From the Record:
Corzine looking for another $1.2B to cut from budget
Governor Corzine will announce new spending cuts early next month, his response to a recession-fueled budget deficit that is now $459 million and likely heading to well over $1 billion.
Thanks to another bleak report on state revenues released Tuesday, Corzine said the budget deficit — and a series of new spending cuts — could total more than the $1.2 billion he predicted just last month.
“We need to find at least $1.2 billion and, as I have talked about, if we are in error, it will probably be larger numbers as we go forward if we sustain the kind of declines in revenue that we’ve been seeing the last two months,” Corzine said Tuesday in Trenton.
November’s revenue report indicates state tax collections came in about $200 million below the projections included in the $33 billion spending plan Corzine and the state Legislature approved this summer. Revenue collections in October also came up short, by $211 million.
In all, state revenue collections are $459 million behind original budget estimates for the first five months of the fiscal year that began on July 1.
“They are very indicative of a weakening economy,” Corzine said.
About $400 million has already been cut in response to the declining revenue and the governor has asked department heads to find another $600 million. He said those cuts and at least $200 million more will be detailed in January.
“We will be out very early in the New Year with the specifics on this,” he said. “We’ve had an ongoing serious scrub of every element of our budgetary options.”
“We’re making adjustments in spending as we speak,” he said.
The total revenue shortfall of $459 million marks a 4.2 percent gap between the $10.57 billion that was collected and what was projected for the first five months of the fiscal year.
The state’s three major revenue sources — the corporate, income and sales taxes — are all seeing deficits between 2 percent and 5 percent.
“These revenue numbers paint a sobering picture of how the deepening economic downturn is impacting New Jersey jobs, businesses, personal income and consumer spending,” state Treasurer David Rousseau said.
Economic downturn, easy to check. Just do a count on how many Hummers you see a day. I used to see 5 to 10 a day, now I see only 1 or 2 a week.
From the Philly Inquirer:
Survey: Foreclosed homes attract few buyers
As foreclosures reach record levels, a survey released yesterday shows that people are less willing to buy these troubled properties.
“Negative sentiment associated with buying foreclosures” increased several percentage points between the November survey and one in April, RealtyTrac Inc. chief economist Rick Sharga said during a conference call with search engine Trulia.com.
Buyers are demanding discounts of 25 percent to 50 percent compared with the price of a comparable home not in foreclosure, because “they are concerned that these properties will continue to lose value,” Sharga said.
From Bloomberg:
Banks Show No Signs of Easing Credit in Step With Fed’s Rates
For all their efforts to liquefy credit markets, the Federal Reserve and the Treasury show no signs of ending the 18-month freeze, as evidenced by the unprecedented gap between what banks and the U.S. government pay to borrow money.
The difference between the London interbank offered rate, or Libor, that banks charge each other for three-month loans and Treasury bill rates is six times wider than before markets began to seize up in June 2007. Even though the so-called TED spread narrowed to 1.82 percentage points yesterday from 4.64 percentage points in October, prices of contracts to borrow money months from now show investors don’t expect lending to recover until at least the second half of 2009.
“If you take a full assessment of the credit markets, conditions have certainly eased from their worst, but they still are at extraordinary tight levels, which are far from normal,” said Michael Darda, the chief economist at MKM Partners LP in Greenwich, Connecticut. “Short-term funding spreads are all still very wide relative to historical norms. There is a massive pullback going on in the private sector.”
Fed move puts rates paid by consumers on sale, tooIn short order, the move is expected to lower rates on existing adjustable-rate home equity loans
Fed move puts rates paid by consumers on sale, tooIn short order, the move is expected to lower rates on existing adjustable-rate home equity loans
opps – I just started – must have messed up – I’ll try that again..
http://www.iht.com/articles/ap/2008/12/17/business/NA-US-Consumer-Rates.phpIn short order, the move is expected to lower rates on existing adjustable-rate home equity loans tied to the prime rate. Federal Reserve statistics show that commercial banks hold $580B in revolving home equity loans on their balance sheets.
Analysts said mortgage rates may tumble to 5 percent or lower, from the current average of 5.3 percent on Tuesday, as a result of the Fed’s rate cut and its renewed pledge to buy up billions of dollars of mortgage debt. With rates that low, a new boom in refinancing is expected.
Taken together, these moves could put billions of welcome and unexpected dollars into the pockets of consumers at a time when a recession has zapped America’s will to spend.
http://www.iht.com/articles/ap/2008/12/17/business/NA-US-Consumer-Rates.php
Man…I can’t do anything right this AM – This is the link – I hope…
“Fed move puts rates paid by consumers on sale, too”
http://www.katu.com/news/36246314.html
An update on the Woodburn bombing case – two arrested. The bomb expert x-rayed it and determined it was a fake…
http://www.econbrowser.com/archives/2008/12/quantitative_ea.html
Quantitative Easing
“But the senior Fed official said the central bank’s approach is distinct from quantitative easing and different from what Japan did.”
John Deere gets a $2b loan from the FDIC? Huh?
Ah, not direct but guaranteed by the FDIC and carrying a 3 handle. Very nice, where do I sign up?
http://online.wsj.com/article/SB122948162452913103.html
Wall Street Journal article – Another proponent of low rates…
“Low-Interest Mortgages are the Answer”
Refis booming, but sidelined buyers not entering the market. Are there any sidelined buyers?
From Marketwatch:
Refinancings continue to surge, MBA data show
Filings to refinance existing mortgages paced a seasonally adjusted 2.9% increase in overall mortgage applications last week compared to the prior week, the Mortgage Bankers Association’s latest survey showed.
…
Playing off significantly lower interest rates charged on mortgages, the MBA said Wednesday that refinancings increased 6.5% on a week-to-week basis, as applications for mortgages to buy homes dropped a seasonally adjusted 4.5%.
