http://www.financialsense.com/editorials/h.../2007/0315.html

...the economy has been performing with less debt productivity each year, meaning it requires more and more debt each year to produce a dollar of national income than the year before. Like a drug junkie, the economy demands the generation of more and more debt each year to survive. The debt ratio has now reached 460% of national income - - an all-time high and shows no sign of even slowing its upward march.

...
In 2006 alone it took $6.32 of new debt to produce one dollar of national income. What kind of 'so called productivity' is that? Answer > Negative Productivity.
...
The total external debt of USA (U.S. financial assets owned abroad) as of 9/30/06 was $10.3 trillion, representing 21% of America's Total Internal and External Debt of $48 Trillion shown at the top of this page. This external debt increased $1 Trillion (+11%) last year, representing 26% of the increase in total debt. Of that $10.3 debt owed internationally, the federal government and banks each owe more than $2 Trillion, and the rest of the financial and business sectors owe another $5.2 Trillion - excluding intercompany debts.

As of 2004, according to Gillespie Research/Federal Reserve, those U.S. financial assets owned abroad included 13% of all stocks and 27% of corporate bonds, and foreign investors & central banks also owned 13% of U.S. government agency debt (such as household mortgages financed by Fannie Mae) up from 5% in 1995. The largest supplier of mortgage funds is Fannie Mae which borrows the money on the open market - - and, according to Bloomberg Sept. 2002, "about a third of the Fannie Mae's benchmark debt is sold outside the U.S." - - (dangerous with a long-term falling dollar exchange rate).

We should not be mad at foreign interests. We are the ones borrowing from others so we can consume beyond our own production and savings, thereby creating unprecedented debts and trade deficits PLUS excessive government spending. While America's debt used to be nearly all owed domestically, increasingly huge portions are now controlled by foreign interests.

America, therefore, is less and less independently in control of its economy- - not a nice bequest we are creating for our children and grandchildren.

...

A Few Hard Questions > With the lowest personal savings rate on record, with the federal government relying more and more on foreign entities to lend it funds to operate and prop up its currency, and with run-away trade deficits, where will this debt monster lead? Does America simply borrow savings of non-Americans until either they stop lending or until America has mortgaged or sold-off all its assets to others?

Esteemed Economist Ludwig von Mises stated the endgame brought on by reckless expansion of credit (debt): "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

"I place economy among the first and most important virtues,
and debt as the greatest of dangers to be feared." - Thomas Jefferson"

...I like that, sounds like a new signature to me.

The Republicans like to call it "money we owe ourselves". It's really money we owe to international bankers. In other words, it's money we owe to money. Those bankers owe their lives to money. All of humanity is enslaved. Money itself is the slave master.

You've talked a lot about the machine and the money meme and I've talked a lot about how Technocracy, as a form of goverment, has replaced both Democracy and Communism. How do you see these two streams of thought related?

Technocracy is the machine. Democracy is humanity. Humanity can use technology as long as it doesn't expect the technology to do it's thinking for it. Once it does, you have Technocracy.

We have not been "independent" for a long long time. In case you've been away, something called "globalization" has happened. Here's how it works - The Chinese manufacture all the crap we buy, the Indians handle all our 1-800 calls, the Arabs sell us the oil to which we are addicted, and the FED prints the fiat currency that the world is forced to use (Saddam didn't and paid the price).

Before we all condemn the international bankers (who are certainly not angels by any means) we should remember that we have not had a world depression since the 1930s. And that led to a world war.

The era of the international banker has resulted in the longest war-free (not conflict-free) period of American prosperity in history.

Whether at a community, national or international level, Bankers are Gate Keepers. They don't typically own the green stuff behind the gate. If they have the support of the Sherrif and the
Preacher, they get to act as though they owned it.

The Bankers are the Masters of the Universe.

At least I give them credit for having done a passable job.

For the USA at least, not necessarily the 3rd world.

http://www.chron.com/disp/story.mpl/busine...fy/5137359.html

Business: Loren Steffy

Sept. 15, 2007, 1:56AM
Fed lacks the power to dictate prosperity

By LOREN STEFFY
Copyright 2007 Houston Chronicle

The market's eyes will be on the temple this week.

On Tuesday, the Federal Reserve's Open Market Committee will file through its marble-lined halls and vote on what's likely to be the first interest-rate cut in four years.

The stock market has been anticipating a reduction in the federal funds rate for weeks, and now the debate is about the size — a quarter-point? a half-point? — and whether that will be enough to restore economic prosperity.

It won't.

Despite what may be implied on the cable channels, prosperity can be encouraged by the Fed, but it can't be dictated.

In the past month, credit markets have constricted and banks, investors and consumers have all become more concerned about the economy.

Reasons for worry abound, from Friday's weaker-than-expected retail sales numbers for August to last week's jobs report — a decline of 4,000 rather than the gain of 100,000 that most economists predicted — showing the first drop in four years.

Assuming the Fed goes through with the cut, it's important to remember why it's doing it. It's not about offering a life raft to Wall Street or propping up the stock market. Those would merely be side effects.

One of the Fed's mandates is to maintain the stability of the financial system and contain "systemic risk" in the markets. That doesn't mean the Fed must shield us from stock market declines, but it does mean the Fed should take action against anything that threatens the underlying economy....

Rock and a hard place.

If the FED cuts the rates, global investors will pull their $$$ out of Wall $treet and move to Euroland or Asia.

If FED hikes the rates, global investors will keep their $$$ here, but the housing market will tank.

Alan Greenspan left just in time.

If you think the white was sccessful last week in reducing the wall of worry, sell stocks because they are said to rise on a wall of worry. If you think the white house propoganda was not successful, buy stocks.

Not bad advice...but for how long? That's the question.

Meanwhile I keep getting these emails:

Your credit score does not matter to us!

If you have your own business and need IMMEDIATE money to spend ANY way you like or require Extra money to give your business a boost or want A low interest loan - NO STRINGS ATTACHED, here is the deal we can offer you TODAY (hurry, this offer will expire TODAY):

$27,000+ loan

Hurry, when the deal is gone, it is gone. Simply Call Us...

Do not worry about approval, your your credit report will not disqualify you!

Call Us Free on 877-292-****

http://www.voanews.com/english/2007-09-19-voa61.cfm

US Treasury Asks for Increased National Debt Limit
By VOA News
19 September 2007



U.S. Treasury Secretary Henry Paulson is urging Congress to raise the national debt limit, which the government is set to hit by October 1.

In a letter Wednesday, Paulson asked lawmakers to increase the amount of money the country can borrow, currently set at more than $9.5 trillion. He urged quick action from Congress, saying uncertainty in the U.S. Treasury could worsen turmoil in financial markets.

The national debt represents the accumulation of all of the country's annual budget deficits.

If legislation passes, it would be the fifth time the government has raised the debt limit since President Bush took office in 2001.

This administration promoted greed and hate. If George Bush were not President he would be a sub prime lender foreclosing homes in New Orleans. ( what homes?)

or George Bush would be in the middle of the Hunt Oil deal with the Kurds in Iraq. ( Oh he is anyway sooo!)

But the worst was today when he said Saddam Hussein killed all the Mandela s in Iraq and Chaney in the past always labeled Mandela as a terrorist.

I did not know Alan Greenspan was a Libertarian. Yesterday when interviewed on News hour it came up.

I'm not surprised - true economists would seem to me natural libertarians.

Meanwhile, the folks not directly smacked around by subprime mortagage problems
are starting to tell the THE FEDERAL GOVT "don't try to fix too much...you can
screw things up worse for the rest of us!" Sounds libertarian to me...
http://money.cnn.com/2007/10/03/real_estat...klash/index.htm

Subprime: Bailout backlash
Not everyone favors helping troubled homeowners, lenders and investors stung by the subprime crisis.

By Jeanne Sahadi, CNNMoney.com senior writer
October 3 2007: 12:12 PM EDT


NEW YORK (CNNMoney.com) -- As the list of proposed remedies to the subprime crisis has grown longer, the chorus against government action has gotten louder.

On Wednesday the Democrats called on the White House to increase funding and implement proposals for foreclosure prevention.

But judging from the hundreds of reader responses CNNMoney.com has received in recent weeks, "foreclosure prevention" sounds a lot like "bailout" to many Americans, and they don't like it one bit.

"Let the lumps fall where they may. No bailouts! The greedy banks, local gov'ts, realtors and developers caused it and they deserve this beating." - posted by John, Richmond, Va.

"No rewards to the people that [k]new buying was way out of [their] means. They get rewarded for [being] irresponsible and I get nothing for being responsible!" - posted by Kurt Torrance, Calif.

---------------

In other words they don't want the federal debt increased, the debt ceiling increased,
the trade deficit increased, inflation increased and more and more interconnectivity
of the government and the economy...and the power grid...and everything else.

This borrow and spend mentality will come due...and those who have conspired
to sell it like "Smiling Bob" won't be around when the lights go out.

http://money.cnn.com/2007/10/05/news/compa...sion=2007100516

Merrill suffers $5.5B subprime hit
Firm says it will take a loss in the third quarter,
becomes latest bank to reveal its exposure to bad subprime bets.

By David Ellis,
CNNMoney.com staff writer
October 5 2007: 4:28 PM EDT


NEW YORK (CNNMoney.com) -- Wall Street bank Merrill Lynch warned Friday it would report a third-quarter loss with its bottom line taking about a $5.5 billion hit as a result of this summer's subprime crisis.

Citing "extremely difficult" market conditions and a lack of liquidity, Merrill said it would post a net loss of up to 50 cents a share when it reports its quarterly results later this month.

The New York-based bank blamed its exposure to the subprime mortgage market and collateralized debt obligations, known as pools of bond securities that are grouped together to help diversify risk.

The company said as a result of its exposure in these two areas it would take a $4.5 billion writedown. It also warned it would take a $967 million writedown on a gross basis due to leveraged loan commitments.
...

Morningstar analyst Ryan Lentell characterized the announcement as a "one-time event," saying that it wasn't much of a surprise given similar writedowns announced by other investment banks in recent weeks.

Just this week, both Citigroup and UBS took about $3 billion in writedowns, while Washington Mutual announced earlier Friday it expected its earnings to tumble 75 percent because of loan losses and mortgage writedowns.

While some firms like JPMorgan Chase have been mum about their subprime exposure, Merrill's warning appears to be the biggest hit suffered by a Wall Street bank to date.
...
Merrill shares jumped more than 2 percent in late morning trade on the New York Stock Exchange.

How does that work?

As you may have read...I'm bewildered by how the Dow Jones is up, up, up...while the economy for workers and the middle class is stagnant, or actually falling, falling, falling when you consider energy, food and health insurance prices.

