From Richard Russell's Dow Theory Letters:
July 28, 2008 -- I feel sorry for -- I feel sorry for John McCain. Of late, he's taken to attacking Obama (today's headline -- "McCain Blasts Obama over Canceled Visit to Wounded In Germany") and that won't win him anything. McCain seems "out of his water," and I don't think he should have taken the job of running for President in the first place. McCain is a terrible speaker. In contrast, Obama seems born to the job. Obama is an orator, and they're calling him "the black Kennedy." Obama appears to be cool and hip and 21st century, while McCain seems to be more my generation. And I sure wouldn't run for President.
I feel sorry for the hedge fund managers. According to last week's Financial Times,the hedgies are having their worst month in the last eight years. A lot of them went long on the commodities and short on the financials. They got kicked in the teeth by both. It's just been a tough, volatile market. And kinda hard to beat.
I'm sorry for the Russians. A gang of billionaires in Russia have made fortunes on oil and gas, but last Friday the RTS Russian stock index plunged 5.6%, taking that index down 22% from its record high of last May. Russians, say "hello" to the Russian bear.
I'm sorry for the guys and gals on Wall Street who are depending on big bonuses this year and every year. The word is that bonuses are expected to fall at least $10 billion in 2008, and this will affect Wall Streeters and NYC and NY State.
I'm sorry for Tom Cruise. He made a fool of himself first on Oprah and then with his nutty Scientology presentation. Now the film companies don't want to pay him the $20 million he's used to getting for starring in a movie. His latest film about the man who tried to kill Hitler is being held up month after month. Why don't they release the darn thing?
I'm sorry for the thousands of American millionaires. They're yesterday's middle class. Today, with high taxes and high inflation, you need to have a hundred million or preferable be a billionaire (one of the super-rich) to live like the millionaires of the 40s, 50s or 60s. Thanks, Federal Reserve and fiat money, you've placed our standard of living on the down-escalator.
I'm sorry for Larry "drill, drill, drill" Kudlow, who is stubbornly bullish on the stock market and the economy. Kudlow has been trying to be bullish on housing, but I'm afraid he's jumping the gun. And I'm worried that Larry will have a nervous breakdown if the market continues to decline.
I'm trying to be sorry for George W. Bush. He thought he'd go down in history as another brave "War President," but instead Bush will go down in the books as the man who did more damage to this country than probably any other president in US history.
I'm sorry for all Americans, because I think we're heading for hard times. We had the good times, a quarter of a century of almost unending good times. We went heavily into debt to extend the good times. Now we're going to pay the bill. It will be painful. I hope the pain will last only a short time.
Roughly 50% of Americans now own credit card debt. A large percentage of these "debt-prisoners" are not able to pay their credit card debt off. I'm sorry for them, because they'll be in debt for most of their lives, and now they'll be forced to cut back on their purchasing power. This is a major unknown in the US economic picture. The key question: how big will the consumer cut-back be, and how long will it last? If you know that answer to this question, you're a liar.
The Great Depression was such a disaster because it started in 1929 and continued until 1942, when the War bailed us out. That was 13 long years.
The coming hard times might be severe, and they may well last longer than most people think -- but they won't last 13 years. The Great Depression was accompanied by painful deflation. The recession that we're facing might be deflationary or inflationary, it's not clear which yet. But it could easily be inflationary, since the Fed and the government will try to both print us out and bail us out of the current mess.
I'm sorry for both the longs in this market and the shorts. I'm sorry for the longs because this is a bear market, and if they haven't been mauled already, they will be. I'm sorry for the shorts because the latest report shows shorts on the NYSE at an all-time record of 18.610 billion shares. And with that many shorts, any rally can turn into an upside explosion.
I'm sorry for our next President, no matter who he is. It's an open secret that the US deficit will be one trillion dollars in 2009. Thus our new President will be saddled with fiscal and economic problems during his first year. "Help me, help me!"
I'm sorry for me, because I've been writing these sites, five days a week, for the last 9 years without once skipping a day. I'm thinking of cutting to four days a week, and on that fifth day (that day will vary) I'll just include the "Today's Market Action" section -- in other words, just the market wrap-up. That will give me some breathing space.
http://ww2.dowtheoryletters.com/DTLOL.nsf
Full Version: The Great Depression of 2008/2009
Common Ground Common Sense > Issues that Affect Our Lives > Job Market, Fiscal, and Economic Policies
Thar She Blows
The Last Hurrah for the Banking System
By Mike Whitney
So, while your bank still has money and can process your checks, it may be time to pay down debts, pay quarterly taxes and mortgage payments in advance, and think of having money outside of banks (gold, foreign currencies), etc., before your money is inaccessible or even evaporates! Continue
The Last Hurrah for the Banking System
By Mike Whitney
So, while your bank still has money and can process your checks, it may be time to pay down debts, pay quarterly taxes and mortgage payments in advance, and think of having money outside of banks (gold, foreign currencies), etc., before your money is inaccessible or even evaporates! Continue
Obama would drag US into depression: McCain camp
AFP -
... dragged rival Barack Obama back to the domestic fray, scorning his economic plan as a recipe to plunge the United States into a 1930s-style depression. ...
See all stories on this topic
Fiorina: Obama Policies Could Cause Depression
Roll Call (subscription) - Washington,DC,USA
today suggested that his opponent’s economic proposals could send the United States into a depression. Already registered? Login at the top of the page. ...
See all stories on this topic
AFP -
... dragged rival Barack Obama back to the domestic fray, scorning his economic plan as a recipe to plunge the United States into a 1930s-style depression. ...
See all stories on this topic
Fiorina: Obama Policies Could Cause Depression
Roll Call (subscription) - Washington,DC,USA
today suggested that his opponent’s economic proposals could send the United States into a depression. Already registered? Login at the top of the page. ...
See all stories on this topic
Obama confronts US economic 'emergency'
AFP -
... the rival campaign of Republican John McCain said Obama's economic plan would serve only to plunge the United States into a 1930s-style depression. ...
See all stories on this topic
AFP -
... the rival campaign of Republican John McCain said Obama's economic plan would serve only to plunge the United States into a 1930s-style depression. ...
See all stories on this topic
Are We Facing Just Another Market Problem or a System Collapse?
Danny Schechter, AlterNet
Corporate Accountability and WorkPlace: Even as foreclosures double, and the price of gas and food rises sharply, it's been business as usual in newspapers and in Washington.
Danny Schechter, AlterNet
Corporate Accountability and WorkPlace: Even as foreclosures double, and the price of gas and food rises sharply, it's been business as usual in newspapers and in Washington.
THE MOGAMBO GURU 
Nothing but pain
The squeals of pain from the squeeze on the US economy are about to get louder after three months of contracting bank credit, with wages falling off a cliff and jobs heading in the same direction.
Nothing but pain The squeals of pain from the squeeze on the US economy are about to get louder after three months of contracting bank credit, with wages falling off a cliff and jobs heading in the same direction.
Just the facts
A week of hyper-volatility ended with mostly slight declines in the major averages, as the markets absorbed the implications of the Fannie Mae and Freddie Mac rescue package. Smaller companies, however, as captured by the Russell 2000, strengthened, even as reports said loans were increasingly difficult to come by.
A week of hyper-volatility ended with mostly slight declines in the major averages, as the markets absorbed the implications of the Fannie Mae and Freddie Mac rescue package. Smaller companies, however, as captured by the Russell 2000, strengthened, even as reports said loans were increasingly difficult to come by.
Crisis on the Economic Front
Spreading Layoffs, Sagging GDP
Thursday, the Commerce Department will report advanced estimates for second quarter GDP. The consensus forecast is for a 1.8 percent increase over the first quarter, thanks to surges in consumer spending and exports. Unfortunately, retail spending growth slowed in June and July, and the lift to exports provided by a weaker dollar may be flagging. Businesses remain pessimistic. Many are not replacing workers that leave, layoffs are widespread, and commercial construction has stalled.
The Labor Department July employment report, due out Friday, will likely provide a much better indicator of where the economy is headed in the second half than the GDP report.
Over the last six months, the economy lost 438,000 jobs. Manufacturing and construction shed 235,000 and 261,000 jobs, respectively, and in recent months, layoffs spread to finance and retail sales.
If the economy is to pick up in the second half, the jobs report will have to confound forecasters, who are generally pessimistic, to show strong gains in employment.
Other key data this week will be consumer confidence, auto sales and construction spending. All have been heading down in recent months. Forecasters expect:
Thursday, the Commerce Department will release second quarter GDP, and the consensus forecast is for a 1.8 percent annual increase, up from 1.0 percent in the first quarter and 0.6 percent in the final quarter of 2007. However, the surge in consumer spending is already abating, and export growth may have run its course.
Economic stimulus tax rebate checks motivated stronger consumer spending in May, but this tapered off in June. A significant amount of the additional spending was concentrated in gasoline, food and other nondurable goods, as surging gasoline and food prices force consumers to focus on necessities. Absent was spending on furniture and automobiles, which would reflect stronger consumer confidence about the future.
Retailers are reporting a profits squeeze, as they face difficulties passing on to consumers higher wholesale prices for goods. Manufacturers will either have to find ways to absorb higher energy and material prices, by boosting productivity, or face shrinking sales.
Last week's new and existing home sales reports indicated further weakness in the housing market and with so many unsold homes on the market, a recovery in residential construction appears many months away.
