Many commercial real estate owners are saying, "Why wait until tomorrow what we can do today?" So, they are walking away from their properties. Click here to learn more.
I'm not going to write about the moral or immoral implications of walking away from homes or commercial real estate if property is "underwater"--meaning, worth less than the mortgage. Mainly, it has nothing to do with morality. It has everything to do with one's own balance sheet. And, today, an owner's balance sheet is saying "save money."
So, why wait until tomorrow what they can do today? Meanwhile, the U.S. Government says, "Why wait until today what we can do tomorrow." In 2009, Ben Bernanke and Tim Geithner exposed their "toolbox" full of "tools" that include printing money (i.e. giving banks free money), accounting manipulations (i.e. mark-to-model from mark-to-market) and, of course, the old "pretend and extend" on those toxic, undervalued assets.
One recent tool to come out of the toolbox was on Thursday, the day before Christmas, when Treasury announced it took off caps that limited available capital to Fannie Mae and Freddie Mac at $200 billion each. Obviously, those loans are bleeding losses over there.
While the Fed's strategy is to "delay and pray," paint a pretty picture, hope for valuation returns sooner than later, gamble with U.S. currency expansion within a deflating economy to stimulate economic growth among 10 percent-plus unemployment, they hope that human nature acts against nature to nurture themselves excessively (as they have in the past thirty years).
Mish's Global Economics Trends Analysis describes the deception well in The Most Redeeming Feature of Capitalism is Failure. It says that somebody has to fail to have capitalism.
However, property owners who walk away will stop the party right now...or will they?
If owners say, "Go ahead. Foreclose. It's not worth it." Extend and pretend is over. Banks write down the losses now.
Normally, that might be the case. But the hubris and arrogance of Bernanke and Geithner, respectively, will not allow this to happen. Here's a scenario for 2010:
XYZ Bank: They walked away from the property. We have to take it back. Now we have to write these loans down as losses.
Bernanke: No you don't.
XYZ Bank: Yes we do. We have to foreclose on it.
Geithner: No you don't. We have a whole set of tools that will help you out.
XYZ Bank: Tools?
Bernanke: Yes. I'll print more money so you can keep it in capital reserve. When the value returns to this property, then you won't need to worry about it.
XYZ: But the value is never going to return to this property. It was well overinflated.
Bernanke: The value will return, don't worry about it.
XYZ Bank: Sure, like in 2020!
Bernanke: Don't worry about it.
Geithner: Look--just do that, we have accounting rules so you won't have to write this down. Everyone will still think your bank is completely solvent. Plus, with all the free money we're giving to Wall Street, somewhere in the range of $18 trillion, we're propping up the market.
FIVE YEARS LATER--A run on the market.
Bernanke getting trampled.
Bernanke: Don't panic. Everything's fine.
(Or, he could be like Alan Greenspan in Redskins owner Dan Snyder's box during the Dallas game last night stuffing his face while food banks expand following the burst from the bubble he helped to create).
Geithner: You fucked up. You trusted us.
(Just a reminder, Tim. The new year...it's about that time to get ready to pay taxes. Remember? You might want to just hire an accountant this time).
Have a Happy and Healthy New Year in 2010. Let's hope we do see declining unemployment and liquidity in the system from the Animal House--I mean, White House crowd. Maybe Santa can bring that to the U.S. by next year....I don't think any real person can do it.
Monday, December 28, 2009
Saturday, December 19, 2009
Retail, Snow and Congress--Look for More Unemployment
Anyone in the Northeast affected by the snowstorm--particularly in the Washington, D.C. area where people are still employed--will not likely make it out for the last major shopping weekend before Christmas. What does this mean?
In all likelihood, potential consumers will be doing what my wife and I are doing (other than shovelling snow and watching movies). They'll be on the computer and purchasing items online, paying slightly more for faster shipping. (Incidentally, it just goes to show how many people are purchasing gifts online. I ordered a DVD that took about two weeks to arrive through normal shipping. Usually, it would be about five business days).
With D.C. shut down, much like it was back in 1979 during Washington's Birthday weekend, bricks and mortar retailers will likely get hit in an already poor holiday retail season. Inventory has been ordered with whatever money they had remaining.
But the snow won't fair well for commercial real estate, i.e. malls and shopping centers. Retail commercial real estate, if hit harder than it has been so far this year, will like get hit more on their loans, which will further devalue bank assets and further devalue banks. And, let's not forget about derivatives, credit default swaps, blah, blah, blah.
On the bright side, the Internet continues to reign supreme, so that's good news for Amazon.com and other online retailers.
But, if bricks and mortar retail is hit again this year, we might see some failures and that means higher unemployment levels from the likes of at least high-end retail.
Keep in mind that the D.C. area still has purchasing power because people have jobs, but this big snowstorm does not help the economy for the area or country. As retail woes continue, it means further problems in unemployment, less consumer spending and the cycle continues.
Now, some of you might be saying, "Hey, unemployment went down last month to 10 percent from 10.2 percent in October." My sources tell me the unemployment rate last month did not add unemployed persons ready for extended unemployment benefits. Here's why:
In November, Congress agreed to unemployment extensions--possibly longer in states with unemployment higher than 8 percent (which represents most states). In order to make the numbers look better in November (probably to push consumer confidence higher for the holiday season) Congress decided not to officially approve the extension until December. See Senate OKs Filing Extension for Jobless.
The Labor Department's Bureau of Labor Statistics did not include unemployed persons eligible for extensions starting in November because the Senate did not OK it until this weekend. Therefore, a number of these unemployed civilians claiming unemployment (now extended unemployment) fell into a "black hole" and did not exist in BLS (or BS) unemployment statistics.
Look for unemployment to reach at least 10.5 percent for December, based on BLS numbers. Which (here's the BS part) actually was 17.5 percent if you include people who are part-time, discouraged workers not looking for a job, etc. That number should increase in January's unemployment because it might have included some people who had part-time jobs for the holidays. Keep in mind unemployment hit 25 percent during the Great Depression.
So, after one of the largest snowstorms in the D.C. history hit at one of the worst times for retailers, the losers in this scenario include retail commercial real estate and retail mortgages (topping of a horrendous year already), bricks and mortar retail establishments (topping off an already horrendous year), banks and/or commercial mortgage-backed securities special servicers holding retail defaults, bondholders on those CMBS retail loans (topping off an already horrendous year) and unemployed people looking for work in retail establishments (topping off an already horrendous year for them as well). Also, Democrats in Congress since this is another hit to banks, it will worsen the economy and continue to hurt their re-election chances for next year--and don't get me started on their inability to agree on healthcare--dumbasses.
The winners include UPS, Fedex and postal workers (although budget cuts can still affect their positions during the year). Online retailers, including Amazon.com, Best Buy and retailers who sell items that do not need to be tried on. and can be ordered online That would also factor in Target, Wal-Mart and other discount retailers who still did well this holiday season. Also, the grocery stores did well (topping off an already good year for them since all of us need to eat). They were packed prior to the snowstorm.
Who else did well? Hmmm....airline flights cancelled, possibly less people travelling...that can go either way. See East Coast Flights, Shopping Snowed In.
I think rock-salt companies are going to have a good year, snow shovelling, infrastructure workers who will repair potholes and cable television operators (topping off an already good year for them).
Oh, and banks, for no other reason than the Federal Government gave them a Christmas gift year round of free money so that they can save their sorry asses.
With that I can only say--Oh...the weather outside is frightful, and the timing's not delightful, but since none of us have any dough...Let it Snow, Let it Snow, Let it Snow!