So, the simpleton I am, I checked the top 7 gainers on the Dow Jones today...surprise surprise...not only is our national debt skyrocketing, but American investors are also sending money to companies outside the United States at a skyrocketing rate:

http://money.cnn.com/data/gainers/nyse/?
Top Seven DJI Gaining stocks 10/9/07:

STV China Digital Tv Hldg Co Ltd 51.08 +11.59 +29.35% 18,442,195 (shares traded)
(another, unlisted by name, STV stock) 4.48 +0.85 +23.42% 10,565,375

LDK Ldk Solar Co Ltd(Chinese Co.) 44.79 +7.29 +19.44% 31,388,185

QXM Qiao Xing Mobile Comm Co Ltd 11.75 +1.45 +14.08% 1,760,900

ADY American Dairy Inc (sound American? Think again: HQ -C 16 Shin Chen International Building N Jiu-shen Road Zho Yan Chu China) 22.48 +2.58 +12.96% 295,500

ATS Apt Satellite Holdings Ltd (22 Dai Kwai Street Tai Po Industrial Estate Tai Po New Territories Hong Kong, China) 3.78 +0.42 +12.50% 2,670,400

SAT Asia Satellite Telecommunications Holdings Limited 26.28 +2.80 +11.92% 30,700

MTL Mechel (Russian coal and steel producer) 66.46 +6.95 +11.68% 2,363,200


After 5 minutes Googling it becomes clear...big investors profit...China and Russia profit...but the American working and middle classes...get further screwed. This is the great expansion, the great economic improvement we all are supposed to see?

Get ready folks...as the GOP cheers...America vanishes as the leading economic power.

Haven't you heard?

We are now the "ownership society" according to the MBA - in chief. Our job is to own stock and consume what those Chinese companies we own make.

And the market is up because...

People have an awful lot of US dollars, and they have to put them SOMEWHERE. Might as well be Wall $treet

http://money.cnn.com/2007/10/11/news/econo...it.ap/index.htm

U.S. budget deficit hits lowest level in 5 years
Deficit falls to $162 billion, the least red ink since 2002.
October 11 2007: 1:49 PM EDT


WASHINGTON (AP) -- The Bush administration reported Thursday that the federal budget deficit fell to $162.8 billion in the just-completed budget year, the lowest amount of red ink in five years.

The administration credited the president's tax cuts for helping generate record-breaking revenues but warned of an approaching "fiscal train wreck" unless Congress deals with unsustainable growth in Social Security, Medicare and Medicaid.


The deficit for the 2007 budget year that ended on Sept. 30 was 34.4 percent lower than the $248.2 billion deficit recorded in 2006, reflecting faster growth in revenues than in government spending.

Administration officials said the new figures showed the government was on track to accomplish President Bush's goal of eliminating the deficit by 2012. But Democrats said the improvement in the deficit this year did not mask the fact that Bush's economic policies transformed the budget surpluses of the Clinton years into record deficits and an unprecedented increase in the national debt.

The debate over the president's signature tax cuts and their affect the economy is certain to be played out in the coming presidential campaign. Republican candidates are vowing to make permanent Bush's tax cuts, which are due to expire at the end of 2010; Democrats want to roll back the tax cuts received by the wealthiest taxpayers.

"This year's budget results further demonstrate how the president's tax relief, combined with spending discipline, has helped promote a sustained economic expansion, which led to revenue growth and resulted in a declining deficit," said White House budget director Jim Nussle.

But administration officials said while the short-term budget deficit was improving, greater efforts were needed to deal with the budgetary pressures that will arise in future years with the approaching retirement of 78 million baby boomers.

"For the sake of our children and grandchildren, Congress should begin to take action to prevent this fiscal train wreck," Nussle said in a statement accompanying the budget figures.

Senate Budget Committee Chairman Kent Conrad, D-N.D., said that Bush would "go down in history as the most fiscally irresponsible president ever. The fact is that the nation's debt has exploded on his watch - rising by $3 trillion since 2001, to $9 trillion today."

Bush recently signed into law a measure increasing the government's borrowing ceiling to $9.815 trillion. It was the fifth debt increase of Bush's presidency. The national debt is the accumulation of the annual deficits.

During the Clinton administration, the federal budget ran a surplus for four consecutive years, something that had not been accomplished for seven decades.

While there were projections that the budget would run up surpluses of $5.6 trillion over the next decade, the bursting of the stock market bubble in 2000, the recession that followed in 2001 and the terrorist attacks, which led to increased military spending to fight wars in Afghanistan and Iraq, pushed the country back into deficit spending.

While the administration contends that Bush's first-term tax cuts helped jump-start economic growth and are contributing to record revenues currently, Democrats dispute that view, saying the tax breaks were too tilted to the wealthy and actually have contributed to the record deficits.

The deficit hit an all-time high in dollar terms of $413 billion in 2004 and has been coming down since. It fell to $319 billion in 2005 and $248.2 billion last year.

The Congressional Budget Office projects that the deficit will improve further in the 2008 budget year, which began on Oct. 1, projecting a decline to $155 billion before the imbalance starts to rise again in 2009.
---------------------------
(Meanwhile, the trade deficit has dropped some, aided by Chinese product recalls, a lower valued dollar, and strong exports of grain and steel. Love those farmers and steel workers.)

***

Here's the scoop folks...
Republicans don't deserve all the blame, because of the market bubble bursting in 2000, 9/11 and the ensuing war in Afgahnistan. But, they do deserve the blame for not reducing other spending in war time and for expanding war into Iraq. They will try to blame the current Democratic Congress for not coming up with ideas to sustain Social Security and Medicare (when they even talk about it), forgetting they controled Congress for most the Bush Presidency. And, they will point out that
the tax cuts increased revenues - and that is correct. What they won't point out, but should be a major issue in the 2008 campaign, is THE DEBT.

Personally, these are major reasons I have changed from fearing Hillary to hoping for her.
Her family has a history of balancing a budget.

Its going to make a lot of difference how the economic issues gets framed between now and the election. This is something I'm trying to learn more about. I don't yet have a clear position.

Apparently...neither do the banks yet...
while the market flys high on Chinese investments...
most the big brokerage banks (with the exception of Goldman-Sachs, congrats to those guys!) are still freaking over the sub-prime credit collapse.

Enough that the Bush Treasury Dept. is scrambling big time in
close cahoots with the Biggest Banks in the world...

http://www.nytimes.com/2007/10/14/business/14bank.html

Banks May Pool Billions to Avert Securities Sell-Off

By ERIC DASH
Published: October 14, 2007

Several of the world’s biggest banks are in talks to put up about $75 billion in a backup fund that could be used to buy risky mortgage securities and other assets, a move designed to ease pressure on a crucial part of the credit markets that threatens the broader economy.

Citigroup, Bank of America and JPMorgan Chase(in BIG trouble), along with several other financial institutions, have been meeting to come up with a plan to create a fund that could prevent a sharp sell-off in securities owned by bank-affiliated investment vehicles. The meetings, which began three weeks ago, have been orchestrated by senior officials at the Treasury Department, and the discussions have intensified in the last few days.
...

While there are signs that the broader credit markets have begun to stabilize after the Federal Reserve lowered interest rates last month, a pocket of the commercial paper market remains under siege: structured investment vehicles, known as SIVs. The fear is that problems with these vehicles could infect the broader economy.

SIVs, which issue short-term notes to invest in longer-term securities with higher yields, are often organized by banks but are not actually owned or held by them. They are supposed to be financed through the issuance of commercial paper backed by pools of home loans and credit card debt, but the loss of confidence in the quality of subprime mortgage bonds has also tainted these securities.

Analysts say that investors have all but stopped buying SIV-affiliated commercial paper, and the worry is that the 30 or so SIVs will unload billions of dollars of mortgage-related assets all at once. That would put intense pressure on prices. As Wall Street firms and hedge funds mark value of similar investments they held to their new lower values, they face potentially huge hits to their profits.

Still, the impact on the biggest banks is even more severe. In times of crisis, they are committed — either legally or to maintain their reputations — to stepping in to buy those securities. Banks have already been buying significant amounts of commercial paper in recent weeks, even though they did not have to. But if they are forced to bring those assets onto their balance sheets, they might be less willing to lend to businesses and consumers. That could set off a credit crunch and thrust the economy into a recession.

--------------------

And, there my friends is the forest.

The First of the Baby Boom Generation (1946-1964)
qualified for Social Security today. She will be 62
Jan. 1, 2008.

Suddenly the photo-op application rings a bell that
has been hanging in our belfry for decades.

According to accountants, if nothing is done with the current
system it will go broke in 2046. Administration officials will
leave that for the next administration and Congress (like their war) after making one attempt to address it. That attempt was to suggest private savings accounts - God knows how that was supposed to keep the system solvent...oops sorry, that was just to help banks and brokers...and maybe, maybe the young working guys.

Anyway, after working and contributing to the system for up to 47
years, Boomers will now have to push for a solution to the insolvency. With more than $9 trillion dollars in debt (the largest debt in history by more than 30%) left as this administration slinks off - the answer will be extremely large, and very possibly extremely painful.

The first applicant said she was glad to be at the front of the wave (and so will I, relatively, in 4 years, 2 months) which
covers 18 years, and adds up to 8,000 new applicants a day beginning Jan. 1.

Father was a business manager (until he retired about 20 years ago) and I was raised to believe Social Security might not be
there by the time I arrived. Thus, I prepared.

But, the Social Security squeeze on the federal budget will be another pressure on the over-all economic situation of Americans. One of the common pieces of investment advice is to move retirement capita from stocks and other riskier ventures to bonds and cash as you near retirement. Thus, boomers will probably step back from the stock market unless they have plenty of risk capital.

Just another note for the pad...

Sorry to be a multi-poster on this thread...but

http://money.cnn.com/2007/10/17/news/econo...sion=2007101715

Inflation pace fastest in 4 months
September's Consumer Price Index,
reflecting higher energy and food costs,
exceeds economists' expectations.
October 17 2007: 3:47 PM EDT


WASHINGTON (AP) -- Consumer inflation rose at the fastest pace in four months in September, reflecting higher energy and food costs.

The Labor Department reported Wednesday that its closely watched Consumer Price Index increased by 0.3 percent last month as energy costs, which had been falling for three months, posted an increase and food prices jumped by the largest amount since June.


So far this year, consumer inflation is rising at an annual rate of 3.6 percent. That compares with an increase of 2.5 percent for all of 2006.

The 0.3 percent CPI increase was slightly above the 0.2 percent advance that economists had been expecting. Core inflation, which excludes energy and food, was up a more moderate 0.2 percent, in line with expectations.

The 0.3 percent increase in consumer prices in September was the largest rise since a 0.7 percent surge last May, when energy prices were soaring.

Energy costs were up 0.3 percent in September following three straight monthly declines. Gasoline costs rose 0.4 percent, the biggest increase since May, while heating oil costs were up 0.9 percent.

Food costs jumped 0.5 percent last month, the largest increase since a similar rise in June. The higher prices were led by a 13.1 percent surge in the cost of dairy products and a 7.2 percent increase in poultry prices. The cost of fresh fruits, beef and pork were also up. Vegetable prices, however, fell by 4 percent in September.

-----------------
Vegetables are next....get ready...grow them or buy them.

http://money.cnn.com/magazines/fortune/for...sion=2007101806

The price of everything, in flux

October 18 2007: 6:11 AM EDT


(Fortune Magazine) -- "No one knows what anything is worth." Lately I've heard that from lots of people. We're in one of those odd periods when things feel unmoored.