The weaker dollar against the euro and non-Asian currencies has given exports a boost; however, most of the recent growth has been in commodities and industrial materials, and an important element of that growth has been from higher prices, as opposed to increased shipments that generate more employment. Exports of capital goods have not grown since December 2007, reflecting the tough time U.S. exporters have penetrating still rapidly growing Asian markets.
The Jobs Data
The credit crisis, falling home and stock prices, the high cost of imported oil, and the growing trade deficit with China are hammering down demand for U.S.-made goods and services and forcing layoffs in many industries.
Broader job losses indicate problems in the financial and housing sectors are damaging the non-financial and non-energy sectors of the economy in ways that may take many months, even years, to repair. The economy is entering a period of much slower growth during the second half of 2008.
In Friday's jobs report the key variables to watch are:
Jobs Creation. July 3, the Labor Department reported the economy lost 62,000 payroll jobs in June and shed an average of 73,000 jobs each month since December. The consensus forecast is that the economy lost 68,000 jobs in July. My published forecast is for a 60,000 decrease in employment.
Business vs. Government Payrolls. In June, government employment expanded by 29,000, even as overall payroll jobs contracted 62,000. This indicates the private business economy shed 91,000 jobs. Failing tax revenues are crimping state and local budgets, and some state and municipal governments are now beginning to trim payrolls.
Construction. In June, construction lost 43,000 jobs, and manufacturing lost 33,000 jobs.
Residential construction shed nearly 7000 jobs, while 36,000 jobs were lost in nonresidential buildings, roads and other infrastructure projects. This has been a persistent pattern for many months. Notably, since residential construction employment peaked in September 2006, that sector has lost 164,100 jobs, while the balance of the construction industry lost 364,000 jobs. Commercial building construction has lost 31,600 jobs.
Those losses indicate the housing recession, credit crisis, high oil prices, and China trade deficit are infecting the long-term growth prospects of the entire U.S. economy. American businesses are simply not hiring or building for the future in the United States, and this bodes poorly for GDP growth in the second half of 2008 and beyond.
Retailing. Despite the May and June bursts in retail sales, retailing and nonautomotive retailing lost 30,100 jobs in May and June together. Even removing the automobile and parts dealers, employment was down 21,800. Retailers are anticipating a slow second half of 2008 and are trimming store staff to limit their losses.
Finance and Insurance. During the economic expansion finance and insurance, along with technology sectors offered some of the best new job opportunities, outside of health care and technology-related activities. In May and June finance and insurance shed 14,200 jobs.
It's not just the U.S. credit crisis. U.S. financial services are facing tougher competition in booming markets, like the Persian Gulf, where the U.S. credit meltdown has tarnished the image of U.S. service providers like Citigroup. Increasingly U.S. investment banking firms cannot demand premium high prices for their services, as sophisticated buyers prefer local, more reasonably-priced and less-tarnished competitors.
Manufacturing. Over the last 99 months manufacturing has lost 3.8 million jobs. The dollar remains undervalued against the Chinese yuan and other Asian currencies, and the large trade deficit with China and other Asian exporters is a key factor pushing down U.S. manufacturing employment.
Many U.S. manufacturers find it easier to locate production in China and other Asia locations than add jobs in the United States to produce goods. U.S. made goods must scale considerable trade barriers and compete against subsidies provided by undervalued currencies in China, India and elsewhere in Asia and regulated fuel prices.
U.S. manufacturers have received little encouragement from the Bush Administration, and in particular Treasury Secretary Henry Paulson, that it will do much to level the playing field in Asia.
Were the trade deficit cut in half, manufacturing would recoup at least 2 million of those jobs, and U.S. growth would exceed 3.5 percent a year. Growth is likely to be subpar, and average about 2 percent through the end of 2010.
Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.
Spreading Layoffs, Sagging GDP
By PETER MORICI
Second quarter GDP and the July employment report highlight this week's economic data. The hiring data, reflecting business sentiment about future sales, are key indicators of where the economy is headed in the second half.
Second quarter GDP and the July employment report highlight this week's economic data. The hiring data, reflecting business sentiment about future sales, are key indicators of where the economy is headed in the second half.
Thursday, the Commerce Department will report advanced estimates for second quarter GDP. The consensus forecast is for a 1.8 percent increase over the first quarter, thanks to surges in consumer spending and exports. Unfortunately, retail spending growth slowed in June and July, and the lift to exports provided by a weaker dollar may be flagging. Businesses remain pessimistic. Many are not replacing workers that leave, layoffs are widespread, and commercial construction has stalled.
The Labor Department July employment report, due out Friday, will likely provide a much better indicator of where the economy is headed in the second half than the GDP report.
Over the last six months, the economy lost 438,000 jobs. Manufacturing and construction shed 235,000 and 261,000 jobs, respectively, and in recent months, layoffs spread to finance and retail sales.
If the economy is to pick up in the second half, the jobs report will have to confound forecasters, who are generally pessimistic, to show strong gains in employment.
Other key data this week will be consumer confidence, auto sales and construction spending. All have been heading down in recent months. Forecasters expect:
Tuesday—the Conference Board Index of Consumer Confidence to be unchanged from JuneGDP
Friday—auto sales to be little changed from depressed June levels, and June construction spending to decrease 0.3 percent from May.
Thursday, the Commerce Department will release second quarter GDP, and the consensus forecast is for a 1.8 percent annual increase, up from 1.0 percent in the first quarter and 0.6 percent in the final quarter of 2007. However, the surge in consumer spending is already abating, and export growth may have run its course.
Economic stimulus tax rebate checks motivated stronger consumer spending in May, but this tapered off in June. A significant amount of the additional spending was concentrated in gasoline, food and other nondurable goods, as surging gasoline and food prices force consumers to focus on necessities. Absent was spending on furniture and automobiles, which would reflect stronger consumer confidence about the future.
Retailers are reporting a profits squeeze, as they face difficulties passing on to consumers higher wholesale prices for goods. Manufacturers will either have to find ways to absorb higher energy and material prices, by boosting productivity, or face shrinking sales.
Last week's new and existing home sales reports indicated further weakness in the housing market and with so many unsold homes on the market, a recovery in residential construction appears many months away.
The weaker dollar against the euro and non-Asian currencies has given exports a boost; however, most of the recent growth has been in commodities and industrial materials, and an important element of that growth has been from higher prices, as opposed to increased shipments that generate more employment. Exports of capital goods have not grown since December 2007, reflecting the tough time U.S. exporters have penetrating still rapidly growing Asian markets.
The Jobs Data
The credit crisis, falling home and stock prices, the high cost of imported oil, and the growing trade deficit with China are hammering down demand for U.S.-made goods and services and forcing layoffs in many industries.
Broader job losses indicate problems in the financial and housing sectors are damaging the non-financial and non-energy sectors of the economy in ways that may take many months, even years, to repair. The economy is entering a period of much slower growth during the second half of 2008.
In Friday's jobs report the key variables to watch are:
Jobs Creation. July 3, the Labor Department reported the economy lost 62,000 payroll jobs in June and shed an average of 73,000 jobs each month since December. The consensus forecast is that the economy lost 68,000 jobs in July. My published forecast is for a 60,000 decrease in employment.
Business vs. Government Payrolls. In June, government employment expanded by 29,000, even as overall payroll jobs contracted 62,000. This indicates the private business economy shed 91,000 jobs. Failing tax revenues are crimping state and local budgets, and some state and municipal governments are now beginning to trim payrolls.
Construction. In June, construction lost 43,000 jobs, and manufacturing lost 33,000 jobs.
Residential construction shed nearly 7000 jobs, while 36,000 jobs were lost in nonresidential buildings, roads and other infrastructure projects. This has been a persistent pattern for many months. Notably, since residential construction employment peaked in September 2006, that sector has lost 164,100 jobs, while the balance of the construction industry lost 364,000 jobs. Commercial building construction has lost 31,600 jobs.
Those losses indicate the housing recession, credit crisis, high oil prices, and China trade deficit are infecting the long-term growth prospects of the entire U.S. economy. American businesses are simply not hiring or building for the future in the United States, and this bodes poorly for GDP growth in the second half of 2008 and beyond.
Retailing. Despite the May and June bursts in retail sales, retailing and nonautomotive retailing lost 30,100 jobs in May and June together. Even removing the automobile and parts dealers, employment was down 21,800. Retailers are anticipating a slow second half of 2008 and are trimming store staff to limit their losses.
Finance and Insurance. During the economic expansion finance and insurance, along with technology sectors offered some of the best new job opportunities, outside of health care and technology-related activities. In May and June finance and insurance shed 14,200 jobs.
It's not just the U.S. credit crisis. U.S. financial services are facing tougher competition in booming markets, like the Persian Gulf, where the U.S. credit meltdown has tarnished the image of U.S. service providers like Citigroup. Increasingly U.S. investment banking firms cannot demand premium high prices for their services, as sophisticated buyers prefer local, more reasonably-priced and less-tarnished competitors.
Manufacturing. Over the last 99 months manufacturing has lost 3.8 million jobs. The dollar remains undervalued against the Chinese yuan and other Asian currencies, and the large trade deficit with China and other Asian exporters is a key factor pushing down U.S. manufacturing employment.
Many U.S. manufacturers find it easier to locate production in China and other Asia locations than add jobs in the United States to produce goods. U.S. made goods must scale considerable trade barriers and compete against subsidies provided by undervalued currencies in China, India and elsewhere in Asia and regulated fuel prices.
