bill's cost by the Congressional Budget Office put the 10-year price tag at $1.6 trillion. So $800 billion, then a trillion. Dollar signs rocketed into the sky all year: hundreds of billions on various TARP salvage projects, much drawn from some magic stash held by the Federal Reserve. The Obama cap-and-trade bill was going to use an auction to siphon $3.3 trillion from various states to Washington over 40 years. Oh, almost forgot-an FY 2011 $3.8 trillion budget. Some of this was spending, some taxes, some fees. It's all spending. A tax or fee is just a sluice gate that separates private income from the public-spending lake. And in 2009 it was beginning to look as if the politicians were going to blow the dam. California and New York, the nation's first and third most populous states, were in fiscal collapse, with the whole nation watching as once-mighty California (which looks like Greece cubed) actually issued IOUs. On April 15, the tea parties achieved critical mass, then built into a political phenomenon. The New York Times this week gave two full pages to cataloguing tea partier grievances in a way meant to convey the paranoid style in American politi

Here's one of the only economic charts that really matters: Total U.S. debt to GDP (from John Mauldin). This chart shows the trend from the end of the Civil War until now. 

Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it's simply somebody else's problem. About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization.

Wow.  This issue isn't going to go away.  This summary sticks to the Obama birth issues, and stays out of the further complications raised by Obama's Indonesian citizenship that was never converted to American.  Nor does it tag Obama's problems of being officially registered as a recipient of foreign student aid!  Recently released records fully document that Barack Obama received college financial aid in the US as a 'foreign student from Indonesia'.  Records from Columbia and Harvard are not available.  But there is the troublesome issue that while an undergrad at Columbia, Obama and two of his Muslim pals obtained a travel visa to Indonesia and Pakistan.  At the the time, these visa's were not available to American Citizens!   excerpt:  Members from all three branches of the Federal government already know that Barack Hussein Obama is ineligible for the office of President. National leaders, to include members of the US Supreme Court, already know that Barack Hussein Obama is not a "natural born citizen" of the United States of America, and therefore, is ineligible for the office he currently holds. (See JB's new article on The Bottom Line on Natural Born Citizen) What they don't know is how long it will take for most Americans to figure it out, or what to do about it. The diversionary search for an authentic birth certificate is ongoing and Obama has now spent in excess of $2 million in legal fees to keep that search alive.

Empire of Debt was published in 2006. It stated bluntly that the housing market occupied the center of an inflated bubble. The authors asserted the bubble would pop, leaving a sticky residue everywhere. They were right. The authors stated that Alan Greenspan's policies were detrimental to the U.S. economy. They were right. Empire of Debt not only identified the problems, but it provided a solution. Invest in gold or the Japanese yen. It would appear that once again they were right. The yen is strong and gold has made a phenomenal run, selling for over $1000 per ounce.

It's an overall concept I've designated as the Democratic Bankruptcy Paradox: The paradox by which every democracy eventually goes bankrupt-regardless of the people's will and intention of keeping it from going bankrupt. That's why it's a paradox: The citizens of a democratic state are supposed to control its destiny. They obviously do not want their nation to suffer bankruptcy-yet in spite of their will and intent, democratic states always go bankrupt. Always. This post will outline my proof of why this is so. I will first explain the logic of my Democratic Bankruptcy Paradox theory, and how it is derived from a rather recently articulated problem in philosophy called the discursive dilemma, or sometimes the doctrinal dilemma; an aspect of group agency that has been used primarily in legal theory, but which I've realized has some fairly interesting-and radical-applications to macro-economics and public finance in representative democracies. I will then explain how the discursive dilemma, when applied to macro-economics and fiscal policy in a democratic regime, leads to the Democratic Bankruptcy Paradox. It is here that I will prove two general conclusions: * One: Democracies always act in a fiscally incoherent manner. * Two: Democracies always go bankrupt-without exception.  Finally, I will show how my Democratic Bankruptcy Paradox theory applies to the American case, and explain why the U.S. governments at the local, State and Federal level spend more than they bring in-even as their citizens uniformly oppose this state of affairs.