Six months ago you knew, or at least you thought you knew, what your house would sell for. Now you probably don't. The bond market is quaking with fear about the credit crisis, while the stock market is saying rock on.

"Either U.S. economic conditions are really not that bad after all, or investors are suffering from a collective attack of wishful thinking," Martin Barnes, editor of the Bank Credit Analyst, wrote recently.

Valuation is supposed to be a science, sort of, but there are times when it feels more like a demented form of multivariable calculus. Bond guru Bill Gross of Pimco recently wrote that "the modern financial complex has morphed into something unrecognizable to many astute market veterans and academics."

But while you may not be able to analyze the price of a security right now, you can at least analyze the insecurity.

The first issue is that the nationwide decline in home prices that wasn't supposed to happen -- even Alan Greenspan said he didn't expect it -- and there's no historical precedent for it. Pros like Steven Romick, who heads the FPA Crescent Fund, look to the past for lessons.

After 9/11, for instance, Romick studied how Israel's economy coped with the threat of terrorism. But he says home prices haven't fallen nationwide (in nominal terms) since the 1930s.

Another issue is that our homes are assets with two dangerous traits: They are laden with emotion, and they are illiquid. While you could sell a share of IBM (Charts, Fortune 500) today, you probably couldn't sell the roof over your head in a day, or maybe even a year.

The inventory of unsold and new homes is still extremely high, which suggests that a "clearing price" -- a price that buyers and sellers agree upon -- has yet to be found. It's hard to feel secure when your feet can't touch the bottom.

But the scariest thing is that today the price of every asset -- houses, stocks, and bonds -- seems to rest on a foundation that looks increasingly shaky. David Wyss, the chief economist at S&P, puts the losses from the subprime meltdown at around $150 billion, a manageable figure in and of itself. But the subprime crisis was like a termite coming out of the wall. It made everyone start worrying that there were deeper problems.

In the past few years, there's been an explosion of what the Street calls "structured credit" -- everything from mortgages to loans used to finance LBOs was carved up into exotic new securities and sold to buyers who didn't understand what they were purchasing.

Now it turns out that Wall Street didn't understand its own mad, tangled creations either. A Bank of England official called the tests that financial firms used to measure the risk of these new products "completely hopeless." Firms from Citigroup (Charts, Fortune 500) to Merrill Lynch (Charts, Fortune 500) have declared multibillion-dollar write-downs due to losses on these products. And they're still guessing.

In August a Morgan Stanley (Charts, Fortune 500) equity analyst recommended that investors buy the stock of insurer Ambac, which guarantees the payment on billions of dollars of bonds backed by subprime mortgages. A Morgan Stanley fixed-income trader promptly fired off an e-mail calling the recommendation "absurd." "My analyst has no idea how to value" the securities Ambac guarantees, he wrote. "No one in the world can put a definitive view on recovery levels" for some of these bonds.

The subprime crisis was also the first visible sign of a weird inversion that took place during the past few years. Instead of the value of an asset dictating the amount of debt you could use to purchase it, the availability of the financing began to dictate the price of the asset.

In 2004 even the Federal Reserve Bank of New York argued that a chunk of the increase in house prices was justified by the easing of lending standards. "The price exists at the pleasure of the financing," is how one hedge fund manager put it to me recently. "That is true for stocks and houses and bonds and buyouts." But if the financing doesn't exist, or only maybe exists, then how do you determine price?

In early October a Craigslist posting, in which a self-described "spectacularly beautiful 25-year-old girl" asked for advice on meeting a man who made at least $500,000, sparked a raging debate on how you measure the value of a man or a woman.

How appropriate.
--------------------------

I do not enjoy this queezy feeling I'm relating like a tent evangelist without a crowd.
But, similarly I have this strange feeling that if I don't warn folks, some of their suffering
may be tossed on my side of the scale in the end. Crazy huh?

Out of the shadows?

http://money.cnn.com/2007/10/19/news/inter...sion=2007101905

G7 to scrutinize foreign investment funds

October 19 2007: 5:42 AM EDT


WASHINGTON (AP) -- Government-controlled investment funds from China, Saudi Arabia and other countries will face pressure this week from finance ministers of the world's richest countries concerned about their lack of transparency and potential to gain stakes in companies linked to national security.
...

These foreign funds have been around since the 1970s but have gotten much bigger in the last few years. They control an estimated $2.5 trillion in assets and play an expanding role in the global economy. Some experts say the funds - whose holdings are projected to reach $12 trillion by 2015 - could be used as instruments of foreign policy by the countries controlling them.
...

A political ruckus was touched off in Washington last spring when China's new $200 billion fund made a $3 billion investment in The Blackstone Group LP (Charts), giving it a 10 percent stake in the private equity firm whose holdings include companies that make satellite technology and software used by the U.S. military.

Several lawmakers, led by Sen. Jim Webb, D-Va., raised national-security concerns to top government officials and asked for a CFIUS review, but the officials rebuffed their request to delay Blackstone's $4.75 billion public offering of stock until the questions were resolved.
...
Some experts warn that a massive loss or failure of a sovereign fund could drag down the financial institutions that do deals with it and threaten global financial stability.

As of March, the United Arab Emirates' sovereign wealth fund was valued at $875 billion, nearly double that of Singapore's ($430 billion) and triple the size of Saudi Arabia's ($300 billion), according to estimates by Morgan Stanley.

The G7 countries whose officials are gathering in Washington this weekend, discussing the recent turbulence that has rocked Wall Street and financial markets around the world, are the United States, Japan, Germany, France, Britain, Italy and Canada.

--------------
With the price of oil hitting astronomical new highs the sovereign funds will only expand. Who's the boss?

http://www.reuters.com/article/latestCrisis/idUSN24507537

US CBO estimates $2.4 trillion long-term war costs
Wed Oct 24, 2007 1:11pm EDT

WASHINGTON, Oct 24 (Reuters) - The U.S. wars in Iraq and Afghanistan could cost taxpayers a total of $2.4 trillion by 2017 when counting the huge interest costs because combat is being financed with borrowed money, according to a study released on Wednesday.

With President George W. Bush indicating a large contingent of U.S. troops likely will be engaged in Iraq and Afghanistan for many years to come, the nonpartisan Congressional Budget Office estimated the total tab for the wars from 2001 through 2017.

CBO estimated that interest costs alone from 2001-2017 could total more than $700 billion.

So far, Congress has given Bush $604 billion for the two wars, with about $412 billion spent in Iraq, according to CBO, which is Congress' in-house budget analyst. In Iraq alone, the United States is spending about $11 billion a month, with costs escalating.
Bush is seeking another $196 billion for combat in Iraq and Afghanistan through Sept. 30 and Congress is expected to debate that request over the next few months.

CBO estimated that between 2008 and 2017, the wars could cost slightly more than $1 trillion, assuming overall troop strength is cut to 75,000 by 2013.

Currently, there are about 170,000 U.S. troops in Iraq and another 26,000 in Afghanistan.

Finance charges for the money already spent on the war will total $415 billion from 2001 to 2017, according to CBO. For the next decade, "interest outlays would increase by a total of $290 billion over that 10-year period," CBO told the House Budget Committee, which is reviewing long-term war costs.

"To put it all on our credit cards with no accountability, with no plan to pay for it, I think is the height of irresponsibility," said Rep. James McGovern, a Massachusetts Democrat who serves on the budget panel and is an outspoken war critic. "It will be just one more toxic legacy of this disastrous war we will have to leave our kids to clean up."

With national elections about a year away and public discontent with the Iraq war running deep, Democrats are highlighting the huge costs of the Iraq war as they seek $22 billion more than Bush wants for domestic social programs such as health care and education.

Bush has vowed to veto the added funding.

CBO estimated that of the $2.4 trillion long-term price tag for the war, about $1.9 trillion of that would be spent on Iraq.

---------------------

Interesting that estimates are being run through 2017...

Bush spins reports...go somewhere else and continuing the good discussion...I am learning a lot from everyone.

The Market, like the government, needs more Open and Honest democratic Regulation...
Transparancy, the opposite of Secrecy, must be the Order-of-the-Day for Government and all the Regulartory Agencies. This is how we clean up the corruption and incompetency that is preventing the Country from achieving its Goals...

The cost of carrying our credit is problematic though not yet a problem that demands our imediate attention on an Emergency bases...Much better if we put the extra energy to snazzying up our
own Operations...and take advantages of the special opportunities opening up...

http://money.cnn.com/2007/10/26/news/ct_ag...sion=2007102617

Big three credit-raters subpoenaed
Connecticut AG Richard Blumenthal investigates
possible anticompetitive tactics at S&P, Moody's and Fitch.
October 26 2007: 5:08 PM EDT


HARTFORD, Conn. (AP) -- Connecticut's attorney general said Friday that he has subpoenaed the nation's three largest debt-rating agencies as part of an investigation into possible anticompetitive practices.

Attorney General Richard Blumenthal confirmed that his office issued subpoenas Oct. 10 to Standard & Poors, Moody's Investor Services and Fitch Ratings Service.

The investigation focuses on whether the credit-rating agencies are using their dominant position to unfairly raise prices or exclude competitors in violation of Connecticut's antitrust laws, he said.

"Assuring debt ratings are honest and untainted is vital to investors, companies and government," Blumenthal said.

Standard & Poors referred questions to parent company McGraw-Hill Cos. , which disclosed the subpoena in its third-quarter report filed with the Securities and Exchange Commission.

"As stated in our 10Q filing, S&P received the subpoena on Oct. 16, and we are responding," said Frank Briamonte, a spokesman for McGraw-Hill.

Messages seeking comment were left with Fitch and Moody's.

Blumenthal said Friday his investigation is reviewing allegations that some companies rated an issuer's debt against its wishes, then ordered the issuer to pay for the service or face a possible poor rating.

His office also is reviewing whether some credit-rating agencies pressured issuers into exclusive contracts under threat of a downgrade, and whether contracts that offer a discount in return for exclusivity violate Connecticut's antitrust laws by locking out other debt raters.

Credit-rating company executives testified on Capitol Hill last month about the role their agencies played in the subprime mortgage industry's implosion last summer and whether they were affected by conflicts of interest.

Critics have said the rating agencies failed to warn investors of the risks associated with complex mortgage-backed securities, especially those with loans to borrowers with weak credit histories.

Many of those investments have plummeted in value this year.

Blumenthal said Connecticut's investigation is broader in scope than the rating agencies' actions in connection with subprime industry woes.

"The subprime loans certainly are a very significant element of the debt that is involved in our investigation that may be rated by these agencies, but certainly not the only reason for our investigation," Blumenthal said.

http://money.cnn.com/2007/10/29/magazines/...sion=2007103013

The $915B bomb in consumers' wallets
Americans have record credit-card debt and
banks are starting to sweat an uptick in default rates,
Why some fear this could be the next subprime.

By Peter Gumbel, Fortune
October 30 2007: 1:15 PM EDT


(Fortune Magazine) -- This past summer's subprime meltdown involved about $900 billion in now-suspect securitized debt, reckless lending, and consumers who buckled under the weight of loans they couldn't afford. Now another link in the consumer debt chain - credit cards - is starting to show signs of strain. And the fear that the $915 billion in U.S. credit card debt (an uncannily similar figure) may blow up has major financial institutions like Citigroup, American Express, and Bank of America strapping on their Kevlar vests.

