Global financial system implosion begins

[two sheds]

Who is offering zero interest rates?

Who is printing this money? Are you saying that govts are augmenting their revenue by adding in extra money that they've printed?

So the federal balance sheet will show:

Tax revenue: 1 trillion

Money we printed last week: 1 trillion

Total govt revenue: 2 trillion

This might be exactly what they're doing: do you have any proof?

Try this: http://en.wikipedia.org/wiki/Quantitative_easing it's what your economists used to call 'printing money'. Mind you - like the rest of this thread it's got facts and figures in there so you probably won't want to bother

Well, yes. Which makes your first post in this thread all the more bizarre.

It didn't happen ymu: no banks went bankrupt, they didn't stop lending people (our) money, nobody went into recession, economy was all healthy.

 

[david dissadent]

$10 trillion dollars (all counted internationaly) to keep the worlds financial institutions from collapsing and maintaining a semblence of order, huge cuts expected in many countries as local and national governments find gaping holes in their accounts. Almost every significant industry over capacity and the baby boomers start retiring in a year. This is not the end of this catastrophy. It is not even the begining of the end. Mearly the end of the begining.

On the hint of a recovery oil hits $72 a barrel. OPEC never had enough discipline to shutter in that kind of volume (other than briefly during the Yom Kippur War when it took over form the West Texas Railroad Comission as the daddy of the global borstal), look at the price and production figures in the early 80s then the 90s. Hell there has been over 500 000 barrels a day of specialist heavy and sour crude refinaries come online since mid last year so we have killed the refinary bottle neck (the Saudi and Iranian heavy sour that was being claimed as excess capacity can now be refined in India and Saudi) and still the oil price is damned damned high.

The structural imbalances of trade have not gone anywhere. The need of the Chinese to sterilize the Renminbi by buying treasuries and helicopter bens buying back of all his own debt help to keep the dollar afloat buy by eck lad, wont last for ever.

Just how hard does the global economy have to tank that the velocity of money slows sufficiently that $10 trillion can be injected in and our biggest problem is still deflation? Now either the velocity remains slow and GDP is going nowhere in a hurry or the velocity will increase and that $10 trillion is going too feel like a furnace of inflation.

Inflationists buy gold, deflationists hold cash. Pollyanna's, stick to the cocaine.

The core structural problems are not one year problems. They are generational in their scope.

 

[gosub]

interesting blog on FT

not on the same wave length though, UK for example is still big importer, you don't need growth to have inflation worries just a collapasing currency (though capital flight towards other countries might do it) and you have to shore up with higher interest rates...

 

[Johnny Canuck3]

Try this: http://en.wikipedia.org/wiki/Quantitative_easing it's what your economists used to call 'printing money'. Mind you - like the rest of this thread it's got facts and figures in there so you probably won't want to bother .

I stand corrected. It appears that a modest program of this quantitative easing was put into play, but the plans to vastly expand it, were shelved. There appear to be some differences between the US and the UK.

BACK IN 2002, before he became chairman of the Federal Reserve, Ben Bernanke claimed that if short-term interest rates fell to zero, a central bank still had the ultimate weapon: printing money by purchasing government bonds. Having now actually tried quantitative easing himself, Mr Bernanke is discovering its limits.

In March the Fed announced plans to purchase $300 billion of Treasury debt by September with newly printed money (to be more precise, electronic money in the form of bank reserves) and to more than double planned purchases of mortgage-related debt to $1.45 trillion. The $300 billion in Treasury purchases, in particular, were widely assumed to be the start of a much more substantive plan. Yet the Fed’s latest policy meeting wrapped up on August 12th without any plans to expand either scheme, although it did move the completion date for Treasury purchases back to the end of October and kept the option of boosting purchases later. It left its short-term interest-rate target at zero to 0.25%. Such inaction contrasts with the Bank of England’s decision on August 6th to expand its programme of asset purchases, mainly of government bonds, from £125 billion ($206 billion) to £175 billion.


........

...why is the Fed not expanding them? The outlook has improved, for one thing: America’s economy is levelling out, it noted on August 12th. But the main reason is political, not economic. The Fed’s Treasury-purchase plan prompted charges that it was inviting hyperinflation and had subordinated itself to the government’s deficit needs. Alan Greenspan, a former Fed chairman, says inflation will exceed 10% if the Fed fails to shrink its balance-sheet and raise rates, and 3% for a time even if it does.

