With Ambac's loss of their AAA rating a domino has fallen that might lead
to a deep recession and economists trying to figure by the summer if we
are headed into depression, IMHO.

Having predicted the DJIA would be at 12,000 by the end of January...and watching as
it happens...I'm now looking to later in 2008 and the potential of a drop to 10,000...or
even below. This ain't funny y'all take care of your own and vote Democrat ASAP.

To read about the loss of Ambac's rating and what it can cause read:

http://www.commongroundcommonsense.org/for...mp;#entry786594

I do not enjoy writing this, as I didn't like writing nine months ago about my predictions
for the market by the end of this month. But we have to face it - the neo-cons may have
flushed the economy along with the government. Shizen!

http://www.thestreet.com/s/coming-week-fin...ml?puc=googlefi

By Nat Worden
TheStreet.com Staff Reporter
1/19/2008 9:52 AM EST

Recession is no longer the taboo word on Wall Street. It's being tossed around like confetti.

The new phrase that can't be uttered is "systemic risk," and with bond insurer Ambac losing its triple-A credit rating from Fitch Ratings on Friday, the real risk of a financial disaster will be widely whispered into the next week amid the possibility of more downgrades for the industry.

T.J. Marta, fixed income strategist with RBC Capital Markets, estimates that roughly $2.5 trillion in outstanding debt is backed by bond insurers like Ambac and MBIA, and credit downgrades are a mortal threat to their business models.

If the bond insurers fail, that raises the specter of a massive wave of wealth destruction in a global financial system that is flooded with illiquid and opaque derivative securities of which there is little understanding, except that their value is connected to credit ratings on structured finance securities.

"This is going to be worse than anybody thinks," says Marta. "What I heard from Ambac [on Friday] is that they're throwing back the lifeline and saying, 'We're not going to make it.' On a fixed income trading floor, that means the world truly is upside down."
On Friday, Ambac said it was abandoning its plans to raise $1 billion, a day after Moody's Investor's Service threatened a credit downgrade. Fitch responded by cutting the premium triple-A rating to double-A for Ambac Assurance Corp., Ambac Assurance UK Ltd. and Connie Lee Insurance Co. and slashing holding company Ambac Financial Group from double-A to single-A. Fitch also warned that more downgrades could be in store.

In the end, the Dow Jones Industrial Average declined by 4% for the week. The Nasdaq logged a decline of 4.1%, and the S&P 500 was the worst performer, ending down a whopping 5.4% over the five sessions.

Dr. A. Gary Shilling has been a respected Wall Street maven since 1963. His record shows that he's not a perennial negativist, but for several years, he has predicted the housing downturn and credit crisis that has come to pass despite the many denials from high places.

Even with his vindication, Shilling's outlook is still gloomy.

"Next week, we'll be waiting for not just the next shoe but many more shoes to drop," he says. "That's the bottom line here. The subprime slime was the first to go because those are loans to the least credit-worthy borrowers -- the most vulnerable. But you had plenty of speculation in commercial real estate, emerging market debt and equities, commodities, leveraged loans, junk bonds and a whole host of areas that are extremely vulnerable."

Shilling says systemic risk is a legitimate concern because of what he calls "counter-party risk" to investors on the other end of a derivative trade from the loans going bad.

"If you get widespread counter-party failures, then the whole system is in trouble," he says.

Next week has little in store in terms of scheduled economic news, but the possibility of an intra-meeting rate cut from the Federal Reserve is a real possibility. Marta notes that the market is pricing in a 72% chance that the Fed funds rate target gets cut by 75 basis points by its next two-day meeting beginning Jan. 29. If the central bank doesn't step in before then, that would mark the first time the Fed has moved rates by more than 50 basis points since 1984.

Meanwhile, Wall Street will be looking to Washington, D.C. for an economic stimulus package to help consumer spending that congressional Democrats and President Bush are vowing the cobble together quickly with the blessing of Fed chief Ben Bernanke. Bush signaled he won't demand that his earlier tax cuts be made permanent as part of the package, raising the possibility of a quick compromise on legislation, even though Republicans and Democrats are sure to disagree on how to go about it.

"I'm skeptical that the benefit of economic stimulus will be much more than demonstrating that people are willing to do something rather than just sit by and watch the economy go down the drain," says Ken Goldstein, economist with the Conference Board.

The tone of the stock market next week is likely to be negative, given that more fourth-quarter earnings reports are due out from the staggering financial industry. Ambac, Bank of America and Wachovia will report on Tuesday, along with a handful of regional banks like Sun Bancorp and Southwest Bancorp.

Capital One Financial will report Wednesday, promising a snapshot of the troubled credit card industry, and E*Trade Financial will give an update on its travails on Thursday.

Consumer spending will be in focus with airlines like Delta Airlines reporting Wednesday and US Airways on Thursday. High-end retailer Coach weighs in on Wednesday and Ford will show how its massive restructuring effort is faring on Thursday.

Also, tech will be in the spotlight with Apple reporting results on Tuesday and Microsoft and Sun Microsystems on tap for Thursday.

Economists will get their fix on Friday when Caterpillar reports, with analysts expecting the industrial bellwether to log operating profits of $1.50 a share.

Caterpillar, along with many other U.S.-based multinationals, has been supported by strong growth in overseas markets. Many investors are looking abroad to places like China for healthy investments in light of the troubles at home, but Shilling calls this idea "nonsense." He says the next shoe to drop in the downturn he's predicting could be a major sell-off in China.

"China really relies on U.S. consumers to buy their exports and those exports are absolutely critical for their continued growth," says Shilling. "They don't have a big enough middle-class yet to be able to sustain the economy with domestic spending."

Thanks Indianhead for cheering me up!

Just the facts ma'am...



Just the facts.

The Wall Street Journal is even talking about "a crash"
and "systemic failure", but they say it doesn't have to happen...we just need
more tax cuts and for global investors to have "confidence". Sounds like what
they've been saying.

http://online.wsj.com/article/SB1200702478...=googlenews_wsj

REVIEW & OUTLOOK


The Panic Stage
January 19, 2008; Page A12

In his book "Manias, Panics and Crashes," the economic historian Charles Kindleberger describes the stages of financial boom and bust. Students of the good professor will recognize where we now are in the current credit crisis: the panic stage. It isn't a pretty sight, but a crash is far from inevitable if political and economic leaders keep their wits about them and focus on the proper remedies.

Amid the daily market turmoil, and to help prevent a crash, it helps to step back and remember how we got here. With the benefit of hindsight, everyone can see that the U.S. economy built up an enormous credit bubble that has now popped. Our own view -- which we warned about going back to 2003 -- is that this bubble was created principally by a Federal Reserve that kept real interest rates too low for too long.

In doing so the Fed created a subsidy for debt and a commodity price spike. The price spike contributed to "excess savings" in countries with a low propensity to consume and which channeled that money back to the U.S. That capital flow and debt subsidy, in turn, became fuel for smart people in mortgage companies, investment banks and elsewhere to exploit. In a sense they created a new financial system -- subprime loans, SIVs, CDOs, etc. -- that is enormously efficient and brought capital to new places. But thanks to low interest rates and human enthusiasm, this debt spree also got carried away. This was the mania phase.

Thus we were told that rising housing prices were no problem, even as they climbed by 20% or more a year in some markets. Demographics and immigration could explain the boom. Credit spreads narrowed to unheard-of levels, but neither lenders nor investors seemed to mind. The rating agencies added their AAA blessing, and financial CEOs basked in rising earnings from investments they little understood.

The political class now attributes this to greed and fraud, and there is some of that in any mania. But most was the product of creative Americans responding to the incentives for debt that the Fed created. The politicians also enjoyed the boom while it lasted, spending the tax revenues, feasting off Fannie Mae campaign dollars, and celebrating the spread of home ownership. No one wanted it to end, which is why there was so much caterwauling once the Fed did begin to remove the debt-subsidy punch.

This does not mean that this decade's growth has been illusionary, any more than the 2000 bursting of the dot-com bubble means growth in the 1990s was fake. Enormous wealth was created in both periods, new industries have developed, and in the current decade there has been a genuine global boom. The excesses have been based mainly in housing and finance, and that is what now threatens the larger economy.

Enter the panic stage. The desire for debt has turned into a stampede to quality, especially Treasury bills. The same folks who never predicted the economy would recover in 2003 are now cheerleading recession. Any bank writedown or deal to raise capital -- no matter that it is part of the healing process -- is taken as a sign that there is more bad news to come.

Meanwhile, the politicians plot to "stimulate" the economy by dropping dollars from the Capitol dome. We are also told the Fed funds rate must chase the 90-day T-bill rate down to the levels it reached when we had negative real interest rates -- never mind the anemic dollar and soaring commodity prices. The danger now is that this panic becomes a self-fulfilling prophesy and talks us into a crash.

There are two ways in which a crash could happen. The first is insolvency of one or more financial institutions that triggers a systemic failure. The second is a loss of global confidence in U.S. financial management and the dollar. Neither has to happen./u]

On the first, progress is already being made. Banks and mortgage companies are taking back their off-balance sheet assets, writing off losses, and seeking new capital. There [u]seems to be no shortage of such capital available, and this is a healthy sign. Meanwhile, the Fed has been making creative use of its discount window, with new auctions and accepting different collateral to help ailing institutions that need to borrow. This outlet has already helped to reduce the credit spreads that ballooned late last year, and is calming lending markets.

We are only in the early stages of this repair operation, and no doubt some companies will fail. The task for regulators is to avoid surprises that cause more panic and above all to prevent systemic contagion. Warren Buffett's recent entry into the troubled bond insurance market is another sign of the marketplace helping to heal itself. In cases where there is real systemic risk, the government through the Federal Deposit Insurance Corporation may have to rescue some institutions. In those cases, the equity holders need to be zeroed out and the management replaced. The overriding goal is to keep the banking system functioning.