…
Applications to refinance existing mortgages accounted for 76.9% of all filings last week, up from 74.3% the previous week. Adjustable-rate mortgages made up 1.1% of total filings, unchanged from the week before.
“Low-Interest Mortgages are the Answer”
AlcoholCredit, the solution to, and cause of, all of life’s problems.Hey, all I know is that it’s contained to subprime, interest rates are at historic lows and there’s plenty of inventory to choose from.
From the Asbury Park Press:
Demand surges for utility assistance
Never in its decade-long history has New Jersey SHARES been inundated with as many requests as it has in recent months, said Jim Jacob, executive director. Typically the nonprofit processes between 12,000 and 15,000 requests per year, but so far in 2008 it has received some 27,000 requests and been forced to turn down more than half of them due to lack of funds, he said.
“This year is our busiest year ever,” Jacob said.
…
In 2004, the average applicant to New Jersey SHARES needed $234 to “get past the crisis,” Jacob said. This year, the average applicant needed $650.
…
As for the Universal Service Fund, a state program that helps low-income residents pay energy costs, its budget for the coming winter is $248 million, up from $174 million for last winter, said Doyal Siddell, spokesman for the state Board of Public Utilities.
And Corzine last week signed a bill giving New Jersey SHARES $10 million so it can continue bailing out residents who have fallen behind on their utility bills. That money will allow NJ SHARES to help another 12,000 families, said Jacob, the nonprofit’s executive director.
“So people don’t have to go without heat or lights during the winter,” he said. “We’re grateful to the governor and the Legislature for understanding that so many people are going to be unable to pay their bills.”
$10,000,000 – New funds added.
15,000 – People turned away. (Based on: received some 27,000 requests and been forced to turn down more than half of them)
$650 – Average subsidy request.
15,000 * $650 = $9,750,000
Corzine, your $10 million is going to be wiped out supporting the backlogged requests. What happens to new requests?
Perhaps the foreclosure prevention cash would have been better spent here and bailing out the unemployment fund. God knows we’ll need it.
For the tech junkies
From MarketWatch:
Western Digital to cut about 2,500 jobs, about 5% of staff
Western Digital temporarily halting most manufacturing ops
I have to agree with this from #13
“Given the chaos of the recent past, wouldn’t a return to simple, 30-year fixed-rate mortgages with a low rate be the right foundation for the long-term future?”
From Bloomberg:
Morgan Stanley Posts Wider-Than-Estimated $2.2 Billion Loss
Morgan Stanley reported a $2.2 billion fourth-quarter loss, wider than analysts estimated, as investment-banking fees slid and the value of fixed-income securities declined.
The loss of $2.24 a share for the three months ended Nov. 30 compared with a $3.59 billion loss, or $3.61, in the same period a year earlier, the New York-based company said today in a statement. The average estimate of 16 analysts surveyed by Bloomberg was for a 34-cent loss.
…
“The earnings model that they’ve had in the past is gone,” said Matt McCormick, portfolio manager at Cincinnati-based Bahl & Gaynor Inc., which oversees $2.9 billion for clients. “We still have many economic hurdles in front of us.”
Great, and somewhat long write up at Naked Capitalism on the quantitative easing.
“Given the chaos of the recent past, wouldn’t a return to simple, 30-year fixed-rate mortgages with a low rate be the right foundation for the long-term future?”
Cindy,
I don’t agree with this at all, why? Because it doesn’t address any of the issues that caused the “chaos of the recent past”. A return to prudent lending standards would set the right foundation, nothing more.
Don’t forget about the Three C’s of Lending
Creditworthiness
Capacity to Repay
Collateral to Secure
That statement doesn’t address borrower capacity to repay at all, nor does it address adequate collateral, both important in securing that strong foundation. What about credit quality of the borrower? Lastly, “with a low rate”, implies rates lower than the market would otherwise set, which is basically a call for government subsidy. Price controls never work and manipulation of mortgage rates is bound to fail because of unintended consequences.
i’m so happy to see the fed watches nfl games and has been so impacted by the toyota saved by zero commercial that runs incessantly.
sing along: saved by zero, saved by zero…
I love this free market capitalism, credit spreads are easing and we have a few more key bailouts to work out. Next lets suspend mark to market accounting for banks so they are not afraid to buy toxic assets they plan on holding to maturity.
Gee John….it is the Banks buying the toxic assets? Last time I looked it was the American Taxpayer…..visa vis….an open checkbook buying that crap.
Western Digital temporarily halting most manufacturing ops
Wow, that certainly isn’t a good sign.
Also; MS posting losses
http://online.wsj.com/article/SB122947172015212225.html?mod=googlenews_wsj
Humph – CA – Can’t we do anything right…
“Risky, Ill-timed Land Deals Hit Calpers”
USA officially bankrupt
http://www.dcexaminer.com/opinion/Who_Will_Bail_Out_Uncle_Sam_121608.html
Federal obligations now exceed the collective net worth of all Americans, according to the New York-based Peter G. Peterson Foundation. Washington politicians and bureaucrats have essentially mortgaged everything We the People own so they can keep spending our tax dollars like there’s no tomorrow.
Grim – have you had any thoughts of leaving NJ?
As goes Cali, so goes the Country?
ECKARD
Assa good idea, Pappy.
SPIVEY
Helluva idea.
ECKARD
Cain’t beat ’em, join ’em.
SPIVEY
Have him join us, run our campaign
‘stead a that pencil-neck’s.
ECKARD
Enticements a power, wealth, settera.
SPIVEY
No one says no to Pappy O’Daniel.
ECKARD
Oh gracious no. Not with his
blandishments.
SPIVEY
Powas p’suasion.