Needless to say, that is not the Fed’s view: it still foresees rising unemployment and falling inflation. But many officials have concluded that, for now, the benefits of buying more Treasuries do not outweigh the costs of a damaging rise in inflation expectations and a perceived loss of independence. Even the ultimate weapon is useless if you are too nervous to use it.

http://www.economist.com/displaystory.cfm?story_id=14214898

 

[goebfwai]

Radical capitalist proposes direct action at Canary Wharf
by Paul Mason, BBC Newsnight
http://www.bbc.co.uk/blogs/newsnight/paulmason/2009/08/radical_capitalist_proposes_di.html

Mark D'Arcy and guests Vince Cable, Gillian Tett and Paul Mason look at books analysing the credit crunch and the effects of the global financial crisis.
http://www.bbc.co.uk/iplayer/episode/b00lsz8k/BOOKtalk_The_Credit_Crunch/

 

[yield]

reuters.
Fri Aug 28, 2009

China Investment Corp is investing as much overseas each month this year as it did in all of 2008, Lou Jiwei, the chairman of the $298 billion sovereign wealth fund, said on Saturday.

...

Lou said 2009 was shaping up better.

"It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose," he said.

 

[hipipol]

Well there you go, sense all round eh?

As the problem is global there may be sense in this Chinese plan - they are looking at relative value, bring on the Alpha!!!!

 

[yield]

As the problem is global there may be sense in this Chinese plan - they are looking at relative value, bring on the Alpha!!!!

You're on the inside hipipol so maybe you're right.

"So we can't lose" seems like hubris to me. We'll see.

 

[newharper]

Just a "heads up"/spew on "labor day", the magnificent Juan Cole whose speciality is the ME; has gone off on a terrific rant about the the state of the US today.

He warms up with

Labor Day was passed by Congress under Grover Cleveland to celebrate not only the individual American laborer but the labor movement-- yes, unions, workers' parades, hard hats and blue jeans

Moves on to,

Now Americans have convinced themselves that we don't have a working class. Everybody is middle class, even those who make minimum wage in the fast food industry, or those who are kept as part-timers so that the store (I'm looking at you, Walmart) doesn't have to enroll them in a health care program. The closest we get to celebrating the workers who built this country is when we talk about "working families," an odd locution, since aside from the idle rich who defrauded the country into bankruptcy last fall, wouldn't that be everyone? While we have lots of workers, we no longer have an effective labor movement, because Ronald Reagan by example essentially overturned the mid-20th century traditions that had made it unseemly for employers to fire striking workers and hire scab labor. Even the anti-worker Taft Hartley law of 1947 prohibited companies from firing workers for their union activities. But the penalties for illegal union-busting are so light that companies frequently fire employees who so much as suggest organizing a union.

I've skipped a telling graph to quote,

Reagan-Cheney between 1980 and 2008 created a new American aristocracy, a small sliver of super-rich, who buy and sell legislators, create whole "news networks" to present far rightwing fantasies as "news," have their lackeys invade and occupy whole countries, hold themselves above the law, falsify financial statements, and suffer little or no punishment for stealing billions from the pensions of "working families" (i.e. those of us about whom P.T. Barnum remarked, "one is born every minute".) The Republican Party has come to represent these super-rich. Since .1% of the population couldn't actually win elections, they ally with other groups in society.

massive skip

I cannot entirely explain why the American super-rich are so much more heartless and stupid than their counterparts in Europe. In fact, they behave politically much more like Afghan and Pakistani big landlords, who pay their peasants a dollar a day and call in the army to put down any organized protests. In part, they have been offered an irresistible temptation by the destruction of organized labor; French workers wouldn't put up with a tenth of the insults visited upon us by our overlords.

If you love a rant by a well informed insider you can do far worse.

http://www.juancole.com/

 

[ymu]

I've skipped a telling graph

Telling indeed. Here it is (and thanks for the link!)

 

[newharper]

(and thanks for the link!

Just emailed him on why I could explain to him why;

I cannot entirely explain why the American super-rich are so much more heartless and stupid than their counterparts in Europe.

had something to do with the blood of tyrants IIRC.

 

[david dissadent]

Another look at what has been posted above.

http://www.marketoracle.co.uk/Article13420.html

A decade of no gain in income, inspite of the huge housing bubble. This was also a decade of enormous economic expansion.

One can assume the contraction will be painfull. Its the same story over and over and over again.

 

[two sheds]

Another look at what has been posted above.

http://www.marketoracle.co.uk/Article13420.html

A decade of no gain in income, inspite of the huge housing bubble. This was also a decade of enormous economic expansion.