Last month, as banks reported their worst quarterly results since 2001, concerns about rising credit card delinquencies began to make their way onto earnings announcements alongside mentions of subprime woes.

First Citigroup, reporting a 57% decline in earnings, cited higher consumer credit costs and said it would put aside $2.24 billion in loan-loss reserves to cover future defaults.

In describing the situation to analysts, CFO Gary Crittenden said Citi's credit card holders were beginning to increase the balance on their cards or take cash advances on those cards for the first time - behavior that, in his experience (which includes seven years as CFO of American Express), can translate into future trouble. Citi said the change in loan losses was "inherent in the portfolio but not yet visible in delinquencies."

Then American Express said that it too was seeing "signs of stress" and would boost its loss reserves in its core U.S. card unit by 44%. Capital One, Bank of America, and Washington Mutual all said they are bracing for a 20% or higher increase in credit card losses over the near and medium term.

So are U.S. credit cards going to be the catalyst for the next seizing up of the global credit markets? It depends on whom you ask.

"We are in a heightened state of alert to monitor a potential domino effect," says Michael Mayo, Deutsche Bank's U.S. banking analyst.

Dennis Moroney, an analyst at TowerGroup, expects credit card delinquencies will rise as consumers, who have until now used home-equity lines of credit to pay off their cards, start ratcheting up higher card debt. When housing prices were rising, it was easy for consumers to tap the escalating values of their homes to keep borrowing. With the home-equity spigot turned off, over-leveraged consumers may have trouble keeping up with payments.

The doomsday scenario would play out something like this: Just like CDOs and other asset-backed securities, credit card debt is sliced, diced, and sold off again as packages of securities. Rising delinquencies would hurt not only the banks involved but the securities backed by the credit card receivables. Those securities would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.
------------------

If the fed cuts interest rates again this week...it will feed this debt beast...anyone listening?

I thought our goverment has been taking loans from the chinese for years. The majority of our economic debt is to China. If they called in the loans we could not pay. It does not take war to take over a country. Debt will do it....

http://www.businessweek.com/ap/financialnews/D8SKFDHG2.htm

The Associated Press October 31, 2007, 5:40PM ET
Why the Fed won't cut in December

NEW YORK

Here are some reasons the Federal Reserve is unlikely to again cut interest rates at its next policy meeting in December.

All bets are off if more systemic freeze-ups occur in various segments of global financial markets between now and then, spurred by evidence that the subprime-induced problems are deeper or wider than can now reasonably be anticipated.

And, of course, another caveat is if data show the U.S. economy fully falling out of bed by the time the Dec. 11 meeting of the Federal Open Market Committee, or FOMC, rolls around.

Excepting those circumstances, here's why the Wednesday quarter-point cut in the Fed Funds rate to a 4.50 percent target won't see a repeat in December:

-- The economy is still reasonably strong. At least the stock market thinks so, given the enthusiasm displayed by the major indexes Wednesday and for much of the sometimes frightful month of October. Technology is doing well, exports are being helped by the weak dollar, employment is holding up and at least one predictor thinks job growth went up a respectable 100,000 or so in October.

-- Inflation fears are real. Oil prices have to start biting harder as they head up to $100 a barrel for crude. Food prices are high. Demand from China and India won't let up. The dollar is weak and further rates cuts will just make it weaker, which is inflationary, among other things.

-- The Fed won't let itself be seen as soft on inflation. Chairman Ben Bernanke's inflation-fighting credentials are too new. There are inflation hawks on the FOMC, and the central bank's dual mandate (inflation control and economic growth) notwithstanding, policy makers know if you lose people's confidence on inflation control all else is lost.

-- The Fed doesn't want to look like its bailing out Wall Street. Fed officials can talk until they are blue in the face about only caring about the real economy, but if they keep cutting rates with no new signs of economic fallout, they will stand more regularly accused of enabling "moral hazard," allowing risk-takers to escape the consequences of their acts. This is a very tough call. The Bank of England had to do a worst-of-all-worlds about-face after talking tough against moral hazard. That's why all bets are off on rate policy if new, real cracks appear in the markets' fabric.

-----------------

Wait, wait....after the adjustment...there will be good buys...late January or February, IMO...

November, however, is another (same old) story...

http://www.forbes.com/home/opinions/2007/1..._1031notes.html

Easy Money
Paul Maidment, 10.31.07, 2:42 PM ET

What Wall Street proposes, the Federal Reserve disposes. For the second time in two months, the Bernanke Fed, which had started its term with a reputation for being the most hawkish Fed in living memory, has bent its knee to Wall Street's pouting.

On Wednesday, the Fed's interest rate setting committee announced a 25-basis-point cut in the federal funds rate to 4.5%. In September, it had cut rates by half a percentage point, an unexpectedly large cut and its first in four years.

The rationale this time was the same as last month. The risk of recession, the meltdown in the housing market and worries about the financial services sector trumped the threat of inflation to Main Street.

It may be that the Fed spots something that the rest of us don't in the succession of multibillion-dollar write-downs from the subprime mortgage mess. Perhaps beyond the meltdowns we know--from Merrill Lynch to Citigroup to UBS - it can see either a lurking systemic risk to the financial system or a transmission of the pain that Wall Street is feeling to Main Street.


Certainly Wall Street is hurting, and hurting bad--though when a chief executive like Merrill's Stanley O'Neal can get a $160 million golden handshake for retiring after losing the company $2.6 billion through questionable asset-backed bonds and dodgy collateralized debt obligations, one wonders how bad the pain is.

Not that the broad economy is showing many signs of wounding, outside of housing. Wednesday's 3.9% growth in third-quarter gross domestic product doesn't appear to herald the onset of rate-cut-justifying recession. Deep into the current cycle, this economy is still growing steadily and creating new jobs.

The argument for the cuts is that this is the last ray of sunshine before a dark economic winter. Many economists -- includng the Fed's own -- are forecasting that growth will slow in the last three months of this year, in part because of the knock-on effect of the housing downturn and the subprime mortgage mess, before picking up again in 2008. Those of this turn of mind point to the unexpectedly low consumer confidence numbers announced earlier this week as evidence and a cause for jitters ahead of the all-important holiday shopping season.

But, as we have noted before, when the time comes to judge whether an aggregate 75 basis points' worth of cuts was the right plan, the test it will have to pass is this: Did it breathe air into dying embers or blast pure oxygen into a fire of inflation?

What's happening with the dollar, oil and gold suggests the latter. The greenback is at a record low against the euro, oil is at record highs and gold is fast approaching $800 an ounce, a high-water mark of its own. While a cheaper dollar does have the benefit of making U.S. exports cheaper--and export growth was a main driver of the economy's overall expansion in the third quarter--it also makes imports more expensive, and a further cut in U.S. rates will only push the dollar lower against those currencies against which it is already weak.


So far the impact of the falling dollar has been blunted by the fact that China is a more important trading partner than Europe, and the yuan still remains effectively pegged to the dollar. So Chinese imports are not getting much more expensive, Meanwhile, European exporters' willingness to cut margins to preserve share in their important U.S. markets is a second reason that consumer price inflation in the U.S. remains constrained.

Core inflation--consumer prices with volatile energy and food prices stripped out--is the inflation indicator the Fed watches. In the third quarter it was 2.1% up on the same quarter a year earlier. Seems modest, and lower than the 2.7% growth rate in January. But on Main Street, people still eat and consume energy. By that barometer, prices are rising. And it is not just oil and other energy sources. Food prices from wheat to milk have jumped.

Commodity prices are a leading indicator of inflation. On world markets, prices of raw materials are up--agricultural products are only the latest to the party--and the value of the dollar in which so many are traded continues to go the opposite way. That combination does not make for cheaper imports at either the gas pump or the grocery store shelf.

And at some point the falling dollar will make even Chinese imports more expensive and test the willingness of European exporters to accept lower profits magnified by their increasingly less valuable dollar earnings, once translated back into euros and sterling.

Those are the future flames Bernanke is stoking in order to keep Wall Street happy now. But where is it written that the role of good central banking is to keep investors protected from their own folly?

-----------------------------------

"It's nature's way of telling you something's wrong" - Spirit

http://www.bloomberg.com/apps/news?pid=206...Rc&refer=us

Bernanke Says Fed Sees Slower Growth, Inflation Risk (Update3)

By Craig Torres and Scott Lanman

Nov. 8 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. economy is likely to ``slow noticeably'' this quarter while high commodity prices and a weaker dollar may stoke inflation ``for a time.''
...
``The committee expected that the growth of economic activity would slow noticeably in the fourth quarter,'' Bernanke said in testimony to the congressional Joint Economic Committee. While the FOMC anticipated growth to improve later next year, ``the committee also saw downside risks to this projection'' if the housings slump spilled into spending, he said.
...
``The Federal Reserve is stuck,'' said Allen Sinai, president of Decision Economics Inc. in New York. ``If the inflation risk wasn't there, then the prospects for the economy suggest much lower interest rates.''

Markets React

Treasury notes rose, stocks fell and the dollar dropped in the minutes after Bernanke's remarks were released. The yield on the benchmark 10-year note was 4.30 percent at 11:18 a.m. in New York, from 4.31 percent late yesterday. The Standard & Poor's 500 stock index was little changed. The dollar was at $1.4696 per euro, from $1.4637 yesterday.
...

`Resilient' Economy

Recent economic reports ``suggest the overall economy remained resilient in recent months,'' Bernanke said. ``However, financial market volatility and strains have persisted.''

Household spending is likely to grow more slowly as tighter credit, weaker home prices, and higher energy prices damp sentiment, he said.
...

The economy shook off the housing slump and accelerated to an annual pace of 3.9 percent in the third quarter, the fastest in more than a year. Payrolls rose by 166,000 jobs in October and 96,000 in September. Still, Fed officials said in their statement that ``the pace of economic expansion will likely slow'' as the housing downturn deepens.

In speeches and interviews this week, Fed officials said they expect the economy to expand about 2 percent or less in the fourth quarter. Plosser told the New York Times this week that growth would have to drop below 1 percent to 1.5 percent to justify supporting another rate cut.

--------------

I'm still looking for the slowing to continue through January...
and the DJIA at 12,000 as the time to buy stocks...as the economy still has
evidence of being strong even though this adjustment should occurr to get people
off this debt train and back to reasonable, personal economic responsibility... but what do I know...

http://www.guardian.co.uk/feedarticle?id=7064299

Wachovia, Capital One say credit conditions worsen

Reuters Friday November 9 2007

NEW YORK, Nov 9 (Reuters) - Wachovia Corp said on Friday it suffered a $1.1 billion loss on subprime mortgage-related debt in October, while Capital One Financial Corp said more customers are having trouble paying their bills as the U.S. credit crisis deepened.

Wachovia, the fourth-largest U.S. bank said the value of so-called asset-backed collateralized debt obligations (CDOs) it holds fell to $676 million as of Oct. 31 from $1.8 billion on Sept. 30. The $1.1 billion pretax loss is in addition to $347 million in the third quarter, Wachovia said.