(23) GrimI’m hoping for a return to “a simple 30-year fixed rate”…not price controls. (15-year as well – but fixed) The three “C’s” for sure.
My idea being that a return to a known instrument that has proven to be successful in the past could lay a solid foundation going forward.
“Corzine looking for another $1.2B to cut from budget”
How about raising taxes instead? NJ suckers will pay it anyway.
JP Morgan Schmorgan, Western Digital Schmigital, the White House is supposed to announce their auto bailout today!!!! Hooray X-mas is safe, let the irrational rally begin!!!
Grim, how about going to Poland?
Too early to jump into the escape pod Frank. Although given the recent Zloty weakness, I was tempted to increase some of my investment positions there. Should have done it prior to yesterday when the Fed pulled the drain plug on the dollar.
325 John:I love this free market capitalism
Yeah, John, sure,sure this is free market capitalism and at its best too.
Let me put some words to Mr. Grrenwood’s song
And I am proud to be an American where I least I know I have free market capitalism.
And I am proud of John and Larry Kudlow who are creating that right for me.
(31) Grim
“As goes Cali, so goes the Country?”
Well, it appears Calpers did what the rest of the Country did….
“Calpers in recent weeks said it expects to report paper losses of 103% on its housing investments in the fiscal year end June 30. That’s because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed.”
losses of 103%
Wow. Now that takes skill.
Cindy 10
http://finance.google.com/finance?chdnp=0&chdd=0&chds=1&chdv=1&chvs=Logarithmic&chdeh=0&chdet=1229521696125&chddm=2161905&q=INDEXNIKKEI:.N225&ntsp=0
How did things work out for japan? Its now been almost 20 years and they have never even come close to the peak of their 1989 bubble.
Also consider that home prices have never recovered from the Japanese housing bust of 89 ( see chart linked on next post)
japanese housing market
http://upload.wikimedia.org/wikipedia/en/thumb/d/d6/EconomistHomePrices20050615.jpg/180px-EconomistHomePrices20050615.jpg
Nothing makes me more confident about our economic future than another good bailout. Bear Stearns, Fannie, Freddie, WAMU, Citigroup, now the automakers. 4.5% mortgage nation. The fantasy has been extended. As the great ganja poet once said “Every little thing gonna be alright now”.
Grim,
Doesnt the flow of the housing market ultimately depend on a supply of first time buyers? whats the ratio, 3 move up buyers for every 1 first time buyer?
Where are first time buyers going to come from? record unemployment, no credit and decreasing wages.
As you and others have pointed out, the market never goes to 0. we are only going to see background noise until first time buyers start entering the market.
#41 kettle: Oh come on, we are the USA, we are the best, we are going to do it right.
These guys Bernanke, Paulson, Geithner, and all the rest, they are the best.
We should leave it up to them and let them restructure our entire economy. Who care if the tax payers are on the hook for all of it. To do anything less would be unpatriotic.
I am going to change no more doom and gloom. Everything is great!!
Time for you to become a little more perky instead of pesky with all of you doom and gloom stories.
grim (23)-
Precisely.
That’s why the attempt to re-inflate a pierced bubble will fail…spectacularly.
Comrade 3b,
My apologies, i will report to the politburo immediately for re-education. ;)
Cindy (28)-
Mike Morgan was talking about this 18 months ago.
The losses are staggering.
Cindy (33)-
It will only be a solid foundation if the current doddering structure is allowed to collapse.
All hail our all knowing and all powerful economic wizards, Comrade Bernanke and Comrade Paulson
#47 kettle: Yes, please do. Be sure to step lively and think perky thoughts on your way over.
#49 clot:It will only be a solid foundation if the current doddering structure is allowed to collapse.
Ah Clot, that is not a perky thoughht.
Please remember perky is our positive buzz word for today.
Looks like I’d better check my attitude, too.
On second thought, nah…
From NAR:
It’s easy to throw up our hands and think we can’t do anything about the economy, but we can. And right now, with the nation searching desperately for answers, we’ve got a window of opportunity.
America needs a long-term plan to turn our economy around, and we need a plan that features practical solutions to end the housing slump, reduce lingering inventory, and keep the dream of home ownership alive. NAR has that plan – our Four-Point Plan to stimulate the housing market. But you still haven’t given it your support.
90,000 Realtors® just like you have signed on to the plan already, and we’re setting out to get 100,000 by New Years Day – so we need you to take action and tell your friends.
What’s the plan?
* Make the $7500 first-time homebuyer tax credit available to all buyers and eliminate repayment requirements. The credit’s limited availability and repayment requirement severely limit the credit’s use and effectiveness.
* Make the 2008 FHA, Fannie Mae and Freddie Mac loan limits permanent. New rules for 2009 will reduce them. Now is not the time to limit mortgage affordability.
* Get the Treasury relief program back on track and target more funds to mortgage relief. Create a federal mortgage interest buy-down program to make below-market rates available and stabilize home prices.
* Permanently bar banks from engaging in real estate brokerage and management. The banks have proved they have enough to do to simply manage the loan process. Banks should not manage home sales and purchases.
Now all we need is you to be the one to help us reach the goal by sending your letter to Congress in support of the Four Point Plan today.
Thank you for taking action,
NAR Government Affairs
#54 clot: I Like it lots of perky thougths there. Please get on board with this.
Thought of the day:
Bernanke can’t print trust.
(48) Clot – I figured you had some “inside” info on the particulars. The article is over the top. Nothing about it has come out around here, yet.
I have been following CalSTRS – and they hold Lehman bonds and lost some with AIG but from what I can tell, they didn’t go the RE route like Calpers.
It doesn’t matter much at this point. Every Californian will have to pay for their errors.