As for the other crash scenario, we wish the Fed hadn't squandered so much credibility this decade. Then it might be better placed to reduce interest rates as fast and as far as Wall Street and Donald Trump are demanding. But with prices rising and the dollar as weak as it's been since the 1970s, the Fed has less room to maneuver.

Expectations of further easing have already caused oil and other commodity prices to surge in a way that robs much of the stimulus from lower rates. Higher food and gas prices have hit consumers hard and are part of the reason for reduced consumer spending. The worst case would be a global run on the dollar that left the Fed no choice but to tighten money dramatically.
* * *
So what to do? Pass a tax cut that is immediate, marginal and permanent. In the "stimulus" grab bag that President Bush is contemplating, the only growth driver is bonus depreciation. Congress will be worse. As for the Fed, continue with the regulatory triage, but ease as little as it can get away with and slowly restore the monetary credibility that was so painfully earned in the 1980s.
This recipe may or may not prevent a recession, though we'd note that so far the underlying economic indicators suggest slower growth rather than a contraction. What these policies would do is prevent today's panic from becoming something much worse.

Just to put this all in perspective, there is still Exxon/Mobil, GE, Boeing, 3M, etc etc.

Real companies that make real stuff, not just a bunch of loonies that give AAA ratings to ZZZ loans and who should get blasted.

The world is not ending.

Very true...many are in international exposure...
but the market and banking are in deep trouble...and if that puts American
consumers in trouble...it puts China in trouble...which puts Boeing and GE in trouble...etc., etc.
Exxon will eventually drop back because of the ability of Americans to pay for their products...
as the value of the dollar slips and inflation cranks up...IMO. It's not the end, but
it may be a pivot.


http://www.nytimes.com/2008/01/18/business...&ei=5087%0A

Merrill Posts Huge Loss; Chief Says Firm’s Capital Is Adequate

By JENNY ANDERSON
Published: January 18, 2008

The outlook darkened for Merrill Lynch on Thursday as news of a huge quarterly loss sent the company’s stock plummeting.

Merrill, the nation’s largest brokerage firm, posted a $9.8 billion fourth-quarter loss, almost matching the deficit reported for the period by Citigroup, a company three times Merrill’s size. The loss at Merrill, which exceeded analysts’ forecasts, reflected $16.7 billion of write-downs on mortgage-related investments and leveraged loans.
...

Merrill’s stock fell more than 10 percent, to $49.45 a share, as the broader market took its biggest tumble since November.
...

William Tanona, an analyst at Goldman Sachs said ... “it is disheartening to know that the firm wiped out about four years of book value growth in one quarter.” In 2002-6, Merrill Lynch earned $22.6 billion in profits.

...
Merrill losses included a $9.9 billion write-down on collateralized debt obligations, a $1.6 billion write-down on subprime mortgages and a $3.1 billion write-down on exposure to bond insurers, which have come under tremendous pressure for insuring securities that are defaulting a record rates. Other areas for write-downs include $900 million in Alt-A and residential mortgages outside the United States and $230 million related to the company’s $18 billion commercial real estate portfolio. Mr. Thain (the new - since December - Merrell CEO) said he did not expect to recover any money on C.D.O.’s.

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

http://www.nytimes.com/2008/01/21/business...-stocks.html?hp

Shares Tumble in Asia and Europe

By HEATHER TIMMONS
Published: January 21, 2008

NEW DELHI — Asian and European markets nose-dived on Monday as hope that healthy local economies might escape the force of a United States recession evaporated and fear gripped investors instead.

Blue chip stocks lead the declines in most markets, dragging major indexes in Hong Kong, Shanghai and India down by more than 5 percent during the day, while those in South Korea and Australia fell by nearly 3 percent.

In Japan, which may be facing a new recession of its own, most indexes were off by more than 3 percent.

European shares sank 4 percent by late morning on Monday, putting them on track for their biggest one-day fall in more than four and a half years as fears of a recession in the United States rattled investors.

Shares in oil and financial companies took a hammering, Reuters reported.

By midday, the FTSEurofirst index of top European shares was down 3.9 percent at 1,304.98 points, a level not seen in eighteen months.

The FTSE 100 index of leading British shares fell by more than 300 points, or more than 5 percent, and Germany’s Dax index was down by more than 500 points, or more than 7 percent.

In Asia, Shanghai’s Composite Index closed down 5.1 percent at 4,914.44, and Hong Kong’s Hang Seng fell 5.5 percent to 23,818.86, the biggest fall since the Sept. 11, 2001 terrorist attacks in the United States.

The across-the-board sell-off that began in Asia, even after American markets stabilized Friday on the back of a $145 billion aid package, means investors in Asia are convinced that an American recession is looming, and that it will have local impact in Asia, economists and strategists said.

No matter how many bridges, roads and power plants China builds, or new cars India sells, a downturn in the United States will batter Asian economies, they said.

Investors in Asia have been in a state of denial about the possibility of a United States recession, said Adrian Mowat, JPMorgan’s chief strategist in Asia, but now, he said, “there’s no debate about it.”

He said investors are asking “how long and how deep” the recession might be.

In recent months, some ardent emerging market investors have preached the idea that fast-growing areas like most of Asia have “decoupled” from developed markets, meaning the economies of the two groups would no longer move in tandem.

The old investing adage “When the United States sneezes, Asia catches a cold” no longer applies, these decoupling proponents argued.

But a recent slump in emerging markets, capped by Monday’s landslide, means investor sentiment is changing.

Mr. Mowat said that it did not matter whether global markets were separated by geography or asset class because “we trade together in corrections.”

Deborah Schuller, an Asia regional credit officer for Moody’s Investor Service, said: “If the United States consumer quits buying things, it is going to hurt” in Asia.

Most rated corporations in Asia will be able to withstand nine months of United States recession, but if hard times in America stretch to 12 months or more, there could be some serious problems, she said.

Worries about China’s economy are also giving investors in Asia heartburn.

The country’s private property market is in the midst of a shakeout, and scores of small developers have gone out of business. Meanwhile, fears of inflation have been looming for months.

Chinese banks were hard hit Monday, in part because they hold the bulk of Asia’s exposure to United States subprime mortgages.

Japanese stock markets fell Monday to their lowest levels in more than two years on concerns that an American recession could be accompanied by a local one.

The Nikkei 225 fell 3.9 percent to close at 13,325.94, the lowest level since Oct. 25, 2005. Investors were unimpressed by the stimulus package announced by President Bush on Friday, and concerned by data from the Japanese Finance Ministry. The ministry said Monday that growth was slowing in five of the Japan’s economic regions, which have been hit by stagnant housing investment and the poor employment picture outside the major cities.

The Bombay Stock Exchange’s Sensex index plummeted 7.4 percent — its second-largest percentage loss ever — and suffered its biggest-ever point loss of 1,353 to close at 17,605.35.

Hardest hit were some of India’s most valued companies, including Reliance Communications, Tata Steel and Reliance Industries.

Australian stocks slid again Monday, their tenth day of straight losses, and the longest losing streak for more than 25 years. The S&P/ASX 200 index dropped 2.9 percent as investors scrambled to get out of companies perceived to have high exposure to debt.

Allco Finance Group, a once high-flying transport infrastructure fund that was part of the consortium that attempted to buy Qantas Airways last year, was among the hardest hit, dropping over 35 percent. Allco is now more than 75 percent off its high of 13.24 Australian dollars in February last year.

There may be more downturns in store for Asia, particularly as banks report the impact from their investments in the American mortgage market.

Companies “have not announced their year end numbers yet,” said Ms. Schuller, and if they are holding subprime assets, they may need to write them down, she said. “They are going to be taking these 25 to 30 percent haircuts we’re seeing on Wall Street,” she said. “I think it is going to shock people.”

Tim Johnston contributed reporting from Sydney, and Martin Foster contributed reporting from Tokyo.
-----------------------------

Those people who having been moving investments to China and India to protect themselves from the American domestic market may now start seeing a problem.

If Asian banks start reporting multi-billion-dollar write downs
like the Wall Street Banks have...hang on. I am amazed how far the holding of subprime mortgages has stretched...
almost all brokerages (except Goldman) have bet on these. Are the chickens coming home to roost?

So, the question remains...the recession how long and how deep? Companies have been tossing out CEOs who bought
into the house of cards, but we still have a year of the worst offenders: The Neo-cons running D.C.

Again, I'm impressed with Australia's approach...bite the bullet before it's fired at ya...

http://www.theaustralian.news.com.au/story...5-16741,00.html

Market uncertainty stems from the second-wave impact of the sub-prime collapse, which has yet to be fully understood. Will the US slide into recession and, if it does, will it take the rest of the world with it? For Australia, the key is whether slower or negative growth in the US economy slows that country's demand for imports from China, which in turn lessens China's demand for commodities. Red-hot growth in China has already pushed Australia's terms of trade up by 40 per cent over the past five years. Mr Stevens says Asian economies are well placed to manage weaker conditions in the US and Europe. In China, he says, domestic spending will keep the economy growing regardless and Chinese authorities may even welcome some moderation in growth.

Ironically for Australia, a moderate easing of world demand and cooling of Asian markets may in fact be a welcome circuit-breaker for what Mr Stevens regards as the biggest threat to the Australian economy: rising inflation.
....

Mr Stevens has given no indication whether the RBA will lift official interest rates when the board meets on February 5, but Access Economics is forecasting two more rates rises this year. The RBA believes there are disturbing parallels with the boom period of the early 1970s when prices for foodstuffs, energy and mineral commodities were high. The difference today has been the absence of extreme wage demands and the greater sophistication of financial markets, including the floating Australian dollar against other currencies.