One can assume the contraction will be painfull. Its the same story over and over and over again.

Ta - interesting website and interesting figures - anyone know if there similar figures for the UK? I like it giving median rather than mean/average, is the right statistic to compare on.

 

[david dissadent]

The question that is bothering me is the Option ARMS; they were a bomb waiting to go off, but in the meantime banks have been writting of expected losses and renegotiating some mortgages.

Is the option arm time bomb still primed or has it been priced into the write downs already? I dont see why they would not have taken advantage of the blood letting to get the write downs in, unless they were holding out in some kind of game fearing that the write down would have been too huge.

If anyone sees anything on this please post. I am very interested.


Editing because I have found a bit of an answer

The housing market faces the prospect of a new round of foreclosures as hundreds of thousands of risky home loans known as option adjustable-rate mortgages reset to significantly higher payments that could force borrowers to fall behind, according to a report released Tuesday by Fitch Ratings.

About 70 percent of the $189 billion in outstanding option ARMs will reset by 2011, the report said, which would be another setback to a teetering housing market still struggling to recover from the mortgage meltdown that precipitated the financial crisis.

Option ARMs make up only 1.3 percent of percent of outstanding mortgages and were used by a far smaller segment of the population than subprime mortgages, according to First American CoreLogic, so the fallout from the resets should not be as devastating. But the unraveling of the option ARMs could be felt for years

WaPo

Looks like losses ahead. Though they should not be anywhere near as devistating as they are cushioned by vast sums of tax payer money. They also are a much smaller part of the population, but I think they will go bad in huge numbers. Many were just ways of getting into a house to sell quickly before the market froze and others were for skilled professionals with variable or seasonal income. They will likely have been heavily affected by the recession and so be pretty underwater on thier property.

Time will tell.


More

The performance of option adjustable-rate mortgages is likely to get worse, as payments on $134 billion of these loans recast over the next two years, according to Fitch Ratings.

Option ARMs allow borrowers to make a minimum payment that may not be large enough to cover even the interest due. Monthly payments are expected to increase when the loans recast, although lower interest rates have blunted the pain. Loans typically recast after five years or when the outstanding balance reaches a preset amount.

Many borrowers with option ARMs are underwater and are falling behind even before payments jump. Forty-six percent of option ARMs are now at least 30 days past due, even though just 12% have recast, according to Fitch, which examined loans packaged into securities. Option ARM borrowers owe on average 126% of their home's value, Fitch said.

Roughly $10.5 billion of the $15 billion in securitized option ARMs that recast in 2008 are delinquent or in foreclosure or have defaulted, it said.

Link to WSJ

 

[goebfwai]

Revealed: The ghost fleet of the recession

Simon Parry
Daily Mail
The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Comprised of ships laid dormant by the recession, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination.

Read more: http://www.dailymail.co.uk/home/mos...-The-ghost-fleet-recession.html#ixzz0R9qDhWUy

 

[Dr Jon]

Has anyone seen American Casino?

I just spotted this Alternet feature about it.
I liked this comment:

So, we've finally realized we've been bamboozled and fleeced by a gang of crooks in $3,000 suits, crooks so sleazy they'd make the most dishonest used car salesman blush.
So, now that instead of putting the thieving crooks in JAIL, where they belong, we've rewarded their avarice with taxpayer money, therefore encouraging them to continue with their obscene bonuses and lavish lifestyles.
So the "Federal Reserve", which is neither federal or a reserve, but a clearing house for corporate crooks, continues merilly on with the Crook in Charge sporting a brand-new four year appointment.
So, what happens now?
I'll tell you what will most likely happen.
The thieving bastards will steal from the rest of us until there's nothing left to steal, and they'll go down the slop chute right along with us.

 

[david dissadent]

reuters

The federal government and states are girding themselves for the next foreclosure crisis in the country's housing downturn: payment option adjustable rate mortgages that are beginning to reset.

"Payment option ARMs are about to explode," Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama's administration to discuss ways to combat mortgage scams.

"That's the next round of potential foreclosures in our country," he said

Miller said option-ARMs were discussed at Tuesday's meeting on mortgage scams, which brought state attorneys general from across the country together with U.S. Treasury Secretary Timothy Geithner, Attorney General Eric Holder, Housing and Urban Development Secretary Shaun Donovan, and Federal Trade Commission Chairman Jon Leibowitz.

US local news channel.

