Money Matters

A Very Merry Unchristmas --the Beige Book Santa Story

From 'The Village Store' by F. Bedford 1899
November 30, 2007

Elaine Meinel Supkis

The Federal Reserve just released its latest Beige Book, that bland litany of economic data that leaves out all analysis of historical importance as well as not looking at obvious problems like the near-total seizing up of our entire banking system from top to bottom as well as turbulence in the ABX markets. And housing: a total train wreck. But don't worry, the Fed has a sharp eye on the Santa Claus elven workshop! They are very concerned about Xmas sales of Chinese goods. They hope we buy very energetically and are trying to help Santa by dropping interest rates. After all, the futures for oil have dropped below historic highs! Ergo: no inflation!

Reports from the twelve Federal Reserve Districts suggest that the national economy continued to expand during the survey period of October through mid-November but at a reduced pace compared with the previous survey period

Looking ahead, the reports were slightly pessimistic about prospects for the holiday retail season. Most Districts reported that retailers expect growth in retail sales to be modest at best relative to last year, and retailers generally were described as having a "cautious" attitude about the upcoming holiday season

Santa Bernake certainly is cautious! The spoiled brats who infest our financial systems are after old Santy because they want their TOYS NOW, damn it. And the biggest brats of all like Goldman Sachs and Merrill Lynch have made a noose for the jolly old elf and will hang him if he doesn't give them what they want and they want FREE MONEY. Period. To hell with everything else. A big, red balloon is their desire.

Demand for residential real estate remained quite depressed, with only a few tentative and scattered signs of stabilization amidst the ongoing slowdown. Most Districts pointed to further increases in the inventory of available homes, with the earlier tightening of credit conditions for mortgage lending continuing to create barriers for some buyers.

The Fed has been turned into a loan officer whose sole concern is to see that we buy Xmas presents and overspend our budgets. Instead of frowning and saying, 'Do you realize, madame, sir, that no one in this community is saving money anymore? We are offering a good return on savings at the moment. You seem to have taken on too much debt already. We suggest you begin a savings program. We suggest that you trim expenses and come back when you have a better debt report.' I used to have to fill out requests for loans long ago. It was quite an experience.

The people who were the most anxious for more loans were the deepest in debt. People who were flush with money were very reluctant to take on ANY loan. As a person who has finally reached that point myself, I now understand the mentality of someone who is on the green side of the street. The anxiety for more loans is a classic sign that someone is too deep in debt already. The solution tends to be to consolidate all past loans and then pile on more. This is how our government runs.

The main topic of the GOP Presidential debates so far has been, who can do this even more. Cutting taxes and not paying off a penny of the principal due on our loans and then taking on even more debt seems to be an addiction with these guys. This is because all of the US is now sliding into 'debtors seeking more loans' status. Savings have fallen below 0% which is a historic signpost we cannot ignore. And the entity that should be focused on the dearth of savings is...the Federal Reserve!

I looked at this latest report and found absolutely no mention of savings. For the last 10,000 years banking has been based on someone saving first. Somewhere in the system, there has to be someone who puts money aside and allows it to be the basis of all lending. In the case of the US, since our savings rate is now below 0%, this means it is some foreign entity. In this case, it is Asian savers in the form of government set asides of FOREX reserves. Both Japan and China have been in this competition to see who can control world banking via holding currencies in reserve. Both have shot up in the last 15 years from $100 billion to $2.5 trillion. This vast growth in 'savings' is the ultimate basis for world lending. The EU, all together, has another $500 billion in FOREX savings.

The Federal Reserve is responsible for our national reserves which hold precious little in any sort of 'savings' at all. These US central bankers submit their reports with a blind eye on the world. One must marvel at this. For example, if anyone were sane, they would be focused on world LIBOR rates relative to the US rates, they would be figuring out how to increase savings here in the US because of the obvious direct connection of national banks holding massive savings to trade surpluses with the US. Since the EU also has a large collective FOREX reserve in addition to a large trade surplus with the US, this confirms the connection. The euro had to rise tremendously against the dollar to make even a small dent in our trade statistics that favor Europe, for example.

So the Beige Book should be tossed into the trash can and replaced with the Red Book. 'Power grows out of the savings accounts' should be the headline. Not, 'we better enable Xmas sales!' Once upon a time, eons ago, when my granddaddy was a young boy in the 1880's, an Xmas gift was a book. And maybe, a knife. And he was the son of a high ranking calvary officer! Not poor at all. My godmother, born at the beginning of the Civil War, got a dolly....one! Her entire childhood. Her daddy was a top embassy official. Very upper middle class!

My grandmother's childhood was marred by a depression in early 1890 which meant the sheriff took her pony cart, the pony, the fine furnishings, the house, everything. She didn't know how to button up her high shoes because servants did that. The sheriff felt sorry for her and let her keep her doll. Which, by the way, I broke 100 years later when I fell down a staircase while carrying it to a new location. Gah [beating my head on the floor]. The fact of the matter is, Xmas buying was an upperclass New England affectation that was brought over by the wave of German immigrants who got jobs as tutors and nannies. It was a slight increase in sales over the course of the year. The big sales time was after the harvest, of course, when farmers were paid for crops or honey gathering, etc. The butchering of animals fattened during the summer, etc.

Most of these sales were necessities and farm equipment. Not frivolities. Today, 40% of our commerce revolves around Xmas sales of all sorts. It has grown massively into this destabilizing force that warps the buying cycle and on top of this, features mostly frivolities and pleasures that are not good in the long run if one wants a sane economy. The childish factor has grown, massively. We are spending fortunes on entertaining children and lavishing on them a mountain of totally uncalled-for luxuries and heaps of junk. There is no longer a treasured toy or special friend. The child is surrounded by a wall of things that demand attention that has shorter and shorter spans. The inability to focus on anything is a salient feature of our culture and infects everything.

Banking and Finance

Lending to businesses generally was at high levels, but the reports suggested a slower rate of growth than in previous survey periods. Commercial and industrial lending activity changed little or declined in the Cleveland, Atlanta, St. Louis, Kansas City, and San Francisco Districts, although it increased noticeably in the Philadelphia District and continued to show modest growth according to Chicago. Lending standards for construction projects and commercial real estate transactions tightened further in the New York and St. Louis Districts, and they remained tight more generally and reportedly held down the volume of lending for these categories in the Boston District. The reports indicated slight increases in delinquencies on commercial and industrial loans and slightly larger increases for commercial mortgages in many areas.

Consumer lending was little changed on net, while residential mortgage lending continued its downward slide. More stringent credit conditions remained a constraint for residential mortgage lending in general, with additional tightening during the survey period reported by Chicago, Kansas City, and Dallas; scattered reports suggested slightly stricter standards on consumer loans as well. Mortgage delinquencies increased significantly in many areas, and some Districts pointed to slight deterioration in credit quality for consumer loans.

As the family unit bids adieu to their homes, they still rush out to buy more toys. I have taken under my wing more than one family in trouble over the years. It is very frustrating to see them spending money on toys and entertainment as they drag all this from one home to another as things fall apart, worse and worse. The instant they gain an upper hand in their finances, they are lured by Xmas advertising to give to their children who they obviously love but are unable to supervise or care for appropriately. This is why one can go into miserable housing and see a fancy car that loses value in the front yard and inside, wall to wall toys and playthings for adults as well as children. Peter Pan's paradise!

Why the supposedly sober Federal officers want to enable all this baffles me. They should be saying, 'Bah, humbug.' My grandfather hated Xmas, by the way. He actually would say, 'Bah, humbug.' He also carried a vest pocket watch on a chain and wound it up every morning at 9am. He also saved money, of course. His ghost should visit the Fed this Xmas. A reverse Dickens.

Prices and Wages

Increases in prices of final goods and services generally remained modest, except for food and energy. Increases in the costs of energy and petroleum-related materials created upward pressures on transportation costs and the prices of some manufactured items; many producers responded by increasing final sales prices, although limited pricing power forced some to absorb cost increases in profit margins. In addition, food prices continued on their pronounced upward march, and some Districts highlighted price increases on various imported goods resulting from the lower exchange value of the U.S. dollar. Increases in final prices for products related to food and energy were moderate in general, however, and they were accompanied, in large part, by stable or declining prices for other products and services, including various construction materials and assorted retail merchandise.