U.S. manufacturers have received little encouragement from the Bush Administration, and in particular Treasury Secretary Henry Paulson, that it will do much to level the playing field in Asia.
Were the trade deficit cut in half, manufacturing would recoup at least 2 million of those jobs, and U.S. growth would exceed 3.5 percent a year. Growth is likely to be subpar, and average about 2 percent through the end of 2010.
Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.
How Should We Respond to the Imploding Economy?
Danny Schechter | Posted July 29, 2008 | Business
Read More: Banks, Congress, Economy, Foreclosures, Housing Bill, Mccain, Naca, Obama, Recession Boston, July 26, 2008: The questions we face in late July, as regulators seize two more failing banks, is this: will we be engulfed by a further collapse in our economy or can the damage be contained, or, even turned around?
We know what goes up must come down...
Read Post
It's the Deficit, Stupid
Hale "Bonddad" Stewart | Posted July 29, 2008 | Business
Read More: Bush Administration, Bush Deficit, Debt, Economy, Federal Budget Deficit, George Bush Deficit, George W. Bush From the WSJ:
Projections suggest the federal budget deficit could exceed $500 billion next year, complicating the debate between Barack Obama and John McCain over how to strengthen the economy while not worsening the nation's finances.Read Post
Deficit projections are ballooning because of lower tax receipts and...
t's the Economy, Stupid -- Part Deux
Zachary Karabell | Posted July 29, 2008 | Politics
Read More: 2008 Presidential Election, Economy, Election, McCain Campaign, Obama, Robert Rubin, Warren Buffett More than 75% of Americans now say that the economy is their number one concern heading into the general election in the fall. Those poll numbers are more than confirmed by consumer sentiment surveys which, despite a recent bounce care of the slight retreat of gas prices, have been at...
Read Post
Mercenaries at work
The ongoing process in the United States of the transfer of military and intelligence functions (and much of a US$66 billion budget) to private, often anonymous operatives, has made it easier for enemies to penetrate American intelligence. This has greased the slippery slope to the loss of professionalism within the community of intelligence analysts, in turn heightening the risks of war by accident, or by presidential whim. - Chalmers Johnson (Jul 29, '08)
CHINA'S DOLLAR MILLSTONE
Breaking dollar's hegemony
China, by seeking growth through exports for US dollars, has trapped itself in a crisis-prone mismatch between domestic policies to assure sustainable growth and monetary policy dictated by dollar hegemony. Only sovereign credit can redress the resulting problems, including a shortage of capital needed to develop its economy. - Henry C K Liu (Jul 29, '08)
This is the first part of a two-part analysis.
THE BEAR'S LAIR
Volcker's best apprentice
The refusal of central banks to follow the lead of former US Federal Reserve chairman Paul Volcker and raise interest rates to appropriate levels means inflation has become a global phenomenon. One unlikely exception is displaying Volker-like monetary maturity. The benefits will follow. - Martin Hutchinson (Jul 29, '08)
THE MOGAMBO GURU
Nothing but pain
The squeals of pain from the squeeze on the US economy are about to get louder after three months of contracting bank credit, with wages falling off a cliff and jobs heading in the same direction. (Jul 29, '08)
The ongoing process in the United States of the transfer of military and intelligence functions (and much of a US$66 billion budget) to private, often anonymous operatives, has made it easier for enemies to penetrate American intelligence. This has greased the slippery slope to the loss of professionalism within the community of intelligence analysts, in turn heightening the risks of war by accident, or by presidential whim. - Chalmers Johnson (Jul 29, '08)
CHINA'S DOLLAR MILLSTONE
Breaking dollar's hegemony
China, by seeking growth through exports for US dollars, has trapped itself in a crisis-prone mismatch between domestic policies to assure sustainable growth and monetary policy dictated by dollar hegemony. Only sovereign credit can redress the resulting problems, including a shortage of capital needed to develop its economy. - Henry C K Liu (Jul 29, '08)
This is the first part of a two-part analysis.
THE BEAR'S LAIR
Volcker's best apprentice
The refusal of central banks to follow the lead of former US Federal Reserve chairman Paul Volcker and raise interest rates to appropriate levels means inflation has become a global phenomenon. One unlikely exception is displaying Volker-like monetary maturity. The benefits will follow. - Martin Hutchinson (Jul 29, '08)
THE MOGAMBO GURU
Nothing but pain
The squeals of pain from the squeeze on the US economy are about to get louder after three months of contracting bank credit, with wages falling off a cliff and jobs heading in the same direction. (Jul 29, '08)
The following missive is written by the only popular international media personality that has consistently told the truth. Truth and understanding of these complex matters is essential to financial survival. Our community’s only popular media friend is Greg Hunter. Please consider the points in this missive seriously as fools of today will always be fooled with only the truly informed escaping the present systemic breakage of the Western Nation's financial system.
Remember, Asia is not broken.
The Beginning of a New Era Or The End of the Beginning
Greg Hunter
Everybody knows the date of the start of the Great Depression, October 29th 1929. It was the day of the worst stock market crash in history. Some people confuse the stock market crash on that fateful day as the Great Depression. The Depression was not a single day but rather an era that dragged on through the thirties and into the forties. The picture of what was about to happen to the lives of most Americans in the beginning was opaque at best. At the time, the general public did not realize a major change was taking place. After all, they were being told things like the economy is “fundamentally sound” by then President Hoover. A few other quotes from the beginning of that dark era include:
December 5, 1929
“The Government’s business is in sound condition.”
– Andrew W. Mellon, Secretary of the Treasury
December 28, 1929
“Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression.”
– Associated Press dispatch.
January 13, 1930
“Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today.”
– News item.
May 1, 1930
“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.”
– President Hoover
June 29, 1930
“The worst is over without a doubt.”
– James J. Davis, Secretary of Labor.
June 9, 1931
“The depression has ended.”
– Dr. Julius Klein, Assistant Secretary of Commerce.
(quotes came from Illuminati News Sept. 2005)
Fast forward to today’s credit crisis. I can remember vividly in February of 2007 how all the financial experts and administration officials being brought on to CNN (where I worked as an investigative correspondent) all said that the sub prime crisis (securitized debt or OTC derivatives) would be “contained.” “Contained”? America is now bailing out GSE’s Fannie and Freddie along with every major bank and brokerage house through the Feds “Lending and Auction” facilities. There is no telling what the ultimate tab for all the bailouts will add up to, but trillions of dollars is far from a fantasy figure. After all, this so called credit crisis is not a one day event like the takeover of Bear Sterns or the stock market crash of 1929, but the beginning of a new era. Many financial events and upheavals will serve as mile markers along the road that will undoubtedly shape this new era. What the country will look like in the end will take years to develop. I think where we are now is certainly not the end and not the beginning… but the end of the beginning of a new and dark era in world financial history.
Remember, Asia is not broken.
The Beginning of a New Era Or The End of the Beginning
Greg Hunter
Everybody knows the date of the start of the Great Depression, October 29th 1929. It was the day of the worst stock market crash in history. Some people confuse the stock market crash on that fateful day as the Great Depression. The Depression was not a single day but rather an era that dragged on through the thirties and into the forties. The picture of what was about to happen to the lives of most Americans in the beginning was opaque at best. At the time, the general public did not realize a major change was taking place. After all, they were being told things like the economy is “fundamentally sound” by then President Hoover. A few other quotes from the beginning of that dark era include:
December 5, 1929
“The Government’s business is in sound condition.”
– Andrew W. Mellon, Secretary of the Treasury
December 28, 1929
“Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression.”
– Associated Press dispatch.
January 13, 1930
“Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today.”
– News item.
May 1, 1930
“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.”
– President Hoover
June 29, 1930
“The worst is over without a doubt.”
– James J. Davis, Secretary of Labor.
June 9, 1931
“The depression has ended.”
– Dr. Julius Klein, Assistant Secretary of Commerce.
(quotes came from Illuminati News Sept. 2005)
Fast forward to today’s credit crisis. I can remember vividly in February of 2007 how all the financial experts and administration officials being brought on to CNN (where I worked as an investigative correspondent) all said that the sub prime crisis (securitized debt or OTC derivatives) would be “contained.” “Contained”? America is now bailing out GSE’s Fannie and Freddie along with every major bank and brokerage house through the Feds “Lending and Auction” facilities. There is no telling what the ultimate tab for all the bailouts will add up to, but trillions of dollars is far from a fantasy figure. After all, this so called credit crisis is not a one day event like the takeover of Bear Sterns or the stock market crash of 1929, but the beginning of a new era. Many financial events and upheavals will serve as mile markers along the road that will undoubtedly shape this new era. What the country will look like in the end will take years to develop. I think where we are now is certainly not the end and not the beginning… but the end of the beginning of a new and dark era in world financial history.
US-China trade has cost 2.3 million US jobs: report
Reuters - Jul 29, 2008
By Andrea Hopkins CINCINNATI (Reuters) - The US trade deficit with China cost 2.3 million American jobs between 2001 and 2007, the Economic Policy Institute ...
Study: Hawaii has lost more than 4000 jobs to China
Bizjournals.com - Charlotte,NC,USA
And as the trade deficit continues to grow and China moves into higher-wage sectors, the trend lines on the future loss of jobs and depression of incomes ...