Call it son of subprime. Experts warn that a new wave of mortgage foreclosures may be coming soon and could rival the default rates for subprime mortgages and slow efforts to find bottom in a prolonged national housing slump.

The mortgages in question are $230 billion of option adjustable-rate mortgages, creative lending products that flourished at the height of the housing boom. In an option ARM, a borrower can opt to pay less than his or her monthly balance due, and the difference is tacked onto the outstanding loan balance.

Many experts had expected an explosion of defaults in the springtime on these roughly 564,000 outstanding mortgages. However, interest rates dropped to historic lows, and that delayed the detonation of what many housing analysts still see as a ticking time bomb.

"They're probably going to default at a rate that makes subprime look like a walk in the park," warned Rick Sharga, senior vice president for RealtyTrac, a foreclosure research firm in Irvine, Calif.

Option ARMs have triggers that reset to a new interest rate based on either a set time frame or when debt exceeds some cap above the loan's value. The spring drop in interest rates allowed many borrowers to escape a day of reckoning because the lower rates prevented a triggering of that cap.

So as the one year of Lehmans demise passes us by the next big write downs are coming back into focus. I am not sure if the banks have written these into there plans for the future and are capitalised.

I also suspect personaly (not real reasearch just chatting to Americans) that the full impact of the HELOCs is yet to be felt, this is where house owners had a revolving remortguaging deal on their house. Many had used it to get money instead of paying down the principle on the house. Using it to extract value it had gained thinking the house was a source of wealth. As people become unemployed or draw closer to retirement these will bite both home owners and banks.

Telegraph

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."

The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.

More signs were are very far from out of the woods on this.

Mr Congdon said a key reason for credit contraction is pressure on banks to raise their capital ratios. While this is well-advised in boom times, it makes matters worse in a downturn.

"The current drive to make banks less leveraged and safer is having the perverse consequence of destroying money balances," he said. "It strengthens the deflationary forces in the world economy. That increases the risks of a double-dip recession in 2010."

The two stories may be related with banks pulling in the sails to wait and see what happens in the housing market. Maybe not, it may just be adjusting to the new requirements of a more prudent age.

The recession may be over, we may be returning to endless growth. The greenshoots may bloom, but Id not be betting my house on it.

Offcourse this is not the mainstream view.

 

[david dissadent]

Kansas supreme court launches a potential economic hand grenade.

Link

The ruling is for Kansas only but that peoples who mortgages have been securitized into Mortgage Backed Securities may not have anyone who can legally forclose on them. This is far from the first time this story has emerged and this ruling only applies to Kansas.

Today, county recording systems are increasingly full of one meaningless name, MERS, repeated over and over again. But more importantly, all across the country, MERS now brings foreclosure proceedings in its own name — even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers’ discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer’s home … So imposing is this opaque corporate wall, that in a “vast” number of foreclosures, MERS actually succeeds in foreclosing without producing the original note — the legal sine qua non of foreclosure — much less documentation that could support predatory lending defenses. The real parties in interest concealed behind MERS have been made so faceless, however, that there is now no party with standing to foreclose. The Kansas Supreme Court stated that MERS’ relationship “is more akin to that of a straw man than to a party possessing all the rights given a buyer.” The court opined: By statute, assignment of the mortgage carries with it the assignment of the debt … Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose , unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust .

At the moment I have not found a more mainstream source for this, but Ill keep looking and the other sources may be over egging the pudding, but the story has had legs for nearly two years now and this case is just another confirming the same story.

 

[Crispy]

What does that actually mean?

 

[david dissadent]

When a mortgage is securitized it is cut up and loads of people own bits of it. A company called MERS tracks these bits but is not an agency for the mortgage issuers or those who currently own it and it does not own the mortgage. So under Kansas law it cannot forclose on a mortgage. This means that someone can refuse to pay their mortgage and not be forclosed on.

There are about 60 million mortgages that have been securitized still outstanding in the US.

 

[Crispy]

Yikes!

Obviously there will be some stompy-stompy federal law that will fix that loophole sometime in coming years, but in the meantime that's a really disruptive thing!

 

[david dissadent]

In the end, the court summarized that MERS had no standing or right to assert a claim when it stated: "MERS's contention that it was deprived of due process in violation of constitutional protections runs aground in the shallows of its property interest. As noted in the discussion of the first issue above, MERS did not demonstrate, in fact, did not attempt to demonstrate, that it possessed any tangible interest in the mortgage beyond a nominal designation as the mortgagor. It lent no money and received no payments from the borrower. It suffered no direct, ascertainable monetary loss as a consequence of the litigation. Having suffered no injury, it does not qualify for protection under the Due Process Clause of either the United States or the Kansas Constitutions."[

This is taken from Wikipedia....
http://en.wikipedia.org/wiki/MERS#Litigation_and_major_legal_decisions

The story has been kicking around for a while now, two years at least. Everyone expects it to be 'fixed' in some way or another.