These Beige reports read like the Soviet 5 Year Plans. The Fed does NOT control prices! Nixon tried that with his Wage and Price Controls and that failed. It made inflation worse. Roosevelt did this during WWII and undoing it after the war was very difficult indeed and probably delayed recovery from the war somewhat. Prices are not the Fed's concern as far as them controlling it all. ASSET prices in property is, on the other hand, directly due to Fed actions! They sat on their duffs while the property bubble caused by 1% interest rates grew and grew. They then began to raise rates one baby step at a time in order to undo their crime. But this caused the asset bubble to burst. Instead of lecturing everyone about the dangers of easy money via the Fed, the Fed is feeding a new bubble by dropping rates WHILE SAVINGS CONTINUES TO NOSEDIVE. And this is the key they won't mention at all.

Paulson, Banks in Talks to Stem Surge in Foreclosures

U.S. Treasury Secretary Henry Paulson is negotiating an agreement with banks to stem a surge in foreclosures by fixing interest rates on loans to subprime borrowers, according to people familiar with a meeting he led yesterday.

Paulson, who will address a housing conference on Dec. 3, presided over a one-hour gathering at the Treasury Department in Washington with federal regulators, bankers and lobbyists. Citigroup Inc., Wells Fargo & Co. and Washington Mutual Inc. executives attended, said a person present, who spoke on condition of anonymity.

Bernanke Says Fed to Judge Market `Turbulence' Impact

Federal Reserve Chairman Ben S. Bernanke said `renewed turbulence'' in markets may have shifted the risks between growth and inflation, cementing speculation the central bank will lower interest rates as soon as next month.

``Uncertainty surrounding the outlook'' is ``even greater than usual,'' requiring the Fed to be ``exceptionally alert and flexible,'' Bernanke said in a speech in Charlotte, North Carolina, late yesterday. Officials must ``judge whether the outlook for the economy or the balance of risks has shifted materially.''

Let me be perfectly clear here: THE FED DOES NOT REGULATE THE STOCK MARKET VALUES! This is supposed to be capitalism. And the basis of capitalist investment and activity is due to using PROFITS to make future projections by INVESTING in NEW ENTERPRISES or using profits to buy a share in an existing business so one can have a slice of the profits accrued in the future! Where on earth does the Fed fit in all this? Their function is to regulate the money supply which means the banks and they insure that no banks make infinite loans to infinite people because this causes banking collapses like we are seeing now!

THE FED HAS FAILED. This is due to misunderstanding their mission in life and instead, pretending they are some sort of branch of the communist party and must redistribute wealth to the collective which means STEALING SAVINGS. Savings have vanished because anyone holding this gets hammered by Federal policies. So no one saves anymore. This is a spectacular failure of our central bank and is why Ron Paul wants is disbanded.

Here are some graphs from Kshitij Consultancy Services of India:Click on all images to enlarge.

First is the US dollar's LIBOR rates. This is the critical banking rate the Fed has the most control over and manipulates frequently as we saw in the news this last four months. The shape of this graph is very important: it shows the sudden collapse from the high rates that incidentally, happened WITH a bubble. The Dot Com bubble burst and rates were rapidly dropped. From October, 2001 to May, 2004, the LIBOR rates were below 2%. This was a long stretch for the US which seldom ever comes even slightly close to this rate in the past, outside of the Great Depression when prices were falling.

During this time, the price of oil began its historic climb from record lows to recent record highs. We see the shape of the new mountain on the other side of this valley and now rates are rapidly dropping again as the Fed seeks to revive the 2001-2004 bubble. Note that they worry about people being able to buy houses but NOT save money. This continues the fiction that we don't need to save any money at all in order to buy and sell housing. The door to ownership is 100% debt!

Note here that the British £ follows the exact same curve only at a much higher rate setting! Even though their LIBOR rates were 100 basis points higher than the US, they had the exact same housing bubble at the exact same time. Why is this? Ah ha! Part of the Riddle of the Economix Sphinx! Let's look at more charts.

There is a slight shift forwards in time for the Euro LIBOR rates! Their break with the 2% rates was in October, 2005. Incidently, this is when the US housing bubble burst. In both the US and the EU charts, the overnight rates shot up from October 2001 to March 2002. But then all fell lower and lower due to the Federal Reserve frantically pushing rates down as hard as possible.

This is the Swiss rates. It, too, has the same profile as the US and EU. It is overall, at a lower bp rate than both the US and Europe. It ended the super-near Japanese level lows in April, 2004 and then took off after August, 2005, right when the US housing bubble burst.

Last is Japan. The oddity of this chart compared to all the others is outstanding. It is all sub-1%. The flatness of this chart is not as obvious in this example because fractional differences show up as big changes where as the other charts rise and fall over 500 bp, this one rises and fall in this narrow 100 bp range. Note how the LIBOR rates are well over the official Bank of Japan rate of 0.5%! HAHAHA. Someone is cheating here.

The climb did start slightly retarded from the European rate rise. But this chart barely echos the mountain/valley pattern we see in ALL the charts of ALL major trade currencies in the world. The economic forces at work in the world are not suddenly suspended or turned upside down when encountering Japan, the world's #2 economy and trade power! This, not prices here in the US, is important for the Federal Reserve! Since Japan's affairs have a giant impact on our own banking system, this requires a close examination by the Fed and should be the important item on their table, not the Xmas wish book they call 'the Beige Report.'

E*TRADE Financial Announces $2.5 Billion Investment Led by Citadel

E*TRADE FINANCIAL Corporation today announced an agreement that will result in a cash infusion of $2.5 billion. The transaction, led by affiliates of Citadel Investment Group, includes immediate funding of approximately $2.4 billion with the remaining $150 million expected to fund by January 15, 2008. The investment fortifies the Company's balance sheet, allows the Company to focus on its core retail business and provides additional capital to manage credit risk.

E*TRADE also announced that, effective immediately, R. Jarrett Lilien has been named acting Chief Executive Officer of the Company, succeeding Mitchell H. Caplan, who has stepped down from the position of CEO. Mr. Caplan will serve as an advisor to the Company on transition matters through the end of the year. Mr. Lilien, who is also a Director of the Company, has been E*TRADE FINANCIAL's President and Chief Operating Officer, leading the retail business since 2003. The Company will conduct an executive search for the CEO position, which will include Mr. Lilien and external candidates.

All the top wizards are being replaced with new wizards who are exactly the same and followed the exact same rules and threw the same spells. This churning is useless, of course. Heads must roll. In China, they get arrested. In Japan, they commit suicide. In the US, they float away on golden parachutes and land in other organizations and continue doing what they did in the past only with a slight variation. Citadel is yet another off shore pirate/vulture/Peter Pan organization hoping to get dollars on the penny. This purchase by Citadel sounds most mysterious. I suspect the funds both are trying to get rid of will walk the plank at some distant place and then deep sixed when no one is looking. To hide this, they go to Japan and tap into the continuing low interest rates based on fake inflation statistics and the death of savings there outside of the FOREX reserves run by the central bank itself.

This transaction removes the assets with the greatest market risk from E*TRADE's consolidated balance sheet. Effective today, E*TRADE has divested itself of its $3 billion asset-backed securities (ABS) portfolio, including its ABS collateralized debt obligations (CDOs) and second lien securities.

I visit the MarkIt ABX page every week. It is like watching a bull fight where the toreador has a machine gun. The bulls are bleeding from every pore but they still mill around except for the riskier bulls who are rolling in the sawdust, mooing mournfully. The E*Trade cow is dragging its udder on the ground as it staggers about. No wonder vultures are riding on its back now. What the vultures hope is, the machine gun won't shoot them.

Time to revisit what a ABX is: On January 18, 2005, the SEC promulgated Regulation AB which included a final definition of Asset-Backed Securities.

"Definition of ABS. The term "asset-backed security" is currently defined in Form S-3 to mean a security that is primarily serviced by the cash flows of a discrete pool of receivables or other financial assets, either fixed or revolving, that by their terms convert into cash within a finite time period plus any rights or other assets designed to assure the servicing or timely distribution of proceeds to the security holders. The SEC staff has historically interpreted the phrase "convert into cash by their terms" to exclude from the definition most assets that require positive action to be realized upon – such as non-performing assets and physical property. It has also interpreted the "discrete pool" requirement in such a way as to disqualify most securities issued in transactions where the composition of the pool is not set on the date of issuance or can change over time. The new rules modify these existing interpretations in certain respects while codifying them in others.