The fake "recovery" was nice while it lasted, says famous apocalyptic forecaster Gerald Celente, founder of the Trends Research Institute. But now the fun's over, and we're headed for what Celente describes as the "Greatest Depression." Specifically, the always startling Celente says the country is headed for rising unemployment, poverty, and violent class warfare as the government efforts to keep the economy going begin to fail. The crux of the problem, Celente argues, is that the middle class has been wiped out. America used to be a land of opportunity for all, where hard-working people could build their own small businesses in their own communities and live prosperous and fulfilling lives. But now a collusion of state and corporate interests that Celente describes as "fascism" have conspired to help only the biggest companies and the richest Americans. This has put a shocking amount of the country's wealth in the hands of a privileged few and left the rest of the country to subsist on chicken-feed wages and low job satisfaction as Wal-Mart "associates" -- or worse. The answer, Celente says, is to bring back the laws that prevented huge companies from getting so big and powerful, and put some opportunity back in the hands of ordinary people.  But doing that is going to take a while.  And in the meantime, we're headed for trouble. (Celente's dead right about U.S. wealth inequality, by the way.  It's shocking.  And it's getting worse.) 

excerpt: The fact that the wealthiest already pay their fair share and more is borne out by this from the IRS: Individuals earning in the top one percent paid 40 percent of all income taxes, while those in the top 10 percent paid 71 percent of all income taxes. The fact that going after the wealthiest for even more isn't going to generate significant additional revenues - certainly not enough to make a dent in the debt - isn't mentioned by the President in his letter. And if Obama is so determined to be "fair", why doesn't he simply offer to write a check to the IRS for the part of his income that he feels he doesn't deserve? He doesn't say. The President did get one thing right: The middle class is the target of any deficit-reduction plans likely to come out of Washington in the next few days: "It's just not right to ask them to pay the whole tab - especially when they're not the ones who caused this mess in the first place." He's right: The middle class didn't create the financial crisis; the Ruling Class did. Instead, the middle class, by and large, just want to be left alone to work out their own lives. Whenever possible, they resist further government intrusions into their lives - witness the growth of the Tea Party - and are waiting to see if Washington will, for the first time in memory, not listen to the siren song of entitlement protection and class warfare being sung by the President, and instead ignore him and start some serious cutting back of Leviathan. Perhaps what the President should be saying to the American people is what he said as Senator in railing against raising the debt ceiling back in March, 2006: The fact that we are here today to debate raising America 's debt limit is a sign of leadership failure. It is a sign that the US Government cannot pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. In

YES!  This works for me.  The Banksters should not profit from the corruption of our politicians.   Keep in mind that the recent GAO audit of the Federal Reserve - the first audit in a 100 yrs, making it the first audit ever, has disclosed that in 2009 and 2010, the bankster cartel gave over $16 Trill to international and wall street banks - interest free.  Don't you think they could spare us $1.6 Trill of our own money?   Many thanks to Dan Ferris ......  There's another solution to the debt ceiling problem that would instantly eliminate $1.6 trillion in government debt. In other words, it would instantly reduce the national debt to approximately $1.6 trillion below the debt ceiling. That would give the President and Congress at least a year to hash out an agreement on spending cuts and tax increases. The plan is elegantly simple and radical. The largest holder of U.S. Treasury debt is the Federal Reserve Bank of the United States, the central bank of the United States. Texas Congressman Ron Paul has proposed the Federal Reserve simply cancel the $1.6 trillion in Treasury debt it holds. The Federal Reserve owns the bonds, so the Treasury is paying the Fed interest. The Fed in turn refunds the interest back to the Treasury. This is theatre of the absurd. Though the Fed is technically a privately owned bank, it's really the hand maiden of the government. It was created by a government act and is overseen by a government-appointed board of governors. For practical intents and purposes, the government owns the Fed's Treasury debt holdings. In other words, the government is borrowing from itself and manufacturing an enormous liability on which it must make interest payments - to itself! I hope you're starting to get the feeling the government is playing games and inventing a phony crisis. That's much closer to the truth. But the government's shell game of lending to itself could turn genuinely ugly.

