How bad will it be?

[Nictoe]

[Nictoe]

By Bob Chapman

March 24 2007

We fear the other shoe is about to fall. We have had a dead cat bounce in the market and the Chinese stock market, which in part caused the recent correction and has recovered. That by the way has the Chinese government very perturbed. The players are exiting the yen carry trade and the Swiss franc carry trade. The Swiss have just raised interest rates and it looks like they will do so again soon as speculators are exiting that carry trade as well. Another important event has been the accelerating meltdown of the $1.3 trillion subprime mortgage market. The failure in this market is affecting the better quality mortgage market, the junk bond market, the general use of risk speculation, the $600 trillion unregulated derivatives market and the more than trillion dollar hedge fund operations.

Tens of billions of dollars have already been lost and the contagion is spreading as the media tries to cover-up what is really going on. We are watching the disintegration to an extent of the entire mortgage market, which encompasses 25% of all outstanding credit. We predicted this three years ago and those who believe they are savvy discovered the problem a couple of months ago. This is a general meltdown and do not think it isn’t, and it has several years to go until the real estate sector is purged. This purging will affect other sectors of the financial markets as well. When all is said and done trillions of dollars will be lost. The subprime mortgage market should have never existed in the first place. It was created by the Fed as an unnatural set of building blocks under the house pyramid. These loans that should have never existed in the first place are what propelled the housing market upward. These unqualified buyers bought at the bottom of the pyramid pushing owners upward into more expensive homes. Now that subprime buyers can no longer propel that market higher it’s stagnated. Now the resets of adjustable rate mortgages begin. Many borrowers cannot qualify under the new tougher qualifications and most cannot make the increased monthly mortgage payments. Not only has the upward thrust from the bottom ended, but also about 50% of subprime borrowers are going to lose their homes, which will be thrown onto the market driving house prices lower. This is wealth destruction. A bubble created by Sir Alan Greenspan to prolong the collapse of our economy and financial system.

These problems reflect a systemic syndrome that has purposely been visited upon our economy and financial system. This all didn’t happen by accident. The elitists know what they are doing. Free trade and globalization didn’t just happen to us. It was planned as a gateway to world government years ago and it has been used as an instrument of power many times in the past. The problems of our vehicle industry just didn’t happen, they were planned just as the S&L fiasco was planned and our current subprime problems were planned. Our Congress hasn’t acted and won’t act because they do as they are told. They are either paid off or compromised. They march in locked goose step with the lying Treasury and our privately owned Fed. Our financial system passed the point of no return five years ago. There is no way back, our entire financial system is coming down. What we do not know is at what speed, but the results are undeniably assured.

Housing lenders, banks and brokerage firms knew that the mortgage bubble would end in collapse, but short-term profits were more important than a lasting healthy natural system. Profits on subprime loans are 25% to 100% more costly than a standard mortgage for the borrower, thus it didn’t take much for all concerned to participate.

The housing bubble was Sir Alan’s farewell signature. He presided over the 1987 market collapse and the 8/88 creation of the Working Group on Financial Markets. Then there was the 1989-92 housing and market collapse, the down days of the mid-90s, the dotcom fiasco and the collapse of the stock market again. That was followed by the real estate bubble. A litany of failures.

In just six years Sir Alan in collusion with Fannie Mae and Freddie Mac created $15 trillion in new mortgage generations. That was three times the originations of the previous five years. This was the biggest bubble in modern history. The reason was to keep the economy out of recession or depression, to allow the bankers to make outrageous amounts of money and to create enough equity for cash out financing and equity loans to keep the economy afloat as the populace dealt with falling wages and higher inflation.

You ask what’s next? By the end of the year builders will start going under and that will complicate issues even further.

[theLIBERTARIAN]

I don't agree with everything in the article but I agree with this:

[bestsynd]

(Best Syndication) The decrease in the subprime lending volume and bad weather has contributed to steepest one-month decline in sales of existing homes in nearly two decades. The National Association of Realtors (NAR) says that after rising for three consecutive months, total existing-home sales fell 8.4 percent to a seasonally adjusted annual rate1 of 6.12 million units in March.

These existing homes include single-family residences, townhomes, condominiums and co-ops. David Lereah, an economist for the NAR says “For the last couple months we’ve been expecting a weather ‘hit’ on home sales finalized in March, but looking at overall activity in the first quarter we see that existing home sales averaged 6.41 million – a figure that is moderately higher than the sales pace during the second half of 2006.”

Complete Best Syndication Article

[Nictoe]

By Bob Chapman

April 21 2007

Now that foreclosures are going wild lots of crooks are defrauding homeowners. Here are some tips. Don’t pay upfront fees to any person or organization promising help. Don’t sign anything without have an independent lawyer review it. Seek out accredited financial counselors, using lists such as those kept by the Department of Housing and Urban Development. Wild rescue offers that are too good to be true are just a scam.

This week the Supreme Court stepped into the subprime lending crisis with a potentially far-reaching ruling that limits the power of individual states to regulate mortgage lending. The elitists have to control everything in our lives.