Merry Christmas and Happy New Year! Let's hope for a more prosperous year in 2010!
In all likelihood, potential consumers will be doing what my wife and I are doing (other than shovelling snow and watching movies). They'll be on the computer and purchasing items online, paying slightly more for faster shipping. (Incidentally, it just goes to show how many people are purchasing gifts online. I ordered a DVD that took about two weeks to arrive through normal shipping. Usually, it would be about five business days).
With D.C. shut down, much like it was back in 1979 during Washington's Birthday weekend, bricks and mortar retailers will likely get hit in an already poor holiday retail season. Inventory has been ordered with whatever money they had remaining.
But the snow won't fair well for commercial real estate, i.e. malls and shopping centers. Retail commercial real estate, if hit harder than it has been so far this year, will like get hit more on their loans, which will further devalue bank assets and further devalue banks. And, let's not forget about derivatives, credit default swaps, blah, blah, blah.
On the bright side, the Internet continues to reign supreme, so that's good news for Amazon.com and other online retailers.
But, if bricks and mortar retail is hit again this year, we might see some failures and that means higher unemployment levels from the likes of at least high-end retail.
Keep in mind that the D.C. area still has purchasing power because people have jobs, but this big snowstorm does not help the economy for the area or country. As retail woes continue, it means further problems in unemployment, less consumer spending and the cycle continues.
Now, some of you might be saying, "Hey, unemployment went down last month to 10 percent from 10.2 percent in October." My sources tell me the unemployment rate last month did not add unemployed persons ready for extended unemployment benefits. Here's why:
In November, Congress agreed to unemployment extensions--possibly longer in states with unemployment higher than 8 percent (which represents most states). In order to make the numbers look better in November (probably to push consumer confidence higher for the holiday season) Congress decided not to officially approve the extension until December. See Senate OKs Filing Extension for Jobless.
The Labor Department's Bureau of Labor Statistics did not include unemployed persons eligible for extensions starting in November because the Senate did not OK it until this weekend. Therefore, a number of these unemployed civilians claiming unemployment (now extended unemployment) fell into a "black hole" and did not exist in BLS (or BS) unemployment statistics.
Look for unemployment to reach at least 10.5 percent for December, based on BLS numbers. Which (here's the BS part) actually was 17.5 percent if you include people who are part-time, discouraged workers not looking for a job, etc. That number should increase in January's unemployment because it might have included some people who had part-time jobs for the holidays. Keep in mind unemployment hit 25 percent during the Great Depression.
So, after one of the largest snowstorms in the D.C. history hit at one of the worst times for retailers, the losers in this scenario include retail commercial real estate and retail mortgages (topping of a horrendous year already), bricks and mortar retail establishments (topping off an already horrendous year), banks and/or commercial mortgage-backed securities special servicers holding retail defaults, bondholders on those CMBS retail loans (topping off an already horrendous year) and unemployed people looking for work in retail establishments (topping off an already horrendous year for them as well). Also, Democrats in Congress since this is another hit to banks, it will worsen the economy and continue to hurt their re-election chances for next year--and don't get me started on their inability to agree on healthcare--dumbasses.
The winners include UPS, Fedex and postal workers (although budget cuts can still affect their positions during the year). Online retailers, including Amazon.com, Best Buy and retailers who sell items that do not need to be tried on. and can be ordered online That would also factor in Target, Wal-Mart and other discount retailers who still did well this holiday season. Also, the grocery stores did well (topping off an already good year for them since all of us need to eat). They were packed prior to the snowstorm.
Who else did well? Hmmm....airline flights cancelled, possibly less people travelling...that can go either way. See East Coast Flights, Shopping Snowed In.
I think rock-salt companies are going to have a good year, snow shovelling, infrastructure workers who will repair potholes and cable television operators (topping off an already good year for them).
Oh, and banks, for no other reason than the Federal Government gave them a Christmas gift year round of free money so that they can save their sorry asses.
With that I can only say--Oh...the weather outside is frightful, and the timing's not delightful, but since none of us have any dough...Let it Snow, Let it Snow, Let it Snow!
Merry Christmas and Happy New Year! Let's hope for a more prosperous year in 2010!
Monday, November 30, 2009
Legal 'Extend and Pretend'
Now that the FDIC has complied with “extend and pretend,” residential and/or commercial mortgage-backed securitization property values will not come close to returning to 2007 levels—or even 2004 levels for that matter.
By deteriorating future investor confidence in securities, the federal government’s “short-term gain-for-future-sacrifice” practice will likely stall an active return to RMBS and/or CMBS.
Just look at the situation right now. Although AAA bondholders can still be made whole on a 50 percent value drop in commercial real estate (Moody’s said property values are now down to 2002 levels), higher unemployment is causing prime residential loans to fail, causing losses for AAA RMBS bondholders. With the outlook of Option-A/Interest-Only extensions, residential loan modifications, etc., how long will it take for RMBS to return and, therefore, property values to reach anything resembling 2007 levels?
Likewise, CMBS faces a slow return to securitization with highest maturities from 2015-2017. Granted, one or two loans originated into the pipeline, but they require assistance through the Troubled Asset Loan Facility program. Without the TALF program, when does CMBS return? Will it return if unemployment remains above 10 percent and near 11 percent moving into 2011? Wells Fargo Securities forecasts 10.8 percent into 2011. As you mention, mark-to-market manipulation alters true valuation, transparency and buyer confidence. Have bondholders regained any confidence in the ratings agencies at this point? There are still many unanswered questions.
It is no secret that the Public-Private Investment Program has yet to gain legs because investors are leery of partnering with the government on deals, particularly based on some contractual wording. Plus, it doesn’t help that government changes the rules in the middle of the game. My nine-year old nephew tried doing that in our Monopoly game this weekend. As the banker, he said all the money in the bank belonged to him. I told him that acting like the Federal Government was not going to help him win the game. He said it was only play money. I said, “What do you think today’s currency is?”
It is ironic that most legislators see “bankruptcy cram down” on mortgages as a negative affect to the RMBS market because bondholders will not have confidence in current and future mortgage values, but the same logic does not seem to apply when government manipulates regulations and accounting principles. That’s okay, however, because stock prices go up, consumers look at their 401k’s and there is peace on earth.
Only the Fed is buying MBS right now, and the first hurdle for the Federal Government—holiday retail sales—is coming down the pike in 1Q 2010.
The second hurdle will likely be the unemployment rate, unlikely to drop through 2010.
The third hurdle involves higher delinquencies in FHA and rising defaults in Fannie Mae and Freddie Mac loans, forcing higher capital standards there and in banks. Let’s face it, higher capital standards mean less debt for businesses—small and large—keeping unemployment high for awhile. High unemployment means hotels, retail, office and industrial not returning anytime fast.
Sources tell me industrial is really getting slammed and, of course, we know CMBS delinquencies/defaults continue to rise for hotels and multifamily, not to mention retail, and they are rising in office. In 2010, we will likely see more of the same. Who will return to a CMBS market with increasingly rising default rates? Nobody is coming back to RMBS anytime soon.
The fourth hurdle becomes a Congress looking for reelection in November and passing regulatory reform that favors consumer approval either in Spring or Summer of 2010. By that time, hotels are history, retail will likely face severe damage and office properties will face higher defaults. How that legislation will affect financial markets and investor confidence is another major question. In some ways, it could increase investor confidence knowing that rules are in place that will not change.
