Zero Hedge

We continue with our series of artist renderings of various infamous desktops (previously Barack Obama, Ben Bernanke, Tim Geithner, and Lloyd Blankfein). Today, we focus on that of administration straight shooter Rahm Emanuel.

h/t Mike

More articles from Zero Hedge….

By Karl Denninger, The Market Ticker

The next two days could prove to be very interesting – but probably won’t.

Dick Fuld is prepared to later assert:

Lehmans demise was caused by uncontrollable market forces and the incorrect perception and accompanying rumors that Lehman did not have sufficient capital to support its investments.

Uh huh.  It wasn’t caused by 30:1 leverage Dick?  You know, leverage you got "enabled" to use by Pauslon?  Of course you weren’t forced to use that, but heh, if the music is playing, you had to get up and dance, right?

In 2007, when the U.S. housing market began to show signs of weakening, Lehman Brothers and many of its competitors had already accumulated large positions in what were considered less liquid assets. Many market observers, including government officials charged with oversight of the financial markets, believed that the problems in the subprime residential mortgage market were and would be contained.

You were wrong.  But a prudent CEO, and a prudent company, doesn’t "bet the firm" on a premise that their largest-concentration of assets in what is clearly a bubble economic environment, unsupported by the macro level fundamentals, will not only go on forever but will see it’s equivalent of multiple expansion continue forever. That by definition – the belief in expansion of a compound-growth function at ever-increasing rates – is a Ponzi Scheme.

Ponzi schemes are broadly illegal.  While it’s not illegal to place bets on asset appreciation, when you claim to be in a position of "systemic risk" you should be held to a higher standard.  That standard was not only loosened it was destroyed in the years from 2003-2007.  Bear Stearns was a final warning that the Ponzi had collapsed, yet Lehman refused to heed that warning, instead choosing to rely on the premise that a government tit would be proffered to suckle from.  When it was not the firm collapsed.

Then there’s Wachovia.  I read through Scott Alvarez’s testimony (FRB’s Counsel) which goes through the usual mantra of how Wachovia’s business deteriorated due to macro-level economic developments not under it’s control, along with the seizure of WaMu. 

Notably missing from this analysis, along with Steele’s, Wachovia’s former CEO, is any mention of the fact that Wachovia was writing credit-default swaps (CDS) on their own deals in the Option ARM space and bundling them with the lower-rated tranches as a means of being able to sell them!

This is important for two reasons: It is roughly equivalent to you writing fire insurance on your own house, when the entirety of your net worth including all your liquid cash is contained within the house in a shoebox.  Should the house burn you will of course be unable to pay off on your self-dealt "insurance."  Second, there is no mention as to where those instruments are now or what they’re actually worth.  We know where they are – they’re off-balance sheet at Wells, which now has roughly one trillion dollars of off-balance sheet exposure – with no way to evaluate the "wisdom" (or lack thereof) on the marks on those "assets."

It is that fact, incidentally, that led myself and many others, including hedge fund managers, to short the stock.  That in turn drove the CDS spreads out.  But the predicate act that led people like myself to reach this conclusion – that the bank was hiding losses and likely was insolvent – was an act taken by their own hand and enabled by willfully-blind regulators.

Indeed, the bottom line problem here with Wachovia is the same as it has been up and down the line since this mess began – ridiculously over-optimistic asset "values".  This has not abated, as we keep seeing every week with FDIC bank seizures, where banks that are allegedly solvent (by their accounting of "assets" and "liabilities") are nonetheless seized and huge losses, often as much as 30% of the asset base, are absorbed.  This isn’t possible unless the "asset values" are pure works of FICTION.

After the 1929 crash the Pecora Commission was formed to find the causes and prevent it from happening again.  What Pecora found was that too much leverage combined with self-dealing and lies about asset valuations led to the collapse of banks and other members of the financial system when the falsehood of those asset "value" claims was exposed to the light of day, and that self-dealing in various forms led to covering up these deficiencies until they reached critical levels (where banks were literally unable to pay the light bill), by which point the entirety of the depositors’ funds were often gone.  Just as today, banks often maintained that they were "fine" right up until the fact that their assets were worth pennies was exposed.

Glass-Steagall was an attempt to prevent that from happening again by separating deposit-holding banks from securities activities.  Between that and strict leverage limits, along with bank examiners, it was believed that loss-hiding would no longer be possible to a degree where these sorts of panics could develop.

For 40 years it worked.

Then we had the S&Ls, which gamed the system.  Bluntly, they broke the law, "trading" assets between themselves with a wink and a nod, thereby "establishing" asset valuations that were false.  This "supported" their lending and other activities – right up until, just as with the 1920s (and now) it led to their destruction when the truth began to leak out. 

But unlike today Bill Black came in with a mandate and started referring cases to prosecutors, who promptly sent over 1,000 people to prison for their lies and scams.