Then I read in today’s paper that “Assembly locked down in state budget impasse.” Things are a mess – a total mess.
Doesnt the flow of the housing market ultimately depend on a supply of first time buyers? whats the ratio, 3 move up buyers for every 1 first time buyer?
I believe the ratio quoted by Jeff Otteau is 5 to 1, that is, five move-up/move-down purchases are enabled by a single first time buyer moving into the market.
You know folks, it is not my imagination that the reduced-price RE and foreclosures sell here in California. I do not understand why the “main stream” media isn’t all over that fact.
I feel the one thing California HAS done right is reduce the houses until they sell.
CIndy 58
A large majority of the bailout effort is to maintain housing value. if the media started to hype the price reductions that generate sales in Cali, then they would be suggesting that housing values need to drop.
A drop in housing value is on the top of the NO-GO list for Bergabe and Paulson.
Its no different then the media not reporting on the tent cities springing up all over southern California while the foreign media does.
Is the NAR taking suggestions? How about requiring all listings taken by NAR members to drop the list price by 5% for every month on the market. or is it easier to bully the government than sellers?
BEIJING (AFP) – China warned Wednesday it would not keep lending money to the US economy indefinitely, even as new data showed it had consolidated its position as the top buyer of American government bonds.
“China’s increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis,” the China Daily said in an editorial.
China held 652.9 billion dollars of US Treasury bonds at the end of October, up 11.2 percent from 587 billion dollars a month earlier, when China became the largest creditor ahead of Japan, according to the data released Tuesday.
http://news.yahoo.com/s/afp/20081217/bs_afp/financeeconomychinausbonds
The 10-year bond was yielding 2.11% early Wednesday, down 26 basis points on the day, while the 30-year was at 2.61%, down 27 basis points. Yields move inversely to prices.
Ooops, this can’t be right, it can’t happen here or NYC…I thought real estate was a lock, guaranteed to never ever go down in this tight supply markets, hence imaginary ask prices that still abound.
http://ny.therealdeal.com/articles/manhattan-home-prices-down-around-20
#60 kettle: But Paulson reiterated yesterday (according to the Marketwatc) article) that it has always been his contention that housing prices need to continue to fall( please forgive the non-perky thought, as rewring myself will take time).
“Is the NAR taking suggestions? How about requiring all listings taken by NAR members to drop the list price by 5% for every month on the market. or is it easier to bully the government than sellers?”
You don’t even need to bully the government. They are all too happy to write bills to “help people”. They just help themselves while they are at it with their pork spending with each bill they pass.
3b 64
now it all makes sense!
Paulson thinks home prices should fall, so then the huge number of home owners who will be underwater for the next decade can use their declining wages and negative savings rate to increase the amount of debt they take on during a period of growing unemployment, in order to restart the consumer economy!
Now i got it. Thanks for clearing that up!
e-mail from Peter Schiff. Did anyone see him last night on Kudlow? My favorite quote was:
“We are blaming the our fever on the thermometer”
Got Gold?
In Madoff We Trust
As the multi-billion dollar Ponzi scheme orchestrated by Wall Street insider Bernard Madoff unravels in the media spotlight, the nation is being presented with a rare opportunity to understand the true nature of many of our most cherished financial structures. Hopefully we have the wisdom to connect the dots.
Although the $50 billion loss engineered by Madoff is truly a staggering accomplishment (and was done using old-fashioned fraud rather than the mathematical wizardry that has characterized Wall Street’s recent larcenies) the size of the scheme pales in comparison to the multi-trillion dollar Ponzi structures run by the United States government. In fact, rather than looking to jail Madoff, President-elect Obama should consider making him our new Treasury secretary. If not that, at least make him the czar of something!
Madoff’s inspiration came from Charles Ponzi, the Italian-born American immigrant who promoted an investment plan in the early 1900s’ that traded postal coupons. Rather than paying investors from legitimate investment returns, Ponzi hit upon the innovative idea of paying out early investors with money collected from new investors. By creating an illusion of success, interest in his investment plan ballooned. Over time the schemes have become known by many other names, such as chain letters or pyramid schemes. They are united by the fact that they always fail in the end.
When the influx of new investors inevitably slows to the point where distributions to current investors can no longer be maintained, investors look to withdraw funds. When this happens, the entire structure falls apart. The profits received by those who “invested” early as well so any funds skimmed off by the promoter, are offset by all the losses of those who came late to the party.
To a large extent, the same concept has driven the major asset bubbles of the last decade. Given the ridiculously high valuations that were assigned to tech stocks and real estate during their respective booms, the only way the bubbles could be perpetuated was if newer “investors” could be found to pay even more outrageous prices (the greater fool). But when these new buyers balked, the whole structure crumbled. Although there was no Ponzi or Madoff to orchestrate these manias, the entire financial and economic apparatus of the country had successfully convinced the public that “investments” in tech stocks and condominiums were bullet proof and that the supply of new buyers was endless.
Unfortunately, the Ponzi economy doesn’t stop there. A chain letter is no more viable when run by governments than when run by private citizens. However, government orchestrated pyramids have the advantage of required participation. As a result, they can maintain the illusion of viability for several generations. But the longer such schemes operate the larger will be the losses when they ultimately collapse.
The Social Security Administration runs its “trust funds” with precisely the same methods used by Madoff and Ponzi. As money is collected by from current workers, the funds are then dispersed to those already receiving benefits. None of the funds collected are actually invested, so no investment returns are ever generated. Those currently paying into the system are expected to receive their returns based on the “contribution” made by future workers. This is the classic definition of a Ponzi scheme. The only difference is that Ponzi didn’t own a printing press.