However, the fifth hurdle is a weakening dollar that faces a threat of rising long-term rates and if rates start to rise, the printing press shuts down and a slow economy becomes no economy. If the situation gets dire by the third quarter, prior to elections, the good, the bad and the ugly bank scenario could come down the pike. Of course, that might mean placing some large banks into receivership or consolidating a couple of major financial institutions. Meanwhile, we are sure to see more banks shutting down and FDIC taking further hits. Assuming bank customers don’t panic and believe their assets are still safe and insured, the stock market should only drop by 30 percent until it shows true P/E ratios.
In any case, toxic assets remain in these banks and they do need to be removed before securitization returns—a AAA bond becomes a true AAA bond--and debt can flow again. Those assets need to be removed before unemployment declines and true valuations return. How they remove these assets remains a key question for the Fed and Treasury. With trillions of dollars in money spent, some strategies once on the table for the Fed and Treasury, are no longer possible.
By deteriorating future investor confidence in securities, the federal government’s “short-term gain-for-future-sacrifice” practice will likely stall an active return to RMBS and/or CMBS.
Just look at the situation right now. Although AAA bondholders can still be made whole on a 50 percent value drop in commercial real estate (Moody’s said property values are now down to 2002 levels), higher unemployment is causing prime residential loans to fail, causing losses for AAA RMBS bondholders. With the outlook of Option-A/Interest-Only extensions, residential loan modifications, etc., how long will it take for RMBS to return and, therefore, property values to reach anything resembling 2007 levels?
Likewise, CMBS faces a slow return to securitization with highest maturities from 2015-2017. Granted, one or two loans originated into the pipeline, but they require assistance through the Troubled Asset Loan Facility program. Without the TALF program, when does CMBS return? Will it return if unemployment remains above 10 percent and near 11 percent moving into 2011? Wells Fargo Securities forecasts 10.8 percent into 2011. As you mention, mark-to-market manipulation alters true valuation, transparency and buyer confidence. Have bondholders regained any confidence in the ratings agencies at this point? There are still many unanswered questions.
It is no secret that the Public-Private Investment Program has yet to gain legs because investors are leery of partnering with the government on deals, particularly based on some contractual wording. Plus, it doesn’t help that government changes the rules in the middle of the game. My nine-year old nephew tried doing that in our Monopoly game this weekend. As the banker, he said all the money in the bank belonged to him. I told him that acting like the Federal Government was not going to help him win the game. He said it was only play money. I said, “What do you think today’s currency is?”
It is ironic that most legislators see “bankruptcy cram down” on mortgages as a negative affect to the RMBS market because bondholders will not have confidence in current and future mortgage values, but the same logic does not seem to apply when government manipulates regulations and accounting principles. That’s okay, however, because stock prices go up, consumers look at their 401k’s and there is peace on earth.
Only the Fed is buying MBS right now, and the first hurdle for the Federal Government—holiday retail sales—is coming down the pike in 1Q 2010.
The second hurdle will likely be the unemployment rate, unlikely to drop through 2010.
The third hurdle involves higher delinquencies in FHA and rising defaults in Fannie Mae and Freddie Mac loans, forcing higher capital standards there and in banks. Let’s face it, higher capital standards mean less debt for businesses—small and large—keeping unemployment high for awhile. High unemployment means hotels, retail, office and industrial not returning anytime fast.
Sources tell me industrial is really getting slammed and, of course, we know CMBS delinquencies/defaults continue to rise for hotels and multifamily, not to mention retail, and they are rising in office. In 2010, we will likely see more of the same. Who will return to a CMBS market with increasingly rising default rates? Nobody is coming back to RMBS anytime soon.
The fourth hurdle becomes a Congress looking for reelection in November and passing regulatory reform that favors consumer approval either in Spring or Summer of 2010. By that time, hotels are history, retail will likely face severe damage and office properties will face higher defaults. How that legislation will affect financial markets and investor confidence is another major question. In some ways, it could increase investor confidence knowing that rules are in place that will not change.
However, the fifth hurdle is a weakening dollar that faces a threat of rising long-term rates and if rates start to rise, the printing press shuts down and a slow economy becomes no economy. If the situation gets dire by the third quarter, prior to elections, the good, the bad and the ugly bank scenario could come down the pike. Of course, that might mean placing some large banks into receivership or consolidating a couple of major financial institutions. Meanwhile, we are sure to see more banks shutting down and FDIC taking further hits. Assuming bank customers don’t panic and believe their assets are still safe and insured, the stock market should only drop by 30 percent until it shows true P/E ratios.
In any case, toxic assets remain in these banks and they do need to be removed before securitization returns—a AAA bond becomes a true AAA bond--and debt can flow again. Those assets need to be removed before unemployment declines and true valuations return. How they remove these assets remains a key question for the Fed and Treasury. With trillions of dollars in money spent, some strategies once on the table for the Fed and Treasury, are no longer possible.
Wednesday, November 25, 2009
Bleeding Burgundy and Gold
On September 13, I wrote about the N.F.L. product. It was game one and an exciting time because I found the RedZone channel, which continues to be the bargain of the season for anyone who owns Verizon Fios.
As I mentioned, I did not want to bring in this sport to FinTruth, but it deserves to be in here, and so does a story from the Wall Street Journal about my favorite football team--the Washington Redskins. Yes--they are 3-7 in the middle of their worst season ever with an owner who is one of the worst owners ever (with the exception of the bigoted George Preston Marshall who founded the team).
Reed Albergotti's article, Are the Redskins Losing Washington?, describes how a once-proud franchise now stands demoralized under owner Daniel Snyder's rule. After reading it, I sent the following email to Reed.
Reed,
Nice article and mostly true. A little history you might know:
Edwin Bennett Williams brought in former L.A. Rams coach George Allen to coach the Washington Redskins in 1971. Allen brought the team to respectability with the “Over the Hill Gang,” some key Los Angeles Rams that Allen took with him to Washington. Vince Lombardi died the previous year, but the team was headed in the right direction before Allen. Williams was responsible for the beginning of Redskins lore.
Self-made millionaire Jack Kent Cooke, more than hiring Gibbs, hired General Manager Bobby Beathard when he took the team over in 1981. Beathard was the architect of the undefeated 1972 Miami Dolphins, and he told Cooke about an innovative offensive coordinator named Joe Gibbs, who would make a good head coach. That was the key move that Cooke made. He hired a great general manager.
That is the main criticism fans have with Daniel Snyder. This pseudo self-made millionaire—a college dropout funded by family friend Mort Zuckerman on a couple of ventures (one that failed)—has too much ego to understand that he knows nothing about the nuances of pro football. Fans are screaming for him to fire his buddy Vinny Cerrato—GM for post-Joe Montana, Steve Young S.F. 49ers—and hire a real GM. Then, he can stand back for that GM to hire a good head coach and set up a strategy for a winning team.
The only question is whether Snyder is astute enough to determine the difference between a good and bad GM, and if he can stand back and let management run the operation.
Frankly, Zuckerman funded Snyder $1 million for a college newspaper—it failed; Zuckerman funded Snyder $1million for Snyder Communications—not sure how, but it succeeded. Now, he owns Six Flags, which is in bankruptcy and Johnny Rockets—not sure how it’s doing. The Redskins have been successful because Snyder uses his marketing expertise to siphon money from an extremely strong fan base.
As you mentioned in the article, that is starting to dwindle.
It makes one Redskin fan think that Snyder is the wealthiest loser on the face of the earth.
Thanks again for the article.