The FCIC will fail to be effective unless we have another Bill Black.  We must reverse those decisions of Congress to extort FASB, as well as exposing and laying bare on the table the inside baseball, hidden caches of alleged "assets" that are not really worth what is being claimed, and other forms of rooking the public while laying off the costs on taxpayers.

Sadly, I see no evidence that the FCIC will do any of this.  There is nothing in the hearings I’ve seen to date that suggests that Wachovia’s Steele, for example, nor The Fed, will be called to account on exactly where are those CDS, what are they worth, and why did The Fed and other regulators ignore their existence and lack of public valuation and disclosure?

Nor has the FCIC asked Henry Paulson (or Tim Geithner for that matter) why is it that the former 14:1 leverage limit was removed and why shouldn’t it be put back in force now, since it is now a known fact that had it been in place neither Lehman or Bear would have failed, and if it had applied to AIG they wouldn’t have failed either!

No, instead we have a circle jerk of monkeys, prancing before the cameras, but with no substantive progress and disclosure.

Phil Angelides is no Ferdinand Pecora.

More articles from the Market Ticker….

The going joke is “If you ask 3 economists their opinion on the economy, you get 5 different answers.” The question arises today, if economists have inside knowledge to the economy, why didn’t they spot this mess coming years ago?

And then we have the question will it be inflation or deflation. Out come the experts with all sorts of graphs and charts pointing to deflation. Meanwhile I went over to Wendy’s for my 99¢ bacon cheeseburger today and the price is now $1.29. That’s a 30 percent increase. And if that wasn’t bad enough, my Gin went up a dollar to $14 for 1.75 liters (I’m not sure that at that price it is considered Gin, rocket fuel might be a better description).

The real question is this, the government borrowed 10 trillion dollars from all of us and we feel comfortable loaning it to the government for only TWO PERCENT INTEREST. I’ve heard of The Dumb Friends League, but investors aren’t dumber than pets, are they? What gives?

Borrowed money is one thing, printed money is another. When Ben buys one of Geithner’s T-bills, that is printing money (the Treasury sells Bernake a T-bill and the Treasury gets a bank entry for cash in the government account). No real dollars are printed; from there, the government just prints a Social Security check or an unemployment check. Of course, the government can tax and the Treasury can redeem Tim’s markers at any time. The real question comes up, how much in markers does the Federal Reserve hold? I’m guessing, anywhere from 2 trillion to 10 trillion dollars. Just the management of Freddie and Fannie implies about 3 trillion right there. What they bought from the banks could be a rather absurd amount, possibly mind boggling. No saver has lost a bank dollar, but our government had to pony up printed dollars for the losses on all the failed banks’ ledger sheets.

Look at it a different way, say you have one million dollars in the bank. Gee, that means you get 20k a year in interest. Let’s not all queue up at once to take advantage of this wonderful offer. It sucks so bad, why even put your dollars in the bank? Why not just spend it?

The government has printed money, borrowed money and spent every bit of it. The only reason there is no apparent inflation with interest rates is because the government has taken risk out of the market, all bank loans are insured against loss. Without risk, there is no need for higher interest rates. Of course one issue pops up. Gold had one hang up, it paid no interest. Today looking at long term, GOLD is better than holding government paper.

Ask yourself one question, where will the money come from to pay for all of the health care and Social Security benefits in the future? The money isn’t there; it will have to be printed. We couldn’t pay for it as individuals. What makes it more affordable as a government plan? Do we charge everyone a fair share for all of these new benefits? That doesn’t seem very likely. The absurdity of zero percent interest rates and a national debt towering over 13 trillion dollars should set off an alarm bell somewhere. Credit cards are charging 14 percent. No discount for taxpayers???–kind of figures doesn’t it.

The thing we need to interpret from this mess, is that the information we are getting from our government is incomplete. The pieces of this puzzle are all there and they do not fit together as expected. Zero interest rates are similar to a hooker offering free sex. How you ended up in a closet nude, with your hands tied behind your back, is another story.

Read more….

The Daily Reckoning

The stock market is rolling over. The Dow went down 133 points yesterday. Gold gained $4.

Stocks went down early in the summer. We thought that was the beginning of the big “second shock” we’ve been waiting for. But we were wrong. The stock market rebounded.

But now it is back at its July lows…and appears ready to keep going down.

Why? Because small investors are leaving the stock market. And large investors are beginning to realize that there is no real recovery taking place.

“Worries about US recovery deepen,” says a headline in The Financial Times.

Not here! Not at The Daily Reckoning headquarters. We’re not worried about the recovery. Because there is none.

None of the key components of recovery – housing, jobs, or consumer spending – suggest that the economy is returning to its pre-recession habits.

This from Bloomberg:

Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the US economic recovery.

Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed today in Washington. Demand for single- family houses dropped to a 15- year low and the number of homes on the market swelled.

“Today’s data do not bode well for home prices,” said Michelle Meyer, a senior economist at BofA Merrill Lynch Global Research in New York. “There is a decent chance we reach a new bottom for home prices. There’s going to be a prolonged, painful drop.”