The federal Government has said it will attempt to take further pressure off inflation by cutting spending and lifting the budget surplus to 1.5 per cent of GDP.

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

...spoken like economists...Down Under...where my dad flew in WWII.
I wore the Southern Cross on my fatigues...and I belive their politicians have more brass...

My predicted level came "in late January"...

Dow Jones Industrial Average
11,999.40 -99.90 / -0.83%

Jan 22 11:19am ET †
Open: 11,930.63
High (day): 11,930.63
Low (day): 11,930.63
YTD%Change: -9.54%
Volume: 206,142,857.00
Prev. Close: 12,099.30
52-Week Range (Low - High): 11,939.61 - 14,198.10

okay so if it doesn't drop below 10,740 will have only lost 10%
from where we were a year ago...so I haven't hit the panic button yet.
---------------------


But, it is getting scary out there...

http://www.forbes.com/feeds/ap/2008/01/22/ap4556875.html


Wachovia 4Q Earnings Plummet 98 Percent
Associated Press 01.22.08, 8:15 AM ET

CHARLOTTE, N.C. - National bank Wachovia Corp. said Tuesday its fourth-quarter earnings tumbled 98 percent due to a $1.7 billion reduction in the value of certain portfolios and $1.5 billion set aside to cover bad loans.

Fourth-quarter net income fell to $51 million, or 3 cents per share, from $2.3 billion, or $1.20 per share, during the same period the previous year.

Excluding merger-related expenses, Wachovia (nyse: WB - news - people ) earned $160 million, or 8 cents per share, during the fourth quarter.

Analysts polled by Thomson Financial, on average, forecast earnings of 33 cents per share for the quarter. One-time charges are not always included in analysts' estimates.

"The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth quarter results substantially," Ken Thompson, Wachovia's chairman and chief executive, said in a statement.

Wachovia took a $1.7 billion write-down during the quarter due to weakening credit markets. Banks have been forced to reduce the value of bonds and debt backed by mortgages and other consumer loans that have increasingly defaulted in recent months.

The write-downs included $1 billion related to collateralized debt obligations backed by subprime mortgages - loans given to customers with poor credit history. CDOs are complex financial instruments that combine various sliced of bonds and debt.

Early in the fourth quarter, Wachovia estimated it would take a $1.6 billion write-down based on results from October.

Because of rising delinquencies and defaults, Wachovia also set aside $1.5 billion to cover actual and expected credit losses.

Net interest income - the difference between how much it costs a bank to borrow money and how much it receives from lending money to customers - rose slightly to $4.63 billion from $4.58 billion during the final quarter in 2006.

Noninterest income, revenue derived from fees and other charges, plummeted to $2.53 billion from $4.01 billion due to the write-downs.

For the full year, Wachovia earned $6.31 billion, or $3.31 per share, a 19 percent decline from the $7.79 billion, or $4.72 per share, earned during 2006.

Wachovia shares dipped $1.25 to $29.55 in premarket trading from a $30.80 close Friday.
---------------

They still turned a profit...again no button pushing...but Jeeze Louise...

Let me iterate:

"It's better to bite the bullet now, than be shot with it later."

http://money.cnn.com/2008/01/18/news/econo...sion=2008012107

By cutting rates early and often, Bernanke is acting as though a recession - even a mild one - would be a calamity that must be avoided at all costs. He has already reduced the Fed funds rate (which banks pay when they borrow from each other) by one point, to 4.25%, and promises to "take substantive additional action as needed to support growth," a pledge that Wall Street interprets as meaning at least another half-point cut at the Fed's meeting on Jan. 29, if not sooner.

Many on Wall Street back Bernanke. "I'll defend the Fed," says Bear Stearns chief economist David Malpass. "Part of the slowdown is the result of banks' tightening credit, and you help that by lowering the Fed funds rate." Mickey Levy of Bank of America agrees: "You need to lower rates to offset the drag on housing."

But Bernanke is setting the stage for an even bigger recession down the road. Just as the ultra-low rates of the early 2000s created many of the problems we're experiencing today, pumping money into the system would probably stoke inflation, forcing the Fed to hike rates sharply in the near future. "It's better to take a small recession and kill inflation immediately instead of facing high inflation and a really big recession later," says Carnegie Mellon economist Allan Meltzer.

http://www.cnn.com/2008/US/01/22/Dobbs.Jan...?iref=hpmostpop

Dobbs: Our leaders have squandered our wealth

Opinion By Lou Dobbs
CNN

NEW YORK (CNN) -- President Bush's assurances that we'll all be "just fine" if he and Congress can work out an economic stimulus package seem a little hollow this morning.

Much like Federal Reserve Board Chairman Ben Bernanke's assurances last May that the subprime mortgage meltdown would be contained and not affect the broader economy. And it seems Treasury Secretary Henry Paulson has spent most of the past year trying to influence Chinese economic policy rather than setting the direction of U.S. economic policy.

There is no question that Bush, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid will quickly come up with an economic stimulus package simply because they can no longer ignore our economic and financial crisis. That economic stimulus plan will amount to about 1 percent of our nation's gross domestic product, an estimated $150 billion.

But all of us should recognize that the stimulus package will be inadequate to drive sustainable growth in our $13 trillion economy. An emergency Fed rate cut and an economic stimulus plan are short-term responses to our complex economic problems, nothing more than bandages for a hemorrhaging economy.

Bush, Pelosi, Reid and the presidential candidates of both parties have an opportunity now, and I believe an obligation, to adjust the public policy mistakes of the past quarter-century that have led to this crisis. And only through courageous policy decisions will we be able to steer this nation's economy away from the brink of outright disaster.

We all have to acknowledge that our problems were in part brought on by the failure of our government to regulate the institutions and markets that are now in crisis. The irresponsible fiscal policies of the past decade have led to a national debt that amounts to $9 trillion. The irresponsible so-called free trade policies of Democratic and Republican administrations over the past three decades have produced a trade debt that now amounts to more than $6 trillion, and that debt is rising faster than our national debt. All of which is contributing to the plunge in the value of the U.S. dollar.

At precisely the point in our history in which this nation has become ever more dependent on foreign producers for everything from clothing to computers to technology to energy, our weakened dollar is making the price of an ever-increasing number of imported goods even more expensive.

All Americans will soon have to face a bitter and now obvious truth: Our national, political and economic leaders have squandered this nation's wealth, and the price of this profligacy is enormous, and the bill has just come due for all of us.

Bernanke endorsed the concept of a short-term economic stimulus package, but he cautioned that the money must be spent correctly: "You'd hope that [consumers] would spend it on things that are domestically produced so that the spending power doesn't go elsewhere."

Just what would you have us spend it on? The truth is that consumers spend most of their money on foreign imports, and any stimulus package probably would be stimulating foreign economies rather than our own. Imports, for example, account for 92 percent of our non-athletic footwear, 92 percent of audio video equipment, 89 percent of our luggage and 73 percent of power tools. In fact, between 1997 and 2006, only five of the 114 industries examined in a U.S. Business and Industry Council report gained market share against import competition.

And let's be honest and straightforward, as I hope our president and the candidates for president will be: This stimulus will not prevent a recession. It may ease the pain for millions of Americans, but a recession we will have. The question is how deep, how prolonged and how painful will it be. Unfortunately, we're about to find out how committed and capable our national leaders are at mitigating that pain and producing realistic policy decisions for this nation that now stands at the brink.

------------------------
And, will the cost of Chinese imports start to rise when...

Reuters-

Record power shortage hits China
Wed Jan 23, 2008 8:39am EST
By Jim Bai and Judy Hua

BEIJING/HONG KONG, Jan 23 (Reuters) - China is facing its most severe power shortage ever as some plants struggle to secure increasingly costly coal and others shut down capacity rather than rack up losses by selling electricity at low rates.

The rebellion by power plant managers unwilling to generate at a loss is likely to worry policymakers still haunted by the nationwide diesel supply crisis last autumn, when refiners under similar pressure quietly curbed output and forced the government to make an unplanned and unwanted rise in fuel prices.

Beijing is battling high inflation and has promised not to raise energy prices in the short-term, so few analysts expect an immediate hike in power tariffs. But the shortages may prove a tricky test of the central government's resolve and power.

Brownouts have hit at least 13 provinces, and at its peak nationwide demand outstripped supply by nearly 70 gigawatts, or the equivalent of most of Britain's generating capacity, the official People's Daily newspaper reported on Wednesday.

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

When the dollar is worth less and the cost of production in China is rising...what happens...
the cost of Chinese goods goes up....fueling inflation in the US...and the cycle continues...
forget the stimulus package...take the pain before ya bleed to death from the aspirin.

Dow Jones Industrial Average
12,270.17 +298.98 / +2.50%

Jan 23 4:05pm ET †
Open: 11,969.08
High (day): 12,276.67
Low (day): 11,644.81
YTD%Change: -7.50%
Volume: 536,030,737.00
Prev. Close: 11,971.19
52-Week Range (Low - High): 11,634.82 - 14,198.10

Gainers:

Citigroup, Inc 25.87 +1.48
Bank Of America Corp... 39.78 +2.39
Wells Fargo & Company 29.96 +3.01

http://money.cnn.com/2008/01/23/markets/ma..._0945/index.htm

Stocks bounce back
Dow leads broader market surge
as investors scoop up a variety
of shares battered in the recent selloff.

By Ben Rooney and Alexandra Twin, CNNMoney.com staff writers
January 23 2008: 3:42 PM EST


NEW YORK (CNNMoney.com) -- Blue chips rallied Wednesday afternoon, with the Dow bouncing back from a more than 300-point loss earlier in the session, while the Nasdaq erased losses sparked by Apple's profit warning.