Report: Trade Gap With China Has Led To Job Losses In State
Hartford Courant, United States - 2 hours ago
By JANICE PODSADA | Courant Staff Writer The nation's massive trade deficit with China has resulted in the loss of thousands of Connecticut jobs since 2001, ...
Study: China trade gap costs GA 73000 jobs
Bizjournals.com, NC - 9 hours ago
The United States' trade deficit with China cost the state of Georgia 73600 jobs between 2001 and 2007, according to a study released Wednesday by the ...
Report: China trade costs 59100 Wisconsin jobs
Bizjournals.com, NC - 9 hours ago
A new report suggests the growing trade deficit with China since the two normalized trade relations has cost the US some 2.3 million jobs, including 59100 ...
Study: Trade deficit with China cost 2.3M US jobs
BusinessWeek - 9 hours ago
China's soaring trade deficit with the US cost Americans 2.3 million jobs and $19.4 billion in lost wages between 2001 and 2007, according to an Economic ...
Ohio, Ky., lose 136000 jobs to China
Bizjournals.com, NC - 10 hours ago
Little more than half a decade since China entered the World Trade Organization, a resulting trade deficit has triggered the loss of nearly 103000 jobs in ...
Study: China trade resulted in 80000 NC job loss
Forbes, NY - 11 hours ago
AP 07.30.08, 1:37 PM ET The Washington-based Economic Policy Institute, supported by the Alliance for American Manufacturing, reports that the growth of US ...
Study: Trade deficit with China costs Florida 100000 jobs
Bizjournals.com, NC - 12 hours ago
The United States' massive trade deficit with China cost Florida about 100900 jobs between 200 and 2007, with $17000 lost last year, according to a new ...
33400 lost Kentucky jobs are linked to China
Bizjournals.com, NC - 14 hours ago
The US trade deficit with China has been felt in Kentucky, which lost 33400 jobs between 2001 and 2007, including 5300 last year alone, according to a new ...
China trade gap seen costing 60000 Mass. jobs
Boston Globe, United States - Jul 29, 2008
The growing trade deficit with China has cost Massachusetts nearly 60000 jobs over the past several years, with about two-thirds of those losses in ...[/size]
43000 Ariz. jobs lost due to trade deficit with China
[size="-1"]Arizona Republic, AZ - Jul 29, 2008
by Betty Beard - Jul. 30, 2008 12:00 AM The job losses came from many sectors, including the computer and electronics industries, which lost about 18000 ...
Mo. loses 45K jobs due to trade deficit with China
Bizjournals.com, NC - Jul 29, 2008
From 2001 to 2007, Missouri lost 45400 jobs due to the growing trade deficit with China, a new report reveals. Missouri ranked 17th out of the 50 states and ...
Oregon workers lose jobs to China trade
Bizjournals.com, NC - Jul 29, 2008
A report released Tuesday shows that 37000 jobs have been lost in Oregon due to trade with China. The Economic Policy Institute, based in Washington, DC, ...
Manufacuring alliance blames China trade deficit for Tennessee job ...
Bizjournals.com, NC - Jul 29, 2008
A Economic Policy Institute study released today shows Tennessee lost 54700 jobs between 2001 and 2007 and 8800 jobs last year, something the Alliance for ...
China Trade Deficit Costs 19000 Jobs
istockAnalyst.com, OR - 2 hours ago
By Angela Carter By Angela Carter Register Staff Connecticut lost 19000 jobs between 2001 and 2006 due to growing trade deficits with China, ...
State's Job Loss to China Put at 127000 ; That's the Toll Since ...
istockAnalyst.com, OR - 3 hours ago
By Douglas Turner The bipartisan trade deals with China cost New York State 127000 jobs -- or 1.5 percent of its labor force -- between 2001 and the end of ...
Idaho Sees Largest Percentage of Lost Jobs
KBOI, ID - 8 hours ago
The nations trade defecit with China is affecting Idaho.The Washington DC based Enomic Policy Institute says we've been tagged with nearly 15 thousand job ...
10:05 am - More than 21000 Arkansas Jobs Lost to China
KARK, Little Rock - 10 hours ago
The Natural State has lost 21800 jobs to the East Asian nation over the last seven years, according to a study released Wednesday by the Economic Policy ...
Do prez candidates care if China eats our lunch
St. Louis Post-Dispatch, United States - 11 hours ago
By Bill Lambrecht WASHINGTON _ A new report out today says that the ballooning trade deficit with China in recent years is responsible for the loss of 2.3 ...Time to Act Now on China's Devastating Currency, Trade Practices
AFL-CIO, DC - 12 hours ago
by James Parks, Jul 30, 2008 China's continued undervaluation of its currency is a major, overriding trade issue, which requires immediate action, ..
Study: Trade Deficit Costs Millions Of Jobs
NewsRadio 610 WTVN, OH - 13 hours ago
Ohio among the top five states in the country for job losses due to the trade deficit with China. By WTVN Newsroom A new study says the US trade deficit ...
Arizona losing jobs to China
KTAR.com, AZ - 14 hours ago
by Jim Cross/KTAR The Economic Policy Institute says the growth of US trade with China since China entered the World Trade Organization seven years ago has ...
U.S.-China trade gap: Massive job losses for U.S. workers
Unbalanced U.S. trade with China since 2001 has had a devastating effect on U.S. workers. This week's Economic Snapshot reveals that between 2001 and 2007, the trade deficit lost or displaced 2.3 million jobs in all 50 states and the District of Columbia, including 366,000 last year. As the nation's economic woes mount, a new EPI briefing paper, The China Trade Toll, details the devastating impact that the growing U.S. trade deficit with China is having on American jobs, wages, and key industries. (Press release [PDF])
Unbalanced U.S. trade with China since 2001 has had a devastating effect on U.S. workers. This week's Economic Snapshot reveals that between 2001 and 2007, the trade deficit lost or displaced 2.3 million jobs in all 50 states and the District of Columbia, including 366,000 last year. As the nation's economic woes mount, a new EPI briefing paper, The China Trade Toll, details the devastating impact that the growing U.S. trade deficit with China is having on American jobs, wages, and key industries. (Press release [PDF])
Apocalypse Down-under:
Aussie bank's write-offs signal doom for Wall Street
By Mike Whitney
30/07/08 "ICH" --- - Monday's trading on the New York Stock Exchange (NYSE) was a real humdinger. It started off with the White House announcing that this year's fiscal deficit would soar to a new record of nearly $500 billion. That was followed by news of rising oil prices, weak quarterly earnings and a slowdown in consumer spending. Plunk, plunk, plunk; one domino after another. By mid-morning the markets were in full retreat. That's when investment giant Merrill Lynch announced that it would notch a $4.6 billion second-quarter loss and write-downs of $9.4 billion on collateralized debt obligations (CDOs) and other mortgage-related assets. That's when the dookie really hit the fan. Stocks quickly went verticle and the rout was on. By the closing bell the Dow was down 240 points. Traders staggered from floor of the exchange slumped-over and bedraggled looking like they just got a missive from the draft board. The optimism is being wrung from the markets faster than the credit at an over-levered hedge fund. Every day brings another dismal surprise.
And, yet, on Tuesday, the market staged a valiant comeback surging 260 points in a matter of hours. It was enough to give the fund managers a bit of a lift and hope that things are finally turning around. But the market's woes are far from over. They're deeply-rooted and spreading like Kudzu throughout the system. The International Monetary Fund summed it up in warning they issued earlier in the week:
"Global financial markets are 'fragile' and indicators of systemic risk remain 'elevated'...Credit quality 'across many loan classes has begun to deteriorate with declining house prices and slowing economic growth.' Bank balance sheets are under 'renewed stress' and the decline in bank share prices has made it more difficult to raise new capital. (There is an) 'increased likelihood of a negative interaction between banking system adjustment and the real economy.' (Financial Times)
The IMF also stuck by its earlier prediction that total losses to financial institutions from the credit crisis would reach $1 trillion ($945 billion) a sum that will have devastating consequences for industry, consumers and the global economy. Tuesday's festivities on Wall Street are likely to be short-lived. It's just a one-day lull in the storm.
Over at Nouriel Roubini's blog, Dr. Doom made this observation about the Merrill Lynch's troubles:
"Merrill Lynch's decision to 'sell' a good chunk of its remaining CDOs at 22 cents to the dollar has been widely praised as the firm finally recognizing the full extent of its losses on these toxic instruments. This batch of $30.6 billion of CDOs was already marked down to $11.1 billion. Now with the 'sale' of it to Lone Star at a price of 6.7 billion Merrill Lynch is taking another $4.4 billion write-down and 'selling' it at 22% of the original face value. But is this a market-based 'sale'? No way, calling this transaction a 'sale' is a joke." (Nouriel Roubini's Global EconoMonitor)
This isn't a "sale"; it's more like abandoning a sinking ship. The investment chieftains are getting scorched by their downgraded assets and have started dumping them at any cost. There's no market for mortgage-backed anything now, and there won't be until housing finds a bottom. By time that happens, most of the CEOs and CFOs in the mega-brokerage houses will be squatting on streetcorners on the lower East Side with tin-cup in hand. It's that bad.