A Die-Hard Redskin Fan
Indeed, I have been a die-hard Redskin fan since the early 1970s, and I watch every game because I bleed burgundy and gold. But now, fans like myself have been stabbed in the back by a facist owner more concerned about his own pocketbook and ego than perpetuating--now establishing--a winning tradition in Washington, D.C.
Like the Nation's Capital itself, the owner finds himself absorbed with money and power. Tradition, pride and success are secondary.
Let's hope it changes for all of its residents.
As I mentioned, I did not want to bring in this sport to FinTruth, but it deserves to be in here, and so does a story from the Wall Street Journal about my favorite football team--the Washington Redskins. Yes--they are 3-7 in the middle of their worst season ever with an owner who is one of the worst owners ever (with the exception of the bigoted George Preston Marshall who founded the team).
Reed Albergotti's article, Are the Redskins Losing Washington?, describes how a once-proud franchise now stands demoralized under owner Daniel Snyder's rule. After reading it, I sent the following email to Reed.
Reed,
Nice article and mostly true. A little history you might know:
Edwin Bennett Williams brought in former L.A. Rams coach George Allen to coach the Washington Redskins in 1971. Allen brought the team to respectability with the “Over the Hill Gang,” some key Los Angeles Rams that Allen took with him to Washington. Vince Lombardi died the previous year, but the team was headed in the right direction before Allen. Williams was responsible for the beginning of Redskins lore.
Self-made millionaire Jack Kent Cooke, more than hiring Gibbs, hired General Manager Bobby Beathard when he took the team over in 1981. Beathard was the architect of the undefeated 1972 Miami Dolphins, and he told Cooke about an innovative offensive coordinator named Joe Gibbs, who would make a good head coach. That was the key move that Cooke made. He hired a great general manager.
That is the main criticism fans have with Daniel Snyder. This pseudo self-made millionaire—a college dropout funded by family friend Mort Zuckerman on a couple of ventures (one that failed)—has too much ego to understand that he knows nothing about the nuances of pro football. Fans are screaming for him to fire his buddy Vinny Cerrato—GM for post-Joe Montana, Steve Young S.F. 49ers—and hire a real GM. Then, he can stand back for that GM to hire a good head coach and set up a strategy for a winning team.
The only question is whether Snyder is astute enough to determine the difference between a good and bad GM, and if he can stand back and let management run the operation.
Frankly, Zuckerman funded Snyder $1 million for a college newspaper—it failed; Zuckerman funded Snyder $1million for Snyder Communications—not sure how, but it succeeded. Now, he owns Six Flags, which is in bankruptcy and Johnny Rockets—not sure how it’s doing. The Redskins have been successful because Snyder uses his marketing expertise to siphon money from an extremely strong fan base.
As you mentioned in the article, that is starting to dwindle.
It makes one Redskin fan think that Snyder is the wealthiest loser on the face of the earth.
Thanks again for the article.
A Die-Hard Redskin Fan
Indeed, I have been a die-hard Redskin fan since the early 1970s, and I watch every game because I bleed burgundy and gold. But now, fans like myself have been stabbed in the back by a facist owner more concerned about his own pocketbook and ego than perpetuating--now establishing--a winning tradition in Washington, D.C.
Like the Nation's Capital itself, the owner finds himself absorbed with money and power. Tradition, pride and success are secondary.
Let's hope it changes for all of its residents.
Thursday, November 19, 2009
DeLong Way Home
In response to the following articles sent by a friend and/or mentor:
Odds Increasing That We're Headed For A Great Depression The Business Insider November 17, 2009 Brad DeLong has long argued against the fears that we could head into something like the Great Depression. But now the UC Berkeley economist has turned a bit bearish on the economy.
From DeLong (see proceeding article): For 2 1/4 years now I have been saying that there is no chance of a repeat of the Great Depression or anything like it -- that we know what to do and how to do it and will do it if things turn south. I don't think I can say that anymore. In my estimation the chances of another big downward shock to the U.S. economy -- a shock that would carry us from the 1/3-of-a-Great-Depression we have now to 2/3 or more--are about 5%. And it now looks very much as if if such a shock hits the U.S. government will be unable to do a d----- thing about it. DeLong thinks that Democratic deficit hawks and Republican anti-stimulus politicians will effectively prevent the government from doing anything to ameliorate a deteriorating economic situation. What’s more, outrage against the bailouts coming from the left and the right will prevent the Obama administration from orchestrating anything like we saw last fall. “So if another big bad shock hits the U.S. economy, what could the Obama administration possibly do?” DeLong asks. ________________________________________ Chance of Great Depression Now 5%… J. Bradford DeLong's Grasping Reality with All Eight Tentacles [Ref. http://delong.typepad.com/sdj/2009/11/chance-of-great-depression-now-5.html] November 16, 2009
For 2 1/4 years now I have been saying that there is no chance of a repeat of the Great Depression or anything like it - that we know what to do and how to do it and will do it if things turn south. I don't think I can say that anymore. In my estimation the chances of another big downward shock to the U.S. economy -- a shock that would carry us from the 1/3-of-a-Great-Depression we have now to 2/3 or more -- are about 5%. And it now looks very much as if if such a shock hits the U.S. government will be unable to do a d----- thing about it. We could cushion the impact of another big downward shock by a lot more deficit spending--unemployment, after all, goes down whenever anybody spends more (even though sometimes falling unemployment comes at too-high a price in rising inflation), and the government's money is as good as anybody else's. But the centrist Democratic legislative caucus has now dug in its heels behind the position that we cannot undertake more deficit spending right now because we have a dire structural health-care financing proble afrer 2030.
The Republican legislative causes has now dug in its heels behind the position that the fact that unemployment is 10% shows not that policy earlier this year was too cautious but rather that it was ineffective. And the Obama administration has not been able or has not tried to move either of those groups out of their current entrenchments. We could cushion the impact of another big downward shock by recapitalizing the banks again. But the failure of the Fed and the Treasury in the aftermath of Lehman to grab a share of the upside from its capital injection and purchase operations for the public in the form of warrants means that there is no coalition anywhere for a repeat or anything like a repeat of propping-up the banking system: the right thinks it is an unwarranted intervention in the free market, the left thinks that it is a giveaway to the undeserving and feckless superrich, and the center is bewildered because it is an enormous and poorly-structured intervention in the market, it is a giveaway to the undeserving and feckless superrich, and the optics are terrible. So if another big bad shock hits the U.S. economy, what could the Obama administration possibly do? [DeLong references the following Bloomberg article.] ________________________________________ Fed ‘Severely Limited’ Savings on AIG, Watchdog Says: Bloomberg [Ref. http://www.bloomberg.com/apps/news?pid=20601103&sid=a_O0IqdEksIw] November 16, 2009 The Federal Reserve Bank of New York “severely limited” its ability to save taxpayer money on American International Group Inc.’s rescue by refusing to compel banks to take concessions, said a Treasury Department watchdog. The Fed didn’t use its “considerable leverage” as regulator of several of AIG’s counterparties to force them to accept so-called haircuts on credit-default swaps, Neil Barofsky, special inspector for the Troubled Asset Relief Program, said today in a report. The regulator gave up efforts to negotiate discounts from the banks after two days and opted to pay them in full for $62.1 billion in swaps, Barofsky said. “These policy decisions came with a cost -- they led directly to a negotiating strategy with the counterparties that even then-New York Fed President Geithner acknowledged had little likelihood of success,” Barofsky said.