The Dow Jones industrial added almost 300 points, after having fallen more than 300 points earlier in the session. The Standard & Poor's 500 (SPX) index rose 1.5 percent.

The Nasdaq composite gained 0.4 percent after sinking more than 3 percent earlier in the session.

The three major gauges have slumped for five sessions in a row amid worries that the credit and housing market crises will send the U.S. economy into recession. Global stocks have slipped too.

On Tuesday, the Federal Reserve announced an emergency intermeeting rating cut, a decision that got some mixed ratings from critics, but nonetheless helped the market close off its lows.

After sliding throughout Wednesday's session, stocks rallied near the close, with investors scooping up some of the stocks that were hit the hardest in the recent selloff.

Financial sector: Big banks jumped, with JP Morgan Chase gaining more than 11 percent. Citigroup, Merrill Lynch, Morgan Stanley and Lehman Brothers all bounced at least 5 percent as well.

The sector also benefited after Bear Stearns upgraded the sector, citing the potential for upside as a result of the Fed's interest rate cut.

Bank of America, which reported quarterly earnings that missed estimates Tuesday, also rose.

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

Something is happening that we don't know...the same banks were diving this morning...with the fed rate cut known...then an hour before closing soared...something's happening.

http://money.cnn.com/2008/01/24/news/econo...rtune/index.htm

January 25 2008: 11:05 AM EST

The darker side of interest rate cuts

Markets like the Fed cuts and expect more.
But lower interest rates could keep the dollar weak
and ultimately threaten economic growth.



Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C., says the Fed's latest round of rate cuts risks adding to pressure on the dollar. He notes that unlike the Fed, the European Central Bank has been holding its interest rate target steady. So the latest Fed rate cut puts U.S. short-term interest rates, at 3.5 percent, below the 4 percent level of the euro zone. That differential tends to make the euro, which has already appreciated sharply against the dollar in recent years, even more attractive to investors shopping for places to put their money.

Indeed, currency analysts at Merrill Lynch wrote this week that they expect the dollar to fall further if the Fed continues to cut rates. The analysts write that they see dollar negatives in the "the erosion of the [dollar] as a safe haven, the lack of private sector buying, central bank flows and a widening interest rate differential." The worries about the strength of the dollar point to the Achilles heel of the U.S. economy: the fact that U.S. consumers have been financing their consumption by borrowing cheaply overseas.

At some point, observers warn, foreigners will stop wanting to send their money, which will drive up interest rates and hurt economic growth. "The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves," financier George Soros wrote this week in the Financial Times. "If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end." That's a worrisome thought indeed.

Meanwhile, James D. Hamilton, professor of economics at the University of California, San Diego says that even with real estate prices poised to keep falling for some time, inflation worries can't be deferred forever. He says the Fed "may have to wrestle with that beast" down the road and warns that even if it's possible for the Fed to cut interest rates further, Bernanke and his colleagues should be careful about heading down the road toward 1 percent rates. "Anything below 2.5 percent would have me worried," he says. Cutting rates more sharply runs the risks of "sowing the seeds for the next problem" in the economy, Hamilton adds - very much as the Fed's low-rate policy during the recovery of 2003 and 2004 fed the housing bubble that is now deflating.

http://www.forbes.com/markets/2008/01/29/a...9markets06.html

Forbes Market Briefing
Asian Markets Ambivalent Before Expected Fed Rate Cut
Vivian Wai-yin Kwok, 01.29.08, 6:25 AM ET


HONG KONG - Investor sentiment was ambivalent in Asia on Tuesday, signaling that rate cutting by the U.S. Federal Reserve may be losing its magic after having been resorted to frequently in recent months. Anticipation of a further cut by the Fed this week is widespread.

The central questions on investors' minds, as in the tumultuous past week, was how deep a recession the U.S. could fall into and to what extent Asia would be affected.

These concerns were temporarily assuaged by a rally on Wall Street on Monday and expectations of another 50-basis-point rate cut by the Federal Reserve on Tuesday, as Asian stocks recouped losses from a sharp fall on Monday. (See: " Shanghai Whiteout Blues")

Yet, Don Hanna, an analyst with Citigroup, said the scope for emerging markets to take up the slack created by weaker demand in the United States and Europe may be overestimated. “G3 economies accounted for 40% of Asia’s $3 trillion in exports in the year to last August. ... next year we expect U.S. imports to stagnate and EU imports to rise by about 4%. To maintain this year’s pace of export growth in Asia, other markets (chiefly Asia itself) would need to grow more than one-third faster than this year."

Looks like our drop in growth effects them to drop in growth which effects our...

Old saying: "When the US sneezes, the rest of the world catches a cold."

Still true.

I'm slowing down here, cause I don't want to be confused
with someone who wants further downturns...but I have
read a lot of stuff about how fed rate cuts have hurt the value of
the dollar against foreign currencies. If we lose the base line
(especially on oil pricing) currency status - Houston, we have a problem.

I'm just posting links to this stuff.

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

This is because money seeks the highest return, all other things being equal. So at 3 percent, our T bills don't look as good as 6 percent Eurobonds.

Fortunately (for us at least) the Euro Central Bank will have to do the same as the FED, because their banks have the same problem.

Job shock: U.S. lost 17,000 jobs in January
Employers trim payrolls, as jobs report shows
first drop in jobs in four years; unemployment rate slips to 4.9%.

By Chris Isidore, CNNMoney.com senior writer
February 1 2008: 11:02 AM EST


NEW YORK (CNNMoney.com) -- Employers trimmed jobs from their payrolls in January, according to a government jobs report Friday that showed the first decline in employment in four years. That raised new concerns about the risk of recession for the weakening U.S. economy.

There was a net loss of 17,000 jobs in the month, according to the Labor Department reading. That was partly balanced by a sharp revision higher for the December reading to a gain of 82,000 jobs from the original reading of only an 18,000 increase.

Economists surveyed by Briefing.com had looked for a gain of 70,000 jobs for January.

The figures showed January as having the first decline in payrolls since August 2003. But the drop was based on the preliminary reading, which is subject to revisions. There have been a few months in the last four years, including August 2007, when the preliminary payroll reading showed a decline was later revised to a gain.

The unemployment rate slipped to 4.9%. Economists had forecast it would remain at the 5% rate reported for December. The drop in the unemployment rate, which is based on a different survey than the one used to calculate U.S. payrolls, was partly due to updated population figures used at the start of the new year.

Rising recession fears

Despite the upward revision in the December payroll reading and the slight decline in unemployment, there was more weakness than strength in the report. The government made its annual revision to all 2007 employment readings and found a 191,000 drop in jobs, even with the big adjustment higher in December.

The report also showed the average hours worked in the private sector declined in January to 33.7 hours from 33.8 in December. That drop, coupled with only a narrow 4-cent gain in the average hourly wage, resulted in the first drop in weekly wages since April.

The weakening state of the labor market has become a growing concern for economists, policymakers and Wall Street in recent weeks, as well as the general public.

Federal Reserve cited evidence of a "softening in labor markets" when it announced both of its rate cuts late last month. Congress is rushing to pass a $150 billion stimulus package that the Bush administration said should add 500,000 jobs to the economy.

President Bush was set to comment on the economy later Friday morning. Some leading Democrats were quick to seize on the jobs report as a sign that the administration needs to do more about the economy.

"This report underscores why it is absolutely critical that we include in any stimulus package extended unemployment insurance for those who are losing their jobs and looking work in our ailing economy," said a statement from Sen. Hillary Clinton, one of the two leading Democratic presidential candidates. "We need more than tax rebates and business incentives to fix our ailing economy."

Also Friday, Sen Charles Schumer, D-N.Y. held a hearing on the current labor market conditions in which he proclaimed in his opening statement that "any doubts that we are heading into a recession should be erased with today's employment report."

"I'm concerned that the last few years of lower than expected job growth will look good compared to the job shrinkage we may well see in the coming months," he added.

Testifying at the hearing Keith Hall, the commissioner of the Bureau of Labor Statistics, agreed that the employment situation is worrisome to the overall economy.

"We have seen job loss fairly widely spread," he said. "We've had periods like this before. We don't want this to continue."

Will Fed step in again?

Still, some economists say after cutting interest rates by 1.25 percentage points in just the last two weeks, the Fed is unlikely to take any immediate action to boost the economy, even with this new sign of weakness. The central bank's policymakers will have another employment report to consider before they next meet March 18.

"I do not think this report compels the Fed to do anything," said economist Robert Brusca. "The Fed has eased a lot. Monetary policy works with a lag. The Fed knows weak data will continue for a while after its cuts. It will need to see something much weaker than this to get itself hopped up for another rate cut."

Other economists said they do expect the Fed to resume making cuts at its upcoming meetings.

"I think we're seeing some actual job loss. I'm not surprised by the number," said David Kelly, chief market strategist for JPMorgan Funds. "There is weakness in the payroll numbers and we're wobbling on the edge of recession. But America is not overstaffed today. That should limit job losses in the future."

Wachovia senior economist Mark Vitner said he doesn't believe the economy will fall in to recession, but he conceded there is weakness in hiring. But he said it's more a matter of businesses not hiring than making steep job cuts.

"There's no question businesses are more cautious in their hiring plans," he said.

That view was echoed by Jeff Kaye, CEO of executive recruiter Kaye Bassman International.

"I don't think we're heading to layoffs other than the obvious sectors that are being pounded," he said. "But we're seeing companies on hold on hiring; they're in a wait-and-see posture to see what happens with economy."

CNNMoney.com staff writer David Goldman contributed to this report

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

When jobs start slipping...well we're about there...

