Obama's Performance

My wife sent me this link showing Obama's performance on the economy from January to the present. It shows whether the decisions were a "slam dunk" or an "airball."

http://money.cnn.com/news/storysupplement/economy/obama_money_moves/

As a social liberal, fiscal conservative--like I believe most people in this country basically are--I like Obama and expected change when he came into office this past January. However, a colleague of mine said not to expect it too soon. Washington, D.C. has always been Washington, D.C. and he won't be able to change the system, my colleague said (although I'm paraphrasing).

He was right--for now. I think Matt Taibbi's Rolling Stones article about Goldman Sachs, "Inside The Great American Bubble Machine" says it all as to the economic connections from Wall Street to Washington.

This bubble really started to collapse in the summer of 2007 because the residential mortgage-backed securities market had pretty much gone dark, and the commercial mortgage-backed securities market had pretty much shut down as well--even though fundamentals were sound in commercial real estate. It was then I discovered that investors are not only greedy, they're really smart as well. They saw the writing on the wall when residential delinquencies jumped in March 2007 and, by August 2007, it was clear too much capital chased ALL PROPERTIES causing inflated prices all around.

Interest-only mortgages, Alt-A mortgages, Option Adjustable Rate Mortgages, Home Equity Lines of Credit or HELOCs, credit cards, credit derivatives, credit default swaps, trust preferred securities, RMBS, CMBS, collateralized debt obligations or CDOs, commercial real estate CDOs and a number of other "exotic" financial instruments unregulated were inflating the consumer debt bubble to the point of full implosion. But that was one year away.

Prior to that, any person with common sense watching the mortgage industry, like myself, could see that Interest Only mortgages given to unsophisticated borrowers would ruin the mortgage industry during its most productive period EVER.

Of course it did. I predicted it nearly three years before it happened, and I'm not an economist, never studied economic theory, didn't know anything about supply and demand. I only started reading the business section of the paper about five years ago.

I just knew, by common sense, that it was greedy and stupid to give these loans--meant for sophisticated financial professionals--to ordinary home borrowers. I would ruin a good thing the industry had going--which it did--and that we would have a recession like nobody ever saw because everyone was leveraged to the hilt and nobody would spend any money anymore.

Nobody spends, companies don't make money. Companies don't make money, they have to layoff people. People get laid off, they can't pay their mortgages. The industry collapses. It's not rocket science.

During the subprime craze, however, mortgage industry leaders said, "If he's doing it, I've got to do it or he'll get all the market share." Of course, the wisdom here would have been to realize it would destroy the ENTIRE INDUSTRY. Try thinking of the industry first guys and gals!

What it took other, much more intelligent economists who did study economic theory and understood ALL the machinations behind this--like Nouriel Roubini, professor of economics at NYU--it would destroy the ENTIRE GLOBAL ECONOMY. Try thinking of the rest of the world guys and gals!

But mortgage lenders were not to blame. EVERYONE WAS TO BLAME, including GREEDY BORROWERS who thought they could buy a huge house they could not afford and later blame someone else for their own greed.

But enough of this...it's all in the past. Let's fast forward to August 2008. By then, Hank Paulson already knew what was going on.

Bear, Stearns collapsed. Lehman Brothers went bankrupt, and the stock market was falling fast. Fannie Mae and Freddie Mac were placed under government control, AIG was placed under government control and Timothy Geithner, then in the NY Fed and a former Goldman player, helped Hank with the TARP $700 billion bailout.

Meanwhile, Bernanke, watched this happened when he followed Alan Greenspan who helped create this bubble. You might say he played the role of Kevin Bacon getting flattened in Animal House--"Everything is fine, don't panic!"-- is at the helm ready to start up the printing presses.

Thinking of that character, can you believe John McCain said the economy was strong in September? That might have cost him the election right there.

So, Obama was elected U.S. President in November after, as I suspected, we would be in a huge recession with Bush waving to the crowd saying, "See ya...had fun these last eight years. Thanks."

Only, the economic problem was far worse because it was a Depression. It reflected the exact same thing that happened in the 1929 Stock Market Crash, which led to the Great Depression. It lasted about a decade and ended after World War II. That's what Obama faced upon his inauguration. Literally, it was a no-win scenario for him. He would do his best to get us out of this Depression.

However, my first disappointment was Geithner's appointment--because I thought a guy who wanted change would go with a Treasury Secretary that wasn't a Wall Street alum, much less Goldman Sachs. Why couldn't it have been Nouriel Roubini, who knows exactly what's going on and said we should Nationalize the banks. I always believed--and still do--that was the best strategy to combat the no-win scenario Obama faced.