Wachovia also said it expects to boost loan losses by $500 million to $600 million this quarter, largely in geographic areas that have faced "dramatic declines" in housing values.

Wachovia shares dropped $1.83, or 4.5 percent, to $38.47 in early electronic trading. (they were down $2 immediately after the NYSE opening bell this morning)

Charlotte, North Carolina-based Wachovia joined a growing list of financial companies -- including Citigroup Inc, Merrill Lynch & Co Inc and Morgan Stanley -- that have reported losses from worsening conditions in consumer credit and capital markets.

Credit analysts at Citigroup this week estimated industrywide losses from asset-backed CDOs could reach $64 billion.
Capital One, the largest independent MasterCard and Visa credit card issuer, said on Friday its rate of net charge-offs on a managed basis rose to 3.28 percent in October from 2.86 percent in the third quarter.

The charge-off rate in U.S. cards rose to 5.11 percent from 4.13 percent in the same periods, while the rate of loans at least 30 days past due rose to 4.75 percent from 4.46 percent.
On Tuesday, Capital One boosted its forecast for 2008 credit losses to between $4.9 billion and the mid-$5 billion range. It had projected $4.9 billion on Oct. 18.

Wachovia and Capital One made their disclosures in U.S. Securities and Exchange Commission filings. Wachovia is expected to file its quarterly report with the agency later Friday.

Bank of America Corp, the nation's second-largest bank and by far its largest consumer bank, is also expected to file its quarterly report later Friday.

Separately, Wachovia said it will reduce reported third-quarter profit by $72 million, or 4 cents per share, to reflect its share of Visa Inc.'s $2.1 billion antitrust litigation settlement with American Express Co on Wednesday.
Last month, Wachovia reported quarterly profit of $1.69 billion, or 89 cents per share.

-----------------
"The market we are finding out is a lot worse than we were told," CNBC commentatory live at 8:36 a.m. CST

Patience, patience, patience...

...a little market talk...

DJIA Nov 9
13,042.74
-223.55 / -1.69%

...wait for 12,000...it's coming...

Meanwhile, while I watch the market correct...
I also look at who remains strong during such
changes - and the brokerage Goldman Sachs is impressive...

How Goldman Sachs defies gravity
While the credit markets went sour,
one investment bank made a huge,
shrewd bet - and seems to have won big.

By Peter Eavis, (written in Sept. and proven in Oct. and Nov.)

NEW YORK (Fortune) -- It is one of the most stunning bets Wall Street has seen in decades.

As the credit markets fell apart over the summer, causing the prices of hundreds of billions of dollars of mortgage-backed bonds to plunge, Goldman Sachs had already positioned itself so that it would profit massively from a decline in those securities. Thursday, Goldman reported earnings for its fiscal third quarter that were far above expectations.


Goldman made a bold bet as others faced mortgage-related losses.

While several businesses were surprisingly strong in a difficult period, the chief contributor to the earnings blowout were trades that made money from price drops in mortgage-backed securities. Goldman indicated this in its press release when it said that "significant losses" on certain bonds were "more than offset by gains on short mortgage products." (In Wall Street parlance, being "short" a stock or bond means that you will make money if it goes down in price.) "Goldman Sachs showed an ability to not only protect itself from the problems in the market but also to capitalize on them," says Mike Mayo, banks analyst at Deutsche Bank (Mayo rates Goldman a buy.)

When asked on a public conference call Thursday, Goldman's chief financial officer David Viniar declined to give a number for the amount of money Goldman made on its mortgage short in the third quarter.


Goldman doesn't provide enough numbers in its public financials to come up with an informed guess, but the firm's statement that the short trades "more than offset" bond losses that were "significant" is a clear sign that it took time to deliberately set itself up for an expected crash in the market for mortgage-backed bonds. Indeed, Merrill Lynch analyst Guy Moszkowski said Goldman's trading results were $1.7 billion above his forecast in the third quarter, according to a research note released Thursday. (He rates Goldman a buy.)

Amassing a large bearish position in mortgages would have required planning and direction from a senior level. On the conference call, Viniar said the bet was executed across the whole mortgage business, implying that it wasn't the work of one swashbuckling trader or trading desk. Of course, the prescience of the short sale would seem to confirm the view that Goldman is the nimblest, and perhaps smartest, brokerage on Wall Street. Morgan Stanley, Goldman's biggest rival, wasn't as well hedged to bond losses, while Bear Stearns' mortgage business suffered considerably in the quarter.

True, from third quarter numbers, it appears that Lehman Brothers also benefited from a short position in mortgages, but its bet wasn't big enough to allow the bank to report earnings that grew from either the previous or year-ago quarters. Goldman's net third quarter profits of $2.8 billion were substantially higher than in both those two prior periods, a notable achievement during a very testing period.

...
One of the figures that didn't seem to make sense in Goldman's earnings was a number that estimates the market risk on a broker's balance sheet. This indicator, called Value at Risk, or VaR, moved up only 5% in the third quarter from the second. If Goldman was placing big bets in volatile markets - like the short trade in mortgages - VaR might be expected to move up by more.

In other words, Goldman seems implausibly immune from the general rule in investing that higher returns almost always carry higher levels of risk. Van Praag responds that VaR didn't go up by much because Goldman reduced positions as volatility in the markets went up.

Goldman does seem to have institutionalized a higher level of trading savvy - the third quarter numbers bear that out. The market recognizes that in awarding the broker a valuation that is higher than that of its peers. Quarter in, quarter out, Goldman posts a return on equity in excess of 30%, even though it's highly leveraged, like all brokers. The high leverage should translate into at least some rough quarters. That was the case for Goldman's ailing hedge funds in the third quarter. Why is it never the case for Goldman itself?

---------------------

The market correction will be tough...but once it is rationally faced (about 12,000 IMO)
investors will return to a newly rational market with debt adjusted back to sanity.

However, if The Fed cuts rates again on the behest of the big brokers who took
part in the debt orgy (and raked in huge short-term profits) the correction will
have to be larger and the date I expect the market to resurge (late January) will be pushed back.

But, I'm just someone who likes to read...what do I know.

...still reading...

11/12/07
Dow Jones Industrial Average:
12,987.55 -55.19 / -0.42%

Holding, holding...wait for the fourth quarter
reports to come in in mid-January.

Investors Flee E*Trade;
Will Depositors Follow?
November 12, 2007, 1:38 pm

E*Trade Financial is a leader in the new generation of Internet-only lenders. But its stock got crushed Monday amid fears about a distinctly old-fashioned problem: a run on the bank.

Shares of E*Trade lost more than half of their value after the company said it expected additional asset write-downs and an analyst suggested that it might be forced into bankruptcy protection. While the bank assured customers that it remained “well capitalized by regulatory standards,” the analyst, Prashant Bhatia of Citigroup, theorized that a rush of withdrawals might leave the bank without enough funding to operate.

E*Trade is just one of many financial companies to be stung by the rapid deterioration of the subprime mortgage market. But its relatively small size, as compared to the major money-center banks, makes it especially vulnerable to a breakdown in customer confidence, which has already been shaken by troubles at Countrywide, the mortgage lender.

In a statement provided to DealBook on Monday, E*Trade called Mr. Bhatia’s comments “irresponsible” and said the report could “unnecessarily damage customers, shareholders and employees.”

E*Trade holds about $29 billion in customer deposits. In addition to offering banking services such as savings and checking accounts, it also runs a brokerage business, which allows retail customers to buy and sell stocks online.

But E*Trade’s recent troubles emanate from its own investments in mortgage-related securities. These investments include collateralized debt obligations, complex pools of securities often linked to subprime mortgages, which are loans to homeowners with weak credit or little collateral. As delinquencies and defaults on subprime mortgages have increased in recent months, rating agencies have slashed their ratings on many C.D.O.’s that were once considered as safe as U.S. Treasury bonds.

E*Trade has already warned that this year’s profits would be hurt by the subprime crisis. But the picture grew even more grim late Friday, when E*Trade said it expected to take additional write-downs on its $3 billion portfolio of asset-backed securities, which includes second-lien loans and C.D.O.’s.

What was potentially most unnerving to Wall Street was that E*Trade did not put a number on the size of the latest write-downs. E*Trade also withdrew its previous earnings forecasts, which had already been lowered several times this year.

“Management believes it is no longer beneficial to provide earnings expectations for the remainder of the year,” E*Trade said in a statement.

Hold on y'all...but, what do I know...

13,307.09 +319.54 / +2.46%

Nov 13 4:03pm ET †

credit where credit is due: WalMart.

Today the market (DJIA) closed below 13,000.
Brokers are already reviving their recently successfull chant
to the federal reserve - "drop interest rates" (to banks)
AGAIN!

It's weird when the Red Chinese have a more rational approach:

http://money.cnn.com/2007/11/19/technology...my.ap/index.htm?

China puts hold on lending: report
China denies report that banks were told to stop lending
after investment surged 26.9% in October,
though bank employees claim loans have tightened.

November 19 2007: 9:32 AM EST

BEIJING (AP) -- A government spokesman denied a published report Monday that Chinese banks have been told to stop lending to curb an investment boom, but employees said Monday that institutions are limiting new loans.

Xia Lingwu, a spokesman for the China Banking Regulatory Commission, denied a report by The Wall Street Journal that banks were ordered to hold total lending this year to the level reached on Oct. 31. That would require them to refuse most applications for new loans.

"There is no order to stop lending," Xia said. However, he refused to say whether banks have been told to reduce lending or to stop lending for some types of projects.

Beijing has raised interest rates repeatedly and imposed investment curbs to slow spending on new factories, office buildings and other assets. It worries that a glut of unneeded projects could lead to defaults on bank loans, causing a debt crisis.
...

Chinese banks routinely are ordered to stop loan growth toward the end of each year once regulators decide annual lending has reached the right level, said Andy Rothman, a China strategist for investment bank CLSA.

"We saw this start to happen in September, and then the slowdown accelerated in October as we expected. This is a very routine thing," Rothman said. "This runs for several months and then they call and say, 'OK, back to normal."'

Investments in factories, real estate and other urban assets rose by 26.9 percent in October over the same month last year despite government curbs, according to data reported last week. (while ours dropped dramatically)

An employee of the loan department of a branch of state-owned Bank of China in the eastern city of Suzhou said it was rejecting new borrowers.

"We are maintaining or reducing lending. We basically did not add any new borrowers," said the woman, who refused to give her name. "We only are lending to existing customers."

An employee of a Bank of China branch in the central industrial city of Zhengzhou said it received a CBRC order about "controlling loans" but she refused to give details. She would not give her name.

It is customary for Chinese officials and company employees to refuse to divulge their names.

----------------------------------------

It looks like the Chinese know to hold down lending, rather
than dropping prime rates (which encourage lending), when financial
institutions are crashing. Seems they know more about economics
than our "free market system" leadership.

http://money.cnn.com/2007/11/20/news/econo...sion=2007112016

Fed sees economy slowing in 2008
The central bank cut its forecast for next year
from growth of 2.5%-2.75% to growth of 1.8% to 2.5%;
market bets on rate cut in December.

