Tuesday, January 10, 2012

Stand-by For Massive Housing Subsidies

What you have is a picture of broken economic systems that are operating on life support," Mr. Prince says. "We're in a secular leveraging that will probably take 15 to 20 years to work through and we're just four years in.  - Robert Prince, co-chief investment office, Bridgewater and Associates
I mentioned yesterday that the head of the NY Fed, Bill Dudley, was going around lobbying for fiscal and monetary "stimulus" for the housing market.   Really in effect what this "stimulus" would end up being is a bailout for the Fed's member banks who still have massive exposure a housing market that gets worse by the day.  Already Freddie Mac is letting deadbeat borrowers go a year without making mortgage payments:  LINK  People, the cost of this is coming from YOUR pocketbook.

The problem is actually pretty simple:  too many homes were built during the last decade in response to the demand created for homes, which was enabled by the money printing and lending policies spear-headed by Alan Greenspan and later proliferated by Ben Bernanke.   The political leaders signed off on this whole-heartedly because it meant re-election votes.  But the housing bubbly frenzy created a huge illusion of demand that was never there.  Even worse, it put millions of people into homes for which they over-payed and could not afford to keep.

So now we have a system that has substantially more homes in supply than there is rational economic demand. This economic imbalance will extend for at least a decade, probably longer.  This housing stock was financed with debt, a large part of which remains on bank balance sheets and trillions of which are guaranteed by you, the Taxpayer, in the form of $7 trillion in agency debt issued by agencies that are now owned outright by the Government.  The golden truth is that we are looking at the slow-motion collapse of the housing market in terms of true valuation and the massive defaulting on probably close 1/3 of the $7 trillion in Taxpayer funded agency debt and $100's of billions of private-label debt sitting on bank balance sheets or guaranteed by bank servicing companies.  This is a serious disaster that was made worse by the monetary and fiscal programs enacted by Bernanke and Obama in 2009.

Now the same people who are responsible for creating the massive problem in the first place are now pushing hard to have "new" policies enacted that will help bailout the big banks who are sitting on $100's of billions of real estate and housing exposure, rendering them de facto insolvent even before figuring in other bad assets like foreign Government and bank exposure and off-balance-sheet OTC derivatives.

Six days ago Bernanke sent a letter to Chairman of the House Financial Services Committee in which he stated that the housing market was a roadblock to economic recovery and in which he offered proposals for "stimulating" the housing market.  His primary solutions would entail mortgage principal reductions and Government subsidized refinancing programs.  Of course Bernanke's fancy paper does not identify at all the cost of implementing his proposals.  I would suggest that looking at the amount of delinquent and defaulted but not foreclosed debt at banks and the mortgage agencies would suggest that ultimate cost of Bernanke's proposals would fall somewhere between $500 billion and one trillion.   We know from "trial balloons" that have been floated that the Fed has been looking at implementing a $500 billion mortgage purchase program.  Now it's Obama's turn to throw hard taxpayer money into the bank bailout kitty.

Here's a copy of Bernanke's letter:  LINK

Let's face the golden truth. The housing market is part of a larger overall debt accumulation problem in this country that will take decades to fix, just like it took 6 decades to create the problem. If the free market is allowed to do what it does, the problem will fix itself over time and the ultimate consequences and destruction to our system will ultimately be a lot less severe than if the Federal Reserve and Government take action to further push the problem into the future.

The strategy being floated by the policy makers will do nothing more than place a lot more of the burden of this problem on those left in the middle class who pay taxes, unfairly subsidize those who made poor borrowing decisions and, worst of all, bail out the banks and bankers who created the problem.

Jim Sinclair did an interview today in which he said, in reference to the move in gold and silver overnight, that "something is taking place [behind the scenes] that is not obvious."  He referenced "quiet" buying going on in the metals.  I have noticed a lot of volume coming into the extremely undervalued junior mining shares yesterday and today.  But, I would suggest that part of what is taking place is that the savvy investors who understand the difference between gold and printed fiat currency are moving printed fiat currency into the metals ahead of what is going to be big year for QE and fiscal spending, deficits and Federal debt accumulation.


  1. This could never ever happen in the gold/silver market???hmmmm...lol...the cftc is a joke

    AU Optronics group conspiracy cost billions: prosecutor

    (Reuters) - Executives met over 60 times at luxury hotels to fix prices of liquid crystal display panels, a conspiracy which illegally cost the U.S. economy billions of dollars, a U.S. prosecutor said in court on Tuesday.