Record Low

The pace of existing home sales is the slowest since comparable records began in 1999. The agents’ group revised the June sales figure down to 5.26 million from a previously reported 5.37 million.

Economists projected sales would fall 13 percent. Estimates in the Bloomberg survey of 74 economists ranged from 3.96 million to 5.3 million. Previously owned homes make up about 90 percent of the market.

Purchases of single-family homes also dropped 27 percent, the biggest one-month decrease in data going back to 1968. July’s 3.37 million annual rate was the lowest since May 1995.

But fear not, dear reader, the feds are on the case. As usual, they are making things worse. The obvious problem in the housing market is that there are too many houses and too much mortgage debt. And the obvious solution is to clear the market by allowing prices to fall and let the debt wash itself out.

Instead, the feds are trying to prevent the market from clearing. Bloomberg continues:

The Department of Housing and Urban Development plans to make loans of as much as $50,000 for borrowers “in hard hit local areas” to make mortgage, tax and insurance payments for as long as two years, according to an Aug. 11 statement. The Treasury Department will also provide as much as $2 billion in aid under an existing program for 17 states and the District of Columbia, according to the statement.

That’s right. What a plan! Do you have too much mortgage debt? Heck, the feds will lend you more money!

And more thoughts…

Too bad Thomas Friedman has stopped writing about the economy. We could use a good laugh this morning. Chilly winds are blowing across this part of France. The children have all gone. The sun is low and cool. It’s quiet here, and a bit sad.

But Friedman has moved on to giving bad advice on other subjects.

So, this morning we turn to Bob Burnett, “retired Silicon Valley executive.” Mr. Burnett is writing on a site that we believe is part of The Huffington Post. His photo shows a man who seems affable. At least, he’s smiling. The edges of his mouth curl up, revealing the incipient insanity of the self-assured. He knows what he knows; too bad that what he knows isn’t so.

We smiled too when we read his explanation for how come the US lacks jobs. He blames “conservative economic ideology” that took hold under the Reagan administration.

What? Where has this fellow been? It was under the Reagan administration that the last trace of conservative economic ideology disappeared. Reagan supposedly proved that “deficits don’t matter” and that we can always “grow our way out of debt.” The Republicans became activists – trying to rearrange the world to suit their imperial ambitions…and pandering to the voters with lower taxes and unfunded giveaway programs. “No voter left behind” was practically their motto. What’s conservative about that?

American economic history according to Burnett:

Poor Burnett misses the point of the last 30 years of US economic history. He thinks middle class families declined because they were “abandoned,” as if they were pets in need of constant care and attention.

(What really happened, in less than 25 words, was that US society became debt-soaked and zombified…thanks to the joint efforts of Fate, History, Economic Cycles, the Fed, Economists and Both Political Parties. More…eventually…)

The man has no idea how an economy functions. This you can tell by reading his suggestions to the Obama administration. Everybody without a clue has recommendations. Burnett is no exception.

Second, there has to be a second stimulus package that not only supports America’s teachers and public safety workers but also strengthens the US infrastructure, in general. It’s not logical to propose that American businesses provide better jobs without also ensuring that our schools produce workers who can meet employers’ needs.

Third, the Federal government has to be involved in economic policy. The last thirty years has demonstrated that it’s insane to assume the free market will do this. What we’ve learned is that the market follows the path of least resistance and dictates economic policy solely based on greed. Creating wealth for a handful of CEOs isn’t consistent with the national interest. What are needed now are economic policies that produce decent jobs for average Americans.

The Federal government has to intervene and create the jobs that the greedy, shortsighted private sector hasn’t provided.

What a dimwit. Who does he think was making economic policy during the bubble years? What does he think the schools were doing? What does he think the regulators were up to?

Rob the rich to give to the poor? Hey, that should work!

He should run for Congress. Maybe he is running for Congress. It would prove another of our Daily Reckoning Dicta: Anyone who wants to be in Congress is not someone you’d want in Congress.

Regards,

Bill Bonner
for The Daily Reckoning Australia

Similar Posts:

• Take Away Stimulus Spending and You’ve Got an Economy Entering Depression
• Economy Has to Grow at 1% to Stay Even With Population Growth
• If Americans Do Not Return to Work, There Is No Recovery
• Geithner Says it Would Take a “Long Time” to Repair the Housing Market
• No Way Today’s Economy is Going Back to What it Was Pre-2007

More articles from The Daily Reckoning….

By Karl Denninger, The Market Ticker

This morning I wanted to puke up my coffee while listening to CNBS, which was going on about "policy mistakes" and the Jackson Hole symposium that is opening today.

In short, the premise they’re running (along with the rest of the media) is that we’re "trying" to have a recovery, and only a policy mistake by the Central Banks can destroy it.

This is a damned lie.

The policy mistake was already made, 10 and 20 years ago, and it was both governments and central banks that made it. 

The policy mistake was to allow leverage to masquerade as growth.

Let me explain.

If I have a dollar of actual production profit that didn’t exist before, I have a dollar of growth.  It’s organic and it’s real.

