Thursday, October 14, 2010

Today's Best Reads

1--The Coming Collapse of the Real Estate Market, Charles Hugh Smith, of two minds

Excerpt: The banks which depend on revenues collected from mortgage servicing are facing the possibility that millions of distressed mortgages will enter legal limbo and not be paid; additionally, millions of underwater homeowners realize they can stop paying their mortgages with no near-term consequence because the foreclosure system is frozen.

The mortgages which the banks are holding on their books as income-producing assets at full face value are in effect either worthless or depreciated to some significant but unknown degree. If this fact were reflected in their balance sheets, all the big banks would all be insolvent.

2--Foreclosures Hit Record In September, More Than 100K Homes Seized, Huffington Post

Excerpt: Foreclosures hit a record monthly total of 102,134 in September, a three percent rise over the previous month.

Lenders seized more U.S. homes this summer than in any three-month stretch since the housing market began to bust in 2006. But many of the foreclosures may be challenged in court later because of allegations that banks evicted people without reading the documents.

3--Trade Deficit increases sharply in August, Calculated Risk

Excerpt: Total August exports of $153.9 billion and imports of $200.2 billion resulted in a goods and services deficit of $46.3 billion, up from $42.6 billion in July, revised.

The increase in the deficit in August was due to both oil and China, although the bulk of the increase was because of trade with China. The trade deficit with China increased to $28.0 billion in August from $25.9 billion in July (NSA).

The imbalances have returned ...


4--Rich Guy Feeling Left Out Of Recession, The Onion

Excerpt: According to the multimillionaire, the past 18 months have been incredibly difficult to endure, as he is often left feeling excluded from an American populace that includes millions who struggle every day to make ends meet. Chandler, who watched helplessly as his enormous fortune easily withstood the market freefall, has been "completely left out" of one of this nation's most significant cultural moments.

"Everybody's suffering," Chandler said. "And here I am, not scrimping and saving at all, with no demoralizing periods of financial hardship, or frantic weeks living paycheck to paycheck. What about me, you know? Where's my struggle?"

"Everyone's supposed to get a fair shake at this misery," Chandler added. "Even incredibly wealthy people of privilege like me."

Throughout the economic downturn, Chandler has tried to tap into the recession and experience some of the sorrow and widespread desperation he has so cruelly been denied. Sadly, all of his attempts have been thwarted by his seemingly insurmountable stack of riches.

5--Time for criminal charges to be filed, Barry Ritholtz, The Big Picture

Excerpt: The latest twist on the criminality / foreclosure fraud: The hiring of untrained, incompetent burger flippers to act as lawyers or paralegals in the processing of foreclosures:
“At JPMorgan Chase & Company, they were derided as “Burger King kids” — walk-in hires who were so inexperienced they barely knew what a mortgage was.

At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage.

This is a degree of reckless previously unseen in American jurisprudence....Corporations that get free speech rights also have liability for their own criminal actions. Its way past time we start forcing those responsibilities to have some meaning.

6--Black: Paulson “Waited” to Allow Goldman Subprime Holdings Unwind Before Crash, The Big Picture

Excerpt: You may have missed this hard hitting McClatchy article over the weekend. It essentially accuses then Treasury Secretary (and former Goldman Sachs CEO) Hank Paulson of “willful inaction in late 2006 and 2007 during a period when lending criteria were disintegrating in favor of so-called “liars’ loans,” for which applicants weren’t required to document their income.”

The reason? To give Goldman Sachs a chance to exit their soon to be crumbling sub-prime loan portfolio. (See video) They also got short subprime derivatives. GS became the only major Wall Street firm to safely exit the housing market before it crashed. McClatchy had previously reported that Goldman Sachs failed to report dumping their subprime positions to the SEC for 9 months, while making public statements to the inapposite to that.

These accusations come from William Black, the former senior thrift regulator, now law professor. Black states that Paulson “knew that if he acted the way he should, that would have burst the bubble. Then Goldman Sachs would have been left with a very substantial loss, and that would have been the end of bonuses at Goldman Sachs.”

7--Why is the Fed doing this?, Econbrowser

Excerpt: The ability of the Federal Reserve to influence what happens in the economy is fundamentally limited. The ultimate power of the Federal Reserve is the ability to create money, and how much money the Fed creates is a key determinant of the purchasing power of an individual dollar bill. A very minimalist position on what the Fed should be doing is that it should aim for a rate of inflation that does not disrupt the economy's ability to use real resources in the most efficient manner possible.

For people struggling under debt burdens, deflation makes repaying the loan more difficult and less likely to happen. If that leads to a wave of bankruptcies, everyone, including creditors, can end up losing out. Debt burdens and delinquencies remain a significant problem holding back the economic recovery today. These problems would magnify enormously if a serious deflation were to get underway.

I'm personally persuaded that the 25% drop in the overall price level in the U.S. between 1929 and 1933 was one factor contributing to the depth and severity of the Great Depression. Our recovery began pretty dramatically when the U.S. reflated by dropping parity of the dollar with gold in 1933. Other countries had a similar experience-- things began to improve only after prices began rising.

8--Who caused the currency wars?, Simon Johnson, Project Syndicate

Excerpt: Leading Bush administration officials used to talk of the US current-account deficit being a “gift” to the outside world. But, honestly, the US has been overconsuming – living far beyond its means – for the past decade. The idea that tax cuts would lead to productivity gains and would pay for themselves (and fix the budget) has proved entirely illusory. ...

The banks and other financial players have every incentive to load up on risk as we head into the cycle; they get the upside (Wall Street compensation this year is set to break records again) and the downside goes to taxpayers.

The “currency wars” themselves are merely a skirmish. The big problem is that the core of the world’s financial system has become unstable, and reckless risk-taking will once again lead to great collateral damage.

9--Pipeline Geopolitics. Betting and Bluffing in the New Great Game, Pepe Escobar, Global Research

Excerpt: Future historians may well agree that the 21st century Silk Road first opened for business on December 14, 2009. That was the day a crucial stretch of pipeline officially went into operation, linking the fabulously energy-rich state of Turkmenistan (via Kazakhstan and Uzbekistan) to Xinjiang province in China's far west. Hyperbole did not deter the spectacularly named Gurbanguly Berdymukhamedov, Turkmenistan's president, from bragging: "This project has not only commercial or economic value. It is also political. China, through its wise and farsighted policy, has become one of the key guarantors of global security." (The Great Game redux)

1 comment:

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