These discreet pools have turned into dark pools. And this was deliberate. The need to hide things is very important when one is doing the money-making wizardry. When the money vanishes, the wizards waving the wands disappear via a trap door and a new one steps forwards, closes the curtains, rearrange the magic box and then opens the curtains and continues the same magic spells under new names. Every time the SEC tries to shed light or forbid actions, the wizards move to a new location and redouble their efforts at hiding the truth or manipulating things so they can tap into it and milk it at 20% advantage. Their sole function is to make themselves rich at everyone's expense. Since their chief tool is playing with interest rates issued by the central banks, one has to make the political connection between them and the central bankers. We know that the major investment houses playing these heady tricks have taken over the entire system and are now running it so that it makes them richer and us poorer! This has to stop.

People ask me how. I can only say, we must learn the truth and then confront them all politically. This is a monumental task because everyone who has power and runs the media, etc, don't want us to know the truth or confront them at all. They want us to go away and die. So the only tool we have is each other. Eventually, perhaps people will listen and figure things out. The magic of money should be taught in schools so it ceases to be so mysterious.

Securities collateralized by home equity loans (HELs) are currently the largest asset class within the ABS market. Investors typically refer to HELs as any nonagency loans that do not fit into either the jumbo or alt-A loan categories. While early HELs were mostly second lien subprime mortgages, first-lien loans now make up the majority of issuance. Subprime mortgage borrowers have a less than perfect credit history and are required to pay interest rates higher than what would be available to a typical agency borrower. In addition to first and second-lien loans, other HEL loans can consist of high loan to value (LTV) loans, re-performing loans, scratch and dent loans, or open-ended home equity lines of credit (HELOC),which homeowners use as a method to consolidate debt. [2]

And here is the Hell on Earth for both the hell hounds as well as home owners and bankers. These HELs are vulture feed. Semi-dead loans, dying loans, sick loans. Loans to dead beats. They buy them cheap from desperate organizations that made stupid loans and then use various pirate tactics like harassing people mercilessly, to get some blood from stones. This includes throwing people out of their houses that are filled with useless toys.

The second largest subsector in the ABS market is auto loans. Auto finance companies issue securities backed by underlying pools of auto-related loans. Auto ABS are classified into three categories: prime, nonprime, and subprime:

Get your 0% loan! Step right up! Of course, these 0% loans can't be resold. But they don't exist. The auto sellers simply add around $2000 to $5000 to the price of the car and then sell the excess funding to the vulture or pirate. They, in turn, hire goons who come at night to tow away cars. That is the dark side of the force.

Securities backed by credit card receivables have been benchmark for the ABS market since they were first introduced in 1987. Credit card holders may borrow funds on a revolving basis up to an assigned credit limit. The borrowers then pay principal and interest as desired, along with the required minimum monthly payments. Because principal repayment is not scheduled, credit card debt does not have an actual maturity date and is considered a nonamortizing loan.[2]

You bet, it is nonamortizing. It is open ended until death takes the debtor to the great Workhouse in the Sky. In Victorian times, they laconically said, 'He bought the farm' when the debtor died. The ABS market began with these things. Instead of holding debts, banks wanted to get rid of them and this 'security' measure was the chosen tool. Note how this has proliferated since that last banking crisis! For 1987 is an important year in the chronicle of the death of US finances. The system needs a big, fat dark hole where debts can drop and then, the troublesome ones vanish without the system breaking down. Only problem with this solution is, magic may look as if it has made something vanish but it hasn't. It lurks in the dark and grows into a monster which returns and wrecks havoc. This force cannot be denied. The Federal Reserve wishes it would go away and if they just move some levers and wave wands, we can race ahead, laughing, ignoring fundamental problems.

On January 17, 2006, CDS Indexco and Markit launched ABX.HE, a synthetic asset-backed credit derivative index, with plans to extend the index to other underlying asset types other than home equity loans.[4] ABS indices allow investors to gain broad exposure to the subprime market without holding the actual asset-backed securities.

Time to visit MarkIt and see what the charts there show:

We can see how the market began its nose dive in July. As the global banking crisis launched by the US gains strength, the ABX index collapses rapidly. The loss of wealth here is outstanding. Many a fund has collapsed due to this. These funds show only the tip of the iceberg, these funds are the ones FORCED to sell. Citadel is NOT putting its funds it took over today onto the markets. It is being deep-sixed at some distant tax haven island! But look at how things fell, then, when the Fed dropped interest rates, there was the slightest hope. Now even that is gone and all are heading to zero. And this is why the Fed is flailing about, trying frantically to drop the LIBOR rates that insist on trying to go upwards! This is to stop ALL these funds from going obviously bankrupt. If they have even the slightest value, Citadel and other vultures can sit on them for a long time until people forget about them existing and then quietly throttle them. This stops the 'panic'.

Is the roof falling in on the housing market?

Perhaps the biggest cause for concern is the scale of house price inflation over the past decade or so – and, hence, its unsustainability. Since 1997, house prices have trebled. So much of our cash has been ploughed into bricks and mortar that British households have accumulated more debt than any other major advanced economy. This year our total borrowings exceeded the national income for the first time: £1.3 trillion (£1,300,000,000,000) to pay back. At about £200,000, average house prices are at nine times average earnings, the highest ever. The dream of home ownership for many first-time buyers remains just that – an unattainable fantasy. For those who do manage to scramble on to the first rung of the ladder, mortgage repayments eat up an unparalleled proportion of their disposable income – about a fifth. That equals the record level reached in 1991, when interest rates were at 15 per cent. Household savings rates are at near 50-year lows. People cannot stretch any more to buy a home.

Just three months ago, Britain was boasting about how their markets were up and up unlike the US. Now the cat is out of the Northern Rock bag and is scratching at #10 Downing Street's door. Just a two years ago, the income/housing ratio was an already nasty 6X. Now it is 9X? Wow. Well, the central bank made this happen by giving banks 'free' money that was way out of whack with the British SAVINGS RATE. Yes, savings rate. The Bank of England does NOT sit on a trillion FOREX dollars like the very tricky Bank of Japan.

In the next article, we will talk with a former high ranking officer from a Japanese bank. She has a lot to say about all this. I will hint that our housing bubbles are a continuation of the Japanese housing bubble and the agency responsible for all these bubbles is the Bank of Japan.

UK house prices have become unaffordable to an increasing number of the population, given that household debt now exceeds 150% of disposable income (a historical high),

and that the mortgage interest burden stands at 20% of gross income (up from 11% in 2003). Even if demand were strong enough to continue to push up house prices, the recent credit crunch has reduced the funds available to potential house buyers as lenders have reined in borrowing. There is also the additional expense from the extension of the controversial Home Information Packs (HIPs), which cost on average between £300 and £350, to all properties from December 14th (HIPs are currently a mandatory requirement for properties with three bedrooms or more).

We are at 110%. England beats us here. And getting back to where we have savings again is a long, hard road. The US had a 70% indebtedness rate only 20 years ago! We can't make it 200% nor can the dying Birtish Empire's last remnants.

Given the current credit squeeze, there will be few attractive offers from banks to refinance for a better deal. Indeed, many lenders have tightened their lending criteria as a result of the problems in the US subprime mortgage sector. According to a report from Moneyfacts (an independent financial research group) as of October, lenders had withdrawn 40% of buy-to-let and residential mortgage products over the past three months. In the case of “bad credit” mortgages, there was a 72% drop after rapid growth prior to the problems in the sub-prime mortgage market. According to Moneyfacts, even people with good credit ratings have suffered a 16% decline in the number of mortgage products available.

Selling mortgages can only happen in a land where there is still some plenty. In this case, savings. I harp about this only because all the top bankers in the West refuse to even MENTION this, much less, encourage this. We can't go from wild spending to cruel saving in this violent see-saw fashion. The controls that prevent wild money making, wild speculation and wild buying are in the hands of the central banks. And they have to recognize that when they make massive bubbles, it MUST deflate. There is no other alternative which is why the central banks have to recognize a bubble when it starts and an easy way to do this is to gage the savings rate. If it is dropping while the economy hums, this is a BAD SIGN. It means a bubble will develop. People should save in good times and spend in bad, not the reverse. When the reverse happens, this means the system is out of whack and savers are not being rewarded enough. Ergo: higher interest rates must occur.