But if at the same time I produce a dollar of production growth, and then expand the leverage in the system that this dollar is put through from 10x to 30x, it appears that I have three dollars of growth.

That is a lie.  I have only one dollar of actual production growth. 

What I’ve done is abused leverage to falsely state that more growth occurred than in fact took place, trading that fake reported growth for reduced risk tolerance.

That is, if I have 10x leverage in the system and a dollar of growth I need to lose 10% before I am bankrupt – that is, before all of my capital is consumed by the loss.  But if I expand that leverage to 30x then I can only lose 3% before I go under.  I have traded 2/3rds of my safety margin for a false claim of "economic prosperity."

Central banks are supposed to prevent this from happening, as are banking regulators.  I remind readers that the Federal Reserve Act actually says:

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

"Moderate" rates are not zero, of course.  Neither are "moderate" rates 2.5%, which is where the 10 year is right now (and headed lower.)  Both of those are severely-depressed rates.

Worse, you can’t fix this with more "QE" or more "stimulus."  The policy mistake has to be reversed.  Then – and only then – once you have returned to a reasonable level of systemic leverage through the entire economy, does monetary policy become effective once more.

Everyone is looking for a free lunch, both government and private sector.  PIMpCO’s Bill Gross, Geithner, Obama, Bernanke.  None of them want to talk about the fact that the so-called "growth" being boasted about is a damned lie and most of it through the 2000s and a lot of it in the 1990s never happened at all!  That is, we didn’t have actual growth, we had leverage expansion, which works the same way as does "multiple expansion" in the stock market – and is equally-unsustainable.

When you boil it all down our so-called "prosperity" was mostly leverage expansion and the off-shoring of the costs – sure, I can make DVD players real cheap-like if I can belch the smoke from my factory into the air and pollute the hell out of the water.  Not doing that costs money, but so long as it’s not in our back yard, and we don’t see it, we deem it "ok".  Ditto for slave-labor style working conditions.

Mean-reversion is a bitch, as anyone who has lived through it knows.  It is also inevitable, and just like any pendulum effect, the further you push it before allowing the reversion to take place the worse and more-violent that contrary move is.  Put another way if I pick up a bowling ball and drop it on your foot from 3" up it’s going to hurt.  If I lift that same bowling ball over my head you’re going to the hospital for what is now a mashed foot.  And if I toss it off a 20-story building and it hits you on the head, we call that "splat".

The stored "snapback" energy of what we’ve done will be released.  We can choose to try to release it somewhat-slowly, but our policies thus far – a refusal to re-instate Glass-Steagall, a refusal to move down payments for homes back toward 20%, a refusal to put the former 14:1 leverage limits back on banks (which Henry Paulson was responsible for the removal of), a refusal to lock up any of the banksters involved in ripping off consumers along with state and local governments (despite some of those officials, particularly those in Jefferson County Alabama, having been convicted and sentenced) and a refusal to limit federal deficits to some reasonable level (e.g. 3% of GDP, as is the case in the EU) – all are evidence of our refusal to face reality. 

Instead we have chosen to hoist the bowling ball ever-higher, in the (false) belief that it won’t come crashing down on our heads – and that if we can just get it up high enough that we can’t see it any more, the energy it represents – and the damage – will have disappeared.

Reality is shockingly similar to physics – you can’t cheat it and you can’t bargain with it. 

You can only choose up to a certain point to accept it, and the earlier you decide to accept reality the less damage you have to endure.

It is time for Bernanke to admit the truth – and his role in creating this mess, along with promoting real, honest, and sustainable measures to bring our economy back into balance.

More articles from the Market Ticker….

The Daily Reckoning

We interrupt this update on Australia’s protracted electoral standoff with news that hangover from the global debt binge of the last 30 years just got a lot worse. Bad headaches. Indigestion. A rumbling from below.

Our story begins today in Ireland. Ratings agency Standard and Poor’s has lowered its long-term sovereign credit rating on the Emerald Isle to AA- from AA. S&P said, “The downgrade reflects our opinion that the rising budgetary cost of supporting the Irish financial sector will further weaken the government’s fiscal flexibility over the medium term.”

To be sure, to be sure, you get the feeling S&P could be saying that about a lot of governments in the next few years. Financial sectors in the Western world are still burdened with high levels of debts backed by commercial and residential real estate. To prevent those firms from failing, governments have assumed or backed their debts.

But that transfers the ultimate liability for failed private sector investment to the public sector. And the question then becomes: how much debt can the government guarantee before government debt itself comes into doubt? In Ireland, net government debt is headed toward 113% of GDP by the end of 2012. That’s too high, according to the S&P.

Stocks in Europe reacted as you’d expect. Most of the big indexes were down over one percent. And then came the very unwelcome news that the collateral underlying so many bank assets is under massive attack. Well, that’s how we’d put it. Technically, it was U.S. existing home sales. And officially, they were awful.