...
And while Resler said he does not think a rate cut at the Fed's next meeting on Dec. 11 is a foregone conclusion, he thinks it is more likely now given what the Fed thinks about the prospects for the economy in 2008.

...
To that end, according to the most recent price of futures listed on the Chicago Board of Trade, investors are pricing in a 92 percent probability that the Fed will lower its key federal funds future rate by a quarter of a point to 4.25 percent on Dec. 11.
...
Shares of Freddie Mac plunged more than 30 percent Tuesday after the company announced a quarterly loss and said it may have to cut its dividend due to concerns about its capital.

Jack Ablin, chief investment officer for Harris Private Bank, called the problems at Fannie Mae and Freddie Mac a "big setback for solving the credit crunch" and said that fears about the financial health of these two companies could keep the Fed in easing mode for the foreseeable future in order to make sure that the mortgage crisis doesn't deepen further.

"The Freddie and Fannie situation is ominous," Ablin said.

...
Resler said, however, that he saw a disconnect between the Fed's growth outlook and unemployment forecast. He said if the Fed's most pessimistic predictions for the economy are correct, the unemployment rate will probably be much higher than what the Fed is currently forecasting.

"If we hit the lower end of the Fed's growth forecast, I'd be shocked if the unemployment rate wasn't over 5 percent and even close to 5.5 percent," he said.

Jeffrey Saut, chief investment strategist for Raymond James, said he has trouble believing that the unemployment will remain as low as the Fed thinks it will.

"Most people take what the Fed says at face value. But I don't believe it. When the Fed comes out and tells me the unemployment rate is going to stay below 5 percent, that's hogwash," he said.

And Ablin said that it's curious to see the Fed lowering its growth targets without significantly raising its unemployment forecast.

"I don't know if the Fed is trying to talk the economy up or just living in a dream world," Ablin said.

...
The Fed hinted that it did not expect inflation to be a concern, despite the spike in the prices of oil and other commodities and the declining value of the dollar, in the coming years. The Fed said it expects so-called core inflation to be between 1.7 percent and 1.9 percent next year and in 2009.

But one bond fund manager who asked not to be named said that even though the Fed may believe that inflation will moderate, the fact that the Fed thought the decision to cut rates last month was a "close call" indicates that the Fed still is fairly concerned about inflation and is reluctant to lower rates further.

"The Fed is still hesitant to embrace this new world idea that high oil prices are a tax for the consumer. They still seem to be worried that oil prices are inflationary," the bond fund manager said. "If they cut rates again, that could push oil prices higher and add more to the dollar's weakness."

With that in mind, the bond fund manager said that if oil prices head above $100 before its next meeting, the Fed may decide to keep rates unchanged, even if investors want the Fed to cut rates again.

"At best, a rate cut is a confidence booster but rate cuts come at a cost," the bond fund manager said.

--------------

This is what I was afraid of...another cut in the prime lending rate...making it easier to borrow more,
eroding the value of the dollar even further, and increasing DEBT.

It's the economy stupid!

A scenario for consideration...

http://www.latimes.com/business/investing/...sting-headlines

Have We Seen Worse of Mortgage Crisis?

By JOE BEL BRUNO, AP Business Writer
10:34 PM PST, November 23, 2007

...
In the months ahead, millions of other adjustable-rate mortgages ... will reset, giving them a higher interest rate as required by the loan agreements and leaving many homeowners unable to make their payments. Soaring mortgage default rates this year already have shaken major financial institutions and the fallout from more of them, some experts say, could spread from those already battered banks into the general economy.

The worst-case scenario is anyone's guess, but some believe it could become very bad.

"We haven't faced a downturn like this since the Depression," said Bill Gross, chief investment officer of PIMCO, the world's biggest bond fund. He's not suggesting anything like those terrible times -- but, as an expert on the global credit crisis, he speaks with authority.

"Its effect on consumption, its effect on future lending attitudes, could bring us close to the zero line in terms of economic growth," he said. "It does keep me up at night."

Some 2 million homeowners hold $600 billion of subprime adjustable-rate mortgage loans, known as ARMs, that are due to reset at higher amounts during the next eight months. Subprime loans are those made to people with poor credit. Not all these mortgages are in trouble, but homeowners who default or fall behind on payments could cause an economic shock of a type never seen before.

Some of the nation's leading economic minds lay out a scenario that is frightening. Not only would the next wave of the mortgage crisis force people out of their homes, it might also spiral throughout the economy.

The already severe housing slump would be exacerbated by even more empty homes on the market, causing prices to plunge by up to 40 percent in once-hot real estate spots such as California, Nevada and Florida. Builders like Chicago's Neumann Homes, which filed for bankruptcy protection this month, could go under. The top 10 global banks, which repackage loans into exotic securities such as collateralized debt obligations, or CDOs, could suffer far greater write-offs than the $75 billion already taken this year.

Massive job losses would curtail consumer spending that makes up two-thirds of the economy. The Labor Department estimates almost 100,000 financial services jobs related to credit and lending in the U.S. have already been lost, from local bank loan officers to traders dealing in mortgage-backed securities. Thousands of Americans who work in the housing industry could find themselves on the dole. And there's no telling how that would affect car dealers, retailers and others dependent on consumer paychecks.

Based on historical models, zero growth in the U.S. gross domestic product would take the current unemployment rate to 6.4 percent. That would wipe out about 3 million jobs from the economy, according to the Washington-based Economic Policy Institute.

By comparison, in the last big downturn between 2001-03 some 2 million jobs were lost, according to the Labor Department. The dot-com bust early this decade decimated the technology sector, while the Sept. 11, 2001, terror attacks hurt the transportation and allied industries. Economists said the country was officially in recession from March to November of 2001, but the aftermath stretched to 2003.

There is increasing evidence that another downturn has begun.

Borrowers who took out loans in the first six months of this year are already falling behind on their payments faster than those who took out loans in 2006, according to a report from Arlington, Va.-based investment bank Friedman, Billings Ramsey. That's making it even harder for would-be buyers to get new mortgages -- a frightening prospect for home builders with projects going begging on the market, and for homeowners desperate to unload property to avoid defaulting on their loans.

Meanwhile, the number of U.S. homes in foreclosure is expected to keep soaring after more than doubling during the third quarter from a year earlier, to 446,726 homes nationwide, according to Irvine, Calif.-based RealtyTrac Inc. That's one foreclosure filing for every 196 households in the nation, a 34 percent jump from just three months earlier.

Such data suggests more Americans could lose their homes than ever before, and those in peril are people who never thought they'd welsh on a mortgage payment. They come from a broad swath -- teachers, pharmacists, and civil servants who were lured by enticing mortgage terms.

Some homebuyers gambled on interest-only loans. The mortgages, which allowed buyers to pay just interest at a low rate for two years, were too good to pass up. But with that initial term now expiring, many homeowners find they can't make the payments. The hopes that went along with those mortgages -- that they'd be able to refinance because the equity in their homes would appreciate -- have been dashed as home prices skidded across the country.

"It's been said a lot of people have been using their homes as ATM machines," said Thomas Lawler, a former official at mortgage lender Fannie Mae who is now a private housing and finance consultant. "The risk has a lot of tentacles."

...


In the back of my mind I remember GW Bush at a lecturn boasting how
more people were buying and owning their own homes than ever before.

Hope for the best, prepare for the worst...

Between the lines...

I heard the CNBC analyst who has been the most concservative
(correct) on the subprime melt-down say today that the fed will cut
the prime rate by 100 points (1%) in December and may have to
cut it down to a total of 1% in 2008 to keep the credit crunch from
decimating the markets.

There was also a stir when CNBC spoke of Citi Group cutting jobs,
which sent that firm's stock down 5%.

Citi's cost-cutting could claim jobs
Nation's largest bank says it is conducting a cost-efficiency review, which could mean job cuts.

November 26 2007: 2:32 PM EST

NEW YORK (AP) -- Citigroup, bracing for big credit-related losses in the fourth quarter, is looking to lower costs - which could mean another round of job cuts at the nation's largest bank.

"We are engaged in a planning process in anticipation of our new CEO, and our business heads are planning ways in which we can be more efficient and cost-effective to position our businesses in line with economic realities," Citi spokeswoman Shannon Bell said Monday.

She was responding to a television report saying that "massive" layoffs were planned. (The report was on CNBC and mentioned the number 45,000)

"Any reports on specific numbers are not factual," she said.

Citigroup, which has about 320,000 employees, earlier this year reduced its workforce by 17,000 before the credit crisis.

Citigroup shares fell $1.63, or 5.1 percent, to $30.07 in afternoon trading Monday.

The bank is still looking for a new CEO, after Charles Prince stepped down as chairman and chief executive Nov. 4, the same evening the bank announced that it will likely write down the value of its portfolio by another $8 billion to $11 billion in the fourth quarter.

In the third quarter, Citi's subprime mortgages and its exposure to financial instruments tied to those mortgages led to a loss of about $6.5 billion.

Prince was replaced as chairman by former Treasury Secretary Robert E. Rubin and as interim CEO by Sir Win Bischoff, chairman of Citi Europe who has said he doesn't want the job permanently.

The next credit scandal

Prince hasn't been the only Citigroup executive to leave the bank since it warned of big losses in early October.

Tom Maheras, co-CEO of investment banking, and Randy Barker, head of fixed income trading, left in mid-October when Vikram Pandit was promoted to lead a unit that combined the markets and banking segment with alternative investments. Pandit had been put in charge of alternative investments in the spring when Citigroup bought the hedge fund he co-founded.

And nearly two weeks after Prince's resignation, chief risk officer Dave Bushnell announced his retirement. Bushnell was a 22-year Citi veteran whom Prince promoted to chief administrative officer in September, saying he would only be senior risk officer for a "transitional period of time." Jorge A. Bermudez, who has been with Citi for 30 years, took Bushnell's place.
------------------------------------------------------------------

(As you may know) I expect a recession in 2008 not a major collapse, but then I read...


Economists: No global collapse in '08
Growth likely to slow, but world economy will remain resilient in face of U.S. mortgage meltdown, credit crisis, Citigroup report says.

November 26 2007: 10:06 AM EST

NEW YORK (CNNMoney.com) -- Even though the battered housing market and credit crisis have created turmoil in financial markets, economists expect global growth to slow rather than collapse next year, according to a report released Monday.

The global economy has shown resilience to the strains in the core of the financial system, which has intensified in recent weeks, Citigroup's Economic and Market Analysis group said. (Are these the same guys that championed sub-rime lending?)

The forecast "reflects the judgment that the current stresses from the U.S. housing sector, high oil prices, a weak U.S. dollar and the recent financial turmoil will not overwhelm the global economy," Lewis Alexander, chief economist and head of economic and market analysis at Citi, wrote in the report.

But, the level of uncertainty around the outlook is "unusually high," he added.

Bernanke warns on economic growth

The group's annual report detailed its outlook on the markets and economy, as well as its view on monetary policy, the pricing of risk and emerging market economies' vulnerability to external shocks.

Strong productivity growth, solid household finances and a lack of imbalances outside of the housing sector should benefit the U.S. economy, the report said. Non-financial firms have high profit margins and strong balance sheets, it added.