The Merrill Lynch deal illustrates just how crazy things have gotten. Merrill said it "will provide financing to the purchaser for approximately 75% of the purchase price." Whoa. In other words, the banks are so anxious to off-load their junk-paper, they're almost paying people to take it off their hands. Now that's desperation! No wonder the market is snorkeling its way to the bottom of the fishbowl. The problems haunting the financial markets have cross-pollinated with the real economy and are spreading misery everywhere. Unemployment is rising, growth is slowing, inflation is up, the dollar is down. We've heard it many times before, but it's still jarring to see General Motors stock fall below Bed & Bath, or Starbucks shut down 600 stores, or million dollar McMansions sell for $425,000, or millions of middle-class families join the food stamp rolls. That's tragic no matter how you slice it.
Now that the working stiff is maxed out on his mortgage, worried about losing his job, and trying to keep food on the table; the least congress can do is scatter the oil speculators; right?
Wrong. On Monday, the Financial Times reported that: "A US Senate proposal designed to curb speculation and increase transparency in the energy markets was blocked by Republican legislators on Friday. The move frustrates Democratic efforts to show the party is taking action on record petrol prices. The Stop Excessive Speculation Act, sponsored by Harry Reid, the Senate majority leader, fell 10 votes short of clearing a procedural hurdle."
Unbelievable. $4.00 gasoline and millions of consumers that are flat-broke and congress still refuses lend a hand? What a scrubby band of sandbaggers.
The scariest news of the week comes from down-under, where the National Australia Bank (NAB) announced it would "slash a £400m bond sale by two thirds. The retreat comes days after the Melbourne lender shocked the markets by announcing a 90pc write-down on its £550m holdings of US mortgage debt, an admission that it AAA-rated securities are virtually worthless....The decision by National Australia Bank to make drastic provisions on its US mortgage debt could have ramifications in the US itself. It opted for a 100pc write-off on a clutch of "senior strips" of collateralized debt obligations (CDO) worth £450m - even though they were all rated AAA. (Ambrose Evans Pritchard, "Australia faces worse crisis than America", UK Telegraph)
This is a huge story with grave implications for America's struggling banking system. No wonder the establishment media is avoiding it like the plague. If AAA rated CDOs are worthless, then some of the biggest financial institutions in the country will be packed off to the boneyard feet-first.
The original article appeared in the Business Spectator and was titled "NAB will shock Wall Street", by Robert Gottliebsen. "Shock" is an understatement. This is more like a meat cleaver crashing down on a butcher block. Schwook! This is a must-read for anyone who is following the meltdown in the financial markets. Here is an extended excerpt from Gottliebsen's article:
"The National Australia Bank's decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world. Wall Street will be deeply shocked when they understand the repercussions of what NAB has done. It is clear global banks have nowhere near provided for their exposures to US housing loans which in the words of John Stewart are experiencing a “meltdown”.
We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans – an event that has never happened in the history of a developed country in recent memory. This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression.
It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble. NAB says that the dislocation in the residential market is separate from the corporate market, but the flow on is inevitable." ( The Business Spectator,"NAB will shock Wall Street")
The conduits are off-balance sheets operations run by the banks which contain hundreds of billions of dollars of bonds which are now essentially worthless. So far, many of the banks have not accurately reported the losses from these operations hoping that the housing market will stabilize and the value of the bonds will rebound. The action taken by the National Australia Bank is a "game-changer"; it's like the Grim Reaper swooping down on Wall Street and lopping-off the top of every big investment bank in downtown Manhattan.
Gottliebsen again:
"The global banks have been marking to market the assets they held on their balance sheet, but the vast amounts held in so called 'conduit trust accounts' have not been written down because they were not marketable. NAB wrote them down when they saw the bad mortgages....US banks have written down $450 billion in bad housing loans. The revelation from NAB means that they will now certainly need to take provisions to $1,000 billion. But write-downs of $1,300 billion and perhaps even more are on the cards."
(Business Spectator, http://www.businessspectator.com.au/bs.nsf...ent&src=sph )
Tuesday's "sucker rally" in the stock market was just the convulsive writhing of a dying bull. It won't last. Once the bad news sinks in; investors will pull up stakes, equities will fall, and banks will crumble. The big-hand just inched a little closer to midnight.
Aussie bank's write-offs signal doom for Wall Street
By Mike Whitney
30/07/08 "ICH" --- - Monday's trading on the New York Stock Exchange (NYSE) was a real humdinger. It started off with the White House announcing that this year's fiscal deficit would soar to a new record of nearly $500 billion. That was followed by news of rising oil prices, weak quarterly earnings and a slowdown in consumer spending. Plunk, plunk, plunk; one domino after another. By mid-morning the markets were in full retreat. That's when investment giant Merrill Lynch announced that it would notch a $4.6 billion second-quarter loss and write-downs of $9.4 billion on collateralized debt obligations (CDOs) and other mortgage-related assets. That's when the dookie really hit the fan. Stocks quickly went verticle and the rout was on. By the closing bell the Dow was down 240 points. Traders staggered from floor of the exchange slumped-over and bedraggled looking like they just got a missive from the draft board. The optimism is being wrung from the markets faster than the credit at an over-levered hedge fund. Every day brings another dismal surprise.
And, yet, on Tuesday, the market staged a valiant comeback surging 260 points in a matter of hours. It was enough to give the fund managers a bit of a lift and hope that things are finally turning around. But the market's woes are far from over. They're deeply-rooted and spreading like Kudzu throughout the system. The International Monetary Fund summed it up in warning they issued earlier in the week:
"Global financial markets are 'fragile' and indicators of systemic risk remain 'elevated'...Credit quality 'across many loan classes has begun to deteriorate with declining house prices and slowing economic growth.' Bank balance sheets are under 'renewed stress' and the decline in bank share prices has made it more difficult to raise new capital. (There is an) 'increased likelihood of a negative interaction between banking system adjustment and the real economy.' (Financial Times)
The IMF also stuck by its earlier prediction that total losses to financial institutions from the credit crisis would reach $1 trillion ($945 billion) a sum that will have devastating consequences for industry, consumers and the global economy. Tuesday's festivities on Wall Street are likely to be short-lived. It's just a one-day lull in the storm.
Over at Nouriel Roubini's blog, Dr. Doom made this observation about the Merrill Lynch's troubles:
"Merrill Lynch's decision to 'sell' a good chunk of its remaining CDOs at 22 cents to the dollar has been widely praised as the firm finally recognizing the full extent of its losses on these toxic instruments. This batch of $30.6 billion of CDOs was already marked down to $11.1 billion. Now with the 'sale' of it to Lone Star at a price of 6.7 billion Merrill Lynch is taking another $4.4 billion write-down and 'selling' it at 22% of the original face value. But is this a market-based 'sale'? No way, calling this transaction a 'sale' is a joke." (Nouriel Roubini's Global EconoMonitor)
This isn't a "sale"; it's more like abandoning a sinking ship. The investment chieftains are getting scorched by their downgraded assets and have started dumping them at any cost. There's no market for mortgage-backed anything now, and there won't be until housing finds a bottom. By time that happens, most of the CEOs and CFOs in the mega-brokerage houses will be squatting on streetcorners on the lower East Side with tin-cup in hand. It's that bad.
The Merrill Lynch deal illustrates just how crazy things have gotten. Merrill said it "will provide financing to the purchaser for approximately 75% of the purchase price." Whoa. In other words, the banks are so anxious to off-load their junk-paper, they're almost paying people to take it off their hands. Now that's desperation! No wonder the market is snorkeling its way to the bottom of the fishbowl. The problems haunting the financial markets have cross-pollinated with the real economy and are spreading misery everywhere. Unemployment is rising, growth is slowing, inflation is up, the dollar is down. We've heard it many times before, but it's still jarring to see General Motors stock fall below Bed & Bath, or Starbucks shut down 600 stores, or million dollar McMansions sell for $425,000, or millions of middle-class families join the food stamp rolls. That's tragic no matter how you slice it.
Now that the working stiff is maxed out on his mortgage, worried about losing his job, and trying to keep food on the table; the least congress can do is scatter the oil speculators; right?
Wrong. On Monday, the Financial Times reported that: "A US Senate proposal designed to curb speculation and increase transparency in the energy markets was blocked by Republican legislators on Friday. The move frustrates Democratic efforts to show the party is taking action on record petrol prices. The Stop Excessive Speculation Act, sponsored by Harry Reid, the Senate majority leader, fell 10 votes short of clearing a procedural hurdle."
Unbelievable. $4.00 gasoline and millions of consumers that are flat-broke and congress still refuses lend a hand? What a scrubby band of sandbaggers.
The scariest news of the week comes from down-under, where the National Australia Bank (NAB) announced it would "slash a £400m bond sale by two thirds. The retreat comes days after the Melbourne lender shocked the markets by announcing a 90pc write-down on its £550m holdings of US mortgage debt, an admission that it AAA-rated securities are virtually worthless....The decision by National Australia Bank to make drastic provisions on its US mortgage debt could have ramifications in the US itself. It opted for a 100pc write-off on a clutch of "senior strips" of collateralized debt obligations (CDO) worth £450m - even though they were all rated AAA. (Ambrose Evans Pritchard, "Australia faces worse crisis than America", UK Telegraph)
This is a huge story with grave implications for America's struggling banking system. No wonder the establishment media is avoiding it like the plague. If AAA rated CDOs are worthless, then some of the biggest financial institutions in the country will be packed off to the boneyard feet-first.