The Economist Intelligence Unit believes that the lagged effect of more restrictive monetary policy, combined with the impact of the recent credit crunch and slower employment growth will likely lead to a slowdown in household consumption over the next year. We project that private consumption growth will decelerate to 1.7% in 2008 from an estimated 2.9% in 2007. This will drag down UK GDP growth to a forecast 1.9% in 2008—compared with an estimated 3.1% this year. The possibility of a sharp downward correction in house prices could have serious negative consequences for household consumption and hence poses some downside risk to our forecast.

The West is over-consuming. Proof of this? Obvious! We are going into debt to buy Xmas toys. And our houses are filled with children's and adult's toys. And none of this is making us richer via capitalism. We are simply going into debt to buy imported toys. Why the Fed is feeding this is the key to our joint economic decline! Wailing at China to stop sending us stuff we want to buy on credit is pure childishness and makes us like like idiots.

Mervyn King, the Governor of the Bank of England,

yesterday issued his starkest warning yet of the dangers facing the British economy, amid fears of a worsening of the global credit crisis and threats to both domestic inflation and growth.

Mr King warned MPs on the House of Commons Treasury Select Committee of "rather uncomfortable" times ahead, with a "big risk" that the credit squeeze could intensify. He said the "sheer uncertainty" and fear of what lies ahead among US banks in particular was driving wholesale interest rates back up to levels seen at the height of the summer credit crises.

Mr King added: "In recent months, the near-term outlook for both inflation and growth has become less benign." He also had a particular word of caution for those in the property market. "For the UK, the consequences of [turmoil in financial markets] are difficult to assess and are likely to be evident first in the housing and commercial property markets." King puts UK economy on danger watch.

Merry Christmas and bah, Humbug! We aren't in a damn 'credit squeeze'. This is how spendthrifts talk when they demand more loans. We have reached our spending LIMITS. And the central banks can't be Santa Claus forever. Or Rudolf the Red Nose Reindeer will be served at some Chinese or Japanese embassy dinner in the future. Along with the whale meat that gets Greenpeace so angry.

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Gollum Sachs Cannibal Vultures Eat Own SIVs

November 29, 2007

Elaine Meinel Supkis

Cannibalistic Goldman Sachs vultures are eating their own hedge funds that are in trouble. This way, the mess, the stinking entrails, won't be seen by others. The US banking system sees record profit falls. Japan sees inflation but refuses to raise interest rates at all. And the yen falls which is making the Japanese happy. You see, they can't fix their pesky depression! Even when there is inflation! Meanwhile, we look at many financial messes like the Florida pension fund that stopped a run by closing the barn door. Or the Chinese buying more of our banking systems while they announce their FOREX reserves have reached the one and a half trillion dollar level next month! Aren't they naughty?

Vulture Capitalism by C K Liu:

Vulture restructuring is a purging cure for a malignant debt cancer. The reckoning of systemic debt presents regulators with a choice of facing the cancer frontally and honestly by excising the invasive malignancy immediately or let it metastasize through the entire financial system over the painful course of several quarters or even years and decades by feeding it with more dilapidating debt.

But the strategy of being your own vulture started with Goldman Sachs, the star Wall Street firm known for its prowess in alternative asset management, producing spectacular profits by manipulating debt coming and going amid unfathomable market anomalies and contradictions during years of liquidity boom.

As usual from Mr. Liu, a very good synopsis of the mess created by the biggest banks, lenders and investment houses. He even mentions Japan as the ultimate source of much of the funny money, for that alone, this is a stellar article. Nor does he blame China. Again, bravo! I also like his 'Vulture Capitalism.' I drew a cartoon of vultures discussing a dead vulture and wondering if they should eat it. Referring, of course, to these hedge fund chiefs. For they are pirates, hell hounds and of course, vultures. They not only smell out dead bodies, money being very connected with death, they also eat themselves. This would be more like Cronos eating his sons until Zeus killed him. Then Zeus had a big headache and out sprang his Valkyrie daughter, Athena. Athena became the goddess of trade and manufacturing. But I digress, as usual.

A number of readers like the notion of calling Goldman Sachs, 'Gollum Sachs'. This is a good name for them. They are an army of grasping Smeagols, storming the walls and sacking cities. Leaving smoldering ruins and everyone in bankruptcy including ultimately, the USA. They are NOT clever traders. Oh, no, Precioussss. They are MANIPULATORS of the entire system. They and only they can get rich coming and going because everything will go their way since they control the LEVERS OF POWER. This is where Liu's analysis fails to fully appreciate the power of Gollum and the Rings of Invisibility. Whenever Paulson appears in public or Rubin is in the news, I remind everyone where these guys were spawned. Who they owe allegiance to. All financially sensitive sectors of the public system of government is thoroughly infested with an army of Gollums seeking gold, yessss. And they can cannibalize even themselves if they must. For they control the flow of information in many ways as well as the actual levers of power.

I can't make Bernanke do anything. Otherwise, he would be over my knee and getting a good spanking. But Gollum Sachs has complete control over him. If they say they need cheap interest loans and they don't care if we go into a terrible deflationary cycle, they point to Japan and say, 'Look! The speculators, investment bankers and exporter are getting richer and richer the worse the depression there is!' And so we are getting a copy cat version. Low interest rates don't help me if I am saving money, by the way. This merely means I get no return on savings. As the average Japanese has had no return on savings for over a decade and won't see any for the next 10,000 years if the government and the Gollums there get their own way.

For any given move in interest rates, the downside is bigger than the upside to give a built-in loss for a short position with negative convexity, thus producing losses. For positive convexity, the upside is bigger than the down side, thus giving short positions an advantage. Morgan Stanley’s short positions allegedly turned against them by negative convexity; at least that was how they explained the loss. Some analysts think there must be more than meets the eye, assuming Morgan management itself even knows. The people who put on the bad trades were fired and are not now there to answer questions.

It is one thing to lose money, but it is quite another to lose money without knowing why and how.

HAHAHA. Another thing about magic is how all things are like lightning bolts. And the nature of Widdershins: the upside is small but the downside is great. Yet people are content with this for some reason. The game of betting on the downside has been irresistible because of this peculiarity. As for losing money and not knowing how or why: this is all part of the secrecy and darkness business of making money out of thin air. We can't look closely or the Leprechaun will make the pot of gold vanish like morning dew! Instead of a deep understanding of underlying economic principals and the web of economic influence, these guys simply try out various magic spells to see what gets conjured out of thin air. If money appears, they are happy. They don't want to look too closely into the darker corners because they know they will find out, this is all a fraud or terribly destabilized and getting worse every time they throw a new spell.

I will note here that 90% of the systems, make it 99.9% of the systems in collapse this last 4 months were all created and promoted in the last 2 years at the tail end of the last Federal Reserve rescue of our deep-in-debt economy. The horrifying fact here is that also, 99.9% of these schemes are also poorly understood by their creators and on top of this, the lack of understanding how money can vanish as well as grow, is a severe problem. This is because these guys like to imagine they are rational adults who have figured out fancy computer/mathematical model systems that are INFALLIBLE.

This takes us back to the Gods: hubris. Hubris is the human tendency to go wildly out of control. Especially when dealing with magic or money. Athena in particular, had a bad temper and if her gaze turns towards over-extended, over-ambitious humans, she would throw a counter spell and turn them into spiders or some other creature. The management of Morgan Stanley [the president resigned today, turned into a spider by Athena, I assume} didn't know what was going on because they just wanted more money.

Once there was a fisherman who caught a magical fish. 'If you return me to the sea, I will grant you every wish,' said the scale clad lord of the deep. The fisherman told his wife and she wished for a better house. Each day, the man was forced to go to the sea and ask the fish for fancier houses, more servants and more power. Each time, the fish granted the wish but the seas became increasingly stormy. Then, if a violent hurricane, the fisherman had to ask the fish to make his wife a god.