We didn't get here overnight...in fact, the cost of stuff has been spiking
since about 1970 (except for a brief plateau called Clinton Years).
But the combination of the housing bubble, resulting financial institution problems,
costs of everything...and now worries about jobs...well...I think, but I just don't know.

Consumer Price Index 1950-2007

http://www.nytimes.com/2008/02/02/business...ml?ref=business

Massachusetts Accuses Merrill of Fraud

By JENNY ANDERSON
Published: February 2, 2008

Massachusetts’s top securities regulator accused Merrill Lynch on Friday of defrauding the city of Springfield with subprime-linked investments, casting light on how Wall Street banks sold complex mortgage securities that are now plummeting in value as the housing slump deepens.

The Massachusetts secretary of state, William Galvin, filed a civil fraud complaint against Merrill a day after the firm took the unusual step of agreeing to reimburse Springfield for losses on the investments. Merrill agreed to buy back the securities at their original value, $13.9 billion, after determining that its brokers had not been authorized by Springfield to buy the securities on the city’s behalf.

"They are alleging fraud against a municipality, which carries with it much more gravitas than a simple lawsuit," Mark Flessner, a partner at Sonnenschein Nath & Rosenthal in Chicago, said of complaint. An official in Mr. Galvin’s office said the Springfield case was part of a larger investigation into Merrill’s sales of similar investments to other Massachusetts towns and cities.

Asked about the Springfield case, Mark Herr, a spokesman for Merrill Lynch, said, “We are puzzled by this suit.” He declined to comment on the broader investigation.

The case underscores how subprime investments keep turning up in unexpected places, and raises new questions about Wall Street’s sales practices and its role in the mortgage debacle. In recent years, as home prices soared and mortgage lending boomed, investment banks packaged hundreds of billions of dollars of home loans into securities for sale to investors around the world. Now, record defaults are resulting in huge losses for municipalities, states, banks, insurance companies and nonprofit organizations.

Wall Street banks have lost billions of dollars of such investments themselves. Merrill has been one of the hardest hit, writing down almost than $25 billion, the bulk of which came from mortgage-related securities.

But banks rarely reimburse clients for losses, because doing so might prompt others to demand refunds when their investments sour. Merrill Lynch officials, however, said the Springfield case is unusual because the central issue was the firm’s sales practices, not whether the city was a suitable buyer for the securities.

The deal between Merrill and the city was brokered on Thursday by the state’s attorney general, Martha Coakley, along with the Springfield Finance Control Board and representatives from the city of Springfield. But Mr. Galvin, in his complaint, argued that the city had not been properly warned of the risks associated with the investments. By the end of 2007, the $13.9 million of securities were worth $1.2 million.

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


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

Dinallo's Rescue Plan Focuses on Ambac, People Say (Update4)

By Erik Holm and Bradley Keoun

Feb. 1 (Bloomberg) -- New York Insurance Superintendent Eric Dinallo is trying to organize a bank-led rescue of Ambac Financial Group Inc. to prevent downgrades of the bond insurer that may roil credit markets, according to two people briefed on the plan.

Eight banks including Citigroup Inc. and UBS AG have formed a group to provide financing, said one of the people, who declined to be identified because the details haven't been completed. Separate groups have begun working on similar plans to provide capital to MBIA Inc., the largest bond insurer, and Financial Guaranty Insurance Co., two people said.

``While we cannot discuss specifics, there are a number of developments relating to the bond insurers,'' Dinallo said in a statement today. ``We are continuing to communicate with all parties to help them reach firm deals as soon as possible.'' Ambac spokesman Peter Poillon didn't return calls seeking comment.

Fitch Ratings stripped Ambac, the second-largest bond insurer, of its AAA rating last month, casting doubt on the company's guarantees on about $556 billion of municipal and structured finance debt. Standard & Poor's and Moody's Investors Service Inc. are reviewing their top ratings on the New York- based company. Reductions would lead to asset writedowns for banks that depend on the insurers for coverage of securities.

Ambac climbed $1.56, or 13 percent, to $13.20 at 4:15 p.m. in New York Stock Exchange composite trading. The company has declined more than 80 percent in the past 12 months.

Reinsurance Plan

One of Dinallo's proposals to rescue the company would have banks and securities firms act as reinsurers of bonds and securities that Ambac guarantees, one of the people said. Ambac would pay an upfront fee in return for a promise that the banks would reimburse it if insurance-related losses exceeded an agreed-upon limit, the person said.

Another option would be for banks to provide the bond insurer with capital to help it pay claims. The banks discussing a possible Ambac rescue also include Royal Bank of Scotland Group Plc, Wachovia Corp., Barclays Plc, Societe Generale SA, BNP Paribas SA and Dresdner Bank AG, one of the people said.

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

Some of the hardest hit banks are scrambling to try to secure some of the bond insurers standing,
which are supposed to be gauranteeing their investments. Could that be because when these
dominos start falling the banks will disintegrate? We'll see...

The DJIA gained amost 100 points yesterday on talk of banks bailing out bonding companies and Microsoft buying Yahoo. On talk...meanwhile...the informed see the subprime infection spreading out from the financials...the bug is weaking...but for those companies that were overextended it may still prove critical.
***
----------------------------------------------
http://www.bloomberg.com/apps/news?pid=206...&refer=news

Bristol-Myers, Ciena Losses Show Subprime Infection (Update2)

By Crayton Harrison and Dina Bass

Feb. 1 (Bloomberg) -- Bristol-Myers Squibb Co.'s $275 million writedown on subprime investments shows the mortgage crisis is spreading from Wall Street to the drug, technology and mining industries, where companies are posting losses on assets once rated AAA.

The widening collapse threatens U.S. earnings and stock values. Computer-related companies led by Ciena Corp. already reported writedowns similar to those at New York-based Bristol- Myers. Smaller technology companies including Lawson Software Inc., a maker of human-resources software, may be at risk based on their investments, according to Merrill Lynch & Co.

Losses from investments in subprime mortgages, loans made to people with little or no credit histories, may total as much as $400 billion worldwide, Deutsche Bank AG said in November.

``Many of the securities that the corporate treasurers thought were perfectly safe in fact are not,'' said Anthony J. Carfang, a partner at Treasury Strategies, a Chicago-based financial consultant. ``No one knows where the bad paper is.''

The subprime collapse produced $120 billion in writedowns by banks, according to data compiled by Bloomberg. Medical and computer companies, whose profit growth may come more from yields on cash than selling products, also have reduced the values of investments.

...
``They got addicted to these nice high returns,'' said Jeff Wallace, managing partner at Greenwich Treasury Advisors, a consultant in Boulder, Colorado.

Bristol-Myers and Ciena said they picked AAA-rated investments considered safe by rating companies Moody's Investors Service and Standard & Poor's. In its most recent quarterly regulatory filing on Oct. 25, Bristol-Myers said it had ``floating-rate instruments with an `AAA/aaa' credit rating'' that could ``be liquidated for cash at short notice.''

``They are rated Triple A today, in two months they could be Double A and in six months they could be Single A,'' said Michael Shinnick, who helps manage $3 billion at 1st Source Bank in South Bend, Indiana. He owns technology companies such as Microsoft Corp. in part because of their cash. ``The situation in some of these mortgage-backed securities is likely to deteriorate.''

Values Tumbling

Companies may not have to write down mortgage-backed or auction-rate securities whose values have tumbled, according to a Jan. 25 Merrill Lynch report. Some are reclassifying holdings to long-term from short-term and waiting to see if markets improve.

Bristol-Myers, maker of the anti-clotting pill Plavix, reported a fourth-quarter net loss yesterday after writing off $275 million in investments in auction-rate securities, some of which had subprime mortgages as collateral. The writedown may increase to $417 million, officials said.
...
Bristol-Myers has invested in AAA/Aaa-rated auction-rate securities ``for nearly a decade'' and had $811 million worth at the end of 2007, Chief Financial Officer Andrew Bonfield said yesterday. Deteriorating credit markets left it unable to sell some of the investments, he said.

The drugmaker, which said in its earnings release that it had ``experienced multiple failed auctions'' for auction-rate securities, said it would now invest more in U.S. Treasury notes.

Assets in institutional money market funds increased by $500 billion between June and December, indicating corporations shifted their holdings to be conservative, Carfang said.

Ciena, a Linthicum, Maryland-based maker of networking equipment, had considered its investments ``conservative,'' said spokeswoman Nicole Anderson. Then, last quarter, it wrote down $13 million for commercial paper issued by two structured investment vehicles, SIV Portfolio Plc and Rhinebridge LLC, after they failed to make payments.

`SIV-Related'

After the Oct. 31 writedown, Ciena had $33.9 million in assets related to the securities, which are no longer being traded. That is probably all the company's ``SIV-related exposure,'' Anderson said.

Lawson, based in St. Paul, Minnesota, had $90.6 million of auction securities on Aug. 31. Auctions on $57.2 million failed, and the company took a charge of $4.2 million the following quarter. The software maker said the securities were rated AA or AAA. Spokesman Aaron Pearson declined to provide an executive to comment.

The company reclassified the auction-rate securities as long-term investments.

Microsoft had $3.19 billion, almost 10 percent of its investments, in mortgage-backed securities in its most recent fiscal year. Since then, Chief Financial Officer Chris Liddell said the Redmond, Washington-based company has lost ``virtually nothing'' because it avoided ``lower-quality securities.''
...
Not everyone is as fortunate. Apex Silver Mines Ltd., a silver producer in Bolivia, Peru and Mexico, said in November it recorded a $21.1 million charge against the value of $71.7 million of auction-rate securities. Potash Corp. of Saskatchewan Inc., the largest maker of crop nutrients, had a $26.5 million charge for auction-rate securities in the fourth quarter. Spokeswoman Rhonda Speiss declined to comment.