The U.S. National Association of Realtors reported yesterday that existing home sales in July were down 27% versus June and 26% from the same month last year. That’s about twice as bad as “the experts” had predicted and the lowest annual rate since the NAR began keeping track of such day.

The fact that there is now enough existing home inventory to meet demand (at this pace) for the next 12.5 months may not seem like it has any significance at all to Australia or Australians. But it does. To be sure, to be sure, one aspect of the U.S. housing bubble was a massive inventory expansion by homebuilders to meet the bogus “demand” created by cheap credit.

That inventory expansion never happened here in Australia. Hence the constant repetition of the idea that there’s a housing “shortage.” Blah blah blah. This is one of the facts cited by the bulls that apparently proves a crash cannot happen here.

But what yesterday’s U.S. numbers really reveal is that not even low interest rates can spur demand for credit when an asset class is in a bear market. The U.S. managed to “bring forward” housing finance demand with a tax credit for first time buyers that expired in April. That goosed demand for a bit.

It’s gone now, though. And what’s left is a market where the only buyers for houses are speculators. All these easy money tricks have exhausted any potential demand that might be out there. No, the prudent thing to do is wait for prices to do what they always do when demand flat lines: crash.

This is the possibility that spooked equity markets yesterday: that America isn’t growing in the second half of this year at all. In fact, the housing numbers indicate that the American household sector is in a world of hurt and could see more of its net worth wiped out.

Unless Australian share markets start tracking China and stop tracking America, this U.S. housing wipe-out part II is going to be a big fat negative for shares. And more importantly, investors are now realising that the huge household and sovereign debt problems in the West are nearly impossible to simply grow out of.

What are we looking for on the ASX/200? Keep 4,180 in mind. That is about the year-to-date intra-day low for the index. It reached those levels once in June and once in July. If the index breaches them in the next month, look out below.

But wait! What if all that is doomer porn and balderdash? Last night we ventured out to Flinders Lane to hear an alternative and intriguing presentation on what’s moving the markets and where they’re headed. During that presentation we were warned to keep our eye on one specific day: September 7th. Tomorrow, we’ll tell you why. Until then!

Dan Denning
for The Daily Reckoning Australia

Similar Posts:

• General Motors: A Forerunner for What’s to Come for the Broader Economy
• Reserve Bank of Australia Will Meet to Determine the Price of Money
• American House Prices Continue to Fall While the Same Can’t Be Said About Australian House Prices
• Inventory of Unsold Houses Will Probably Continue to Hold Prices Down
• Geithner Says it Would Take a “Long Time” to Repair the Housing Market

More articles from The Daily Reckoning….

By Chris Carey, Bailout Sleuth

House Majority Leader John Boehner (R-Ohio) urged Treasury Secretary Timothy Geithner to resign during a speech Tuesday in Cleveland.

The administration, unsurprisingly, indicated that it’s not inclined to follow his advice on personnel.

“The American people are asking ‘where are the jobs’ and all the president’s economic team has to offer are promises of ‘green shoots’ that never seem to grow,” Boehner said, in prepared remarks that were posted on his website. “The worse things get, the more they circle the wagons and defend the indefensible.”

Boehner spoke at the City Club of Cleveland, which has hosted many presidents and other political leaders over the years.

“President Obama should ask for – and accept – the resignations of the remaining members of his economic team, starting with Secretary Geithner and Larry Summers, the head of the National Economic Council,” Boehner said.

In addition to calling for the resignations, Boehner also reiterated many conservative talking points, reiterating his desire for the extension of Bush-era tax cuts and reduced government spending.

The crux of Boehner’s speech centered around small businesses, and the Ohio congressman argued that uncertainty about the economy has prevented them from being able to hire more workers.

“It’s time to put grown-ups in charge,” Boehner said. “It’s time for people willing to accept responsibility. It’s time to do what we say we’re going to do.”

Following Boehner’s speech, Rep. Connie Mack (R-Fla.) called for Geithner’s resignation as well. He first pushed for the Treasury Secretary to resign in March 2009.

Mack cited Geithner’s role in the bailout of American International Group Inc. and “his mishandling of the economic recovery” as reasons for his to step down.

Shortly after Boehner’s speech, Vice President Joe Biden sarcastically dismissed Boehner’s comments. “Very constructive advice — thanks,” Biden said, according to prepared remarks.

He accused Boehner and other Republican leaders of being responsible for the economic slump, and argued that they are responsible for allowing the economy to slide under eight years of President George W. Bush’s leadership.

“Mr. Boehner is nostalgic for those good old days…the American people are not,” Biden said. “They don’t want to go back. They want to move forward.”

More articles from the Bailout Sleuth….

Who is Talking About What Matters

Aren’t job losses and foreclosures as important as a “Ground Zero Mosque” (that isn’t a mosque, hasn’t been built or isn’t even at ground zero?)

We know we live in hard times that are on the verge of getting harder with 500,000 new claims for unemployment last week, a recent record.

The stock market may be over for now as fear and panic drives small investors out. Big corporations hoard stashes of cash rather then hire workers. The D-Word (depression) is back in play.