All the wishes instantly reversed and she was back in the shack by the sea. And this is how great wealth works. Goldman Sachs imagines they have evaded this fate. They continue to use the Federal Reserve to their own ends which will end our empire. But they don't care because they can't see this, they go to the sea and demand more money, cheaper money, total power, rule of the earth! Their fall will be a shattering mess. For all of us.

This is why it is dangerous to short this organization. They control too many things and have enough pull to push things their way and they don't care how messed up this will be for our general welfare and the health of our nation.

Short gold in '08, Goldman says

But the 2008 top trades list, drawn up by Goldman's global markets team, suggests investors short gold priced in U.S. dollars in order to capitalize on a gradual relaxation of credit concerns in the financial sector over the coming months and as an avenue to benefit from the prospect of the U.S. dollar stabilizing. Bullion has been one of the main beneficiaries of the financial turmoil that began in August as investors sought alternative stores of value to the weakening U.S. dollar.

(A short sale occurs when the seller borrows a stock, commodity or currency and sells it, expecting the price to fall. If it does, the seller buys it at the lower price to replace the commodity that was borrowed.) The team anticipates that the greenback, which had a tough time in 2007 against global currencies including the Canadian dollar and the euro, will find its footing next year as the U.S. Federal Reserve Board cuts interest rates and thereby lowers the risk of a recession, and the U.S. trade balance improves further.

Quite frankly, the dollar can't drop forever against the euro. Expecting this to continue forever is silly. Expecting gold to shoot up tremendously is also silly. There is no way the manipulators of currencies and other things will allow this unless they want it to happen. Then it will happen. If Goldman Sachs is announcing gold will be shorted, they will do this. If they have to get a central bank to dump more gold to encourage this, this will also happen. One feature of modern speculation seems to be the notion that doing this on debt money is the way to go. This is why all those pesky rules forbidding this were weakened or repealed. It is more fun to risk nothing and make 10X the profits rather than be stodgy and invest savings. Hell, doing anything with 'savings' is supposed to be very stupid. And the entire system has been reset to reward people speculating using loans rather than rewarding savings at any level.

This is why we are in a liquidity crisis. If all the giant speculators all the way down to the littlest investors are all using loans to play games, we get this vapid bubble based on debts and all these parties want CHEAP loans to do this. So we see interest rates drop. If interest rates were at Japan's level, the biggest investment houses hope to use that for years and years as their investing platform. They have to kill the inflation of gold and oil, first. As well as suppress wages and curtail the purchasing power of the working classes.

They don't mind the working classes going into debt too. But they expect THEM to pay up or else. This is why the Gollums in the Sachs organization worked hard to pass laws preventing full bankruptcy protection! They know they can't have 0.5% interest loans if everyone grabs at this and then goes bankrupt! So all the losers will be wrung out of the system and unable to ever get credit again while the winners can take this depression money and use it overseas playing markets, etc. Also, gambling on relative values of currencies, we mustn't forget that, no, Precioussss.

The desire to hedge by playing currency games is very strong. This means all systems, while depressed, will also be vulnerable to collapse as the big investment houses, gorged as vultures on a battlefield, will target various currencies for storming in and out of a country that can't stop them. China, for example, has the world's biggest barrier to this sort of thing. But they are most unusual. Ditto, Japan.

China's Wealth Fund Seeks to Stabilize Equity Markets

China Investment Corp., the nation's $200 billion sovereign wealth fund, signaled it may invest in stocks rocked by subprime mortgage defaults.

``CIC wants to be a stabilizing force in the international capital markets,'' Chairman Lou Jiwei told a conference in Beijing today. He then cited a ``recent example'' in which a similar fund invested in a financial institution with subprime losses, without identifying the two parties.

I have said before, the goal of the Chinese is for stability. In the end, that is. This is their general cultural tendency which is punctuated by hysterical collapses like the Maoist episode. Can China kill off the lovely Risky who loves instability, wild swings and dangerous trends? Stability is Safety who likes predictability and respectability. Risky is a tramp and Safety is a girl next door. Who likes to bake cookies for orphans. Risky loves unprotected sex.

I will note also that the Dragon is taking over investment houses that are in a subprime mess. This is amusing. Citibank is rapidly being taken over by foreign powers, for example.

China's Ping An Pays $2.7 Billion for Stake in Fortis

Ping An Insurance (Group) Co. bought a 4.2 percent stake in Fortis, Belgium's biggest financial-services company, for 1.81 billion euros ($2.7 billion) in the largest overseas acquisition by a Chinese insurer.

Fortis rose the most in 4 1/2 years in Brussels trading on the purchase, which makes Ping An its biggest investor. China's state-owned companies spent almost $17 billion on overseas financial purchases in 2007, buying stakes in Barclays Plc, Bear Stearns Cos., Blackstone Group and Standard Bank Group Ltd.

They are going after gold-standard operations now. The Chinese are NOT doing this with loans. This gives them a hard core advantage over the guys who are using loans to get rich quick. Namely, when things go bad, the Chinese may lose some money but they won't go bankrupt. They can hold and hold until the bad time passes, they don't have to have fire sales or go to Bernanke to save them from folly. This power is not a small deal. It is life and death. They can deal with bad times better than people who are in debt.

Indeed, the US imagines the Chinese can't afford to lose us so they will save us no matter how much we run around in the dark with Risky, on the freeway, dodging semi trucks. Over time, the Chinese will literally own us. This is significant, as readers here know perfectly well.

The market value of Ping An, located in the southern Chinese city of Shenzhen, stands at $98.6 billion. The rally in China's shares, the world's best performing stock market, turned Beijing- based PetroChina Co. into the world's biggest company by market capitalization and made Industrial & Commercial Bank of China Ltd. the largest bank.

The US stock market flounders about in rough seas while the magic fish in China swims up to the surface to ask us if we want to make a wish. The idea that China, not the US, has the world's best performing stock market is a reversal we try to ignore. Even as Goldman Sachs and all the others are rushing over there to partake in all this, the wealth this is creating is enabling China to increase its sovereign wealth systems that are being used to buy up all these same people. This is because China is not using loans to do this, they are using real wealth gained from their markets.

China Life, based in Beijing, is also on the prowl to diversity. The world's largest insurer by market value is ``very interested'' in buying foreign banks, Board Secretary Liu Ting said yesterday.

``Overseas banks are looking very attractive after the subprime crisis brought their share prices down,'' said Liu at a briefing in Beijing. ``This provides great opportunities for China Life and is a very worthwhile option for us to consider.''

Citigroup Inc., the largest U.S. bank by assets, has tumbled 42 percent in New York amid mounting credit market losses, leading to the departure of Chief Executive Officer Charles Prince.

Citigroup, which until July was the world's biggest bank by market value, this week said it's receiving a $7.5 billion cash infusion from Abu Dhabi to shore up its capital.

All the real vultures who are Arab and Chinese are watching the biggest banking houses in the US die. And they are already swooping down to feast on the carcasses. Not Goldman Sachs. Goldman Sachs is eating itself in order to stay alive, remember?

China Currency Reserves Rise to Record $1.46 Trillion

Zhang Xiaoqiang, deputy head of the National Development and Reform Commission, gave the Oct. 31 figure at an investment conference in Beijing today. The reserves were $1.43 trillion a month earlier. They're the world's biggest.

The trade surplus jumped to $27 billion last month, stoking tensions with the U.S. and Europe and threatening to fuel decade-high inflation. China's government has urged banks to rein in lending and this month raised the proportion of deposits that they must set aside as reserves for the ninth time this year, to 13.5 percent.

So....China has the world's mega, big, gigantic, God-awful-godzillian sized FOREX reserves that are now about $1 1/2 trillion? And they are cutting LENDING? While the US is ENCOURAGING lending? And we are up to our eyeballs in debts? And our own investors are using debts to invest? Like, we need more of this? Let's remember the story here: capitalism is all about competition. And the prize is PROFITS. Not debt accumulation. If debts build up, this is bad in the long run and all competitions are marathons, not short sprints. The rabbit may win the half-way point in the race but will be beaten by the turtle using sovereign wealth.