But politics got in the way. Congress still likes its Wall Street money from financial institutions and their special interest dollars. So, yes, it remained business as usual. Only, the business the government started was throwing money at the problem, hoping banks would become solvent and start lending again. We can now see the result: more bonuses, holding capital to reduce risk, going back to derivative trading at the expense of other companies and jobs. Try thinking of the middle class, guys and gals!

Nope, it's business as usual. But now Bernanke's form of "quantitative easing" place the U.S. Federal Government into a no-win scenario. Those residential and mortgage loans--and everything tied to them--have less value than when they started. They will not be paid back in full and, if they ever are, it will not be for at least six to 10 years when those values return. That's optimistic! I like to look at the glass half full!!

Don't expect consumers to be spending too much or taking on debt anytime soon--if they can get it in the first place. Would YOU TAKE ON DEBT anytime soon??? Are you confident you'll have your job long term if you still have one??? Don't you just feel like saving in the first place!! Try thinking of the bankers, guys and gals! Especially when many of them are back to making bonuses and trying to stay solvent.

If we've established that we're a deflationary period, which could last for AT LEAST six to 10 years, then at least we won't have to worry about INFLATION, which could be staggering if you knew what it did to prices in Argentina when they printed up far less amounts of money than we did. So, I wouldn't worry about inflation.

But be aware that Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program (SIGTARP), said the Federal Government bailout of banks could reach as much as $24.7 Trillion when all is said and done because of all the other FUNDS they're throwing at banks to help them become solvent. They include: TARP, the Troubled Asset Loan Facility known as TALF, the Public Private Investment Program, the Discount Window banks have for lending and a number of other programs laid out for you if you read the document. That said, even if they spent one-quarter of that, it's more than $6 Trillion.

Besides the fact that the FED currently holds nearly $2.3 Trillion in worthless assets, "the Obama administration said Tuesday that it now expects the 10-year budget deficit to reach $9 Trillion, or about $2 trillion more than it estimated earlier in the year," CNN said.

That's taxpayer money. But more than that, why is the Stock Market going up and making all of us who have 401K's and other retirement funds feel much wealthier? Well, if you remember why the stock market plummeted in the first place, it was because all of these banks had to mark-to-market the TOXIC ASSETS, meaning that their value was based on today and not SIX or 10 YEARS from now. That way, it gives a clear indication of the bank's CURRENT WEALTH.

Well, in April, the Financial Accounting Standards Board, pressured by Congress and by special interests, wilted and said banks can do a "mark-to-model" based on their estimates of value. In other words, when the second quarter rolled around, AIG didn't have to say they lost BILLIONS of DOLLARS. Also, BANK OF AMERICA, CITIGROUP and others did not have to see their stock prices drop to pennies on the dollar like they did in March (after the 1st Quarter) because they didn't have to show these TOXIC ASSETS LOSING BILLIONS of DOLLARS. That would have DESTROYED these large banks.

Instead, they made PROFITS (because they laid off half their staff). And they made REVENUES from people who still have jobs making deposits. Plus, they received lower DISCOUNTED RATES from the Feds. And, they had more money to stack up for TIER-RISK CAPITAL, in case--in case--they had BILLIONS of DOLLARS IN TOXIC ASSETS.

So, thanks to their accountants, investors think these banks are actually solvent. Meanwhile, the FDIC, the FEDERAL INSURANCE DEPOSIT CORP., which is slowly going broke by seizing the smaller banks and liquidating assets or forcing them into consolidations, are continuing their quest for close down those insolvent banks. Guaranty Bank and Colonial Bank, a couple of the larger ones, were recently closed because now Commercial Real Estate Mortgages are beginning to rear their ugly head, and the Bush administration slapped the hands of banks for taking advantage of capital chasing deals. Now, with credit tied up and commercial property values falling, those loans are TOXIC, too.

So here we are, on the verge of a commercial real estate collapse, more foreclosures in PRIME Residential Mortgages because homeowners are losing their jobs (the primary reason for foreclosure in normal economic times) and unemployment continuing to increase. Also, anyone with severance packages and/or unemployment insurance since getting laid off 18 months ago might have no money to pay for anything.

So do I blame Obama for this? I think if Obama stepped into office and said he was going to NATIONALIZE banks like he wants UNIVERSAL HEALTHCARE, the Republicans would be screaming the same way they're screaming now about SOCIALISM. I think Congress didn't want to Nationalize banks because they like their under-the-table money from financial institutions and special interest groups.

But, when the shit hits the fan, and the Fed has nothing left to bail out the banks when commercial mortgages cannot refinance and commercial mortgage-backed securities cannot refinance and unemployment remains high because consumers aren't spending and home foreclosures continue to stall the housing markets around most of the country, then it's crisis time. And, it will be at this crisis point that we will see Obama either rise to the occasion against Washington cronyism or take a backseat and line his pocket at the expense of his legacy.

To be continued....