Foreclosures are up, and the administration’s programs to stop them are down, well below their stated goals, only helping 1/6th of those promised assistance.

And here’s a statistic for you: 300,000. That’s the number of foreclosure filings every month for the past 17 months. This year, 1.9 million homes will be lost, down from 2 million last year. Is that progress? In July alone, 92, 858 homes were repossessed.

At the same time, the number of canceled mortgage modifications exceeded the number of successful ones. According to Ml-implode.com, last month, “the number of trial modification cancellations surged to 616,839, greatly outnumbering the 421,804 active permanent modifications.”

And don’t think this is only a problem that affects the homeowners about to go homeless. The New York Times quotes Michael Feder, the chief executive of the real estate data firm Radar Logic to the effect that we are all at risk.

“My concern is that if we have another protracted housing dip, it’s going to bring the economy down,” Mr. Feder said. “If consumers don’t think their houses are worth what they were six months ago, they’re not going to go out and spend money. I’m concerned this problem isn’t being addressed.”

The larger point is that even if you believe the economy is already down, it can go lower. No one knows how to “fix it” either just as BP couldn’t plug the “leak” that, truth be told, is still oozing oil.

So what are we doing about it? Are we demanding debt relief or a moratorium on foreclosures? Are we shutting down the foreclosure factories?

Nope.

Progressives are spending time and wasting passion this August debating on an Islamic Cultural Center near Ground Zero, invariably responding to the provocations and agenda of adversaries. They are always on the defense, never taking the offense.

Who is beating the drum for job creation and a new economic policy? Maybe the unions, but their voice is muted and ignored in the electronic noise machine. Marches are planned by the UAW and Rev. Jesse Jackson on August 28th in Detroit and in Washington on 10.02.10. But the expected war of the words between Rev. Al Sharpton and Glenn Beck over the legacy of the March on Washington is expected to generate more heat.

Meanwhile, even as the administration seems to be finding signs of a “recovery,” a parade of failures march on from the discovery that there is an oil slick the size of Manhattan in the Gulf to the persistence of frauds in finance from state pension funds in New Jersey to the case against the head of the Bank of America.

Even worse, Shorebank, one of the banks that community activists considered a national model of social responsibility has gone down in Chicago, the 104th bank to fail this year with fifteen branches including some in Detroit and Cleveland. It was also active in 40 countries. In June, it reported over $2 billion in deposits. By August, it was gone.

In all, 349 US banks have disappeared since 2007.

ShoreBank promoted itself as a community development and environmental bank. It was based in Michelle Obama’s old neighborhood with the slogan “Lets Change The World.” Now the world of Wall Street has changed the bank with a partnership of investors including American Express, Bank of America and Goldman Sachs taking over under the name “United Partnership.”

Hundreds of other banks are on the FDIC hit parade and may be next.

There were many worse casualties in banking in the past according to Barry James Dyke’s informative book, Pirates of Manhattan. He notes that ten thousand banks failed during the depression and 2,900 bit the dust in the S&L crisis. The current number may have been higher had Congress not bailed out the Banksters who used some of our money to play PacMan, gobbling up smaller institutions.

AP reported, “ShoreBank lost $39.5 million in the second quarter amid soured real estate loans. The bank had been under a so-called cease and desist order from the FDIC for more than a year, requiring it to boost its capital reserves. ShoreBank was able to raise more than $146 million in capital this spring from several big Wall Street institutions. It was unable, however, to secure federal bailout funds it sought from the Treasury Department’s Troubled Asset Relief Program.”

Republicans are “investigating” alleged administration support for the Bank.

AP explained, “Rep. Darrell Issa of California, the senior Republican on the House Oversight and Government Reform Committee, sent a letter to a White House legal adviser asking specific questions on possible contacts between administration officials and executives of ShoreBank or potential investors.

The White House has said no administration officials met with ShoreBank concerning its rescue or requested help from financial institutions on its behalf.”

Questions raised by Republicans, of course, seek to politicize the issue when it is the FDIC ‘s deal with the big banks that needs to be probed, as Zero Hedge explains:

“As it stands, Goldman and 11 other banks are receiving a multimillion dollar gift to conduct a portfolio liquidation run-off of ShoreBank’s assets, while merely making sure existing deposits are serviced.”

(Note: the FDIC is led by a Republican.)

Blogger Mike, “Mish” Shedlock concludes: “The FDIC’s handling of Shore Bank smells as bad as a pile of dead alewives on a Chicago beach in mid-July.”

My question is: Why didn’t the administration help shore up ShoreBank (if it could be shored up) as they did so many of the “too big to fail” banks?

Their hands-off attitude, perhaps in fear of being criticized, as they were anyway, helped doom the bank and, by extension, the idea that we could have socially responsible lending institutions.

So much for the priorities and power of Obama’s “Chicago Mafia.”

If they don’t have the guts to save a bank in their own hometown they know has meant so much to so many, is it any wonder they won’t take on the crimes on Wall Street?