The United States Government runs its own balance sheet based on the Ponzi principal as well. Our national debt always grows and never shrinks. As existing debt matures, proceeds are repaid by issuing new debt. Interest payments on existing debt are also made by selling new debt to investors. The whole scheme depends on an ever growing supply of new lenders, or the willingness of existing lenders, to continue to roll over maturing notes. Of course, as was the case with Madoff, if enough of our creditors want their money back, the music stops playing.
In Madoff’s case, the rug pulling was provided by the huge financial losses suffered by some of his clients in other non-Madoff investments. When enough of these clients looked to sell some of their apparently well-performing Madoff assets to help offset such losses, the scam collapsed. The same thing could befall the United States Government. Now that China and our other creditors are looking to spend some of their U.S. Treasury holdings to stimulate their own economies, look for a similar outcome with even more dire implications.
The main difference is that while Madoff took elaborate steps to conceal his scheme, the U.S. government operates in broad daylight. It truly is amazing how faith in government is so pervasive that many can believe that politicians will succeed where private individuals fail, and that governments are somehow immune to the economic laws that govern the rest of society. Like those unfortunate to have been duped by Madoff and Ponzi, the world is in for a rude awakening.
The UAW has a championship golf course and the union has over a billion dollars???
http://www.dcexaminer.com/opinion/Should_UAW_Sell_its_Championship_Golf_Course.html
In Madoff We Trust
As the multi-billion dollar Ponzi scheme orchestrated by Wall Street insider Bernard Madoff unravels in the media spotlight, the nation is being presented with a rare opportunity to understand the true nature of many of our most cherished financial structures. Hopefully we have the wisdom to connect the dots.
Although the $50 billion loss engineered by Madoff is truly a staggering accomplishment (and was done using old-fashioned fraud rather than the mathematical wizardry that has characterized Wall Street’s recent larcenies) the size of the scheme pales in comparison to the multi-trillion dollar Ponzi structures run by the United States government. In fact, rather than looking to jail Madoff, President-elect O should consider making him our new Treasury secretary. If not that, at least make him the czar of something!
Madoff’s inspiration came from Charles Ponzi, the Italian-born American immigrant who promoted an investment plan in the early 1900s’ that traded postal coupons. Rather than paying investors from legitimate investment returns, Ponzi hit upon the innovative idea of paying out early investors with money collected from new investors. By creating an illusion of success, interest in his investment plan ballooned. Over time the schemes have become known by many other names, such as chain letters or pyramid schemes. They are united by the fact that they always fail in the end.
When the influx of new investors inevitably slows to the point where distributions to current investors can no longer be maintained, investors look to withdraw funds. When this happens, the entire structure falls apart. The profits received by those who “invested” early as well so any funds skimmed off by the promoter, are offset by all the losses of those who came late to the party.
To a large extent, the same concept has driven the major asset bubbles of the last decade. Given the ridiculously high valuations that were assigned to tech stocks and real estate during their respective booms, the only way the bubbles could be perpetuated was if newer “investors” could be found to pay even more outrageous prices (the greater fool). But when these new buyers balked, the whole structure crumbled. Although there was no Ponzi or Madoff to orchestrate these manias, the entire financial and economic apparatus of the country had successfully convinced the public that “investments” in tech stocks and condominiums were bullet proof and that the supply of new buyers was endless.
Unfortunately, the Ponzi economy doesn’t stop there. A chain letter is no more viable when run by governments than when run by private citizens. However, government orchestrated pyramids have the advantage of required participation. As a result, they can maintain the illusion of viability for several generations. But the longer such schemes operate the larger will be the losses when they ultimately collapse.
The Social Security Administration runs its “trust funds” with precisely the same methods used by Madoff and Ponzi. As money is collected by from current workers, the funds are then dispersed to those already receiving benefits. None of the funds collected are actually invested, so no investment returns are ever generated. Those currently paying into the system are expected to receive their returns based on the “contribution” made by future workers. This is the classic definition of a Ponzi scheme. The only difference is that Ponzi didn’t own a printing press.
The United States Government runs its own balance sheet based on the Ponzi principal as well. Our national debt always grows and never shrinks. As existing debt matures, proceeds are repaid by issuing new debt. Interest payments on existing debt are also made by selling new debt to investors. The whole scheme depends on an ever growing supply of new lenders, or the willingness of existing lenders, to continue to roll over maturing notes. Of course, as was the case with Madoff, if enough of our creditors want their money back, the music stops playing.
In Madoff’s case, the rug pulling was provided by the huge financial losses suffered by some of his clients in other non-Madoff investments. When enough of these clients looked to sell some of their apparently well-performing Madoff assets to help offset such losses, the scam collapsed. The same thing could befall the United States Government. Now that China and our other creditors are looking to spend some of their U.S. Treasury holdings to stimulate their own economies, look for a similar outcome with even more dire implications.
The main difference is that while Madoff took elaborate steps to conceal his scheme, the U.S. government operates in broad daylight. It truly is amazing how faith in government is so pervasive that many can believe that politicians will succeed where private individuals fail, and that governments are somehow immune to the economic laws that govern the rest of society. Like those unfortunate to have been duped by Madoff and Ponzi, the world is in for a rude awakening.
#67 kettle: See it works, just repeat it in a perky voice,and it all makes sense.
PUERTO RICO ELEC PWR AUTH PWR REV PWR REV 05.00000% 07/01/2023 REF BDS SER. PP
Price (Ask) 77.733
Yield to Worst (Ask) 7.550%
muni of the day
#71 John Find me some PR Pre-re’s 100% Treas, with no prior calls. Bigger the coupon the better.
I will look later, calls are no big deal if the bond is below par with a coupon greater than 5%, also insured bonds that are reinsured are pretty good.