Europe's economy also shows signs of resilience, despite the widening fallout of the ongoing credit crisis. The report said emerging markets should remain robust next year, driven by growth in most of Asia.

Citi economists also expect many major central banks to ease policy (read- drop prime lending rates to banks) in the coming months, including another interest rate cut of 100 basis points from the Federal Reserve.

"We do not expect either inflation or concerns about 'moral hazard' to prevent major central banks from easing and this will help to limit downside risks," Alexander wrote.

-----------------------------

I have predicted that a drop in the Dow Jones Industrial Average will bottom out at about 12,000 near the end of January. But, I have also included the caviat - unless the fed props up the market with more rate cuts. If the fed cuts rates in December (especially more than 25 points) then my prediction is withdrawn...the market could stay up...artificially...and look toward a lower "bottoming out". I don't like this scenario, or the fact that Citi analysts are saying "no collapse"...it's starting to make me believe the stock market is not the place to be...through at least the first half of 2008...and if fed rate cuts continue toward a rate of 1% (as it did in the late 90s to fend off the S&L disaster)...you'd better convert to cash. Just my opinion, and hey...what do I know?

Whoa...they couldn't wait...

http://www.nytimes.com/2007/11/26/business...ml?ref=business

Fed Injects Funds to Ease Lending Concerns

By MICHAEL M. GRYNBAUM
Published: November 26, 2007

Seeking to reassure banks amid the ongoing credit crisis, the Federal Reserve said today that it would provide $8 billion in funds to ease concerns over lending during the holiday season.

It is not unusual for the Fed to offer this type of year-end flexibility to financial institutions. But the injection of funds usually occurs later in the fourth quarter, or entails a smaller volume.

This year, anxiety over the ailing credit market has made banks more hesitant to provide their peer institutions with overnight loans, a crucial component of the nation’s economic bloodstream.

The Fed’s New York branch, which oversees the domestic money supply, said the new batch of funds will be issued in “response to heightened pressures in money markets for funding through the year-end.” The Fed also promised to “provide sufficient reserves” if banks remain reluctant to provide loans at the central bank’s target lending rate, currently 4.5 percent.

Fed officials may hope that the planned injection — the first since December 2005 — will ease market pressures on the bank to lower its federal funds rate at its meeting next month, analysts said. The Fed has signaled that it would prefer to keep the rate steady, but some market watchers say a reduction is needed to avert a broad economic slowdown, in light of widespread problems in the mortgage and credit markets.

The $8 billion in funds — essentially a low-interest loan to the nation’s banks — will be issued on Wednesday and repaid on Jan. 10. The 43-day loan period is the longest in three years.

---------------------------
So, they loaned more, earlier and for a longer term than usual...I bet they cut rates again in December too...do you hear the phone?It's debt calling...

Holiday Money 2007

http://money.cnn.com/2007/11/27/news/econo...ssion/index.htm

'Ho, Ho, Ho' may be 'Oh, No' for economy
When the bills come due, the holiday consumer spending spree could be a 'last hurrah' for the nation's economic growth.

By Chris Isidore, CNNMoney.com senior writer
November 27 2007: 2:25 PM EST

Holiday spending could result in a worse hangover than normal in January due to a tighter credit market, according to economists and experts.

NEW YORK (CNNMoney.com) -- Santa Claus may leave a recession under the tree this year, as economists worry that tighter credit standards will put the brakes on consumer spending in the new year.

Consumers flashing credit cards have gotten the holiday shopping period off to a relatively good start since they pushed away from the Thanksgiving dinner table last Thursday.

ShopperTrak RCT Corp., which monitors sales at 50,000 retailers, estimates that total sales rose 8.3 percent to about $10.3 billion on Black Friday, the day after Thanksgiving. And online retailers are believed to have broken one-day records for traffic and sales on so-called Cyber Monday, as they logged in for more than $700 million in purchases.

But when their credit card bills start coming due early next year, consumers could face problems they haven't had to address in years, as the credit crunch puts a squeeze on additional spending going forward.

"We think this holiday shopping period will be a last hurrah for a while," said Mike Schenk, senior economist with the Credit Union National Association.

Consumer spending accounts for more than two thirds of the nation's economic activity, and thus far it has kept the economy out of trouble despite the headwinds of $90 oil, a stock market correction and the combined problems facing mortgages and housing. It won't take much of a cutback to hurt the nation's economy, and possibly even cause a recession.

"They'll still be spending money, but it will be on credit card interest and minimum payments, not on apparel or eating out," said John Silvia, chief economist for Wachovia. He puts the chance of a recession next year at 30 percent - up from 21 percent in his previous estimate.

Federal Reserve figures show that consumers are heading into the holidays with larger credit card balances than they did a year ago, as access to home equity lines has been hit by falling home values, according to Silvia. And he and others say some of the ways consumers dealt with post-holiday credit card balances in the past will not be options this year.

Banks are tightening their standards for credit cards and consumer loans, even though those loans are not directly affected by problems in the broader credit and mortgage markets, says Red Gillen, senior analyst with Celent, an independent research firm that follows financial services.

"They're under a lot of scrutiny right now, and they're seeing increasing delinquency and default rates," Gillen said. "That will translate into more people being denied credit cards, or being denied the chance to increase their credit line."

So consumers will find a very different environment for credit cards in the new year, one that will make it more onerous to shed their holiday bills.

"I've been tracking this industry for 10 years," said Curtis Arnold, founder of CardRatings.com, a Web site that gives consumers information on various card offers and providers. "We've always had a January hangover, but this year makes me more nervous than any other."

--------------------------------


http://www.nytimes.com/2007/12/01/business/01bank.html

U.S. Urges Freezing Some Rates on Loans
Times Topics: Mortgages and the Markets
By EDMUND L. ANDREWS
Published: December 1, 2007


WASHINGTON, Nov. 30 — The Treasury Department is leaning on mortgage lenders to temporarily freeze the interest rates on subprime loans for homeowners threatened with foreclosure, but the scope of any relief will depend on crucial details.

Treasury officials said Friday that they were “pleased by the progress” in persuading major lenders to freeze the comparatively low rates on hundreds of thousands of home loans that are scheduled to increase over the next 18 months.

About two million homeowners have subprime mortgages with teaser rates that are scheduled to jump 30 percent or more. Federal officials predict that about 500,000 of those families could lose their homes; some analysts warn that the number could be significantly higher.

Federal officials and industry executives refused on Friday to disclose specific details, which are likely to make the difference between a plan that shields hundreds of thousands of people and one that shields almost no one.

On Thursday, executives from several banks met with Treasury Secretary Henry M. Paulson Jr., as well as officials from the Federal Reserve and the other bank regulatory agencies. The meeting, first disclosed by The American Banker, included top executives at lenders like Citigroup, JPMorgan Chase, Wells Fargo and Washington Mutual. The meeting included the American Securitization Forum, which represents investors and Wall Street firms with a stake in the mortgage-backed securities.

Mr. Paulson may provide some details on Monday when he speaks to a housing conference.

After Thursday’s meeting, industry officials said they were close to developing a standard for deciding which homeowners would qualify for a “loan modification” — a temporary freeze of their teaser rates — as well as how long the freeze would last.

But as of Friday night, there still appeared to be disagreements about the specifics. The chairman of the Federal Deposit Insurance Corporation, Sheila C. Bair, has argued in recent weeks that lenders should make the teaser rates permanent but has also said that a five-year freeze would provide a big help, according to government officials.

Industry executives have sought a shorter period with some recommending one year. One mortgage executive, speaking on condition of anonymity because the discussions are still fluid, described a three- to four-year freeze as the possible “sweet spot” for a compromise.

Advocates for distressed homeowners said a one-year freeze would do little to help troubled borrowers because few of them would be able to switch to a conventional mortgage with a lower rate in that time. A longer freeze would give homeowners time to build equity in their property or improve their credit ratings, both of which are crucial to obtaining lower rates. But a longer freeze would be costly to lenders and their investors.

“The tricky part is to figure out how to minimize the gaming,” said Kurt Pfotenhauer, senior vice president of the Mortgage Bankers Association. “All these people are contractually obligated to pay these loans on the terms they agreed to pay on. We need focus on people who, without this help, wouldn’t be able to stay in their homes.”

Several Democratic lawmakers praised Mr. Paulson’s effort to promote a systematic approach by the industry. “I am encouraged by reports of progress,” Representative Barney Frank of Massachusetts, chairman of the House Financial Services Committee, said. “If additional legislative action is necessary, we stand ready to work with the secretary as this process moves forward.”

But specialists warned that it was too soon to describe the effort as a breakthrough, and some advocates for homeowners were skeptical that a voluntary plan by lenders would bring much relief.

“We need an increase in loan-modification activity that is so dramatically above what’s happening in the marketplace that it’s hard for a purely voluntary agreement to get the job done,” Eric Halperin, director of the Washington office of the Center for Responsible Lending, said.

Mr. Halperin, citing a report by Moody’s Investor Service, said mortgage servicing companies were modifying only about 1 percent of their troubled loans. One big reason, according to many specialists, is the difficulty in reaching agreement between the companies that service a mortgage and the investment funds that actually own the loan.

But lenders and investors alike are under political pressure to come up with answers. House and Senate Democrats are pushing bills to stop so-called “predatory lending” that would restrict several practices that are common among subprime lenders. Democrats are also trying to pass a bill that would authorize bankruptcy judges to change the terms of a mortgage to help people keep their homes.

Industry executives adamantly oppose the proposal, saying it would dry up capital for mortgage financing by removing a pillar of security for investors.

Within the industry, much of the struggle is between the original lenders and loan servicers on one side and investment funds that ended up owning the mortgages through complex investment securities on the other. Many lenders have been willing to offer freezes, but investment funds are leery because they would shoulder most of the cost.

Harvey L. Pitt, a former chairman of the Securities and Exchange Commission who is working for some hedge funds with a stake in the debate, predicted that even a generous freeze would only benefit a minority of subprime borrowers.

Mr. Pitt said a freeze would do nothing to help people who took out “no-documentation” loans, overstated their incomes and borrowed more than they could repay. Nor would a freeze help people whose mortgage is higher than the value of their homes. In the last two years, hundreds of thousands of people took out loans equal to the purchase cost of their houses — only to see housing prices decline.

One administration official said on Friday that Mr. Paulson was not trying to “bang heads together” in reaching an agreement.

But Randall Kroszner, a governor on the Federal Reserve Board who participated in the meeting on Thursday, said lenders and investors stood to lose less by modifying many mortgages than they would by foreclosing on a house.

-----------------------------------------

http://online.wsj.com/article/SB1196457089...=googlenews_wsj

Freeze May Generate Heat
Paulson's Rate Proposal Will Confront
Challenges On Legal, Fairness Issues
December 1, 2007

No one should accuse Treasury Secretary Henry Paulson of thinking small. Sure, there has been some carping about the timing of his proposal to freeze interest-rate resets on some adjustable-rate subprime mortgages. After all, he could have rolled out this idea months ago, and maybe headed off a lot of pain, rather than spending time orchestrating the bailout of banks' structured-investment vehicles. But what he is proposing now is vastly more ambitious -- and it faces longer odds.