``There was just an incredible amount of Kool-Aid drinking going on here,'' said consultant Wallace. ``No company should have been investing in subprime mortgages.''
----------------------------------------------------

***
Exxon just posted the biggest quarterly profit of any company in history (the second time in 2007) and I'm wondering if they don't end up with the banks and bonding institutions as well as the cash before this is all over. Has Bushco won? Will the group of oil companies - from Exxon-Mobile to Aramco - that Chaney met with before they took office - be The New World Order? They seem to want to gain control of markets as the oil runs out.

Just read a thread...
U.S. Energy Security...
based on natural gas from Russia and Iran.

If that's security...I'm an African-American presidential candidate
with a father from an insecure Kenyan tribe involved in civil war.

America has to choose between a black man and a white woman.

A choice Michael Jackson has to make every day.

I thought it was a black boy or white boy.

What a piece of shizen that a*s*s is...he belongs in the UAE.
And, I'd say the same about a piece of defecation white guy
who had plastic surgery and skin darkening to look black,
while he indulged his pedophile fantasies.

You know, I really don't mind The Kenyan-Kansan, but
he sure doesn't sweep me off my old-vet feet the way he does
some of these liberal ladies.

http://money.cnn.com/2008/02/07/real_estat...imits/index.htm

Real Estate
Mortgage Meltdown

Freddie, Fannie debt may pose risk to economy
The housing slump has compelled the two entities to buy up mortgages on the secondary market
that banks are backing away from. But that could end badly, charges one regulator.

NEW YORK (CNNMoney.com) -- The increased share of housing debt taken on by Freddie Mac and Fannie Mae during the housing slump has put the two government sponsored enterprises at risk, it was charged Thursday.

The two outfits are "reducing risks in the market, but concentrating mortgage risks on themselves. These risks are beginning to take their toll," said James Lockhart, director of the Office of Federal Housing Enterprise Oversight (OFHEO), which regulates Fannie and Freddie. He was speaking Thursday at a Senate Banking committee on regulatory reform.

Freddie will report its first ever annual loss for 2007 at the end of February, while Fannie, is expected to report its first loss in 22 years for the year.
As the sublime crisis has grown, banks have backed away from buying mortgages in the secondary market. This has left Fannie and Freddie, which do the same thing, to pick up the slack.

As a result, the two government sponsored entities (GSEs) saw the housing debt they and the Federal Home Loan Banks carry grow by 16 percent to $6.3 trillion, more than the total public debt of the United States, according to Lockhart.

Some experts worry that if Fannie or Freddie take on too much debt and fail, that the government would have to bail them out using taxpayer money.

"The conforming market supported by Freddie Mac (FRE, Fortune 500) and Fannie Mae (FNM) is the only well-functioning segment of the mortgage market," said Richard Syron, CEO of Freddie Mac. "We're experiencing greater losses as house prices decline, but that is not surprising since this is the market we were created to support it."

And Daniel Mudd, Fannie's CEO agreed. "Our business is meeting the increased demand for liquidity and our overall credit book has held up relatively well," he said. "Yes, these are tough times, but that is when you want a Fannie Mae."

But Lockhart argues that the GSEs require more regulatory oversight as their market share grows, in order for them to maintain the confidence of both the public and investors.

"[GSEs] have become the system for secondary mortgages," said Senator Richard Shelby (R-AL), and that creates a risk to the general economy.

If Fannie or Freddie run into trouble, that could lead to severe disruption in the mortgage market, which could then ripple through the entire financial system. Because they maintain capital that is a very small fraction of their debt obligations, the GSEs particularly vulnerable.

Lockhart said, "It's critical that their capital grow as their risk grows and that's going to take a lot of work."

Fox News just mentioned that George W. suggested ladies use their tax rebate checks to buy shoes.

Economic genius!

Ya know...even though it's what an elementary school kid might say...it makes some sense.

Condie Rice will use hers for a pair of expensive Ferragamos.

http://www.iht.com/articles/2008/02/12/business/gm.php

General Motors posts record loss for 2007

Bloomberg News, The Associated Press
Published: February 12, 2008

DETROIT: General Motors on Tuesday announced a loss of $38.7 billion for 2008 and said it would offer buyouts to 74,000 hourly workers.

The loss resulted largely from a third-quarter accounting charge for unused tax credits. It topped the previous record loss for a U.S. automaker, set by GM in 1992, when the company lost $23.4 billion.

For the fourth quarter, GM posted a loss of $722 million after a year-earlier profit, as rising costs in North America and a loss at its partially owned GMAC finance unit hit results.

GM's chief executive, Rick Wagoner, expects the automaker's comeback in the first half of this year to be impeded by a slowing U.S. auto market. Wagoner is trying to offset declining North American sales with growth in Asia, Russia and Latin America.

GM said it would give workers several choices. Retirement-eligible workers will get between $45,000 and $62,500 as an incentive to retire, depending on their skill level. Younger workers can get up to $140,000 if they leave and cut all ties with the company.


GM said it expects the majority of workers to leave by July 1.

Ford Motor and Chrysler already have announced similar buyout programs.

GM had been offering buyouts to about 5,200 UAW workers at service and parts operations and some closed plants since December, but those workers now are eligible for the new, sweetened offer, which raises the incentive payments for retirement-eligible workers by $10,000 for production workers and $27,500 for skilled workers.

GM is giving less than Ford and Chrysler, which are offering up to $70,000 in lump-sum payments, but GM said its offer is comparable because workers who roll the money into a retirement account won't have to pay as much in taxes.

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

The end of the US Auto Industry as we knew it.
Hello Toyota West. And we thought we beat 'em.

http://money.cnn.com/2008/02/15/news/compa...sion=2008021507

Report: Citi blocks hedge fund withdrawals
Fund specializing in corporate debt had investors
trying to take out more than 30% of its $500 million in assets, newspaper says.
February 15 2008: 7:48 AM EST

NEW YORK (CNNMoney.com) -- Citigroup is blocking investors from withdrawing their money from a hedge fund specializing in government debt after a near run on its assets, according to a published report.

The Wall Street Journal reports that Citigroup made the move to bar withdrawals from its CSO Partners fund after investors attempted to pull out more than 30% of the fund's roughly $500 million in assets.

The fund posted an 11% loss last year, according to the paper. The paper reports that in an effort to stabilize the fund last month Citigroup injected $100 million.

The paper also reports that alternative investment products such as hedge funds are a relatively small business for Citigroup, which has about $2.4 trillion in assets. But it's another unneeded problem for Citi as it tries to shake off losses from other investments, primarily those tied to subprime mortgages.

A month ago it reported a record $10 billion loss in the fourth quarter after it was forced to take an $18 billion writedown. The loss led to the departure of Chairman and CEO Charles Prince. His replacement, Vikram Pandit, had been a hedge fund manager who briefly ran the alternative-investments group at Citi.

Shares of Dow component Citigroup lost 1.1% in early Frankfurt trading Friday on the report.

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

This is the scond run on a government fund pool in the past six months.
First Florida , now Citi...refusing to allow investors to withdraw their investments.
Not good for confidence...at all.

Jeffmo - this one's for you...

http://www.gulfnews.com/business/Oil_and_Gas/10190410.html

Iranian oil exchange could trade in roubles
Bloomberg
Published: February 17, 2008, 01:26


Moscow: Iran, the world's fourth-largest oil producer, may use the Russian rouble in trading on its new oil exchange, the country's ambassador to Moscow said.

"Big energy producers like Iran and Russia should try to free the world of dollar slavery,'' Ambassador Gholamreza Ansari said on Moscow's Ekho Moskvy radio station on Saturday.

The two nations already cooperate in nuclear energy and may start closer coordination of natural-gas production. Russia holds the world's largest gas reserves, followed by Iran, and together they produce of almost a fifth of the world's oil. The two share the goal of finding alternatives to a weakened dollar.

Iran plans to trade oil in more currencies than in its own rial to offer diversity, the ambassador said. The exchange will open today, the country's official IRNA news service said last week.

"I don't think it would have any impact on the oil market at all,'' said Kevin Norrish, an oil markets analyst at Barclays Capital in London. "I think it's more political than related to oil market prices or dynamics.''

The rouble should be used as a "regional reserve currency,'' Russian First Deputy Prime Minister Dmitry Medvedev said earlier today in Krasnoyarsk, Siberia. Medvedev, who is also chairman of Russian gas exporter Gazprom, is the front-runner to replace President Vladimir Putin.

"The role of key reserve currencies is being reconsidered. We must take advantage of this,'' Medvedev said. Russia and other natural-gas producing countries should also form a group to coordinate production and sales of the fuel "as soon as possible,'' Ansari said.

Jeffmo - this one's for you...

http://www.gulfnews.com/business/Oil_and_Gas/10190410.html

Iranian oil exchange could trade in roubles
Bloomberg
Published: February 17, 2008, 01:26


Moscow: Iran, the world's fourth-largest oil producer, may use the Russian rouble in trading on its new oil exchange, the country's ambassador to Moscow said.

"Big energy producers like Iran and Russia should try to free the world of dollar slavery,'' Ambassador Gholamreza Ansari said on Moscow's Ekho Moskvy radio station on Saturday.

The two nations already cooperate in nuclear energy and may start closer coordination of natural-gas production. Russia holds the world's largest gas reserves, followed by Iran, and together they produce of almost a fifth of the world's oil. The two share the goal of finding alternatives to a weakened dollar.

Iran plans to trade oil in more currencies than in its own rial to offer diversity, the ambassador said. The exchange will open today, the country's official IRNA news service said last week.

"I don't think it would have any impact on the oil market at all,'' said Kevin Norrish, an oil markets analyst at Barclays Capital in London. "I think it's more political than related to oil market prices or dynamics.''