Timothy Geithner, now Treasury secretary, was among officials who took over negotiations with the banks from AIG in November 2008. Lawmakers including Representative Darrell Issa have said the September 2008 AIG rescue was a “backdoor bailout” for banks that received billions in payments. The Fed contacted eight of AIG’s biggest counterparties by telephone last year to negotiate discounts, Barofsky said. While UBS AG, the Zurich-based bank, was willing to make a 2 percent concession, the Fed decided that all counterparties would receive full payment, he said. ‘Misuse’ of Power In a letter to Barofsky included in his report, the Fed said it “would not have been appropriate to use our supervisory authority on behalf of AIG to obtain concessions from domestic counterparties.” Doing so would have been a “misuse” of power that would have given an advantage to non-U.S. banks that the Fed doesn’t regulate, the Fed said.
Andrew Williams, a Treasury spokesman, said in an e-mail statement that Barofsky’s report “overlooks the central lesson learned from the unprecedented steps taken to support AIG.” “The federal government needs better tools to deal with the impending failure of a large institution in extraordinary circumstances like those facing us last fall,” Williams said. “It is for these reasons that the Obama administration has proposed a regulatory reform agenda that includes giving the government the emergency authority to resolve a significant, interconnected financial institution.”
My response is I’m surprised DeLong doesn’t already think we are in Great Depression II. On McNeil-Lehrer last night, there was a story about how Food Banks in Texas and D.C. are getting overwhelmed by people not just unemployed but underemployed without enough money to afford food. I’m sure you saw the recent study that one in seven in this country are going hungry. Mind you, that IS with unemployment insurance which was not available in Great Depression I.
Also, I don’t think we printed this massive amount of money to build up massive capital reserves for banks in Great Depression 1. If I’m not mistaken, the banks failed and there were runs on the banks so people had no money at all. Now imagine if these banks failed like they should have failed, the loans fail and/or failed like they should have and there was no unemployment insurance….and this guy thinks there was no chance of a Depression!
Unemployment for part-time workers, frustrated unemployed persons, etc. is 17.5 percent and 10.2 percent under U-3. That’s soon to increase based on the numbers I’m seeing. During the Great Depression 1, it was 25 percent unemployment. First, it may get there just yet. Second, if banks did fail and businesses had to take a good hard look at themselves, that unemployment number would have likely gone to 25 percent or more.
However you look at it, the Federal government is running the economy. They are the ones making it happen and hoping that the economy will eventually run on its own. The problem is that it cannot run on its own.
I spoke with an author at a book festival last weekend who wrote “Spread the Wealth” and the basic premise of his book is an historical perspective of “printing” money and the disastrous results it had during past recessions or down cycles. He said Bernanke’s philosophy to print money and take us out of this malaise is not political, it’s just bad economics. He forecasts the Dow dropping to 7,000-8,000 and advises on short-term bonds as well as gold.
Meredith Whitney was on Bloomberg yesterday saying we’re in for a “W” shaped recession (not as downward on the second part of the W) and she sees no way that is not going to happen.
It amazes me how some economists will not admit to a deflationary environment.
Some numbers change—consumer confidence, retail sales, housing starts, sales, etc. Some numbers have not changed—increasing unemployment, higher capital reserves and the amount of toxic debt that remains in these financial institutions. A large bank or two or three will need to be acquired or put into receivership; with the help of the Federal Government, they need to dump those crappy assets and sell them off before a normal debt-flowing economy can take over without government intervention.
And, when I say government intervention, that includes Goldman (Government) Sachs and Berkshire (Just call me King George) Hathaway lending out $500 million to preferred small businesses to use the capital and pull away from other small businesses that GS and BH—and, of course, zombie banks--won’t lend to. That seems real fair. Then GS and BH can invest in the “winners.”
In reference to the movie, we’re in “Zombieland.” The government will run the flow of money in this economy until it stops. When it stops, who knows? But one thing is certain—unemployed people, bearish consumers (people who can actually obtain credit) and that 70 percent of GDP necessary for a strong economy is not happening anytime soon.
Odds Increasing That We're Headed For A Great Depression The Business Insider November 17, 2009 Brad DeLong has long argued against the fears that we could head into something like the Great Depression. But now the UC Berkeley economist has turned a bit bearish on the economy.
From DeLong (see proceeding article): For 2 1/4 years now I have been saying that there is no chance of a repeat of the Great Depression or anything like it -- that we know what to do and how to do it and will do it if things turn south. I don't think I can say that anymore. In my estimation the chances of another big downward shock to the U.S. economy -- a shock that would carry us from the 1/3-of-a-Great-Depression we have now to 2/3 or more--are about 5%. And it now looks very much as if if such a shock hits the U.S. government will be unable to do a d----- thing about it. DeLong thinks that Democratic deficit hawks and Republican anti-stimulus politicians will effectively prevent the government from doing anything to ameliorate a deteriorating economic situation. What’s more, outrage against the bailouts coming from the left and the right will prevent the Obama administration from orchestrating anything like we saw last fall. “So if another big bad shock hits the U.S. economy, what could the Obama administration possibly do?” DeLong asks. ________________________________________ Chance of Great Depression Now 5%… J. Bradford DeLong's Grasping Reality with All Eight Tentacles [Ref. http://delong.typepad.com/sdj/2009/11/chance-of-great-depression-now-5.html] November 16, 2009
For 2 1/4 years now I have been saying that there is no chance of a repeat of the Great Depression or anything like it - that we know what to do and how to do it and will do it if things turn south. I don't think I can say that anymore. In my estimation the chances of another big downward shock to the U.S. economy -- a shock that would carry us from the 1/3-of-a-Great-Depression we have now to 2/3 or more -- are about 5%. And it now looks very much as if if such a shock hits the U.S. government will be unable to do a d----- thing about it. We could cushion the impact of another big downward shock by a lot more deficit spending--unemployment, after all, goes down whenever anybody spends more (even though sometimes falling unemployment comes at too-high a price in rising inflation), and the government's money is as good as anybody else's. But the centrist Democratic legislative caucus has now dug in its heels behind the position that we cannot undertake more deficit spending right now because we have a dire structural health-care financing proble afrer 2030.
The Republican legislative causes has now dug in its heels behind the position that the fact that unemployment is 10% shows not that policy earlier this year was too cautious but rather that it was ineffective. And the Obama administration has not been able or has not tried to move either of those groups out of their current entrenchments. We could cushion the impact of another big downward shock by recapitalizing the banks again. But the failure of the Fed and the Treasury in the aftermath of Lehman to grab a share of the upside from its capital injection and purchase operations for the public in the form of warrants means that there is no coalition anywhere for a repeat or anything like a repeat of propping-up the banking system: the right thinks it is an unwarranted intervention in the free market, the left thinks that it is a giveaway to the undeserving and feckless superrich, and the center is bewildered because it is an enormous and poorly-structured intervention in the market, it is a giveaway to the undeserving and feckless superrich, and the optics are terrible. So if another big bad shock hits the U.S. economy, what could the Obama administration possibly do? [DeLong references the following Bloomberg article.] ________________________________________ Fed ‘Severely Limited’ Savings on AIG, Watchdog Says: Bloomberg [Ref. http://www.bloomberg.com/apps/news?pid=20601103&sid=a_O0IqdEksIw] November 16, 2009 The Federal Reserve Bank of New York “severely limited” its ability to save taxpayer money on American International Group Inc.’s rescue by refusing to compel banks to take concessions, said a Treasury Department watchdog. The Fed didn’t use its “considerable leverage” as regulator of several of AIG’s counterparties to force them to accept so-called haircuts on credit-default swaps, Neil Barofsky, special inspector for the Troubled Asset Relief Program, said today in a report. The regulator gave up efforts to negotiate discounts from the banks after two days and opted to pay them in full for $62.1 billion in swaps, Barofsky said. “These policy decisions came with a cost -- they led directly to a negotiating strategy with the counterparties that even then-New York Fed President Geithner acknowledged had little likelihood of success,” Barofsky said.