The US government has been running scams for about 100 years. They defaulted on their debt in the 30s closing the gold window to its citizens. It defaulted on it’s debt to the world in the 1970s closing the gold window. It also kept the gold that “belonged to the US citizens”. Now, it’s got a huge debt in fiat money. It will default on it through hyperinflation. The only way I see the US avoiding having to pay the debt entirely is if they somehow manage to set up a world bank with the world where every nation’s dollar reserves are converted to some global currency. In that case, we’ll all eat the inflation together and the inflationary policies will be socialized throughout the world rather than on the US alone.
The biggest threat to the Zloty is the looming announcement of the decision of a test-peg period and Poland’s continued push to enter the union and adopt the Euro. This announcement can really jolt things and set a new direction for the currency. Recently more and more Poles are opposed to the idea given the current economic climate or unraveling if you will.
PS- Wesolych Swiat!
#73 John: I like no prior calls, as I can lock in, lower reinvestment risk especially in this environment.
No insured bonds, unless there is an underlying rating of at least single A.
zieba,
i doubt Poland will be entering the EU. They have more then enough economic problem on their plate already.
————————
Ben,
the other option is for Bergabe to get congressional authority to issue FED debt. he can then make either US agency debt or FED debt worthless while preserving the investor value in the other class.
We would take a hit, but it would be mild at best compared to the amount of debt that Bergabe to make disappear. The key is have have your critical investors lined up in the preferred debt class so that they will continue to buy debt after your wipe out the other class of debt.
of course that will be worked out in backroom deals
The question is can they pull this off and avoid hyperinflation. it will be a hard trick given how much cash they are pumping into the market to fight deflation.
In that case, we’ll all eat the inflation together and the inflationary policies will be socialized throughout the world rather than on the US alone.
US have being exporting it’s inflation for years…
It is good to be the King!!!
(or to have your currency as world’s currency)
I’d say – USA is to borrow fast and furious for next 3-10 years (as long as foreighn investors will keep on buying) and after that either straight up default on it’s debt or simple high inflation (lets say 20-30%/year).
The problem here: Once inflation hits double digits in 20%+ handle it is very hard to stop it from going into hyperinflation.
So next several years will be very “Interesting” – I am being positive here!!!
#68
Peter Schiff’s latest:
http://www.321gold.com/editorials/schiff/schiff121708.html
i doubt Poland will be entering the EU. They have more then enough economic problem on their plate already.
ket,
Poland is a member of the EU and will be taking its turn holding the EU Presidency in 2011. Adopting the Euro as currency is another matter entirely.
vodka (59)-
A giant charade, all of it.
It’s like they think if you don’t report bad news, it doesn’t exist.
“Tsunami” Wave of Foreclosures in 2009 Will Take Self-Employed and Smaller Businesses
An NASE survey was the first to provide compelling evidence of small business involvement in the “toxic” mortgage crisis. The survey was created by Prof. Samuel D. Bornstein and Jung I. Song, CPA of Bornstein & Song, CPAs and Consultants in Oakhurst, NJ, and was conducted by the National Association for the Self-Employed (NASE) which issued a Press Release on November 21, 2008.
According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other “toxic” mortgages, and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected “Resets” that are scheduled to begin in 4th Quarter 2008 through 2012. These small business owners will be at-risk of “payment shock” and default as their monthly mortgage payments skyrocket. Small business owners were especially targeted for these Alt-A loans which required little or no documentation of income which appealed to many small business owners who previously were unable to qualify.
The resulting defaults will be the cause of the upcoming second “tsunami” wave of foreclosures that will dwarf the subprime crisis and will take many homeowners and small business owners.
One key goal of this survey was to shed light on research completed by Prof. Bornstein that a significant number of small businesses are at-risk of mortgage default, due to the fact that they have “toxic” mortgages such as Alt-A, Alt-A ARMs, Option ARMs, Interest-Only, etc. Whereas subprime mortgages were issued to borrowers with low credit scores, these “toxic” mortgages were targeted to small business owners who were prime and near-prime borrowers.
The results of this survey highlight the fact that small business holds the key to mitigating the losses on the defaulting “Troubled Assets” in the TARP and Fannie Mae and Freddie Mac.
It is a tragedy when an individual borrower defaults on the mortgage and loses his/her home. The tragedy is magnified when the borrower is a small business owner, employing from 1 to 10 employees. The loss of jobs related to mortgage defaults and the resulting business failures will further weaken our economy and prolong the recession.
Small business is the job creation engine of our economy. Proactive efforts must be taken to provide small business owners with immediate and specific financial guidance, combined with other measures, to avoid default on mortgages and other debts in this critical and challenging financial crisis.
NASE website at http://www.nase.org for the complete survey and Commentary by Prof. Bornstein.
Opps, good call grim, was thinking of Ukraine….. :(
How about the jacka&& move by Bush to wave visas for everyone except Polaks?
Yeah Frank. He new they’d put a smart American like yourself out of a job.
just an fyi re: Wells Fargo
we were approved at 335k on monday at 5 1/8% … today, we just got approved for 350k at 5%. they continue to wait for word on 4.50 mortgage rates, but nothing yet.
he said you could buy down a point to 4.75, but at our loan amount, it doesn’t really make sense.
via The Real Deal and Curbed;Manhattan prices down %20.
Yeah, it’s just contract prices but it’s a start.
#84 hehe: BOZE COS POLSKE!!!
http://www.washingtonpost.com/wp-dyn/content/article/2008/12/16/AR2008121603177.html
HUD Chief calls aid on mortgages a failure.
Time magazine names “Man of the Year”:
http://www.time.com/time/specials/2008/personoftheyear/article/0,31682,1861543_1865068,00.html
Didn’t think the fawning media could embarrass themselves further…
Where I’m from, one must first actually accomplish things before receiving accolades and adoration.