The rouble should be used as a "regional reserve currency,'' Russian First Deputy Prime Minister Dmitry Medvedev said earlier today in Krasnoyarsk, Siberia. Medvedev, who is also chairman of Russian gas exporter Gazprom, is the front-runner to replace President Vladimir Putin.

"The role of key reserve currencies is being reconsidered. We must take advantage of this,'' Medvedev said. Russia and other natural-gas producing countries should also form a group to coordinate production and sales of the fuel "as soon as possible,'' Ansari said.

western investment banks announce writedowns...


http://money.cnn.com/2008/02/19/news/inter...sion=2008021906

Credit Suisse cuts value of assets
Swiss bank devalues assets by $2.9 billion, blames traders for mispricing.

February 19 2008: 6:15 AM EST

ZURICH, Switzerland (AP) -- Credit Suisse Group said Tuesday it has estimated the value of its assets to be $2.85 billion lower than previously calculated.
The Swiss bank said an internal review found some of its assets had been overpriced by traders.
The revaluation will have a net impact of about $1 billion on the company's balance sheet, the bank said, adding that it expects to remain profitable in the first quarter of the year.
The bank said it has suspended "a handful" of traders in connection with the overvaluation of assets.
A spokesman for Switzerland's second largest bank said that a small number of traders were being investigated for overvaluing asset-backed securities on its balance sheet.
"I can't tell you exactly how many, but a small number," Credit Suisse spokesman Marc Dosch told The Associated Press.
Shares in the bank dropped sharply Tuesday following the announcement that the misvaluation will reduce earnings in the first quarter.
Credit Suisse last week announced a $1.88 billion writedown for subprime-related assets, but still posted a fourth-quarter net profit of $1.2 billion.
--------------------------

http://edition.cnn.com/2008/BUSINESS/02/19/barclays.ap/
Barclays profit down 3.4 percent

LONDON, England (AP) -- Barclays Group PLC on Tuesday reported a 3.4 percent drop in profit in 2007 compared to 2006, and has reported further losses due to credit market turmoil.
The company reported a net profit of £4.42 billion (€5.89 billion U.S.$8.64) for the year compared to £4.57 billion in 2006.
Barclays, Britain's third-largest banking group by market capitalization, reported losses of £1.6 billion (€2.13 billion U.S.$3.13 billion) from credit market turmoil in the wake of the subprime mortgage crisis in the U.S.
That was up from the £1.3 billion writedown the company reported in November.
The company raised its dividend by 9.7 percent compared to 2006 to 34 pence (€0.45 U.S.$0.66.) Barclays shares were down 4.4 percent at 440 pence (€5.87 U.S.$8.60) on the London Stock Exchange.
---------------------------
Chinese food getting expensive (in China).
The "It could be worse (for us) dept.".

http://ap.google.com/article/ALeqM5jrKONLC...v2rdrQD8UTA1O82

China's January Inflation Rises 7.1 Pct
By JOE McDONALD – 2 hours ago

BEIJING (AP) — China's inflation rose to its highest level in more than 11 years in January after devastating snowstorms worsened food shortages, according to data reported Tuesday, and analysts warned there might be sharper increases to come.

Consumer prices in January climbed 7.1 percent from the same month last year, driven by an 18.2 percent rise in food costs, the National Bureau of Statistics reported.

Economists warned that despite efforts to ease food shortages, prices could rise even faster in February due to higher wages, soaring costs for coal and other industrial materials and lingering storm effects.

...
Letting the yuan rise faster against the dollar could help to cut China's swollen trade surplus by making exports more expensive in foreign currency terms. That could ease a flood of export revenues flowing through the economy that are adding to pressure for prices to rise.

Analysts have boosted inflation forecasts for China since the January storms, which killed at least 107 people, wrecked crops and destroyed crops across the south.

Deutsche Bank says inflation could rise as high as 8 percent for the first quarter. Lehman Brothers forecast price rises of up to 7.5 percent in February before the surge eases in March.

...Nationwide, vegetable prices rose by 17.5 percent in January, compared with 9.5 percent in December.

January's consumer price rise was the highest since September 1996, according to Lehman Brothers. December's rate was 6.5 percent, also driven mostly by food costs.

...Chinese exporters already have been hurt by a 13 percent rise in the yuan against the dollar over the past three years, which has raised the price of their goods abroad. Some small producers have closed while others are trying to switch to more competitive products.
Among individual goods, pork prices rose 58.8 percent in January compared with the year-earlier period, while other meat was up 41.2 percent and cooking oil 37.1 percent, according to the statistics bureau.
Chinese leaders are especially worried about the political impact of rapidly rising food costs, which hit the country's poor majority hard.

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

I guess that why Lehman Brothers just announced a $750 million Asian investment fund...

http://online.wsj.com/article/SB1203716544...=googlenews_wsj

Mortgages
Fannie and Freddie Losses
To Offer Gauge on Defaults
By JAMES R. HAGERTY
February 23, 2008; Page A2

When Fannie Mae and Freddie Mac report fourth-quarter results in the coming week, shareholders will be nervously surveying the damage from rising defaults on home mortgages owned or guaranteed by the two companies. Both are expected to post big losses, as they did in the prior quarter. Merrill Lynch downgraded their shares to "sell" Friday.

Fannie and Freddie acquire home loans and hold them as investments or bundle them into securities held by other investors. They collect fees for guaranteeing payments on those so-called securitized loans -- and take a hit when lots of homeowners default. Though Fannie and Freddie are owned by private shareholders, the companies were created by Congress to help ensure a steady flow of money into housing. Investors assume the government would bail them out in a crisis.

The huge role Fannie and Freddie play in the mortgage market has grown even bigger since mid-2007, when other investors took fright and virtually stopped buying home loans other than those guaranteed by Fannie and Freddie or insured by the Federal Housing Administration. Meanwhile, another set of government-sponsored institutions -- the 12 regional Federal Home Loan Banks -- have stepped up their lending to mortgage companies cut off from other sources of funds.

The mortgage market is now so reliant on funds from government-related entities that it has been "effectively nationalized," says Richard Iley, an economist at BNP Paribas. These institutions have kept the credit spigots open for home mortgages, but "potentially there are very large liabilities for the taxpayer," Mr. Iley says.

Freddie, which is scheduled to report results Thursday, is forecast to post a loss of about $1.6 billion, or $2.54 a share, according to the mean analyst estimate compiled by Thomson Financial. The mean forecast for Fannie -- whose results are due in the coming week, though the day hasn't been announced -- calls for a loss of about $1.1 billion, or $1.13 a share, Thomson says. Those forecasts are only a rough guide because analysts find it hard to predict how the results will be affected by such things as swings in the value of loan-guarantee obligations.

Heavy losses in the third quarter forced Fannie and Freddie to raise a combined $13 billion through the sale of preferred shares late last year to shore up their capital. Joshua Rosner, an analyst at Graham Fisher & Co., a research firm, says continuing losses are likely to force one or both of them to raise money again soon, perhaps through the sale of common stock.

But David Hochstim, an analyst at Bear Stearns, says another trip to the capital trough isn't likely in the near term. He says that Fannie and Freddie have been able to raise the fees they charge lenders, and he expects their regulator eventually to remove a "surcharge" that for now requires the companies to hold 30% more capital than their normal statutory minimum.



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

http://www.reuters.com/article/bondsNews/i...261985120080223

Ambac rescue may be announced Mon or Tues--source
Fri Feb 22, 2008 11:52pm EST

By Dan Wilchins

NEW YORK (Reuters) - A rescue for bond insurer Ambac Financial Group Inc may be announced on Monday or Tuesday, a person familiar with the matter said on Friday.

Ambac, facing billions of dollars of expected losses from guaranteeing repackaged subprime mortgages, is talking to banks and regulators about raising extra capital to keep its top credit ratings.

A deal has not yet been signed, and may still fall through, but talks with banks including Citigroup Inc (C.N: Quote, Profile, Research), UBS AG (UBSN.VX: Quote, Profile, Research) and Wachovia Corp (WB.N: Quote, Profile, Research) are advancing, although there are still details to be worked out, the person said.

Investors fear that Ambac will lose its top credit ratings from Moody's and Standard & Poor's, forcing investors to sell billions of dollars of securities and lifting borrowing costs for consumers and city governments. U.S. stocks, which had been in negative territory for most of the session, turned positive after the prospect of an Ambac rescue was initially reported by CNBC television.

Ambac shares rose 16 percent to close at $10.71 on the New York Stock Exchange, but the second-largest U.S. bond insurer's shares have fallen 88 percent since the start of 2007.

The U.S. bond insurance industry, which guarantees some $2.4 trillion of debt, is broadly looking to raise new capital and reorganize as expected losses have mounted. The insurers originally focused mainly on insuring bonds issued by state and local governments, but have lost big after the foray into guaranteeing repackaged consumer debt and other complicated instruments.

----------------------
http://www.reuters.com/article/BROKER/idUSN2260783820080222

Northern Trust to aid funds exposed to SIVs
Fri Feb 22, 2008 4:22pm EST
21 Feb 2008

BOSTON (Reuters) - Northern Trust Corp (NTRS.O: Quote, Profile, Research) became the latest money manager to aid ailing short-term funds when it said on Friday it earmarked as much as $229 million for eight funds that are exposed to troubled structured investment vehicles (SIVs).

Northern Trust, which also offers private banking and global custody services in addition to investment management, said it will use its own money to keep clients from losing their money in funds that suffered losses due to soured SIV investments. Traditionally in short-term funds, investors expect to get their money back and if funds' losses are too severe, managers have stepped in to make their clients whole.