    The government embarked on a rare criminal trial against a publicly traded company, AU Optronics Corp, as lawyers delivered opening statements in a San Francisco federal court.

    "Instead of competing, these executives and these corporations were conspiring," Peter Huston, an attorney with the U.S. Department of Justice, told jurors.

    But Christopher Nedeau, an attorney for AU Optronics, countered that AU Optronics "competed fiercely." The exchange of information between companies is not illegal, Nedeau said, and is necessary to survive in the industry.

    Executives kept notes of their secret meetings, Huston said, and AU personnel attended almost all of those sessions. In addition to picking prices, executives also set production targets at those meetings, he said, in order to manage global supply.

    "Ladies and gentlemen, the documents don't lie," Huston said.


  2. Bill Black: More Proof of Obama Policy of Covering Up for Elite Financial Criminals

    These charges are exceptionally severe. Senior former regulators are willing to be quoted by name asserting that Obama’s (not Bush’s) financial regulatory leaders are blocking lawsuits against fraudulent financial elites and their anti-regulatory co-conspirators because they fear embarrassment. That would be a disgraceful policy. Indeed, it is hard to think of a worse reason for granting the elite white-collar criminals that caused the crisis and the Great Recession immunity from prosecution. The fact that Obama has no response rebutting this grave charge against his administration’s integrity sounds loud, but not proud.


  3. Makes you feel good all over...

    Exclusive: Ex-SEC lawyer said to settle Stanford-linked case

    Barasch, a former head of enforcement for the SEC's Fort Worth, Texas, office, is now a partner at the law firm Andrews Kurth in Dallas. He has been at the center of a Justice Department probe since at least 2010.

    That year, SEC Inspector General David Kotz released a report that found Barasch tried to quash investigations of Stanford while at the SEC, and then later repeatedly tried to get permission to represent Stanford after leaving his SEC post.


  4. Not too good?

    California Cash Deficit Widens to $2.5 Billion From Estimate in First Half

    “While we saw positive numbers in November, December’s totals failed to meet even the latest revenue projections,” Chiang said in a statement. “Coupled with higher spending tied to unrealized cost savings, these latest revenue figures create growing concern that legislative action may be needed in the near future to ensure that the state can meet its payment obligations.”


  5. Media losers purposefully avoiding Paul second place win, and talking about 3rd place winner Huntsman as if anyone cares. Total media blackout of Paul on CSPAN.

    Nothing on CNN except the talk of Huntsman 3rd place nothingness. Total media blackout of Paul. Such a disgrace our Media has become as a prime time source for information, truthful information. We know they suck but too see it in Prime time makes it even more sickening and disgusting to watch.

    Huntsman as if he matters.

  6. Dave I find that so annoying as my wife and i have worked years to make ou payment. Grrrr.

  7. Why don't they make the customers segregated accounts whole and then hash it out?

    MF Global Holdings trustee urges creditors' priority

    (Reuters) - The bankruptcy trustee for MF Global Holdings Ltd (Other OTC:MFGLQ.PK - News) said that entity's creditors deserve to rank higher in the pecking order for repayment on some claims than customers of its brokerage unit.

    In a filing late Monday with the bankruptcy court in Manhattan, trustee Louis Freeh said the holding company has "substantial intercompany claims" against the brokerage unit MF Global Inc, stemming from intercompany loans it made to that unit.

    Freeh said such loans are not customer assets, and that any recoveries tied to such loans belong to creditors of the parent company, and should not be diverted to customers of the brokerage unit.

    He said he is concerned an "inappropriate interpretation" of relevant statutes could prompt James Giddens, the trustee overseeing the broker-dealer unit, to deny creditors a right to recover from property that was never deposited by customers.


  8. Andrew Napolitano on GOP Candidates

    Andrew Napolitano believes that Ron Paul is the only GOP candidate who, if elected, won’t go to war or tell Americans how to live.


  9. Ron Paul: “We Have Had a Victory For Liberty Tonight!”

    “I sorta have to chuckle when they describe you and me as being dangerous. They are telling the truth, because we are dangerous… to the status quo. And we will remain a danger to the Federal Reserve system as well.”