How so? Well, banks have good reasons to back the SIV bailout. In particular, they don't want SIVs to start dumping their $150 billion of financial-sector debt.

By contrast, mortgage-bond investors and securitization experts see freezing rate resets -- effectively lowering their returns -- as a big negative for bonds stuffed full of the mortgage debt. For now, however, they appear to have weighed the probability of massive defaults on the $360 billion of mortgages due to reset by late next year against the lower stream of interest they will get if some of the resets are suspended, and concluded the latter is the lesser evil.


Henry Paulson is pushing an ambitious plan to help out holders of adjustable-rate mortgages.
That is no guarantee of Mr. Paulson's success. There will be plenty of big challenges, many of which may be unforeseen, because no one has ever attempted to modify mortgages -- let alone those made to subprime borrowers -- on this scale.

Legal and operational obstacles will be formidable. Just tracking down borrowers and determining the final resting place of their mortgages will be a nightmare.

And there is the question of fairness. The cost of freezing rates will fall, in considerable part, upon holders of mortgage-backed bonds and collateralized debt obligations. Again, they could be still worse off if defaults escalated, but it is reasonable to expect some resistance from those asked to shoulder this burden.

Having the hard-charging Treasury secretary sponsor the plan increases its chances. It is prudent for banks to try to say "yes" when he asks a favor. But getting it to work may make persuading the Chinese government to allow its currency to appreciate look easy by comparison.

Rights to Appeal

The rush by strapped U.S. financial institutions such as Citigroup, Freddie Mac and E*Trade Financial to raise capital highlights a weakness in American capitalism. New investors often get their stakes at bargain prices. Existing shareholders, meanwhile, can get severely diluted.

The system in many European countries of allowing existing shareholders first dibs, through a rights issue, is preferable. Here is how it typically works. A company that wants to raise capital offers its shareholders the right to buy a pro-rated amount of shares at a discount. An investor can either participate or sell the right. But in any case, existing shareholders are at least partially compensated for earnings dilution.

The system isn't perfect. Rights offerings are slow, typically taking a month from conception to execution. There can be limits on their size. When a company's capital needs dwarf its current market capitalization, it is virtually impossible to raise enough money with a rights issue.

And U.S. investors already have some defenses against dilution. Companies typically must seek shareholder approval before selling stakes totaling 20% or more of their shares outstanding. Boards, meanwhile, have a fiduciary duty to protect shareholders.

While that may limit abuses, the European system does a better job. But rights issues are unlikely to be embraced overnight here. Corporate boards may not like the expense or the limits on the amount of capital that can be raised.

And laws in a number of corporate domiciles pose problems. For example, companies incorporated in Delaware are barred from using rights issues, unless they have specifically stated their intent to do so in their articles of incorporation. But despite these hurdles, U.S. investors should fight for their rights.

--Dwight Cass and Robert Cyran

• This column is written by breakingviews.com, an online financial commentary site.

So I have a quetion:

In the old days, you got a mortgage from a lender, and the house was pledged as collateral in case you didn't make the payments. After missing, say, three payments, the lender entered a default judgment, and had a sale on the steps of the County Courthouse.

But now, with these NINJA loans, which have been sliced and diced and repackaged as CDOs to Fortune 500 companies (and God knows who else), WHAT ENTITY will be the one to show up on the steps of the County Courthouse to hold that sale? WHAT ENTITY can actually claim to have possession of title by means of default?

It may be that these folks are safe in their homes after all.

I imagine it will be an attorney for whomever is actually holding the paper on the property...
they will probably designate an attorney(s) in a region they have multiple defaults in and
run a boiler-plate operation to shepherd the filings through county by county. It should be
a windfall for real estate attorneys in CA, NV, FLA et al. I don't believe people will be allowed to squat
in homes they can't pay for...they may benefit from a rate freeze, a or refi, but the rest...adios.

Of course said paper-holders will have to cut dividends to pay attorneys:

http://www.latimes.com/business/la-fi-wrap...dlines-business

Fannie Mae will cut its dividend
December 5, 2007


Fannie Mae, the largest source of money for U.S. home loans, said it would cut its dividend 30% and sell $7 billion of preferred stock this month to bolster capital depleted by the housing crisis.

The quarterly payout will be reduced to 35 cents a share from 50 cents starting in the first quarter, Washington-based Fannie Mae said Tuesday.

The housing slump will hurt fourth-quarter earnings "in a material way" and weigh on 2008 results, the government-chartered company said. Fannie Mae last month said it had a capital cushion of $2.3 billion after reporting a third-quarter loss of $1.4 billion.

The move to shore up capital, which follows a similar move last week by rival Freddie Mac, was announced after the stock market closed. Earlier, Fannie Mae shares fell $1.07, or 3%, to $35.18.

Fannie Mae said the actions announced Tuesday would help the company "maintain a solid capital position through 2008" as well as help it "manage the effects of ongoing volatility in the mortgage credit markets."

Congress created Fannie Mae and Freddie Mac to increase mortgage financing by buying loans from lenders. The companies profit by holding mortgages and mortgage bonds as investments and by charging fees to guarantee and package loans as securities. The firms record losses when defaults rise.

----------------------------

BTW...the "freezing" of adjustable rate mortagages (ARMs) is as fuzzy as a Gerogia Peach...none have been able
to define how large a group, what rates, or how long the freeze term should be in a voluntary manner by a plethora
of divergent banks, homesteads, etc. I also read today how applications for new mortagages is up dramatically (22%) in the past
month as a result of folks trying to refi ARMs.

BTW Bush's guy working with the major investment banks to freeze
the ARMs' rates seems to have a relationship to those institutions just
as Cheney had with the oil companies he relied on for energy policy...

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Senator Dodd Asks Paulson About Goldman Subprime Role (Update1)

By Christine Harper

Dec. 4 (Bloomberg) -- U.S. Senate Banking Committee Chairman Christopher Dodd called on Treasury Secretary Henry Paulson to answer questions about Goldman Sachs Group Inc.'s role in the collapse of the subprime mortgage market.

Dodd, a Democratic presidential candidate, said in a statement today that he was ``deeply concerned'' by questions about New York-based Goldman Sachs that were raised in a column by Ben Stein in the New York Times on Dec. 2.

The column asserted that Goldman, the world's biggest securities firm, sold bonds backed by subprime mortgages and also profited from bets that the value of the securities would drop. Paulson was chairman and chief executive officer of Goldman from 1999 until he became Treasury Secretary last year.

``It is in the best interest of resolving this crisis if Secretary Paulson, who was leading Goldman at the time in question, addresses the concerns raised by Mr. Stein's article,'' Dodd's statement said. ``Failure to do so may be cause for a more formal investigation.''

U.S. home foreclosures almost doubled in October from a year earlier as the least-creditworthy borrowers failed to make higher payments on adjustable-rate mortgages, Irvine, California-based RealtyTrac Inc. said on Nov. 29. Unlike rivals such as Morgan Stanley and Merrill Lynch & Co., Goldman said it profited in the third quarter from investments that gained in value as the mortgage market declined.

`Flat-Out Wrong'

Paulson is ``working with members of both parties to develop solutions for struggling homeowners,'' said Michele Davis, a spokeswoman for the Treasury Department. ``This is where all of us need to focus our attention.''

Goldman is the only one of the five biggest U.S. securities companies that has climbed in New York Stock Exchange composite trading this year. The firm set aside $16.9 billion for the first nine months of the year to pay employees, more than the full-year total for 2006, according to the company's third-quarter earnings report.

``The premise that this firm acted inappropriately is flat- out wrong,'' said Michael DuVally, a spokesman for Goldman Sachs, in response to Dodd's request. He declined to elaborate.

Other securities firms and banks including Merrill Lynch and Citigroup Inc. have announced about $66 billion of losses and writedowns this year on assets linked to subprime home loans.

Paulson, 62, is negotiating a deal among banks, mortgage servicers and securities-industry lobbyists to freeze some subprime mortgage rates before they reset higher and trigger a new wave of defaults.

----------------------------

Just so that no one forgets how we got here...

Here are some excerpts from an October 2002 White House Press Release...
http://www.policyalmanac.org/social_welfar...y_housing.shtml

...
While the overall homeownership rate has reached an all-time high of nearly 68 percent, recent statistics point to a homeownership gap. The second quarter 2002 Census data show that non-Hispanic whites have a 74.3% homeownership rate, while African-Americans have a 48% rate, Hispanics a 47.6% rate; and Asian-Americans and other races a 53.7% homeownership rate.

In June, President Bush announced an aggressive homeownership agenda to dismantle barriers to homeownership by providing down payment assistance, increasing the supply of affordable homes, increasing support for self-help homeownership programs, and simplifying the homebuying process and increasing education. The President also issued "America's Homeownership Challenge" to the real estate and mortgage finance industries to join in his effort to increase the number of minority homeowners by taking concrete steps to tear down the barriers to homeownership that face minority families.
...
the Bush Administration is proposing to make the settlement process easier for all consumers when purchasing a home, thereby protecting homebuyers through increased competition and simplicity. Working together, the Federal Trade Commission and HUD have begun targeting enforcement activities to stop predatory lenders from preying on uneducated homebuyers.
...
The Administration also implemented a hybrid Adjustable Rate Mortgage (ARM) product that makes it easier for new homebuyers to stay in their homes in the first few years.
----------------------------------
So now we are in the biggest housing mess since The Depression and guess who is now trying to take credit for fixing it?

http://www.forbes.com/home/wallstreet/2007...07subprime.html

Credit Crunch
Bush's Bad Mortgage Medicine
Liz Moyer, 12.07.07, 6:00 AM ET


The Bush Administration's plan to rescue the housing market and keep the economy from slipping into recession took flak yesterday for freezing interest rate hikes for a mere fraction of subprime, adjustable-rate borrowers. But there's a bigger risk: It could deepen and lengthen the credit crisis.

According to analysis by Barclays Capital, the "freezer-teaser" plan applies to just 240,000 subprime loans. The Mortgage Bankers Association reports the number of subprime adjustable rate mortgages at 2.9 million.

It also won't help the 16% of subprime borrowers who are already delinquent or in default, and it won't help millions of other homeowners who either will be deemed able to pay the higher rates when they adjust, starting in January, or who have the unhappy circumstance of having a house worth less than their mortgage or a loan that has already reset to the higher rates.

President Bush, along with Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson, outlined other proposals Thursday that are meant to help the 2 million borrowers facing sharply rising rates on their adjustable-rate mortgages beginning next month. The plan includes refinancing some of the borrowers into private, fixed-rate mortgages, or putting them into Federal Housing Administration loans.

The loan modification, or rate freeze, would apply to a limited subset of subprime borrowers who meet a series of criteria, not least of which is that they must have paid their loans on time. Also, the freeze applies to loans taken between January 2005 and July 2007, excluding other adjustable loans that have already reset to higher rates.

The expected backlash to the plan started immediately after the Administration announced it. Housing advocates said it leaves millions of struggling borrowers at risk of foreclosure. Others decried it as a shameful bailout of irresponsible lenders and borrowers.

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These are the small government, anti-regulation guys?