The Supreme Court is allowing banks to offer new terms on mortgages in violation of the law.

This will have a big impact on the ability of states to act independently on predatory lending and throws the spotlight on federal authorities.

The Consumer federation of America said, “This is really disappointing news, it could work to the detriment of consumers.”

Applications for mortgages fell for the 5th straight week as ARMs fell to 18.1% of applications, the lowest since 7/03. A year ago they accounted for 30%. Refis were 2.5% lower wow, but they were up 10% yoy. Refi apps fell 0.3% and accounted for 44% of applications. The volume of loan applications to buy a home fell 4.2%, but purchase loans were down 3% yoy. US home sales are off 5.5% yoy. The average 30-year fixed rate mortgage rose from 6.16% to 6.22%, the highest in nine weeks. The 15’s rose 1 bps to 5.92% and the one-year ARMs rose 1 bps to 5.89%.

US foreclosure filings rose 47% in March yoy. That was 149,000 as California’s filings rose 31,434. Nevada and Colorado had the largest percentage gains. Those making late payments are at a four-year high and the failure of 55 subprime mortgage companies has tightened the supply of money for lending. Nevada’s foreclosures were triple yoy. That is one foreclosure for every 183 households, which is four times the national average. Colorado’s rate was one for every 292. Nationally it was one of every 775. California had 6 of the 10 metropolitan areas with the highest foreclosure rates, Stockton being the highest. The others were Vallejo-Fairfield, Modesto, Sacramento, Riverside-San Bernardino and Bakersfield. Greeley, Colorado and Detroit and Denver were also up near the top.

[theLIBERTARIAN]

The lending industry has tightened its belt.

That Chapman guy sounds like a real states-rights guy. Good for him. Too bad the Supreme Court made that decision.
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[Nictoe]

Geez......and I thought the Supreme Court could only subvert presidential elections.

[Nictoe]

[bestsynd]

(Best Syndication) On Thursday Federal Reserve Chairman Ben Bernanke said that the Feds will be considering tougher rules to prevent fraud and abuse in the mortgage industry. The recent decline in real estate prices has put some subprime lenders and borrowers in hot water,

The Federal Reserve is responsible for writing the regulations that implement the Truth in Lending Act (TILA), known as Regulation Z. Through Regulation Z, the Feds can require lenders to disclose clear, accurate and timely information regarding loans. Bernanke said that “The Home Ownership Equity Protection Act (HOEPA) gives the Board the power to prohibit acts and practices in mortgage lending deemed unfair or deceptive.”

Complete Best Syndication Article

[Biscuit]

Too little too late. The borrowers who jumped on the subprime lending bandwagon, already got screwed and the govt. sat there and watched it happen.

[theLIBERTARIAN]

I agree. Also, they will likely not pass anything worth wild.
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[bestsynd]

(Best Syndication) With the recent leveling off in the real estate market many borrowers found themselves with loans they can not pay. Some borrowers have said that they did not understand the terms of the loan. The Federal Reserve and other government officials hope to make sure that future borrowers understand exactly what they are getting into when they sign on the dotted line.

On Monday, Federal Reserve Director of the Division of Consumer and Community Affairs, Sandra Braunstein told the U.S. House of Representatives Domestic Policy, Committee on Oversight and Government Reform that the Feds are looking into changing policy to help both borrowers and lenders in the subprime market.

Complete Best Syndication Article

[bestsynd]

(Best Syndication) The Federal Reserve Bank is more worried about inflation than the slump in the housing market. The Feds decided to hold interest rates steady at 5-1/4 percent at their May 9th meeting. The minutes released Wednesday show that energy prices are increasing at a fast pace.

“Nearly all participants viewed core inflation as remaining uncomfortably high and stressed the importance of further moderation,” the Feds concluded. Although they admit that the down turn in the housing market is more than expected, inflation is still a bigger concern.

Complete Best Syndication Article

[Nictoe]

It’s Official: The Crash of the U.S. Economy has begun

June 15, 2007

By Richard C. Cook

It’s official. Mark your calendars. The crash of the U.S. economy has begun. It was announced the morning of Wednesday, June 13, 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the U.S. monetary elite.

Pearlstein’s column was titled, “The Takeover Boom, About to Go Bust” and concerned the extraordinary amount of debt vs. operating profits of companies currently subject to leveraged buyouts.

In language remarkably alarmist for the usually ultra-bland pages of the Post, Pearlstein wrote, “It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable. When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring.”

Further, “Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines. And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption. It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late '90s. And it will happen this time.”

Samuelson’s column, “The End of Cheap Credit,” left the door slightly ajar in case the collapse is not quite so severe. He wrote of rising interest rates, “As the price of money increases, borrowing and the economy might weaken. The deep slump in housing could worsen. We could also discover that the long period of cheap credit has left a nasty residue.”