 

[Crispy]

Couldn't all the creditors file a joint legal action to get the money back? My thinking is that a 'fast-track' process for such actions will be put together...

 

[London_Calling]

As I read that, MERS was a convenient mechanism by which to conduct the repossession process? Someone holds the title deeds, even if the risk is spread.

 

[david dissadent]

Perhaps but then

There were many secured parties, and the pieces kept changing hands; but MERS supposedly kept track of all these changes electronically. MERS would register and record mortgage loans in its name, and it would bring foreclosure actions in its name.

The mortgage was registered in their name not the name of the creditors, who were different to the issuer as well.

I am not even remotly a lawyer let alone a specialist in US property law so I cant coment on how important that is, the other thing is that home owners can lodge a defence of preditory lending and the issues there seem to be so complex that they can get away with it. Ill keep reading and see what others say.

E2A I seem to recall another issue was that the various parties have a 'lien' or when they get a share if their is a loss, this could create alot of problems as well as those with 1st lien would be happy to forclose quickly and see only a small part of the mortgage recovered as they would get what they were owed, but those further down the line would lose out so potential sue for loss of earnings...... this is from memory though so may not be accurate.

 

[Barking_Mad]

From a guy who says writes political stories for Rolling Stone..

Waking up to discover the mortgage market was a giant criminal enterprise

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose – on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.

http://trueslant.com/matttaibbi/200...ief-for-homeowners-and-trouble-for-the-banks/

 

[Barking_Mad]

linked to that is this story about banks owning media companies due to the recession..

http://trueslant.com/matttaibbi/2009/09/21/banks-to-take-over-media-industry/

 

[rikwakefield]

This thread is terrifying. I will never return again.

*runs*

 

[david dissadent]

There is now a fair old debate over the full implications of this decision. I emailed it to a uk mate who is a lawyer and he read up the judges ruling and said it was no where near as severe as is presented. It was basicaly a fight between two mortgage holders were fighting over the remenants of a forclosure. This judgement affect the ability of a mortgage holder to stop a forclosure not a property holder. However the judgement may be applicable to property holders. Others opinioned that the mortgages could be sold of to scavenger firms who would buy them a big discounts and be sufficient legal entity to do the forclosing themselves.

Others are arguing that this is a back door descion that says what it seems to that mortgages registered by this MERS has no one to do the foreclosing. Some have pointed out that it may be that who ever issued the mortgage may have split the 'note' and the 'mortgage'. I am trying to find someone to clarify exactly what they are.

At the moment though its a pure fucking mess. It could be much worse now than before the fanny and freddie bailouts!

I will freely admit to being pretty close to being out of my depth here so if anyone sees any obvious errors feel free to jump in.

Edited a note is the document where the borrower promises to pay the amount borrowed. The morgage is the document that binds the money from the note to the specific property.

Apparently this is where the real damage may be, not properly documenting the note, who the money is owed too.

 

[david dissadent]

A mortgage is a combination of a promissory note (that is, a promise to pay) and a security instrument. That is, there's a deed of trust and a debt (the promissory note.)

State law governs foreclosure and most states require as a matter of statute that these two items remain intact. Further, most states require as a matter of statute (that is, law) that to foreclose you must present proof that you actually have an enforceable interest. In many cases this requires what is known as a "wet signature" - that is, the actual original signed document from the debtor confirming agreement to be bound to the terms. In addition you must establish ownership of that document - that is, you must show an unbroken chain of assignments from the originating bank to your hand.

This is where the problem comes in - the originating lender has no standing to foreclose once he sells off the mortgage. He was paid in full and thus has no standing to appear in court.

If state law requires an unbroken chain of recorded assignments in order to document ownership of a mortgage and thus standing to foreclose, MERS cannot override this state law by fiat.

The underlying issue is that many of these so-called "securities" (MBS, CDOs, etc) were issued "light" of the required legal mandates to keep the chain of assignments and actual consent signatures required for enforcement.

The real bottom line here is that securitized bondholders may in fact be holding worthless pieces of paper.

seekingalpha

Karl Denniger is an uber bear so his coments come with that Caveat Emptor.