Last week, Treasury Secretary Tim Geithner was complaining that he is being falsely identified as a “Goldman Guy,” insisting he never worked for the financial institution that was recently branded a “Giant Squid On The Face Of Humanity.”

He doesn’t seem to realize that the speculation is not based on the details of his resume but on an assessment of his track record with the pals he worked with when he ran the Federal Reserve Bank in New York.

And by the way, Tim, why the hold-up on the appointment of Elizabeth Warren to run the new Consumer Financial Protection Bureau in your old institution? Is she too smart and popular for you?

Why the fiddling while our modern Rome burns?

News Dissector Danny Schechter directed Plunder The Crime of Our Time, a DVD and a companion book, The Crime Of Our Time on the financial crisis as a crime story. Comments to: dissector@mediachannel.org

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The Daily Reckoning

As Wall Street’s big money players return from the Hamptons in the coming weeks, they will have to reassess the earnings power of their portfolio companies. Last week, Staples confirmed the message we heard from Office Depot and Office Max: the small business sector as a whole isn’t very healthy. Disappointing earnings from Dell dampen the mood even further.

The recent economic data adds to the case that the economy is slowing rapidly. It turns out that Obama stimulus plans didn’t stimulate much of anything except the budget deficit.

Yet despite all we’ve been through, most policymakers and commentators remain confused and frustrated because they’ve misdiagnosed the root causes of the financial crisis. The seeds of today’s economy were sown in the credit bubble of 2000s, which, thanks to government policies and central banks, grew far bigger than it ever could have grown if a free market truly existed.

We’ll hear a lot more from policymakers about how the economy is approaching “stall speed,” implying that it needs another shot of stimulus fuel. They haven’t taken the time to consider how the original stimulus plan might have undermined the economy’s foundational strength. The economy is not a machine to be tinkered with, but a complex, uncontrollable entity that seeks to allocate capital to its most needed uses.

The endless stream of Washington’s tone-deaf policies makes it almost impossible to plan. Growing regulatory burdens for small businesses is a huge problem for the labor market. I’ve heard from a half dozen sources in the past few weeks about soaring premiums as health insurance plans come up for renewal. Thanks to the mandates in the newly signed healthcare law, premiums will keep rising. The law had the effect of increasing the cost of hiring new employees, so we shouldn’t be surprised that layoffs still exceeding new hiring – even this far into “the recovery.”

As much as I’d prefer a return to smaller government – for the sake of our economy’s long-run health and competitiveness – here’s what I expect to happen: further weakness in GDP, employment, and the stock market will reduce the political momentum behind fiscal responsibility, and sometime in 2011, we’ll have another stimulus plan. Maybe it’ll come in the form of extension of the Bush tax cuts, with a political compromise resulting in rebate checks or payroll tax holidays for working class voters who aren’t paying much, if any tax as it is.

Perhaps, as a flanking maneuver in its war on deflation, the Fed will finance these checks with the printing press. Further quantitative easing in the bond markets to suppress the long end of the yield curve is nothing but a giveaway to the big banks’ trading desks and a subsidy for government borrowing costs. So the Fed is probably thinking about ways to more effectively get newly printed money into the hands of consumers. But the Fed needs to be very careful about such novel, creative ways to steal from savers. It could spark a crash in confidence in the US dollar. It’s a giant game of chicken, and it’s dangerous.

But I doubt there will be much political support for these tactics until conditions in risk assets – stocks, corporate bonds, and housing prices – get much worse. I doubt that the average voter realizes what the economy would look like without the federal deficit running continuously at 10% of GDP, like it will this year. On the other hand, a slashed deficit would be extremely painful for every single household and business – even those that have behaved responsibly – because it would translate into less business sales, less desire to hire, and lower household income.

This is why you shouldn’t get the economy addicted to harebrained schemes cooked up by economics professors in the first place. The professors espousing Keynesian stimulus are like street corner drug dealers, and they have the economy hooked to their product: stimulus injections.

As a result, the economy is still unable to produce legitimate economic growth or sustainable job creation. US stocks remain a very risky asset.

Dan Amoss,
for The Daily Reckoning Australia

Similar Posts:

• The “Road to Serfdom”
• Geithner and His Toxic Asset Bailout Plan
• Transfer of Wealth
• Obama Plans to Raise Taxes on the Rich and Businesses
• Dr. Woody Bock’s Essay: The Future Evolution of the Debt-to-GDP Ratio

More articles from The Daily Reckoning….

I recall a conversation with a refugee from Vietnam several years ago. It was that period when many “boat people” sought refuge in the United States. I was a social service provider charged with services delivery to this group of Indochinese refugees.

The gentleman speaking to me said, “Anderson, (many Southeast Asian cultures refer to one another using the last name first) you Americans put business on top of your culture and education fourth or fifth. In Vietnam, teachers are first and businessmen are fourth or fifth.”