Timothy Geithner, now Treasury secretary, was among officials who took over negotiations with the banks from AIG in November 2008. Lawmakers including Representative Darrell Issa have said the September 2008 AIG rescue was a “backdoor bailout” for banks that received billions in payments. The Fed contacted eight of AIG’s biggest counterparties by telephone last year to negotiate discounts, Barofsky said. While UBS AG, the Zurich-based bank, was willing to make a 2 percent concession, the Fed decided that all counterparties would receive full payment, he said. ‘Misuse’ of Power In a letter to Barofsky included in his report, the Fed said it “would not have been appropriate to use our supervisory authority on behalf of AIG to obtain concessions from domestic counterparties.” Doing so would have been a “misuse” of power that would have given an advantage to non-U.S. banks that the Fed doesn’t regulate, the Fed said.
Andrew Williams, a Treasury spokesman, said in an e-mail statement that Barofsky’s report “overlooks the central lesson learned from the unprecedented steps taken to support AIG.” “The federal government needs better tools to deal with the impending failure of a large institution in extraordinary circumstances like those facing us last fall,” Williams said. “It is for these reasons that the Obama administration has proposed a regulatory reform agenda that includes giving the government the emergency authority to resolve a significant, interconnected financial institution.”
My response is I’m surprised DeLong doesn’t already think we are in Great Depression II. On McNeil-Lehrer last night, there was a story about how Food Banks in Texas and D.C. are getting overwhelmed by people not just unemployed but underemployed without enough money to afford food. I’m sure you saw the recent study that one in seven in this country are going hungry. Mind you, that IS with unemployment insurance which was not available in Great Depression I.
Also, I don’t think we printed this massive amount of money to build up massive capital reserves for banks in Great Depression 1. If I’m not mistaken, the banks failed and there were runs on the banks so people had no money at all. Now imagine if these banks failed like they should have failed, the loans fail and/or failed like they should have and there was no unemployment insurance….and this guy thinks there was no chance of a Depression!
Unemployment for part-time workers, frustrated unemployed persons, etc. is 17.5 percent and 10.2 percent under U-3. That’s soon to increase based on the numbers I’m seeing. During the Great Depression 1, it was 25 percent unemployment. First, it may get there just yet. Second, if banks did fail and businesses had to take a good hard look at themselves, that unemployment number would have likely gone to 25 percent or more.
However you look at it, the Federal government is running the economy. They are the ones making it happen and hoping that the economy will eventually run on its own. The problem is that it cannot run on its own.
I spoke with an author at a book festival last weekend who wrote “Spread the Wealth” and the basic premise of his book is an historical perspective of “printing” money and the disastrous results it had during past recessions or down cycles. He said Bernanke’s philosophy to print money and take us out of this malaise is not political, it’s just bad economics. He forecasts the Dow dropping to 7,000-8,000 and advises on short-term bonds as well as gold.
Meredith Whitney was on Bloomberg yesterday saying we’re in for a “W” shaped recession (not as downward on the second part of the W) and she sees no way that is not going to happen.
It amazes me how some economists will not admit to a deflationary environment.
Some numbers change—consumer confidence, retail sales, housing starts, sales, etc. Some numbers have not changed—increasing unemployment, higher capital reserves and the amount of toxic debt that remains in these financial institutions. A large bank or two or three will need to be acquired or put into receivership; with the help of the Federal Government, they need to dump those crappy assets and sell them off before a normal debt-flowing economy can take over without government intervention.
And, when I say government intervention, that includes Goldman (Government) Sachs and Berkshire (Just call me King George) Hathaway lending out $500 million to preferred small businesses to use the capital and pull away from other small businesses that GS and BH—and, of course, zombie banks--won’t lend to. That seems real fair. Then GS and BH can invest in the “winners.”
In reference to the movie, we’re in “Zombieland.” The government will run the flow of money in this economy until it stops. When it stops, who knows? But one thing is certain—unemployed people, bearish consumers (people who can actually obtain credit) and that 70 percent of GDP necessary for a strong economy is not happening anytime soon.
Tuesday, November 17, 2009
A Shameless Self-Promotion
I hate to do this, but an influential business person said I "nailed it" on a response to a blog question about Business and the Economy, and just to prove my comments are not totally whacked-out, stupid or just plain boring, here is my comment along with Bill Nazur's response. I know this is shameless self-promotion, but I'm not above that.
I can just relate what I'm hearing from my sources, some of it is from articles I wrote in NewsLink and Commercial/Multifamily NewsLink:
1. One bank economist I spoke with forecast unemployment to peak at 10.8 percent (the U-3 figure). The U-6 figure is now at 17.5 percent, which includes total unemployment (marginally attached workers, part-time workers, workers who have given up looking for a job).
2. Many sources--mostly investors--are not happy that the FDIC, Fed, Treasury, etc. "extend and pretend" on commercial mortgage maturities. Granted, some of these are performing loans receiving cash flow, but the property values have dropped considerably and may not return for some time. One economist said the banks cannot keep extending these loans forever.
3. In the commercial mortgage-backed securities market, special servicers holding delinquent loans have a fiduciary responsibility to bondholders, who are beginning to engage in "tranche warfare" (investment grade vs. non-investment grade bondholders). AAA bondholders want to speed up foreclosures while lower grade bondholders want to wait.
4. According to sources, at least 500 small-to-mid size and regional banks would fail today if they had to write down all these bad commercial loans. However, there are also 8,000 chartered banks out there.
The problem is the FDIC would go broke if they had to seize all of the insolvent banks at one time. The FDIC, unlike during the Savings & Loans crisis, assist in bank acquisitions and hold some equity in the commercial loan portfolios from the failed banks, my source said. Other loans are auctioned off via DebtX, First Financial Network or other FDIC vendors.
5. Homebuyer tax credits, while improving homebuying, are driving homebuyers to purchase now, and some say this program will decrease future homebuying to spur the economy.
6. Residential mortgage-backed securities also face an "interest waterfall" scenario. If unemployment causes foreclosures on prime loans, then more AAA bond buyers will start losing money, and that can bring a lack of confidence to residential and commercial mortgage securitization, sources say.
7. Unemployed borrowers with prime loans will need "modifications" to improve AAA investor/bondholder confidence, but it can also keep housing prices from falling--another 'extend/pretend' scenario. That's the real estate perspective, but it ties into overall business.
8. Unemployment will likely continue if "toxic assets" force banks to hold more capital reserves. More reserves keep credit from businesses and without, debt, businesses will not be able to expand and hire more people.
9. Stronger businesses do not want to take on debt and, for that matter, neither do consumers. Weaker businesses and consumers may want debt but banks are not willing to risk it. (In fact, some banks are hiking credit card rates for consumers to 29 percent, forcing Congress to move up credit card legislation).
10. Now, because of deleveraging and a vast reduction in credit, many authors and/or sources say we are in a deflationary environment, but most economists I speak to say the risk down the road remains inflationary because the Fed can't print all that money and not have inflation.
11. Others argue that if unemployment continues and consumers save money, having the key rate down to near zero does not matter because consumers with good credit will not want to take on new debt and businesses with good credit histories will not need necessarily want the risk. One source said it will take two quarters without mortgage delinquencies to create more confidence in the business sector to begin taking on debt. But will banks risk it?