Other writers with less prestigious platforms than the Post have been talking about an approaching financial bust for a couple of years. Among them has been economist Michael Hudson, author of an article on the housing bubble titled, “The New Road to Serdom” in the May 2006 issue of Harper’s. Hudson has been speaking in interviews of a “break in the chain” of debt payments leading to a “long, slow economic crash,” with “asset deflation,” “mass defaults on mortgages,” and a “huge asset grab” by the rich who are able to protect their cash through money laundering and hedging with foreign currency bonds.

Among those poised to profit from the crash is the Carlyle Group, the equity fund that includes the Bush family and other high-profile investors with insider government connections. A January 2007 memorandum to company managers from founding partner William E. Conway, Jr., recently appeared which stated that, when the current “liquidity environment”—i.e., cheap credit—ends, “the buying opportunity will be a once in a lifetime chance.”

The fact that the crash is now being announced by the Post shows that it is a done deal. The Bilderbergers, or whomever it is that the Post reports to, have decided. It lets everyone know loud and clear that it’s time to batten down the hatches, run for cover, lay in two years of canned food, shield your assets, whatever.

Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the “reformed” 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market.

In other words, it sounds eerily like 2000-2002 except maybe on a much larger scale. Then it was “only” the tenth worse bear market in history, but over a trillion dollars in wealth simply vanished. What makes today’s instance seem particularly unfair is that the preceding recovery that is now ending—the “jobless” one—was so anemic.

Neither Perlstein nor Samuelson gets to the bottom of the crisis, though they, like Conway of the Carlyle Group, point to the end of cheap credit. But interest rates are set by people who run central banks and financial institutions. They may be influenced by “the market,” but the market is controlled by people with money who want to maximize their profits.

Key to what is going on is that the Federal Reserve is refusing to follow the pattern set during the long reign of Fed Chairman Alan Greenspan in responding to shaky economic trends with lengthy infusions of credit as he did during the dot.com bubble of the 1990s and the housing bubble of 2001-2005.

This time around, Greenspan’s successor, Ben Bernanke, is sitting tight. With the economy teetering on the brink, the Fed is allowing rates to remain steady. The Fed claims their policy is due to the danger of rising “core inflation.” But this cannot be true. The biggest consumer item, houses and real estate, is tanking. Officially, unemployment is low, but mainly due to low-paying service jobs. Commodities have edged up, including food and gasoline, but that’s no reason to allow the entire national economy to be submerged.

So what is really happening? Actually, it’s simple. The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the U.S. that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated U.S. trade and fiscal deficits.

Of course we got ourselves into this quandary by shipping our manufacturing to China and other cheap-labor markets over the last generation. “Dollar hegemony” is backfiring. In fact China is using its American dollars to replace the International Monetary Fund as a lender to developing nations in Africa and elsewhere. As an additional insult, China now may be dictating a new generation of economic decline for the American people who are forced to buy their products at Wal-Mart by maxing out what is left of our available credit card debt.

About a year ago, a former Reagan Treasury official, now a well-known cable TV commentator, said that China had become “America’s bank” and commented approvingly that “it’s cheaper to print money than make cars anymore.” Ha ha.

It is truly staggering that none of the “mainstream” political candidates from either party has attacked this subject on the campaign trail. All are heavily funded by the financier elite who will profit no matter how bad the U.S. economy suffers. Every candidate except Ron Paul and Dennis Kucinich treats the Federal Reserve like the fifth graven image on Mount Rushmore. And even the so-called progressives are silent. The weekend before the Perlstein/ Samuelson articles came out, there was a huge progressive conference in Washington, D.C., called “Taming the Corporate Giant.” Not a single session was devoted to financial issues.

What is likely to happen? I’d suggest four possible scenarios:

1.
Acceptance by the U.S. population of diminished prosperity and a declining role in the world. Grin and bear it. Live with your parents into your 40s instead of your 30s. Work two or three part-time jobs on the side, if you can find them. Die young if you lose your health care. Declare bankruptcy if you can, or just walk away from your debts until they bring back debtor’s prison like they’ve done in Dubai. Meanwhile, China buys more and more U.S. properties, homes, and businesses, as economists close to the Federal Reserve have suggested. If you’re an enterprising illegal immigrant, have fun continuing to jack up the underground economy, avoid business licenses and taxes, and rent out group houses to your friends.
2.
Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War II. Conditions in the coming years could be as bad as they were then. We could have a really big war if the U.S. decides once and for all to haul off and let China, or whomever, have it in the chops. If they don’t want our dollars or our debt any more, how about a few nukes?
3.
Maybe we’ll finally have a revolution either from the right or the center involving martial law, suspension of the Bill of Rights, etc., combined with some kind of military or forced-labor dictatorship. We’re halfway there anyway. Forget about a revolution from the left. They wouldn’t want to make anyone mad at them for being too radical.
4.
Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.

The latter is the only sensible solution. There are monetary reformers who know how to do it if anyone gave them half a chance.


Richard C. Cook is the author of “Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age.” A retired federal analyst, his career included work with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. He is now a Washington, D.C.-based writer and consultant. His book “We Hold These Truths: The Hope of Monetary Reform,” will be published later this year. His website is at www.richardccook.com

[Biscuit]

Option #1 is the most likey scenareo to happen. We're already in those stages.