Having thought long about this, I’ve come to a conclusion. Giving the reins of this nation’s economy to the likes of Geithner and Bernanke is tantamount to giving the nation’s highway system over exclusively to Ferrari, Lamborghini and Bentley owners. First, there are very few of them. Secondly Porsche and Jaguar owners need not apply. And the people piloting these vehicles are not race car drivers either. There is no Formula One or even NASCAR skill here. No proven racetrack test drivers to methodically test and solve problems along the way. The plasmasphere here is relatively “dense” and culturally speaking, pretty low-energy. These are just a bunch of yahoos with accelerator feet and the most expensive gear, driving our freeways with no true skill and no sense of a collective purpose.

This is the mentality that I contend now abounds the business community. In the process, their 180 mph escapades have made no allowance for all those delivery trucks that need to be on the roads. Extending the metaphor, while Wal-Mart is positioned to pay reduced tolls, the Republican mantra sounds something like, tighten the belts, up gas prices and keep the riff-raff off the roads through austerity measures and deficit reduction. Austerity measures and deficit reduction is right-wing business analyst code for “having the poor pay for the messes that the rich have made.” Meanwhile, the Bentley guys are conducting a “promenade” on Washington’s “Beltway” system while the Ferrari “dudes” are holding a “rally” on the Los Angeles Freeways.

Tim Geithner and his Dartmouth College buddy Daniel Zelikow, while breaking no laws, in sharing gratis living space have created (or rather re-created) the perception that there are significant differences between foreclosure for me and “rent-free” for Timothy. I don’t understand! Does Timothy Geithner need the kind largesse of a friend who’s provided him living space for free? Did he not give himself a bonus? Did he not receive the memo about foreclosures for the “little people?”

Frankly, to turn a society over to business interests in any economic distribution system is folly to the nth degree. There are too many inducements to personal gain focused decision making versus the greater good associated with collectivity. Mr. Obama’s decision-making in this regard has been beyond questionable to those who sought change, much less change we can believe in. The change required in America today de-limits this very imbalance in corporate access.

But Americans have been sold a bill of goods for more than two hundred years. For example, the War of 1812, the between great conflicts war, has been described as everything from a maritime disagreement to the annexation of Canada. What is seldom mentioned is the European banking community’s interest in taking charge of American currency. It goes against Hoyle to suggest that European business interests “called a threatened war” on the United States finally fulfilling their promise with the establishment of the Federal Reserve System, the “Fed,” in 1913. As we know, “the Fed” is not a federal agency but rather a privately held entity. If I’ve gotten the unwritten history wrong here, someone will certainly write and correct me.

But there has been a tethered relationship between business, and especially large business, and the policies of the American government for some time now. So much so that when one suggests that this relationship is both unhealthy and “unholy” the faithful scream “off with their heads.” But I offer that any economic system that leans solely on the one legged pillar of business, is riding for a fall. I’m reminded of a statement related to me by Steven Gary Nystrom, one time Associated Student Body President at San Diego State University. Known as “B.J.” Mr. Nystrom said to me, “One day, the San Diego State football team will have a student body that it can be proud of.” Will the same be true for Bear Stearns someday?

It is clear that when especially large business concerns become involved in the workings of any government, the tail soon wags the dog. This is problematic because over time, what may have been the organic meshing of ideas and objectives morphs into an adversary relationship between business and the government that it ostensibly serves. This is what has come to pass over the last thirty years (and longer) in the United States with the American worker being caught in the cross hairs of both groups.

Suffice it to say that I do not endorse America’s and American media’s tacit endorsement of “anything business.” It is the death knell of civilization and civility. And the coming generations will pay for our adherence to the propaganda offered by the two hundred year old plus entrenched elite. We’ve created a headless life form that feeds on its own organs. It is heartless as well, deferring to the language of “bottom lines” and “best case scenarios” while as efficiently as allowed, goes about the work of destroying the fabric of the noble American experiment.

I’ll debate one-on-one or as a group, any Supreme Court Justice who believes the Founding Fathers were preserving the conditions that saw eight people shot, of which four died, in an upstate New York dining fiasco. The Founding Fathers made their reputations in being discussant about varying ideas. The purposeful stagnation of government, which allows the status quo to role on unaltered, is guaranteed by the monied interests that can stop the progress of government with a simple ad campaign.

So the next time you hear someone spouting on about his “Freedom,” ask him if he is “free” to do anything that is not sanctioned by the existing order? He will most likely not understand the question, but its locus still remains. Business runs government. And business can never be expected to oversee and control its inclinations. After all, a snake is a snake. One never expects a snake to be a philanthropist.

When my dog takes after a rabbit, it is not the reason derived from his “invisible paw” that holds him back from running into traffic. It is my external and booming voice that stops him. Robert Rice said it well. “Crime is the logical extension of the sort of behaviour that is often considered perfectly respectable in legitimate business.” And the Old Russian saying, “Man exploits man. Under Communism, it’s just the opposite,” addresses that flutter that beseeches all national flags.

And those Ferraris and Bentleys don’t even have working brakes most of the time!

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