A credit-based recession faces these issues. I personally don't think there is one easy answer to it. A wise man, however, once quoted, "Present sacrifices for future gains." The philosophy today seems to be "present gains for future sacrifices."
Here's the response from Bill Nazur, VP of Specialty Lending, Author, Speaker, Media Advisor. (By the way, my real name is Mike. Robert Michaels is a pseudonym...really!)
Mike absolutely nailed it. Most importantly, bullet point 10 summarizes our issues quite handily. There isn't any imaginable scenario that would prevent inflation from occurring. Sadly, too many of my fellow talking heads, analysts (loosely interpreted), and news reporters aren't willing to speak the truth, as long as they generate headline news. The economists are completely right on this one. Brian is also correct that the government is filling a void in the wrong manner. We can't even say this is a Keynesian approach as the stimulus and dollars that are committed aren't being immediately fed into the economy any time soon. This whole thing is tragic....I will just continue to lead my family and friends on the right path. Now, I will run off to your blog, and read the entire post.
By Bill Nazur VP Specialty Lending, Author, Speaker, Media Advisor
I can just relate what I'm hearing from my sources, some of it is from articles I wrote in NewsLink and Commercial/Multifamily NewsLink:
1. One bank economist I spoke with forecast unemployment to peak at 10.8 percent (the U-3 figure). The U-6 figure is now at 17.5 percent, which includes total unemployment (marginally attached workers, part-time workers, workers who have given up looking for a job).
2. Many sources--mostly investors--are not happy that the FDIC, Fed, Treasury, etc. "extend and pretend" on commercial mortgage maturities. Granted, some of these are performing loans receiving cash flow, but the property values have dropped considerably and may not return for some time. One economist said the banks cannot keep extending these loans forever.
3. In the commercial mortgage-backed securities market, special servicers holding delinquent loans have a fiduciary responsibility to bondholders, who are beginning to engage in "tranche warfare" (investment grade vs. non-investment grade bondholders). AAA bondholders want to speed up foreclosures while lower grade bondholders want to wait.
4. According to sources, at least 500 small-to-mid size and regional banks would fail today if they had to write down all these bad commercial loans. However, there are also 8,000 chartered banks out there.
The problem is the FDIC would go broke if they had to seize all of the insolvent banks at one time. The FDIC, unlike during the Savings & Loans crisis, assist in bank acquisitions and hold some equity in the commercial loan portfolios from the failed banks, my source said. Other loans are auctioned off via DebtX, First Financial Network or other FDIC vendors.
5. Homebuyer tax credits, while improving homebuying, are driving homebuyers to purchase now, and some say this program will decrease future homebuying to spur the economy.
6. Residential mortgage-backed securities also face an "interest waterfall" scenario. If unemployment causes foreclosures on prime loans, then more AAA bond buyers will start losing money, and that can bring a lack of confidence to residential and commercial mortgage securitization, sources say.
7. Unemployed borrowers with prime loans will need "modifications" to improve AAA investor/bondholder confidence, but it can also keep housing prices from falling--another 'extend/pretend' scenario. That's the real estate perspective, but it ties into overall business.
8. Unemployment will likely continue if "toxic assets" force banks to hold more capital reserves. More reserves keep credit from businesses and without, debt, businesses will not be able to expand and hire more people.
9. Stronger businesses do not want to take on debt and, for that matter, neither do consumers. Weaker businesses and consumers may want debt but banks are not willing to risk it. (In fact, some banks are hiking credit card rates for consumers to 29 percent, forcing Congress to move up credit card legislation).
10. Now, because of deleveraging and a vast reduction in credit, many authors and/or sources say we are in a deflationary environment, but most economists I speak to say the risk down the road remains inflationary because the Fed can't print all that money and not have inflation.
11. Others argue that if unemployment continues and consumers save money, having the key rate down to near zero does not matter because consumers with good credit will not want to take on new debt and businesses with good credit histories will not need necessarily want the risk. One source said it will take two quarters without mortgage delinquencies to create more confidence in the business sector to begin taking on debt. But will banks risk it?
A credit-based recession faces these issues. I personally don't think there is one easy answer to it. A wise man, however, once quoted, "Present sacrifices for future gains." The philosophy today seems to be "present gains for future sacrifices."
Here's the response from Bill Nazur, VP of Specialty Lending, Author, Speaker, Media Advisor. (By the way, my real name is Mike. Robert Michaels is a pseudonym...really!)
Mike absolutely nailed it. Most importantly, bullet point 10 summarizes our issues quite handily. There isn't any imaginable scenario that would prevent inflation from occurring. Sadly, too many of my fellow talking heads, analysts (loosely interpreted), and news reporters aren't willing to speak the truth, as long as they generate headline news. The economists are completely right on this one. Brian is also correct that the government is filling a void in the wrong manner. We can't even say this is a Keynesian approach as the stimulus and dollars that are committed aren't being immediately fed into the economy any time soon. This whole thing is tragic....I will just continue to lead my family and friends on the right path. Now, I will run off to your blog, and read the entire post.
By Bill Nazur VP Specialty Lending, Author, Speaker, Media Advisor
The Rubber Meets the Road
Here's where the rubber meets the road. The rubber is business lending and the road translates to "toxic assets" sitting in large, medium and small financial institutions, otherwise known in the Japanese vernacular as "zombie banks."
In CNN.com's Small Business Loans: $10 Billion Evaporates, we see what happens when we follow a logical chain of common sense. If you have read my previous blogs, or just skimmed them, I have alluded to investment analysts, economists and a bunch of people smarter than myself who pay attention to the economic landscape and see through the BS being reported.
Here's the logic chain:
Link One: A bank with trillions of dollars in loans that will never be fully repaid;
Link Two: A federal government that would rather retain a philosophy of higher debt and more consumer spending (70 percent of economic growth) over more fiscal restraint by putting banks into a receivership, unloading the toxic assets, merging together some of these "too-big-to-fail" banks and putting the Glass-Steagal Act back into place;
Link Three: Banks saying thanks for the free money--we'll hold it in our capital risk-ratio reserves so we do not fail or go into receivership;
Link Four: Banks saying that since they have so many "toxic assets" they need to hoard this money and not lend it to businesses;
Link Five: Businesses laying off employees to the current 10.2 percent unemployment rate with Wells Fargo Securities now reforecasting to 10.8 percent unemployment into the first quarter of 2011--well above the most-adverse scenario in the Treasury's bank stress tests that took place before the summer.
Hence, my title, the "Rubber Meets the Road," because small business leaders will speak with Treasury Secretary Timothy Geithner as to where any money is for credit. And, here's the answer--the strong businesses that do not need credit will have it available to them once they start expansion and the businesses that are weak--well--bank do not want to take the credit risk. Thanks for playing "tainted capitalism."
Meanwhile, the weak business that will undergo further layoffs--that also includes state and local governments as well--will increase the unemployment rate.
If we follow that logic chain to its full conclusion, it means that unemployed persons will not spend nearly as much money as they have in the past, more businesses will slowdown or fail, more homebuyers will face foreclosure since unemployment is the primary reason for foreclosure under normal economic circumstances and more RESIDENTIAL MORTGAGE toxic assets will keep banks from lending.
"The very issues that brought us to the brink of disaster and caused us to pass TARP are still there," said Elizabeth Warren, chair of the Congressional Oversight Panel created to oversee the U.S. banking bailout or the Troubled Assets Relief Program (TARP) last week.