The original article appeared in the Business Spectator and was titled "NAB will shock Wall Street", by Robert Gottliebsen. "Shock" is an understatement. This is more like a meat cleaver crashing down on a butcher block. Schwook! This is a must-read for anyone who is following the meltdown in the financial markets. Here is an extended excerpt from Gottliebsen's article:
"The National Australia Bank's decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world. Wall Street will be deeply shocked when they understand the repercussions of what NAB has done. It is clear global banks have nowhere near provided for their exposures to US housing loans which in the words of John Stewart are experiencing a “meltdown”.
We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans – an event that has never happened in the history of a developed country in recent memory. This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression.
It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble. NAB says that the dislocation in the residential market is separate from the corporate market, but the flow on is inevitable." ( The Business Spectator,"NAB will shock Wall Street")
The conduits are off-balance sheets operations run by the banks which contain hundreds of billions of dollars of bonds which are now essentially worthless. So far, many of the banks have not accurately reported the losses from these operations hoping that the housing market will stabilize and the value of the bonds will rebound. The action taken by the National Australia Bank is a "game-changer"; it's like the Grim Reaper swooping down on Wall Street and lopping-off the top of every big investment bank in downtown Manhattan.
Gottliebsen again:
"The global banks have been marking to market the assets they held on their balance sheet, but the vast amounts held in so called 'conduit trust accounts' have not been written down because they were not marketable. NAB wrote them down when they saw the bad mortgages....US banks have written down $450 billion in bad housing loans. The revelation from NAB means that they will now certainly need to take provisions to $1,000 billion. But write-downs of $1,300 billion and perhaps even more are on the cards."
(Business Spectator, http://www.businessspectator.com.au/bs.nsf...ent&src=sph )
Tuesday's "sucker rally" in the stock market was just the convulsive writhing of a dying bull. It won't last. Once the bad news sinks in; investors will pull up stakes, equities will fall, and banks will crumble. The big-hand just inched a little closer to midnight.
Spanish retail sales suffer record fall
Merrill relief another illusion in hall of mirrors ?
America's house price time bomb
The world cannot grow its way out of this slowdown
Paterson Warns of Economic Crisis
Restaurant Chains Close as Diners Reduce Spending
Freddie, Fannie `Fair Values' Hardly Look Fair
'Stealth' Housing Bailout: It's Bigger Than You Think
U.S. Economy: House Prices Drop, Confidence Near Low
Commodities such as oil could be the latest bubble about to burst
The Fannie Mae Gang
No end of financial turmoil in sight, IMF says
Another Temporary Fix
UK Treasury plan to rescue mortgage lenders
Sub-prime losses hit National Australia Bank
Welcome to the Frozen Economy 26-Jul-2008
5 big losers in the banking crisis 26-Jul-2008
Washington Mutual debt protection costs jump 26-Jul-2008
Falling new home sales bode ill for home builders 25-Jul-2008
Market at bottom? Don't believe it 25-Jul-2008
Report: Pensions Plunge by $170 Billion 25-Jul-2008
Ford's Worst Quarter Ever 25-Jul-2008
Banks face trillion dollar meltdown: Pimco 24-Jul-2008
Mortgage rates rise again
Stocks open lower on GDP, unemployment readings - AP (07/31/2008 08:44 AM)
Treasuries Gain as Report Says Economy Grew Less Than Forecast - Bloomberg (07/31/2008 08:03 AM)
Dollar Falls as GDP Trails Forecast, Jobless Claims Increase - Bloomberg (07/31/2008 08:05 AM)
Gold futures rise as dollar falls - Market Watch from Dow Jones (07/31/2008 08:13 AM)
Oil futures edge lower to trade near $126 a barrel - Market Watch from Dow Jones (07/31/2008 08:43 AM)
Treasuries Gain as Report Says Economy Grew Less Than Forecast - Bloomberg (07/31/2008 08:03 AM)
Dollar Falls as GDP Trails Forecast, Jobless Claims Increase - Bloomberg (07/31/2008 08:05 AM)
Gold futures rise as dollar falls - Market Watch from Dow Jones (07/31/2008 08:13 AM)
Oil futures edge lower to trade near $126 a barrel - Market Watch from Dow Jones (07/31/2008 08:43 AM)
U.S. Economy Grew 1.9% in Second Quarter, Less Than Economists Estimated - Bloomberg (07/31/2008 08:01 AM)
U.S. Initial Jobless Claims Rise to Five-Year High - Bloomberg (07/31/2008 08:01 AM)
A Hidden Toll on Employment: Cut to Part Time - NY Times (07/30/2008 08:48 PM)
Fed extends key lending facilities; European, Swiss central banks add dollar auctions - Financial Week (07/31/2008 08:42 AM)
U.S. Recession May Have Started at End of 2007, Revisions Show - Bloomberg (07/31/2008 08:00 AM)
Fed Loans to Failed Banks Made Easier by Fannie-Freddie Rescue - Bloomberg (07/31/2008 05:47 AM)
Fed takes steps to break through credit clogs - Business Week (07/31/2008 06:39 AM)
U.S. Initial Jobless Claims Rise to Five-Year High - Bloomberg (07/31/2008 08:01 AM)
A Hidden Toll on Employment: Cut to Part Time - NY Times (07/30/2008 08:48 PM)
Fed extends key lending facilities; European, Swiss central banks add dollar auctions - Financial Week (07/31/2008 08:42 AM)
U.S. Recession May Have Started at End of 2007, Revisions Show - Bloomberg (07/31/2008 08:00 AM)
Fed Loans to Failed Banks Made Easier by Fannie-Freddie Rescue - Bloomberg (07/31/2008 05:47 AM)
Fed takes steps to break through credit clogs - Business Week (07/31/2008 06:39 AM)
Stocks open lower on GDP, unemployment readings - AP (07/31/2008 08:44 AM)
Treasuries Gain as Report Says Economy Grew Less Than Forecast - Bloomberg (07/31/2008 08:03 AM)
Dollar Falls as GDP Trails Forecast, Jobless Claims Increase - Bloomberg (07/31/2008 08:05 AM) Gold futures rise as dollar fa
lls - Market Watch from Dow Jones (07/31/2008 08:13 AM)
Oil futures edge lower to trade near $126 a barrel - Market Watch from Dow Jones (07/31/2008 08:43 AM)
Treasuries Gain as Report Says Economy Grew Less Than Forecast - Bloomberg (07/31/2008 08:03 AM)
Dollar Falls as GDP Trails Forecast, Jobless Claims Increase - Bloomberg (07/31/2008 08:05 AM) Gold futures rise as dollar fa
lls - Market Watch from Dow Jones (07/31/2008 08:13 AM)
Oil futures edge lower to trade near $126 a barrel - Market Watch from Dow Jones (07/31/2008 08:43 AM)
Moody's paints bleak outlook for bonds - FT (07/30/2008 10:54 PM)
State, Local and Private Pensions
The Next Big Bail Out
Rising debts and real estate prices go together, because asset prices depend on how much banks will lend. For creditors, the dream is to obtain an ultimate backup at public expense: government insurance that they will not lose when debtors are unable to pay. The political problem is how to get the government to insure and protect bankers rather than debtors, given that debtors are much more numerous when it comes to the voting booth. In such cases campaign contributions are the balancing factor. Governments are "privatized" and "financialized," that is, turned from democracies into oligarchies. The banking system aims to make sure that the only losers are the customers it is supposed to serve: debtors, homeowners and employees of companies being "financialized" as the economy is de-industrialized. Indeed, financialization and de-industrialization are becoming almost synonymous. The trick is to get voters to think they are getting rich while actually they are being painted into a debt corner, along with their employers, local government and the federal government too.
For a while the bad-debt overhead can be bailed out by creating yet more debt, backed by public guarantees in what even the Wall Street Journal acknowledges is "socialism for the rich," that is, privatizing the profit and socializing the losses. But when has government been anything else, for thousands of years before anyone coined the term "socialism"? The so-called July 30 "housing bill" supports the price of mortgages that are the major asset base of most banks and other financial institutions today. What ultimately supports the price of these mortgage packages is the price of the real estate pledged as collateral. And despite Mr. Greenspan's celebration of soaring housing prices as "wealth creation," it really was debt creation. As housing prices plunge, the debts remain in place.
The question is, whose balance sheets are to plunge into negative equity territory – those of indebted homeowners, or those of banks that have made the bad loans and the financial institutions (largely pension funds, I'm sorry to say) that have bought "toxic mortgages"?
Financial bubbles in their early phase inflate asset prices more rapidly than debts rise. This helps the financial sector encourage a belief that
debt pollution is a quick way to make the economy rich – as long as one looks at financial balance sheets rather than tracing growth in the actual means of production and living standards. Living in the short run, most people do not see the financial war going on, and imagine that finance and industry, labor and capital are fighting for the same kind of economic growth and wealth. The reality is a conflict between financial and industrial growth objectives, subject to the adage that the solution to every problem tends to create yet new, unforeseen problems – ones often are larger in scale, requiring yet new solutions that cause yet larger and even more unforeseen. This is how societies transform themselves for better or for worse, crisis by crisis.
Usually each side fights for its economic interests. But it is best not to crow too loudly over victory. The financial bailout is depicted as a housing bill, not as a giveaway to financial interests. And it is best not to acknowledge that the financial system's victory now threatens to push the economy further down the road to insolvency, headed by a squeeze on state and local finances, and pension funding public and private. Problems threaten to arise when creditors win too one-sided a victory.