Yeah, those Motorola employees are gonna flood the housing market now:
17 December 2008
To: All Motorola Employees
Important Compensation and Benefit Changes
As we all know, these are the most difficult economic times in recent memory. The current economic downturn has affected Motorola’s customers, suppliers and employees, impacting every area of our business. We have already asked you to do all you can to improve cash flow, while at the same time serving our customers – and your efforts are sincerely appreciated.
Now, even more is being asked of us all. The continued decline in the global economy requires that we take further action to best position the company for today and for the future. We simply must make tough decisions to conserve cash and further reduce costs. Today, we are announcing important changes to the employee compensation and benefit programs to help achieve these goals.
Global 2009 Merit Program and CEO Pay Changes
In response to economic realities and globally competitive pay practices, Motorola will eliminate 2009 salary increases in many markets. Salary increases will continue to be offered in countries where it is legally required or a competitive necessity; however, in most cases, these increases will be below 2008 levels.
In addition, the two of us will voluntarily reduce our base compensation by 25 percent in 2009 and forgo our 2008 cash bonuses.
U.S. 401(k) Company Match Suspension
Effective 1 January 2009, we will temporarily suspend all company matching contributions to the Motorola 401(k) Plan. This means that while U.S. employees may continue to contribute to the 401(k) plan, you will not receive matching contributions from the company. Motorola will provide the 2008 matching contribution as planned.
U.S. Pension Plan Freeze
Effective 1 March 2009, we will permanently freeze all future benefit accruals under the Motorola Pension Plan and the Motorola Supplemental Pension Plan. This means that U.S. pension plan participants (i.e., employees hired on or before 31 December 2004) will keep any pension benefits earned through 28 February 2009, but will not accumulate any additional pension benefits beyond that date.
In addition to current difficult market conditions, the pension benefit freeze is in response to, and in line with, the competitive industry environment. However, after the freeze we intend to continue to fund the pensions to meet our obligations to retirees and active employees with accrued benefits. Participants will receive more information about this change in March 2009.
Resources
We know that you will have questions about what these important changes mean to you. Please refer to the prepared questions and answers and submit additional questions as needed.
You also may direct your questions as follows:
U.S. 401(k) company match suspension – Hewitt Participant Service Center at 1-800-585-5100
U.S. pension plan freeze – Hewitt Participant Service Center at 1-800-585-5100
Global 2009 Merit program – your local human resources representative
In Closing
We hope you will understand these are difficult, but necessary steps to further improve our overall cost structure. As we head into 2009, we all must continue to look for ways to better serve our customers while reducing cost and improving our cash flow.
By focusing on the things that we can control, planning for continued macroeconomic challenges and executing efficiently to continue meeting customer needs, we will navigate through the issues confronting all companies around the world and deliver on our business objectives. Thank you for your continued focus and dedication.
Best regards,
Greg Brown
Co-CEO, Motorola, Inc.
Chief Executive Officer
Broadband Mobility Solutions
Sanjay Jha
Co-CEO, Motorola, Inc.
Chief Executive Officer
Mobile Devices
And here’s the NY Times mimicking campaign rhetoric of “hope” in their headline:
http://www.nytimes.com/2008/12/17/us/politics/17early.html
Love the photo, too. Pravda may prove a more reliable alternative…
Yikes (84)-
Hold the phone. The outfit in our office is locking a group of loans right now at 4.5%.
Yikes (84)-
Wells never has the best rates. You should go somewhere else.
From the NY Times:
A List a Landlord Doesn’t Want to Be On
For many months now, the commercial real estate industry has been grim about its future, but it has been hard to quantify just how bad things are. The default rate for loans packaged into securities and sold on Wall Street has remained well under 1 percent, yet today that low figure is considered highly misleading.
Now a New York research company, Real Capital Analytics, has compiled data showing that at least $107 billion worth of income-producing property — including hotels, offices, apartment complexes and warehouses — is already in distress or is headed in that direction.
The distress is occurring all across the country, but New York tops the list because of the number of costly high-profile transactions that occurred during the boom years. Real Capital Analytics’ list includes a total of 268 properties in the New York area, with a value of $12 billion, as already or potentially in trouble.
“The trouble that’s emerged is bigger than most of us expected,” Robert M. White Jr., the president of Real Capital Analytics, said in an interview in his Manhattan office, “and the size of the problem that is potentially out there is much greater than we thought we would be able to quantify at this point.” Many of these difficulties have surfaced just since mid-September, when the financial world suffered a series of jolts, including the collapse of Lehman Brothers, he said.
Until now, most of the reporting on loan defaults has come from companies that monitor commercial mortgage-backed securities. But securitized loans make up only 31 percent of Mr. White’s database, which also includes condominium construction loans, bank loans that were not securitized and debt issued by insurance companies and so-called mezzanine lenders, which hold junior debt positions.
More than 1,000 properties are clearly in trouble, he said. Owners of about 200 properties have surrendered the keys to their lenders. Another $21.2 billion worth of buildings are categorized as troubled based on one or more of the following criteria: foreclosure proceedings have been started, the property owner has received a notice of default, a receiver has been appointed, or the landlord or sole tenant has filed for bankruptcy protection.
http://lansner.freedomblogging.com/2008/12/16/two-for-one-sale-reported-for-socal-homes/9330/
55% of all the sales in Southern Cali are foreclosures. 44% of the preistigious Orange County. “Desperate Housewives” has a new meaning now does it.
– 84 – yikes
We were going for Wells no cost refi at 5.5 (since it doesn’t cost anything–except a higher rate– and if rates dropped we could do it again and pay) and were completely approved until the underwriters miscalculated our backend debt at 52% and killed the loan. Its actually 38% which has been verified by the loan officer yesterday after this happened. There was also an issue with their true backend debt limits for the program–the loan officers say its 45% but the no cost refi people say its 38%. In any case, we dropped that loan and went for the 4.75 with a point–never paid a point in my life so I consider it an indulgence. We’ll see if it closes. Credit is 790 and we have 25% equity but I’m just waiting for the bank to refuse the appraisal or change the debt limits or disallow something in our income or whatever and that will be it. we’ll see, I have no faith in banks.