Back to the top story, Banks as vulture investors

The Federal Deposit Insurance Corporation, which monitors risk in the banking system, tracks bank holdings of MBS but not specifictranches of CDOs. It has no information on which banks hold CDOs and how much, since such instruments are held by the finance subsidiaries of bank holding companies, off the banks' balance sheets. Asian investors, particularly those in Japan, had been eager to seek off-shore assets yielding more than the near zero or even negative interest rates offered at home. Many Japanese as well as foreign investors participated in currency ''carry trade'' to arbitrage interest rate spreads between the Japanese yen and other higher interest rate currencies and assets denominated in dollars, fueling a liquidity boom in US markets. The US trade deficit fed the US capital account surplus as the surplus trade partners found that they could not convert the dollars they earned from export to the US into local currencies without suffering an undesirable rise in money supply. The trade surplus dollars went into the US credit market.

Actually, Japan has seen a huge rise in money supply! But little of this ends up in the hands of the Japanese consumers. This is how Japan enforces its great depression that has the peculiar side effect of making its export industries the strongest on earth. Mr. Liu does notice the role Japan has played in creating this monster debt bubble. It is the 'carry trade.'

ON THE RADAR: Flat CPI Would Not Necessarily Spark Rate Hike

TOKYO (Nikkei)--The core consumer price index for October is expected to be flat year on year, which would make it the first time in nine months for the gauge to move out of negative territory. However, a better CPI reading would not necessarily be regarded as a supportive factor for an interest rate hike by the Bank of Japan, because the recent increase in consumer prices is largely thought to be due to higher crude oil prices.
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Stocks: Surge In Morning On Higher U.S. Stocks, Weaker Yen

TOKYO (Kyodo)--Tokyo stocks rose over 2 percent Thursday morning due to an overnight surge on Wall Street and the yen's fall relative to other major currencies.
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Once again, my analysis is now being admitted to be right by the Japanese themselves. They are no longer bothering to hide the fact that the weak yen makes them richer and more powerful. Note how the top article pretends they are still worried about deflation. But the second article betrays that idea. Note how, even with inflation, the Bank of Japan will not raise interest rates. Nope. That would kill the carry trade and in particular, stop the money flow that is making Japan very rich via trade.

Japan Shows First Inflation Signs as CPI Rises 0.1%

Falling prices in Japan have hindered plans by the central bank to raise interest rates from 0.5 percent, the lowest among major economies. October's gain probably won't be enough to spur a rate increase as the U.S. economic slowdown and financial- market turmoil cloud the outlook for growth.

``Normally this report would provide support for the Bank of Japan,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo, who forecasts an August rate increase. ``But the CPI numbers aren't strong enough to wipe out rising risks surrounding the U.S. and global economy.''

HAHAHA. Every pebble in the road brings the Japanese bank to a total halt. There is always a problem preventing them from raising rates from the lowest and longest the earth has ever seen. This should fool no one at this point. Only, it still fools people! I am amazed by this but then, the Japanese are experts at saying lies with a straight face.

Deputy Governor Toshiro Muto said this month that the U.S. housing recession and market woes make it ``difficult'' to decide when to raise rates. Mizuho Securities Co., UBS AG and Goldman Sachs Group this month postponed predictions for the next rate increase from the first quarter of 2008 to at least the third quarter.

``Financial markets will keep gyrating, probably more frequently than we've seen,'' said Yasunari Ueno, chief market economist at Mizuho. ``It'll take time before fears about a credit crunch and economic recession ease and markets regain a more optimistic outlook.''

Isn't this very clever? The Japanese banking system depends on the US banking system to stop gyrating? This means they can sit there forever at this absurd interest rate! And why is our system out of control?

Because of the carry trade, the tsunami of easy money from the Bank of Japan flooding into our economic system! So this won't stop unless we stop it. And we could do this but Goldman Sachs and the others borrowing this money to gamble love this so they are eager to keep it rolling!

``The progress toward stamping out deflation has stagnated,'' Economic and Fiscal Policy Minister Hiroko Ota said today. She said oil contributed most of October's gain and the government needs to watch the effect of higher energy costs on consumer sentiment and corporate profits.

Another funny gem! Oh, how hard are the Japanese elites trying to stamp out deflation? They are doing this by...raising the sales tax! And depressing wages. And cutting funds to the lower classes. Starving the elderly and school children. Yes, they are battling deflation, all right. Every possible trick to prevent anyone from getting any money that might eke into the consumer system! Right! Hiroko probably practices every morning in her bathroom, trying to say such hilarous statements with a sincere face. And it works.

Wages declined in nine of the 10 months to September and mid-year bonuses, about 10 percent of a worker's annual income, dropped for the first time in three years.

Seiji Nakamura, a Bank of Japan policy maker, said on Nov. 22 that companies ``are extremely cautious about raising prices'' because Japanese consumers have built up a ``strong resistance'' to increases after years of deflation.

Consumers have LESS INCOME. So they 'resist' sales because they MUST! And the government knows this. Pretending consumers are doing this willfully is part of the Samurai code---'Blame the peasants for all problems.' A top Korean company just closed down all their outlets in Japan because they can't make money there. This is the other good side to this fake depression. Japan wants as few imports as possible. This is better than all the other Fortress Japan schemes! Not only do they prevent competition and imports, they get the world to feel SORRY for them as they ruthlessly do this! Neat trick. And the Goldman Sachs people have noticed this and are very eager to imitate this.

I am very certain they want this model for us. This is why I am so alarmed with what is developing and want to stop them.

US bank earnings plunge in third quarter

US bank earnings plunged nearly 25 per cent in the third quarter, falling below $30bn for the first time since 2003 as the sagging US housing market hit profits, according to government data.

Net income for banks in the period fell to $28.7bn, down $9.4bn from last year driven by a steep increase in provisions for loan losses and a drop in non-interest income, according to the Federal Deposit Insurance Corporation.

Loan loss provisions rose $9.2bn, or 122 per cent, to $16.6bn compared to the same period a year earlier, as banks anticipated more homeowners would default on mortgages and home equity loans.

When the Japanese banking collapse happened, they were very woeful. But by 1997, they hit on a new scheme. One aspect was to increase their FOREX reserves until it was the biggest on earth. The other was to depress wages and consumers and thus, switch the country into enforced savings and then the kisser: GIVE NO INTEREST TO SAVERS! Ha. This confiscation of the savings of the workers was a stunning success and now is being kept running in the teeth of workers sending savings out of the country. Indeed, this weakens the yen so it is encouraged!

This is also untenable. And the Chinese are countering it. US banks are going off the same cliff Japanese banks flew off of back in 1993. Unlike the Japanese banks which were protected by the government, US banks will be bought by Asians and Arabs. In every particular, we do almost what the Japanese have done but we leave out the 'Do NOT Let Foreign Devils Take Over!' part.

Municipal Bond Deals Squeezed By Credit Crisis

The widening credit crunch is making it harder for cities and school systems to get money for buildings, ballparks and other vital projects from the $2.5 trillion market for municipal bonds, a sector of Wall Street that rarely sees trouble.

That is leaving them with a tough choice: either put off the projects, or pay higher interest rates on their bonds, a cost that ultimately would fall on the backs of taxpayers.

Another similarity to Japan: we are increasingly unable to do public projects. Too much has been done on debts while taxes have not kept up. Japan, the UK and the USA have all done this more than any other nations. This credit crisis developed when these three nations swore, there was virtually NO inflation. This obvious lie is revealed when we look at the increase in debts and how the ability to pay has deteriorated. I would imagine the IMF should be saying something about all this. Another funny detail is, Japan has a huge debt like the US but also has a huge FOREX reserve unlike the US. We have to keep in mind how Japan differs and why we must be careful to not imitate the wrong parts.

Florida suspends withdrawals from state investment fund

Florida today suspended withdrawals from a state investment fund after cities, counties and school boards -- fearful of the fund's financial stability -- withdrew $3.5 billion in just one day.

The State Board of Administration -- the governor, attorney general and chief financial officers -- voted unanimously to at least temporarily halt a run on the fund, which has reported withdrawls totalling $10 billion in the past several weeks. That's more than one-third of the fund's assets of $28 billion.

This is the beginning of another house of cards collapsing. Pension funds are very vulnerable to big-investor fraud schemes. The people running these funds are both trusting and inexperienced compared to the vultures and cannibals running the pirate fund schemes. They can't wait to unload crummy deals onto pension funds! This is fun! Now we see yet another run on a financial institution. This banking crisis is far from done. And I can't see how super-cheap money will save us from this since this was caused by super-cheap money in the first place! Pensions should be able to bank their money in a bank and collect off of CDs that pay a good rate! But these don't exist anymore.