Here's what has happened so far. Early on the morning of July 30, President Bush signed the law that the Senate had passed at a special session the previous Saturday. Its aim was to restore U.S. housing prices to unaffordably high levels, requiring new buyers to run even deeper into debts to obtain housing. Rather than rolling debts back to more affordable levels, the government now will use its own credit to guarantee payment on whatever portion of the unpayable exponential growth in debt cannot be sustained by the economy at large.
The new "housing law" (a more honest title would have been the "financial bailout and giveaway act of 2008") authorizes the Treasury and Federal Reserve Board to provide unlimited credit to Fannie Mae and Freddie Mac, and infuse new lending power to the Federal Housing Administration (FHA) and localities to support the "real estate market." This is a euphemism for saving mortgage lenders from the traditional response to falling property prices – defaults and walk-aways. The idea is for government loans to replace the bad loans that existing mortgage holders are stuck with, and to do so before property prices sink by another 25 percent.
The cover story highlighted in the first line of the press release was that the new act was "intended to provide mortgage relief for 400,000 struggling U.S. homeowners and to stabilize financial markets." The real aim is to help struggling banks and institutional investors, with little likely aid for homeowners. Mortgage defaults and foreclosures were threatening to wipe out the collateral valuations for the loans packaged and sold to U.S. pension funds, other institutional investors and foreign banks – including the $1 trillion in Fannie Mae and Freddie Mac securities to foreign central banks and sovereign wealth funds.
Piercing the cloud of public relations rhetoric, the actual impact on strapped mortgage debtors is that the increased funding for Fannie Mae, Freddie Mac and FHA are part of a $1.4 trillion emergency supply of government credit intended to keep housing prices from falling back to more affordable levels. An alternative use of this funding would have been to save individual debtors from foreclosure and re-set their mortgages at more realistic levels. But the constituency of the Treasury and Federal Reserve is Wall Street, not homeowners. This is not a constituency whose interests reflect those of the economy as a whole over the long run.
Finance and real estate extract interest and rents from the rest of the economy, shrinking rather than expanding it. This causes property prices to fall. Speculators (who have made up about 15 percent of the housing market in recent years – one out of every six buyers) stop buying, while an over-supply of foreclosed or abandoned properties come onto the market. Falling prices push debt-leveraged homeowners into negative equity, followed by banks and the hapless buyers of the mortgages they have sold off.
During the real estate bubble homeowners, commercial speculators and corporate raiders were able to borrow the interest charges by refinancing their properties at higher and higher appraisals. But banks now are pulling back from mortgage lending, largely because buyers of packaged mortgages find themselves stuck with paper that is a far cry from the security its AAA bond ratings implied. Companies that have insured these mortgages are far undercapitalized to sustain the risks, and themselves are threatened with bankruptcy. So the mortgage packagers and insurers Fannie Mae and Freddie Mac are being kept in business to "save the real estate market," by which is meant the exponential growth of debt.
The parties being bailed out are the large institutions that hold the bad mortgages extended and packaged in recent years, and companies on the hook for having insured the face value of these mortgages. The growth of real estate debt has been achieved by the semi-public Fannie Mae and Freddie Mac providing "liquidity" not just by buying up and packaging mortgages in bulk, but by insuring their income streams. As William Poole, head of the St. Louis Federal Reserve Bank from 1998 to 2008, points out: "Fannie and Freddie exist to provide guarantees for mortgage-backed securities trading in the market. The business is simply insurance." This insurance against mortgagees defaulting (and ultimately against banks and mortgage brokers making bad loans beyond the home buyer's ability to pay) is what has made their sale so irresponsibly liquid. And matters have reached the point where between two and three million U.S. homeowners are still expected to default this year, leading to foreclosures.
Mr. Poole adds that the government's assumption of the mortgages underwritten and guaranteed by these two public agencies technically doubles the federal debt, from $5 to $10 trillion. The asset side of the government balance sheet also rises, but there may be a substantial shortfall. Private bondholders and stockholders of Fannie and Freddie also have claims on these assets, so any attempt at real-world accounting becomes thoroughly tangled.
A deeper problem is that Fannie and Freddie underwrote and insured a debt increase whose continued exponential growth is unsustainable, because it causes domestic debt deflation. What Mr. Greenspan called "wealth creation" – pumping up housing and stock market prices on credit – was actually debt creation. Asset prices are a function of how much banks will lend. If they lend more money on easier and easier terms, property prices will continue to soar. This is why the economy is facing debt deflation. More and more money will be diverted from being spent on consumption and paying taxes, in order to pay creditors. This will shrink the domestic market, squeezing profits, and also will squeeze state and local finances.
The government will not solve this problem by providing yet more loans for stronger parties to buy the existing supply of homes otherwise in foreclosure. The dream is to keep housing high-priced to support the mortgage lenders, not for prices to fall so that new buyers do not need to run so heavily into debt to afford housing.
Supporting real estate prices thus entails keeping the existing volume of debt on the books, and indeed running up even more debt. This levies an enormous charge on the economy to pay interest and amortization. These payments leave less available to be spent on goods and services or paid in taxes. The economy shrinks, leaving it even less able to carry its debt burden. Many individuals no doubt will default on their credit card debt, auto debt and other debts, but the largest remaining debt consists of pension and health care obligations to the private and public sector work force.
This problem has been growing beneath the view of most public media. Private-sector pensions are insured by the federal Pension Benefit Guarantee Corporation (PBGC), which is substantially undercapitalized. A much larger problem is state and local pension programs. not only are underfunded; they have no insurance at all. The expectation was that public-sector pensions would be paid out of rising property tax revenues and capital gains. But taxing property now threatens to cause defaults on mortgage payments. This is the corner into which the economy has painted itself by trying to preserve the exponential growth of mortgage debt.
To cap matters, this threatens to push state and local budgets into deficit at a time when their pension and medical insurance payments are soaring. On the expense side of their balance sheet, localities must spend more money to cope with the consequences of empty houses being stripped of building materials, occupied by squatters, burned down and generally becoming a source of blight. On the fiscal income side, states and localities are facing populist political pressure crafted by large real estate interests and promoted with the usual flow of crocodile tears on behalf of retirees and other homeowners whose debt squeeze prompts them to support politicians promising to reduce property taxes.
At first glance the connection between bailing out Fannie Mae and, behind it, the real estate market to keep prices high for American homeowners might not seem closely linked to corporate, state and local pension plans. So let us trace the linkage. Bailing out mortgage lenders ultimately must be achieved at the expense of state and local property tax revenues. Revenue that is used to pay interest is not available to pay taxes. If debts are to continue to grow exponentially and extract more carrying charges, this forces a tax shift onto labor and industry.
For the past century the financial sector has made steady incursions to take over what used to be the role of government. Today's libertarian anti-tax "free market" rhetoric is simply a cover for the financial sector's replacement of elected democratic government. Forward planning is being distorted to serve the financial sector, not aiming to promote long-term growth and raise living standards, and certainly not to protect the public sector's fiscal position.
One of the lesser-known features of this week's real estate bailout is the endorsement of "negative mortgages." These debt agreements add the accrual of interest onto the principal. The cover story is that this enables low-income homeowners to keep their houses with a lower carrying charge, borrowing the interest rather than paying it. But this means that what used to accrue to homeowners or their heirs as a "capital" (land-price) gain henceforth will accrue to the mortgage lender. For over a century, the main way that most American families have become rich has been by the free lunch of exponentially rising land prices. What is to rise exponentially in years to come is now their debt overhead. It is the financial sector that will get the free lunch of land-price gains.
Adding the interest charge onto the principal is how Ponzi schemes work. They cannot work for long, because no real economy can keep up with "the magic of compound interest." The Bush-Paulson bailout plan calls for mortgages to become larger and larger, regardless of whether property prices keep pace. The interest is to accrue to the federal government as mortgagee at first, but this innovation is really a test run. It is the path of least resistance for priv
The Next Big Bail Out
By MICHAEL HUDSON
The great economic fight of our epoch is being waged by the FIRE sector – Finance, Insurance and Real Estate – against the industrial economy and consumers. Its objective is to maximize property prices and the volume of debt relative to what labor and industry are able to earn.
The great economic fight of our epoch is being waged by the FIRE sector – Finance, Insurance and Real Estate – against the industrial economy and consumers. Its objective is to maximize property prices and the volume of debt relative to what labor and industry are able to earn.
Rising debts and real estate prices go together, because asset prices depend on how much banks will lend. For creditors, the dream is to obtain an ultimate backup at public expense: government insurance that they will not lose when debtors are unable to pay. The political problem is how to get the government to insure and protect bankers rather than debtors, given that debtors are much more numerous when it comes to the voting booth. In such cases campaign contributions are the balancing factor. Governments are "privatized" and "financialized," that is, turned from democracies into oligarchies. The banking system aims to make sure that the only losers are the customers it is supposed to serve: debtors, homeowners and employees of companies being "financialized" as the economy is de-industrialized. Indeed, financialization and de-industrialization are becoming almost synonymous. The trick is to get voters to think they are getting rich while actually they are being painted into a debt corner, along with their employers, local government and the federal government too.
For a while the bad-debt overhead can be bailed out by creating yet more debt, backed by public guarantees in what even the Wall Street Journal acknowledges is "socialism for the rich," that is, privatizing the profit and socializing the losses. But when has government been anything else, for thousands of years before anyone coined the term "socialism"? The so-called July 30 "housing bill" supports the price of mortgages that are the major asset base of most banks and other financial institutions today. What ultimately supports the price of these mortgage packages is the price of the real estate pledged as collateral. And despite Mr. Greenspan's celebration of soaring housing prices as "wealth creation," it really was debt creation. As housing prices plunge, the debts remain in place.