The Chicago-based company said it will take a "nominal" noncash charge of as much as $229 million to pay for the matter.

http://www.reuters.com/article/businessNew...465139620080224

* What: Federal Reserve Chairman Ben Bernanke delivers semi-annual economic outlook testimony to Congress

* When: Wednesday, February 27, at 10 a.m. EST. and Thursday, February 28, at 10 a.m. EST.

By Mark Felsenthal

WASHINGTON (Reuters) - Housing's in the tank, banks are scared to lend, but oil is at $100 a barrel and inflation is threatening to pick up -- what's a central banker to do?

Federal Reserve Chairman Ben Bernanke will deploy his most reassuring bedside manner in congressional testimony on Wednesday and Thursday to explain how the U.S. central bank, which has already cut interest rates 2-1/4 percentage points since mid-September, can trim them further to prevent recession without letting inflation get out of hand.

"Near-term, the economy remains extremely vulnerable to further contraction because business sentiment has deteriorated further and the aggressive Fed easing to date has been partially offset by tighter financial conditions," Deutsche Bank economists wrote in a note to clients. "This means the Fed is going to have to cut rates further, which is the message Mr. Bernanke will deliver."

Financial markets place a 92 percent chance of a half-point cut in benchmark rates at the Fed's next meeting on March 18, as implied by short-term interest-rate futures. Bernanke's testimony on the central bank's semiannual report on monetary policy and the economy will be closely scrutinized for clues on whether those bets are on the mark.

INFLATION UNEASE

Worried that financial turmoil would undercut an already weak economy, the Fed chopped rates by three-quarters of a point in an emergency move on January 22, just eight days before a regularly scheduled meeting.

It lowered them by another half point when its January 29-30 meeting wrapped up -- a one-two punch that marked one of the most aggressive easings of monetary policy in the central bank's modern history.

At the same time, policy-makers were taking note of a rise in prices that has taken inflation above the 'comfort zone' of a number of Fed officials. Most, however, believed a period of sluggish growth would draw some inflationary pressure out of the system, minutes of the central bank's last meeting said.

Underscoring the Fed's dilemma, the Consumer Price Index, released on Wednesday, showed a worrisome 4.3 percent rise in prices in the 12 months through January.

While surging energy and foods costs accounted for much of the gain, core prices, which strip out energy and food, were up 2.5 percent, the most since last March.

"Rising prices are pinching consumers at exactly the same time that employment is slowing and the housing market is struggling," economic consultant Carl Tannenbaum said in a research note.

"If growth rebounds quickly after the current soft patch (not altogether unlikely, given the amount of fiscal and monetary stimulus in the pipeline), the Fed may find itself having to raise rates aggressively later on this year to keep prices under control," Tannenbaum said.

GROWTH FORECAST CUT, INFLATION RAISED

In updated economic forecasts released last week, the U.S. central bank lowered its outlook for 2008 growth by a half point to between 1.3 percent and 2 percent, citing the prolonged housing slump and bottlenecks in credit markets.

However, it also raised projections for both core and overall inflation, a recognition of the tough environment officials face. While the central bank lowers rates to spur growth, it would usually raise them to combat inflation.

Bernanke's commentary this week will be scoured for signs of how the Fed plans to respond to risks to growth, financial instability, and rising price pressures.

"We have seen deterioration on all three fronts, so the key to the testimony will be how Bernanke perceives the Fed's next moves in light of ultimately fighting battles on all three fronts," Global Insight economists told clients.

While Bernanke is expected to show the Fed focused primarily on downside risks to growth, as he did in testimony less than two weeks ago, he is also expected to nod to the inflation concerns some officials have begun to highlight.

Dallas Federal Reserve Bank President Richard Fisher, a voter on the Fed's interest-rate setting committee, said on Friday that while growth could be slower than the central bank expects, officials needed to be vigilant on inflation risks.

"We have to be mindful of that fact that we have to create the conditions for employment growth, at the same time be careful that we don't stir the embers of inflation, and that represents the horns of a dilemma recently," he said.

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

Get your loans now folks...inflation will probably push rates up in the third quarter.

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

U.S. Home Foreclosures Jump 90% as Mortgages Reset (Update2)

By Sharon L. Lynch

Feb. 26 (Bloomberg) -- Bank seizures of U.S. homes almost doubled in January as property owners failed to make higher payments on adjustable-rate mortgages.

Repossessions rose 90 percent to 45,327 last month from the same period a year ago, RealtyTrac Inc. said today in a statement. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent.

``The most troubling thing is that we are seeing more and more of these properties actually going all the way through the process and going back to the banks,'' Rick Sharga, executive vice president of Irvine, California-based RealtyTrac, said in an interview.

Defaults among subprime borrowers and those unable to meet rising payments on adjustable-rate loans drove foreclosure filings to the highest since August and the second-highest since RealtyTrac started keeping records. About $460 billion of adjustable mortgages are scheduled to reset this year, raising minimum payments for borrowers, according to New York-based analysts at Citigroup Inc.

...
January was the sixth straight month with more than 200,000 foreclosure filings, RealtyTrac said. The fourth-quarter total of 642,150 filings was the most since the company began records in January 2005. More than 1 percent of U.S. households were in some stage of foreclosure during 2007.

U.S. home prices fell last year for the first time since the Great Depression. That made it more difficult for homeowners to sell or refinance properties encumbered by mortgages that may be higher than the value of the houses themselves. Sales of existing homes fell last month to the lowest in at least nine years, the National Association of Realtors said yesterday.

...
President George W. Bush's proposal to help 1 million subprime borrowers avoid foreclosure with tax-exempt bonds is doing little to slow the increase in defaults.

State housing agencies are turning away many applicants because their homes have lost too much value or they've accumulated too much debt, according to estimates from Geoffrey Cooper, emerging markets director at a unit of MGIC Investment Co., the country's biggest mortgage insurer.

Mortgage companies including Fannie Mae and HSBC Finance have joined a U.S. Treasury Department-led effort to offer 30- day foreclosure freezes to give delinquent borrowers more time to arrange payment plans.

Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. have initially agreed to participate in the effort.

The ruble is a relatively unknown international currency. I was COMPLETELY unknown during the Soviet era because it could only be used inside SSRs. The Politburo didn't want those evil international bankers involved with their trade.

In the post-breakup years, the Russians have been using the dollar as their reserve currency, but also selling oil and gas in Euros.

But now the ruble is backed by oil and gas.
IT DOESN'T MATTER WHETHER THEY USE EUROS, RUBLES, OR YEN. It DOES matter that they are moving AWAY from the dollar. BushCo has simply gone and printed too damn many of them.

And he's a Harvard MBA!

I believe Bush is a Yalie...Obama's Harvard.
Easy to confuse though...economic policies considered.

Bush is BOTH. Yale BA, Harvard MBA

What a waste of an education.

Now that's a scary movie.
When ya think the candidates will address
the reality issues that Americans are dealin' with?

http://www.nytimes.com/2008/03/01/business...&ei=5087%0A

NYT Business

There's Folly in Wonderland

By FLOYD NORRIS
Published: March 1, 2008

The billionaire investor Warren E. Buffett disclosed Friday...

He was willing to say, in effect, “I told you so,” in recalling his warning a year ago about “weakened lending practices” in the mortgage market.

“Just about all Americans came to believe that house prices would forever rise,” he wrote. “That conviction made a borrower’s income and cash equity seem unimportant to lenders, who shoveled out money, confident that H.P.A. — house price appreciation — would cure all problems. Today, our country is experiencing widespread pain because of that erroneous belief. As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out — and what we are witnessing at some of our largest financial institutions is an ugly sight.”

His criticism of other companies was based on the fact that many assume their pension funds will earn 8 percent a year from investments, a return he deems unlikely given the low level of interest rates, but one that lets them report higher profits now.

He compared money managers who promise double-digit returns to the queen in “Alice in Wonderland,” who proclaimed, “Why, sometimes I’ve believed as many as six impossible things before breakfast.” Mr. Buffett added, “Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.”

Mr. Buffett pointed out that some companies with pension plans in both Europe and the United States assume better returns on the American plans than the European ones.

“This discrepancy is puzzling,” he said. “Why should these companies not put their U.S. managers in charge of the non-U.S. pension assets and let them work their magic on these assets as well? I’ve never seen this puzzle explained. But the auditors and actuaries who are charged with vetting the return assumptions seem to have no problem with it.”

“What is no puzzle, however, is why C.E.O.s opt for a high investment assumption: It lets them report higher earnings. And if they are wrong, as I believe they are, the chickens won’t come home to roost until long after they retire.”

Mr. Buffett also had harsh words for state and local governments. “Public pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed. Promises involving very early retirement — sometimes to those in their low 40s — and generous cost-of-living adjustments are easy for these officials to make. In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep.”

For all the good the degrees have done for anyone at all, it's more likely the sheepskins were expensive Christmas gifts.

I just heard a comment on CNN Security Watch (a financial show) that
people are paying credit card bills when they can't pay their mortgage.
Reason being, they say, is that the home is headed for foreclosure and
families are trying to maintain credit cards because they have become
reliant on them for day-to-day expenses (groceries and gasoline come to mind).

Some of us have been preaching to the trees about the housing bubble, the
federal debt bubble, the trade bubble and the credit card bubble...
today on this show they are talking about the student loan bubble...
which is going to make student loans much harder to get and more
expensive - thus pushing up tuition.

Which brings me to a point...I believe there's a political bubble...
I believe there are alot of people looking to a presidential candidate
to come through on a skyscraper of promises (health insurance foremost).

Well, I have a fixed 30-year mortgage, which I've been paying on for 15 years
(it's my only loan), don't use credit cards and have no student loans...and guess
what else...I don't put my faith or future in the hands of politicians...especially
this year...