And, on a side note, retail stores become more vacant, hotel loans deteriorate, office vacancies increase and all banks are now stuck with EVEN MORE TOXIC ASSETS in terms of COMMERCIAL REAL ESTATE. Not to mention CREDIT CARD CHARGE OFFS, STUDENT LOANS, BUSINESS LOANS and other consumer and corporate debt.
Does this make sense? Do you see why it is a mistake to not get rid of those crappy loans lying in these banks--all so the rich people who own our Congress...well...Federal Government in general...can remain rich. And our taxpayer money continues to capitalize banks that do not lend, our taxpayer money funds Fannie Mae, Freddie Mac and FHA-insured mortgages and our taxpayer money is going to dwindle down as more people lose their jobs and pay fewer taxes.
Meanwhile, the corporate leaders with overwhelming wealth use high-paid tax attorneys to find loopholes in tax laws so that they pay much less than necessary in taxes.
I'll tell you right now, I'm feeling a little frugal these days with the little amount of money I have left after the monthly mortgage payment, the monthly bills and the usual spending my wife and I do for food and any other necessities. There's really not alot left over for any discretionary spending unless I want to pay 30 percent interest rates on credit card debt for the next 10-20 years at least. And we don't even have kids! I don't really see how a family of four cannot go into serious debt--or at least go paycheck-to-paycheck in this society. To me, it's just common sense.
And, trust me, the people who can afford any and all luxuries in this society, can hire very smart accountants who will find every way to reduce any substantial tax burdens.
Now that I think about it, why did our founding fathers leave England for this new land? Oh...right...Taxation Without Representation...the wealthy, politically influential people owned everything and made all the rules...and the poor people had to go along with it. Now I get it.
There was once a man named George Washington, and his friend Thomas Jefferson who discussed finding a new country where with laws not manipulated by the wealthy for the wealthy. Where people had opportunities to start a business, a bank--perhaps, and succeed or fail based on their own merits.
The laws--the Declaration of Indepence and a Constitution--elected people to represent them in the government from local municipalities, districts and states, with their welfare in mind. Yes, they paid taxes so that everyone in the country took part in their pursuit of happiness.
I mean, sure, not everything was perfect--by far. But the men who founded this country philosophically believed in freedom from tyranny and equal treatment under the law--as much as they could back then. The Constitution provided a document for success and, rich or poor, America served as the land of opportunities.
It was all done because George and Tom felt a bunch of wealth aristocrats were ripping them off of their hard-earned money so they could go and get wealthier--taxation without representation.
Wait a minute, that was 18th century England...right? Not the 21st Century.
Nah...I was never that good with history.
Face it, George and Tom's role in history was to start a new government in a new land.
It's our role in history--as U.S. citizens--to start new home theater systems in new houses.
In CNN.com's Small Business Loans: $10 Billion Evaporates, we see what happens when we follow a logical chain of common sense. If you have read my previous blogs, or just skimmed them, I have alluded to investment analysts, economists and a bunch of people smarter than myself who pay attention to the economic landscape and see through the BS being reported.
Here's the logic chain:
Link One: A bank with trillions of dollars in loans that will never be fully repaid;
Link Two: A federal government that would rather retain a philosophy of higher debt and more consumer spending (70 percent of economic growth) over more fiscal restraint by putting banks into a receivership, unloading the toxic assets, merging together some of these "too-big-to-fail" banks and putting the Glass-Steagal Act back into place;
Link Three: Banks saying thanks for the free money--we'll hold it in our capital risk-ratio reserves so we do not fail or go into receivership;
Link Four: Banks saying that since they have so many "toxic assets" they need to hoard this money and not lend it to businesses;
Link Five: Businesses laying off employees to the current 10.2 percent unemployment rate with Wells Fargo Securities now reforecasting to 10.8 percent unemployment into the first quarter of 2011--well above the most-adverse scenario in the Treasury's bank stress tests that took place before the summer.
Hence, my title, the "Rubber Meets the Road," because small business leaders will speak with Treasury Secretary Timothy Geithner as to where any money is for credit. And, here's the answer--the strong businesses that do not need credit will have it available to them once they start expansion and the businesses that are weak--well--bank do not want to take the credit risk. Thanks for playing "tainted capitalism."
Meanwhile, the weak business that will undergo further layoffs--that also includes state and local governments as well--will increase the unemployment rate.
If we follow that logic chain to its full conclusion, it means that unemployed persons will not spend nearly as much money as they have in the past, more businesses will slowdown or fail, more homebuyers will face foreclosure since unemployment is the primary reason for foreclosure under normal economic circumstances and more RESIDENTIAL MORTGAGE toxic assets will keep banks from lending.
"The very issues that brought us to the brink of disaster and caused us to pass TARP are still there," said Elizabeth Warren, chair of the Congressional Oversight Panel created to oversee the U.S. banking bailout or the Troubled Assets Relief Program (TARP) last week.
And, on a side note, retail stores become more vacant, hotel loans deteriorate, office vacancies increase and all banks are now stuck with EVEN MORE TOXIC ASSETS in terms of COMMERCIAL REAL ESTATE. Not to mention CREDIT CARD CHARGE OFFS, STUDENT LOANS, BUSINESS LOANS and other consumer and corporate debt.
Does this make sense? Do you see why it is a mistake to not get rid of those crappy loans lying in these banks--all so the rich people who own our Congress...well...Federal Government in general...can remain rich. And our taxpayer money continues to capitalize banks that do not lend, our taxpayer money funds Fannie Mae, Freddie Mac and FHA-insured mortgages and our taxpayer money is going to dwindle down as more people lose their jobs and pay fewer taxes.
Meanwhile, the corporate leaders with overwhelming wealth use high-paid tax attorneys to find loopholes in tax laws so that they pay much less than necessary in taxes.
I'll tell you right now, I'm feeling a little frugal these days with the little amount of money I have left after the monthly mortgage payment, the monthly bills and the usual spending my wife and I do for food and any other necessities. There's really not alot left over for any discretionary spending unless I want to pay 30 percent interest rates on credit card debt for the next 10-20 years at least. And we don't even have kids! I don't really see how a family of four cannot go into serious debt--or at least go paycheck-to-paycheck in this society. To me, it's just common sense.
And, trust me, the people who can afford any and all luxuries in this society, can hire very smart accountants who will find every way to reduce any substantial tax burdens.
Now that I think about it, why did our founding fathers leave England for this new land? Oh...right...Taxation Without Representation...the wealthy, politically influential people owned everything and made all the rules...and the poor people had to go along with it. Now I get it.
There was once a man named George Washington, and his friend Thomas Jefferson who discussed finding a new country where with laws not manipulated by the wealthy for the wealthy. Where people had opportunities to start a business, a bank--perhaps, and succeed or fail based on their own merits.
The laws--the Declaration of Indepence and a Constitution--elected people to represent them in the government from local municipalities, districts and states, with their welfare in mind. Yes, they paid taxes so that everyone in the country took part in their pursuit of happiness.
I mean, sure, not everything was perfect--by far. But the men who founded this country philosophically believed in freedom from tyranny and equal treatment under the law--as much as they could back then. The Constitution provided a document for success and, rich or poor, America served as the land of opportunities.
It was all done because George and Tom felt a bunch of wealth aristocrats were ripping them off of their hard-earned money so they could go and get wealthier--taxation without representation.
Wait a minute, that was 18th century England...right? Not the 21st Century.
Nah...I was never that good with history.
Face it, George and Tom's role in history was to start a new government in a new land.
It's our role in history--as U.S. citizens--to start new home theater systems in new houses.
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