The question is, whose balance sheets are to plunge into negative equity territory – those of indebted homeowners, or those of banks that have made the bad loans and the financial institutions (largely pension funds, I'm sorry to say) that have bought "toxic mortgages"?
Financial bubbles in their early phase inflate asset prices more rapidly than debts rise. This helps the financial sector encourage a belief that
debt pollution is a quick way to make the economy rich – as long as one looks at financial balance sheets rather than tracing growth in the actual means of production and living standards. Living in the short run, most people do not see the financial war going on, and imagine that finance and industry, labor and capital are fighting for the same kind of economic growth and wealth. The reality is a conflict between financial and industrial growth objectives, subject to the adage that the solution to every problem tends to create yet new, unforeseen problems – ones often are larger in scale, requiring yet new solutions that cause yet larger and even more unforeseen. This is how societies transform themselves for better or for worse, crisis by crisis. Usually each side fights for its economic interests. But it is best not to crow too loudly over victory. The financial bailout is depicted as a housing bill, not as a giveaway to financial interests. And it is best not to acknowledge that the financial system's victory now threatens to push the economy further down the road to insolvency, headed by a squeeze on state and local finances, and pension funding public and private. Problems threaten to arise when creditors win too one-sided a victory.
Here's what has happened so far. Early on the morning of July 30, President Bush signed the law that the Senate had passed at a special session the previous Saturday. Its aim was to restore U.S. housing prices to unaffordably high levels, requiring new buyers to run even deeper into debts to obtain housing. Rather than rolling debts back to more affordable levels, the government now will use its own credit to guarantee payment on whatever portion of the unpayable exponential growth in debt cannot be sustained by the economy at large.
The new "housing law" (a more honest title would have been the "financial bailout and giveaway act of 2008") authorizes the Treasury and Federal Reserve Board to provide unlimited credit to Fannie Mae and Freddie Mac, and infuse new lending power to the Federal Housing Administration (FHA) and localities to support the "real estate market." This is a euphemism for saving mortgage lenders from the traditional response to falling property prices – defaults and walk-aways. The idea is for government loans to replace the bad loans that existing mortgage holders are stuck with, and to do so before property prices sink by another 25 percent.
The cover story highlighted in the first line of the press release was that the new act was "intended to provide mortgage relief for 400,000 struggling U.S. homeowners and to stabilize financial markets." The real aim is to help struggling banks and institutional investors, with little likely aid for homeowners. Mortgage defaults and foreclosures were threatening to wipe out the collateral valuations for the loans packaged and sold to U.S. pension funds, other institutional investors and foreign banks – including the $1 trillion in Fannie Mae and Freddie Mac securities to foreign central banks and sovereign wealth funds.
Piercing the cloud of public relations rhetoric, the actual impact on strapped mortgage debtors is that the increased funding for Fannie Mae, Freddie Mac and FHA are part of a $1.4 trillion emergency supply of government credit intended to keep housing prices from falling back to more affordable levels. An alternative use of this funding would have been to save individual debtors from foreclosure and re-set their mortgages at more realistic levels. But the constituency of the Treasury and Federal Reserve is Wall Street, not homeowners. This is not a constituency whose interests reflect those of the economy as a whole over the long run.
Finance and real estate extract interest and rents from the rest of the economy, shrinking rather than expanding it. This causes property prices to fall. Speculators (who have made up about 15 percent of the housing market in recent years – one out of every six buyers) stop buying, while an over-supply of foreclosed or abandoned properties come onto the market. Falling prices push debt-leveraged homeowners into negative equity, followed by banks and the hapless buyers of the mortgages they have sold off.
During the real estate bubble homeowners, commercial speculators and corporate raiders were able to borrow the interest charges by refinancing their properties at higher and higher appraisals. But banks now are pulling back from mortgage lending, largely because buyers of packaged mortgages find themselves stuck with paper that is a far cry from the security its AAA bond ratings implied. Companies that have insured these mortgages are far undercapitalized to sustain the risks, and themselves are threatened with bankruptcy. So the mortgage packagers and insurers Fannie Mae and Freddie Mac are being kept in business to "save the real estate market," by which is meant the exponential growth of debt.
The parties being bailed out are the large institutions that hold the bad mortgages extended and packaged in recent years, and companies on the hook for having insured the face value of these mortgages. The growth of real estate debt has been achieved by the semi-public Fannie Mae and Freddie Mac providing "liquidity" not just by buying up and packaging mortgages in bulk, but by insuring their income streams. As William Poole, head of the St. Louis Federal Reserve Bank from 1998 to 2008, points out: "Fannie and Freddie exist to provide guarantees for mortgage-backed securities trading in the market. The business is simply insurance." This insurance against mortgagees defaulting (and ultimately against banks and mortgage brokers making bad loans beyond the home buyer's ability to pay) is what has made their sale so irresponsibly liquid. And matters have reached the point where between two and three million U.S. homeowners are still expected to default this year, leading to foreclosures.
Mr. Poole adds that the government's assumption of the mortgages underwritten and guaranteed by these two public agencies technically doubles the federal debt, from $5 to $10 trillion. The asset side of the government balance sheet also rises, but there may be a substantial shortfall. Private bondholders and stockholders of Fannie and Freddie also have claims on these assets, so any attempt at real-world accounting becomes thoroughly tangled.
A deeper problem is that Fannie and Freddie underwrote and insured a debt increase whose continued exponential growth is unsustainable, because it causes domestic debt deflation. What Mr. Greenspan called "wealth creation" – pumping up housing and stock market prices on credit – was actually debt creation. Asset prices are a function of how much banks will lend. If they lend more money on easier and easier terms, property prices will continue to soar. This is why the economy is facing debt deflation. More and more money will be diverted from being spent on consumption and paying taxes, in order to pay creditors. This will shrink the domestic market, squeezing profits, and also will squeeze state and local finances.
The government will not solve this problem by providing yet more loans for stronger parties to buy the existing supply of homes otherwise in foreclosure. The dream is to keep housing high-priced to support the mortgage lenders, not for prices to fall so that new buyers do not need to run so heavily into debt to afford housing.
Supporting real estate prices thus entails keeping the existing volume of debt on the books, and indeed running up even more debt. This levies an enormous charge on the economy to pay interest and amortization. These payments leave less available to be spent on goods and services or paid in taxes. The economy shrinks, leaving it even less able to carry its debt burden. Many individuals no doubt will default on their credit card debt, auto debt and other debts, but the largest remaining debt consists of pension and health care obligations to the private and public sector work force.
This problem has been growing beneath the view of most public media. Private-sector pensions are insured by the federal Pension Benefit Guarantee Corporation (PBGC), which is substantially undercapitalized. A much larger problem is state and local pension programs. not only are underfunded; they have no insurance at all. The expectation was that public-sector pensions would be paid out of rising property tax revenues and capital gains. But taxing property now threatens to cause defaults on mortgage payments. This is the corner into which the economy has painted itself by trying to preserve the exponential growth of mortgage debt.
To cap matters, this threatens to push state and local budgets into deficit at a time when their pension and medical insurance payments are soaring. On the expense side of their balance sheet, localities must spend more money to cope with the consequences of empty houses being stripped of building materials, occupied by squatters, burned down and generally becoming a source of blight. On the fiscal income side, states and localities are facing populist political pressure crafted by large real estate interests and promoted with the usual flow of crocodile tears on behalf of retirees and other homeowners whose debt squeeze prompts them to support politicians promising to reduce property taxes.
At first glance the connection between bailing out Fannie Mae and, behind it, the real estate market to keep prices high for American homeowners might not seem closely linked to corporate, state and local pension plans. So let us trace the linkage. Bailing out mortgage lenders ultimately must be achieved at the expense of state and local property tax revenues. Revenue that is used to pay interest is not available to pay taxes. If debts are to continue to grow exponentially and extract more carrying charges, this forces a tax shift onto labor and industry.
For the past century the financial sector has made steady incursions to take over what used to be the role of government. Today's libertarian anti-tax "free market" rhetoric is simply a cover for the financial sector's replacement of elected democratic government. Forward planning is being distorted to serve the financial sector, not aiming to promote long-term growth and raise living standards, and certainly not to protect the public sector's fiscal position.
One of the lesser-known features of this week's real estate bailout is the endorsement of "negative mortgages." These debt agreements add the accrual of interest onto the principal. The cover story is that this enables low-income homeowners to keep their houses with a lower carrying charge, borrowing the interest rather than paying it. But this means that what used to accrue to homeowners or their heirs as a "capital" (land-price) gain henceforth will accrue to the mortgage lender. For over a century, the main way that most American families have become rich has been by the free lunch of exponentially rising land prices. What is to rise exponentially in years to come is now their debt overhead. It is the financial sector that will get the free lunch of land-price gains.
Adding the interest charge onto the principal is how Ponzi schemes work. They cannot work for long, because no real economy can keep up with "the magic of compound interest." The Bush-Paulson bailout plan calls for mortgages to become larger and larger, regardless of whether property prices keep pace. The interest is to accrue to the federal government as mortgagee at first, but this innovation is really a test run. It is the path of least resistance for priv