Grim 94
No one saw this coming(Sarcasm off)!
Clot 92
What outfit. I’m still sitting at 5.25% and can use some help.
2-Year 101.156 0.65
10-Year 114.594 2.11
30-Year 138.281 2.62
WTF! Is there any way we can find out who is buying treasuries right now?
The stock market is irrelevant at this point. These yields are scary.
Qwerty
I wouldn’t get too worked up about the Man of the Year Award, like a lot of awards (Oscars, Grammys) its meant to sell something, movies, music, magazines, Time’s brand.
And c’mon,the first black president? Of course its him. If Hillary was elected, it would have to be her. At least now its easier to lie to our kids and tell them “study hard” and you can be president. It was all but impossible with Bushie in there.
make (97)-
If your balance is under 417K, you can be locked up to 90 days at under 5% by First Valley Funding, (908) 231-7390.
They can also lend in PA.
Disclaimer: I have no financial interest in this company at all. They are a tenant of mine.
Paulson denies manipulation of mortgages rate to 4.5% 30 yr fixed.
Translation: We’re doing everything we can to get rate sdown to 4.5%. Don’t ask how we’re trying to accoplish this cause it’s sort of illegal.
grim (93)-
And people laugh when I tell ’em I doubled down on SRS:
“Now a New York research company, Real Capital Analytics, has compiled data showing that at least $107 billion worth of income-producing property — including hotels, offices, apartment complexes and warehouses — is already in distress or is headed in that direction.”
101 Clot,
Thanks.
make (103)-
If your refi’s are commercial/investment, forget what I just said. That market is still seized up (and getting worse), across the board.
Clot,
Does the comment in #104 also apply to 1-4 Unit owner-occupied?
From the Star Ledger:
New Jersey lost 6,200 jobs in November
New Jersey shed 6,200 jobs in November, the fourth month in a row in which state employers shrunk their payrolls. Some 34,400 Garden State jobs have been lost since the start of the year.
The state’s unemployment rate also rose a tick to 6.1 percent, its highest level since August 1996. It still remains below the national rate of 6.7 percent, however.
“The November data underscore how deeply the national recession is hitting our labor market,” Labor Commissioner David Socolow said in a statement.
Most of the job losses came in private industry, including 1,600 jobs in manufacturing, 1,200 positions in professional, scientific and technical services and 500 management posts. Some 500 government jobs were also trimmed. Only the education and health services sectors recorded gains.
Paulson
“strong dollars here, strong dollar here, who wants a strong dollar”
New thread coming up.
Just to run some numbers for you who are interested in big cuts.
4.2 million barrels cut September
29.045 million barrels produced September
150$ a barrel at September highs
4,356,750,000$ gross revenue
14.46% production cut
24.845 million barrels produced after Today’s cuts
43$ a barrel
1,068,355,000$
75.48% Haircut in gross Oil Revenues
OPEC cuts 2.2 million barrels a day
http://biz.yahoo.com/ap/081217/af_opec_meeting.html
Wednesday December 17, 11:19 am ET
OPEC cuts record 2.2 million barrels a day from production to stem steep price fall
ORAN, Algeria (AP) — OPEC says it is cutting 2.2 million barrels a day from its output — the largest ever at one time — to stem crude prices that have plummeted over 70 percent from summer highs of nearly $150.
An OPEC statement says its latest announcements means it is taking 4.2 million barrels a day off the market compared to September levels. The 4.2 million figure includes more than 500,000 barrels of overproduction OPEC said in September it would eliminate and a formal cut of 1.5 million barrels a day that it agreed on last month.
That amounts to a new reduction of 2.2 million barrels announced Wednesday.
In practice, “it’s 2.2” said OPEC President Chakib Khelil.
Members among the 13-nation organization were officially producing a daily 29.045 million barrels in September.
Vic,
Is there any way we can find out who is buying treasuries right now?
I wondered the same thing and from what i have been able to find the answer appears to be not really. Although i did find a few papers that suggest purchases by indirect bidders are good proxies for purchases by foreign central banks.
Any finance guru’s want to chime in?
[100] clot
I am getting refi offers of 4.875 and 4.75. I am all over this as I don’t expect them to stay down for very long.
# Clotpoll Says:
December 17th, 2008 at 11:25 am
Yikes (84)-
Hold the phone. The outfit in our office is locking a group of loans right now at 4.5%.
wow. would you mind saying what bank? if not, i’ll email you.
we are just getting pre-approval. we haven’t signed anything with wells. can you get pre-approval from one place, and then keep looking for a loan?
disregard, clot, just saw post 100. as usual, you rock, man.
@110
Everyone (large money mgrs) is looking for a safe security to park their cash. Heard that some buyers were looking to bid with a yield near 1% and didn’t get a look. They are so concerned with safety that they would pay a treasury with essentially no yield.
Yikes,
I am waiting for my Wells guy to get back to me on today’s rate. Yesterday was 5.25% for my “conforming jumbo”. I hope to get it at 5 or 5 1/8th. If I get it I am pulling the trigger.
nom, you’ve got mail. sl
so Grim, what’s the answer? Do you jack up rates?
syb (105)-
Multi-fam is a disaster, too. Even owner-occ. You can get it done, but it will be hell.
plume (111)-
You can do better than those rates. Call the people I mentioned above (#100).
(119)-
Plume, I assumed conventional, not jumbo.
For jumbo, those are damn good.