Today may be the last chance we have to save our country.  Congress and Obama must come up with $4 Trillion in short term spending cuts to save the dollar.  I don't see it happening.  Boehner and the Republican establishment traded away the Cut, Cap & Balance Bill before it was even passed.  And it was passed only to be immediately put in the dirt by Boehner, Reid and McConnell.  Instead they came up with the largest increase in borrowing power the US Treasury has ever seen, $2.4 Trillion, near immediately.  Then they baked in the end of the Bush tax cuts, the $1 Trillion porkulous addition to the budget, and, ObamaCare to guarantee the largest tax increase in US history. This is indeed the End of America. excerpt: Yes, it's for real. We've been wondering when the markets would wake up to the reality of the sovereign debt crisis. Today is the day… The action in the fixed-income markets this morning verged on collapse. Yields on the world's benchmark sovereign debt - the U.S. 10-year Treasury bond - plummeted. Investors panicked and moved into the market, which is the world's most liquid market. Meanwhile, just about everything else in fixed income got killed. Mortgage REITs were briefly "no bid," for example. Annaly - the blue-chip mortgage REIT - was down more than 15% at the open. (I'll explain why in a moment.) It was as if the world's fixed-income investors finally woke up and realized the world's economy has serious problems… which our politicians seem unable to address, let alone repair.

For all our obsessing about it, the national debt is a singularly bad way of measuring the nation's financial condition. It includes only a small portion of the nation's total liabilities. And it's focused on the past. An honest assessment of the country's projected revenue and expenses over the next generation would show a reality different from the apocalyptic visions conjured by both Democrats and Republicans during the debt-ceiling debate. It would be much worse. That's why the posturing about whether and how Congress should increase the debt ceiling by Aug. 2 has been a hollow exercise. Failure to increase the borrowing limit would harm American prestige and the global financial system. But that's nothing compared with the real threats to the U.S.'s long-term economic health, which will begin to strike with full force toward the end of this decade: Sharply rising per-capita health-care spending, coupled with the graying of the populace; a generation of workers turning into an outsize generation of beneficiaries. Hoover Institution Senior Fellow Michael J. Boskin, who was President George H.W. Bush's chief economic adviser, says: "The word 'unsustainable' doesn't convey the problem enough, in my opinion." Even the $4 trillion "grand bargain" on debt reduction hammered out by President Barack Obama and House Speaker John Boehner (R-Ohio)-a deal that collapsed nearly as quickly as it came together-would not have gotten the U.S. where it needs to be. A June analysis by the Congressional Budget Office concluded that keeping the U.S.'s ratio of debt to gross domestic product at current levels until the year 2085 (to avoid scaring off investors) would require spending cuts, tax hikes, or a combination of both equal to 8.3 percent of GDP each year for the next 75 years, vs. the most likely (i.e. "alternative") scenario. That translates to $15 trillion over the next decade-or more than three times what Obama and Boehner we

Looks like the issue of Civil Liberties and the Obama Gestapo Government are getting traction in the main stream media.  So far the incredible increase in Obammunism's crushing Federal Regulations has been focused on the economic destruction caused.  The flip side of the Obammunism coin is that of Civil Liberties and the 10th Amendment getting similarly crushed. excerpt: Finally, some front-page attention to a major, and frightening, American problem! Tuesday's Wall Street Journal featured an in-depth look at how federal laws increasingly apply criminal penalties for violations involving no mens rea, roughly translated as a "guilty mind." The stricture against criminal penalties for unwitting violations is an age-old, bedrock legal principle. Alas, in today's dangerously armed, bureaucratic super-state, ancient legal principles go by the wayside when politicians pretend to be "tough on crime" and when officious civil "servants" indulge their fetishes for power. U.S. governments at every level these days are prone to "overcriminalization," which means turning ordinary activity into violations of the law, turning what should be civil violations into criminal ones, and applying penalties far harsher than should be warranted. On the mens rea front, the Journal explains: "In recent decades, Congress has repeatedly crafted laws that weaken or disregard the notion of criminal intent. Today not only are there thousands more criminal laws than before, but it is easier to fall afoul of them…. Today, there are an estimated 4,500 crimes in federal statutes, plus thousands more embedded in federal regulations."