  10. CNN’s Dana Bash “Worried” About Ron Paul’s Success: shameless whoring for the entrenched moneyed interests


  11. Mitt Romney and ‘The White Horse’ Prophecy


  12. My AV showing that a virus tried to download. You might have been hacked. Should check out.

  13. ron paul is being kept from the race because he could beat obama. the fix is in this election like the last. like when the republicans offered the weakest electoral combo in history against obama (only way he could win). they're attempting to put the weakest candidate that has no chance of winning up. obama was funded by the bankers and insiders and the opposition is controlled and will lose.

    ron paul is merely there to represent the disenfranchised and acts as a steam valve to release pressure. he's an insider too. wake up people, both parties and their shills are only there to tell you what you wanna hear and continue the policies which wipe out the middle class.

  14. The obvious solution, though it is unimaginable in our managed perception paradigm, is to mark the debt down to market.
    You could do it yourself, since your servicer, your politicians, your banks, and the creators of that system certainly won’t.

    But could you imagine sending a letter to your mortgage servicer telling them that you have analyzed the true market value of your home, and found it to be 45,000 dollars less than your current principle, and that you have calculated the new mortgage payment, applying the interbank lending rate plus 1% (more than fair) and will begin sending them the new payment, based on your new principle, and new rate of say 1.5%?

    Good luck with that. .. and yet … that is exactly what every mortgage holder in the world should do. Facebook revolution anyone?

    And if this was “imaginable” enough to go forward, when the banks refused, people could hold the line and begin defaulting on their mortgages in so great a number, we would force a one time emergency revaluation to clear debt from the system and stabilize the marketplace such that both bank balance sheets, and the real economy, are at an equilibrium. And a true global recovery could begin, this time on the backs of thieves who are quite well off after all, and currently completely in control of the economy.

    My friends, who would have the balls to get the ball rolling on this? Especially now that the classe politique has just postured with some interesting preparations to stave off that very event: Homeland Security “monitoring” of social media and Obama’s outrageous, un-Constitutional prececent of preventive detention.

    Big Brother has it covered.

  15. The Corrupt State

    Slowly and incessantly, recognition regarding the true nature of government is seeping into the consciousness of the public. The internet is certainly an important factor in this change in beliefs, as is the economic devastation that has plagued the nation.

    Whether this recognition is coming quickly enough to offset the totalitarian trends is moot. The recognition is beginning after government has taken control of much of the economy and society. As a betting man, I believe the move toward totalitarianism will continue — for awhile. Longer term, probably defined in decades rather than years, the American people will become aroused enough to take back their country and individualism. Freedom is a part of our genetic make-up. When it is apparent to enough people what is happening, Atlas will shrug, or punch back.


  16. The New Game on Wall Street with “Ranting Andy” Hoffman

    starts @17 minutes...

    gold cartel

    Andy says Wall Street is no longer in the business of destroying retailers. Ever since the repeal of the Glass-Steagall Act, they’ve been in the business of destroying countries and taking power. Andy talks about Goldman-Sachs infiltration into political positions in other countries, and the infiltration into municipalities by other big Wall Street thugs, such as JP Morgan.


  17. Wow...send this to his reelection campaign..

    Belafonte on Obama: He Doesn’t Deserve a Second Term, Lacks ‘Moral Compass’

    If Matt Damon is disillusioned with The One, Harry Belafonte is downright dismayed with President Barack Obama’s first term.



  18. Your being Duped America

    List of Top Contributors to Mitt Romney and Ron Paul. - Imgur

    Romney's list looks just like Bama's...


  19. Pretty soon you won't be able to tell you've been duped...wake up!

    Why Banks Back SOPA, the “Bring the Chinese Internet to America” Bill

    SOPA and PIPA (Protect IP Act) use nuclear-weapon-to-kill-a-mouse scale solutions to Internet piracy. David Carr in the New York Times, in an rather anodyne article given what is at stake, gave an overview of what is wrong with the bills, namely, a lot. Even if you accept the proponents’ dubious claims about the losses from “rouge” foreign websites ($58 billion!), the bills probably won’t fix that problem and will create a host of new ones. Despite assertions that it would create jobs, it would actually deter technology startups, undermine scientific journals, and could fragment the Internet domain name system. It’s tantamount to making the public wear ankle bracelets to combat shoplifting.

    So why is the American Bankers Association one of the sponsors of a bill that seems awfully remote from its terrain? The bill allows anyone to send a complain about a purported SOPA violation and get the site disappeared. This faster and more brutal than the execution of Wikileaks via cutting off its access to payment networks. From TechDirt in December (emphasis theirs):

    Oh no, this isn’t crazy at all, it’s authoritarian. Imagine how long Goldman666 or Matt Taibbi or Karl Denninger or yours truly would be around with this rule. Wikileaks demonstrates that even Swedish domiciled sites are not safe.