Avoiding a Recession

By PETER MORICI

Near term, the Federal Reserve should further lower short-term interest rates to ensure sound businesses have access to credit at reasonable terms. As needed, it should buy 10- and 20-year Treasury securities to keep down long-term interest rates.

Treasury should organize, for immediate action by Congress or through the private sector, a three-year program to permit homeowners, who can make payments, to convert ARMs to fixed-rate 6.5 percent mortgages. That would require federal guarantees or subsidizing private insurance, and such intervention is usually not desirable, but the economy is in a crisis.

Finally, if China insists on subsidizing U.S. purchases of yuan to finance exports, the U.S. government can tax conversion of dollars into yuan to ensure those exports are sold at market prices in the United States. Washington could use the revenue to pay off the bonds held by Peoples Bank of China.

This Counterpunch article is a classic: blame China. Demand cheap credit. Tell Bernanke to buy our own bonds, the Gollum Sachs head of the Treasury can sell these to the Federal Reserve which has no reserves. Reserves are both gold AND OTHER CURRENCIES. This clown wants to keep rates low for a long time? And the fix for homeowners by making those 2% teaser rates reset to 6.5% won't fix anything. The homeowners took the teaser rates because they couldn't afford regular rates of 4.75% at that time! The Santa Claus economy can run some more but the train has left the station as far as those helpless homebuyers who bought recklessly are concerned.

Culture of Life News Main Page

Golden Goose Gets Even More Alt-A Loans From Fed Reserve

November 28, 2007

Elaine Meinel Supkis

I want to preserve this bizarre headline page from Market Watch. The talking heads on TV have convinced everyone that Bernanke Santa Claus is planning on dropping a huge safe and a grand piano on the economy's head and this will bring us endless wealth and happiness. Of course, we are falling into the Japanese deflationary pool except we will refuse to shrink our consumer base. The real elation here is the idea that all we need to regain Paradise is to do what we have done for the last 40 years: spend and spend and don't pay off any principal, go for those teaser rates out of the Japanese carry trade!

U.S. Stocks Stage Biggest Two-Day Rally Since 2002; Banks Gain

U.S. stocks staged the biggest two- day rally in five years, led by financial shares, after Federal Reserve Vice Chairman Donald Kohn buttressed expectations for another interest rate cut.

Citigroup Inc., Lehman Brothers Holdings Inc., Morgan Stanley and Goldman Sachs Group Inc. rose more than 5 percent as banks and brokerages in the Standard & Poor's 500 Index gained the most since 2002. EBay Inc. and Amazon.com Inc. helped push the Nasdaq Composite Index to a 3.2 percent gain after Sanford C. Bernstein & Co. forecast a ``strong'' fourth quarter for both.

``Kohn's comments just add to a perception that the Fed is embarking on a sustained path of easing,'' said Michael Metz, the New York-based chief investment strategist at Oppenheimer Holdings Inc., which manages $60 billion. ``There's also huge relief that the worst of the financial crisis may be behind us.''

Well, well. well. Look who benefited the most from the rumors that the Bank of Japan Federal Reserve is going to keep interest rates at historic lows for another 15 years drop interest rates to below Greenspan's 1% rate in 2003. Why, it has been only two whole years since the rates were below 2%! And look at what happened! We went into this banking crisis and economic collapse. What should we do?

Of course, the answer for all small children and irresponsible adults is to ask Santa Claus to give everyone lots of free toys. I have warned bear traders and short meisters to beware, the Gollum Sachs people have more than one ring to rule them all! They are not finished with us all yet! Not at all.

I said some time ago, the game won't end until the Chinese slam the door shut on our fingers. Their plan is to feed, nay, stuff the Golden Goose before eating its liver. And the goose is still waddling about. Now, a smart goose would notice the intentions of the Dragon feeding it but this particular goose imagines it can hang out a few years longer and then attack the Dragon or declare bankruptcy and then attack the Dragon.

This foolish plan has obvious flaws. One of which is, the Dragon expects the Golden Goose to lay a nuclear egg. So it has been working with the Russian Bear to deal with this possibility. We could still get WWIII but both the Bear and the Dragon have experienced world wars before and have no desire to have one now. So I expect them to give the Golden Goose some room and more feed and will wait, patiently.

``If the Fed can be easy enough to keep us out of recession, the market will be higher one year forward,'' said Philip Orlando, chief equity market strategist at Federated Investors Inc. The firm manages $44 billion of stocks.

OK: $44 billion in stocks. If this were to be a normal bear market, usually stocks lose about 30-75%. This is a huge drop. If one waits it out, one can recover and more but time is money. And money with interest costs more as time passes. Since most of our financial speculative system ended up being based on people taking on loans from the Magic Box in Japan, they have to turn these loans over like clockwork because the carry trade loans are not for 30 year mortgages, these are short term loans. Let's call them 'teaser rates.' You are stuck owing the whole amount but the game has become a system of simply going out and getting new loans.

The M3 money supply growth rate for Europe, the US and Japan has totally outstripped the rate of growth and gross amount of the world. The other day, I drew a chart showing how this amount of new money growth has been so high, it is roughly 11X higher than the rest of the world's M3 growth. If we look at the growth of debts in these same three economic centers, it has also grown massively and rapidly. Public and private as well as corporate debt has shot upwards since 2001. Much of this sudden surge is due to 'easy' loans.

The reason why low interest rates make everyone happy is, no one plans to ever pay off anything but the interest so this means essentially, houses, stocks, bonds, cars, trips to Disney World, all this will be pretty much 'free'. As in 'a gift from Santa Claus.' Of course, this Santa Claus has claws. And scales and big, red and golden wings. And it has plans for us that we won't like very much when it decides it is time to collect its debts due.

President Bush announced on Wednesday that Keith Hennessey will become director of the National Economic Council,

replacing Al Hubbard, who is joining a growing line of top presidential advisers exiting the White House as the Bush administration heads into its final year.

Hennessey, who came to the White House in 2002, is Hubbard's deputy and has been deputy to two previous directors of the council. He served as a top budget aide to Sen. Trent Lott, R-Miss., and worked for the Senate Budget Committee.

''Keith has been an important member of my White House team for more than five years,'' Bush said in a statement. ''He has served as the deputy to three directors of the National Economic Council, and has worked on a broad range of economic policy issues.''

Five years of utter failure! All these guys are like ingrown toenails. You can cover them with Cinderella's glass slipper but you will still see the red, swollen mess inside. Yuck. These guys have been negotiating and ripping apart regulations that protect us from bubbles for the last 40 years and the last thing we need for advising any President is anyone who is connected to any of this present mess. This excludes a lot of people. But seriously, how else can we change course?

The President, instead of insisting on telling the truth, wants lies. Bush spend his entire life lying about nearly everything. He is a multi-arrested criminal AWOL who can't tell where he was from 1972-1975, for example. A long lost weekend binge. He couldn't succeed at any business and his family has to run off to Arab kings and Chinese overlords in order to make money. I call this 'treason' but it seems many Americans like that dunce, Cramer, think it is totally, like, RAD that we sell ourselves to the Asian powers who will be our bosses.

England is now very mired in a banking crisis due to the huge overhead of debt which is like a dead hand on the Ship of State. If they make it easier to get loans, this will not fix anything since the nation is over 100% in debt, so to speak. The USA still has room to go before reaching that particular ceiling. This is why I warned bears that we still have a ways to go before we are served for dinner. Time to waddle about the courtyard, going 'honk, honk.' I believe the intention is to drive us to that fatal 100% so the ruling class can demand the destruction of all social services. This cruel future is how they plan to depopulate the earth. They do not want nuclear war, they want what they did to Iraq.

Disarm a nation via the UN weapons inspectors, attack and wreck everything, kill a million people and make 3 million refugees, cut food and medicine so the children die. Terrorize the survivors and build walls and make the whole place a prison. This cruel form of the Japanese Co-Prosperity Sphere we stopped in 1945 is now our model. But it is very expensive. And to pay for this, the rulers are trying to cut funds flowing to citizens who want to stay alive. Since the occupation of angry nations is very expensive, the ruling elites skim off about 20% of the costs and this is making them all very rich. They can't skim the programs that keep the elderly or disabled alive. These are considered losing propositions which is why they are increasing money for mercenaries in Iraq while cutting doctor's reimbursements for Medicaid and Medicare.

The departing Financial Advisor to our criminal leader wanted desperately to tax health insurance for workers so as to discourage them getting health insurance, for example. This proves to me, the Golden Geese ruling us want us dead. Of course, they are too stupid to figure out, this program is being set in motion for themselves.

Defaults by Eight Companies in CDX `Conceivable,' Wachovia Says

Trading in a benchmark credit derivatives index suggests eight of the 125 companies in the index may default, a situation that ``is certainly conceivable'' if the economy deteriorates significantly, Wachovia Corp. analysts said.

The Markit CDX North America Investment Grade Index, used to speculate on the creditworthiness of companies including mortgage lender Countrywide Financial Corp. and homebuilder Lennar Corp., is trading at levels that imply at least eight defaults in the next five years, Wachovia Securities analysts led by Richard Gordon in Charlotte, North Carolina, wrote in a report yesterday.

You see, if interest rates are super-low, then people can't make up for inflation and the low rates cause inflation so we get this cycle where people need to invest in dangerous, risky schemes in order to earn much more than if they simply plunked down their cash in a bank and collected interest! The CDX problem can be solved by dropping rates to 0.5% like in Japan. Then the lenders can borrow and never pay any principal and they can, in turn, lend to others at this same deflationary way but it causes inflation in key sectors which is property, oil and gold. And inflating these things destroys the INDUSTRIAL BASE. As we can plainly see. When Greenspan dropped rates to 1%, we didn't see any industrial growth, we saw a wild game of bidding up various non-capitalist things like gold, artwork, townhouses, base ball players, etc. Astronomical sums were offered for vapid things that are most definitely not expanding the industrial base or improving infrastructure like railroads or ports.

Below is a chart I sketched showing how the Fed wishes these deliberate bubbles they make should make us all richer while the lower chart shows what is actually happening if we look at all the data with a sharp eye and deduct inflation from the statistical background numbers. The 2000 bubble was bigger than the 2006 bubble when it popped. As the interest rates are capriciously reset, each time this is done to give the Golden Goose more food, the beneficial effects are smaller. The US economy is definitely shrinking. Since 70% of our economy is simple consumption, this means the ability to buy things is declining. To keep up the illusion of economic good health, very low loans are offered. Only these have to be attached to something, anything.

Which is why it gets attached to houses. And here is the rub: people have very little housing to offer for these loans. So they can't tap into these marvelous interest rates. The stock market today took off like a rocket due to a perverse faith in the notion that if the economic data is very bad, the Fed will bail everyone out and so everyone anticipates this and has a big party while waiting for this rescue. Of course, the Fed should punish them for this! If there is a giant surge of buying before the Fed discusses rates, this means the pain is FAKE. And the Fed should leap upon them all and RAISE RATES. Lord knows, my money sitting in the bank isn't making me richer! If they cut rates, this is THEFT. Stealing my money in order to give speculators on Wall Street a wild party pisses me off.

The Next Subprime Dominos to Fall: Junk Bonds and Hedge Fund Risk Insurers

By: John_Mauldin
The economic climate that enabled a transformation in the credit markets over the last five years simultaneously prevented the system from being tested. The machine hummed at ever increasing velocity as long as companies received cheap financing, borrowers repaid lenders, and expectations remained cheerful. A downturn in the real economy, or just expectations of pending credit problems, needed to arise before the imbedded leverage in the system could cause harm. As soon as either occurred, however, the machine would screech to a halt.

Given their subordination in the capital structure, junk bonds (or, euphemistically, high-yield bonds) are a logical place to look for the first signs of trouble. Statistics of high-yield issuance reveal relaxed lending standards in a marketplace determined to ignore risk. In each year since 2004, more than 40% of all new debt held ratings below investment grade. For perspective, the proportion of new paper of such poor quality issued in each of the last four years far exceeded the proportion of such issuances in any year since the late 1980s.

Why are we repeating this mistake? The Fed told us, they dropped rates suddenly while the Congress and the President dropped taxes and declared not one but two wars, this was all done because our economy was contracting. They claim they are actually a branch of the Soviet Union's five year plan type of government. Their sole function is to regulate prices [WHAT THE HELL???] and provide liquidity! This bizarre idea is muddied further by the belief that the Fed exists in order to CREATE JOBS. What?

This is why they play these stupid games. The Chinese are restricting the ability of banks to issue loans in order to PREVENT a bubble which is caused by banks lending at a too-low interest rate to irresponsible people. I remember before the Asian Currency Crisis, banks in Thailand, the epicenter of that crash, were lending money to anyone and everyone on very easy terms. People picked up money and then went bust in a matter of months, not many years of struggle.

The US is like that. A huge number of people who got loans in 2005 and 2006 defaulted in less than one year! This is just amazing and stupid and a good way to initiate a currency crisis! So what did the US and the IMF do to Thailand when they did this?

Did they let Thailand drop interest rates and do more loans? Or did they HAMMER THAILAND and force them to save and drive up interest rates? Ah, yes. We were very cruel when we did this. It started the infamous IMF riots there. As it does, everywhere. Since the G7 run the IMF and since they are co-conspirators in the scheme to keep the USA spending and spending, importing and importing, far from punishing us, they pet us.

And China feeds us. We are the Golden Goose. Aka, Dinner.

Culture of Life News Main Page

Paying Principal Is The Only Solution To Debt Crisis

November 28, 2007

Elaine Meinel Supkis

A key element in today's banking crisis is the problem of never paying off any principal on loans. Once a feature of credit cards, this has spread like a cancer. The problem with SIVs, for example, is connected to never paying off principal on loans that are used to buy CDOs and gamble in the FX markets. The rising level of debt in all the major economies in the West and Japan are now causing liquidity to disappear. Also, lies about employment and inflation statistics bedevil banking to the point, everyone has lost trust with each other. I also predict that China will evntually win its currency war with Japan and finally force up the yen so it is properly valued vis a vis the dollar AND the euro. Then, China will raise the value of the yuan to the appropriate level.

Apple Bucks Trend as Stores Show `Gravitational Pull'

Cheng Jian Wei, on a 24-hour visit to New York from China, was willing to risk missing his bus to the airport for the chance to buy his son an iPod at Apple Inc.'s Fifth Avenue store.

His determination helps explain why Apple's 178 U.S. stores may outshine other retailers in what is shaping up as a lackluster holiday selling season. The National Retail Federation predicts a 4 percent revenue gain in November and December, the smallest since 2002, after consumer confidence fell.

I have been an Apple user for many years now. Since the IMac. I go to their stores in NY periodically to make purchases. The esthetics of their stores are quite pleasing. The staff is uniformly pleasant and interfacing with them when I have problems with my computer is easy and keeps aggravations to a minimum. There are systems failures with the more radical Apple products, of course. But my first IMac is still being used daily by my ex-husband, for example. This one is around 8 years old. We had the image card on our IMac that is 6 years old fail on us and this ticks me off but we hooked it up to a regular monitor so the computer still works just fine.

The main thing about Apple is, they have a leadership that has good taste. The way things look and feel matters. Apple's artistic designers have launched a number of iFads in design. Heh. Apple, like all manufacturers, has moved much of its business to China. I will note that this story about Apple's success in attracting sales for the sake of touring their stores and taking pictures there [yes, I have done this myself] features a Chinese visitor who went out of his way to visit Apple.

Yes, the transfer of not just manufacturing and technology to China also involves a huge cultural transfer. The stores that are attracting Asians are sensitively designed shells that displays things differently from the warehouse look that so many US box stores are addicted to. If one wishes to make a profit, sometimes less is much, much more. And the melding of the Asian esthetic struggles to overcome the US tendency towards jamming lots of junk in one place. I go into American homes and see a pack rat mentality overwhelming the living space. Go into a store and it reflects this. Apple's involvement in Asia definitely has strongly influenced its vision of how to organize store space. I wish more places did this and maybe we will have a less cluttered culture.

China could become ma