Why the rich get richer

If I had the money and liquidity, I'd have been all over the shorting of the financials and GSE's. As it stands, I blab and blab and have to basically sit on the sidelines while I watch the inevitable happen. Life can be frustrating at times. Lots of money to be made in this market if you just know the fundamentals.

Blatant moral hazard, but maybe fraud

Have you ever taken the time to notice that the most distressed banks are the ones that offer rediculously high rates of return on CD's? It's true, if you listed all the banks in order of highest return to lowest return, you would see the most distressed banks at the top of the list. Just look at IndyMac. This is basically a dead company. There is ZERO, zippee, no way this bank survives the next 12 months. They're done, but yet they are offering 4.45% rates on 6 month CD's when most "sound" banks are offering closer to 2%. How can they do this? By touting FDIC insurance, IndyMac can hide behind taxpayer dollars to basically lure good money into their cesspool of a money pit. Why in the fuck the regulators, congress and anyone with half a brain allows this to happen is a complete f'ing mystery. Why should taxpayers bailout any fools that throw their money towards IndyMac? FDIC was put in place to protect assets, not to provide a vehicle by which banks can offer rediculous returns on cash that will most likely never be paid back (by the bank). It's a travesty.

UPDATE: That didn't take long. Anyone who jumped in on those CD's will be bailed out by the public as predicted. Well, that is, if they stayed under $100k. Amazingly, not everyone did and they will suffer a shave and a hair cut on their savings.

Jumping into the Poole

Looks like one of the former Fed members agrees with my post from yesterday. Not that I respect the opinions of members of one of the most crooked organizations in the history of the world.

Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said."

This is what I call a major conundrum. Without the GSE's backing mortgages, the housing industry will completely collapse. But, the GSE's can't afford to continue taking loans and remain solvent in the current conditions, regardless if things get worse, which they will and everyone knows. This is what happens when you recklessly allow banks and financial institutions to take on risk without regard to consequences. This is squarely the blame of the Fed, Congress, Big Business, Democrats, Republicans and the list goes on and on. There aren't enough fingers to point at all the people to blame for this mess and the sad thing is the only people who are in position to try and alleviate this mess are exactly the people who are responsible. Do you really think there is any chance that any sensible policies or decisions will be made to help this fiasco? If you do, I want some of that blissful ignorance to be implanted in my head.

Too many fools, too many shoes and way to late in the game to stop it. As I've said before. Protect your assets, eliminate debt, stay liquid and mobile and be prepared for the worst. Things are gonna happen over the next 3 years that nobody is ready for.

Nationalization of industries

I'm convinced that at least one and probably all three of the following will need to be nationalized in some form or fashion before this crisis is over.

1) Housing: GSE's in particular Fannie and Freddie
2) Airline Industry
3) Auto Industry

NONE of these three have nearly enough capital (money or brains) to make it through the nasty recession/depression that we are going to experience. In particular, by any sane calculations the GSE's are already dead. It's just a formality before the small percentage of loans that need to fail to drain their remaining capital reserves does just that. It's a certainty. It will only take approximately 1% of the loans to go bad for there to be a mortal wound. 1% would be a gift of the gods.

Both the airline industry and the auto industry will need multiple miracles for them to survive as well. Somehow, the energy crisis will miraculously need to resolve itself and take oil to under $100 for a sustainable period. Oil will go down in my opinion unless some foolish attack takes place, but it will be too little, too late to salvage these industries.

Taxpayers will need to step in to save these failures and it won't be pretty. In fact, it could possibly cause the dollar to weaken to the point of a near collapse of faith from our foreign loan sharks. And believe me, they don't want the US to die as a consumer, but when it's clear they are, then they will turn on us with a vengeance. A parasite lives simbiotically with it's host until that host no longer provides what it needs and then it moves on. It has to. A systemic collapse of multiple industries in the US combined with the current obligations on the books for social, security, medicare, medicaid, federal pensions, etc... will render the US federal government insolvent for all intents and purposes. Obviously they can try to print their way out of this, but the repercussions of that action will be the death blow to the dollar and the economy.

The only way out of this mess will be a sustained and dramatic decrease in federal spending, increase in taxes, restructuring of all social obligations and legitimate effort to strengthen the dollar. In other words a massive depression and a big dose of "we fucked up for too long". We're gonna suffer regardless, the question is whether we control our destiny or our destiny is set upon us in a long wave of failed bailouts and undesired consequences.

Testing the strength of the FDIC

For all intents and purposes, IndyMac is done as an ongoing concern. The current administration desperately wants to kick the collateral damage of this blow-up down the road to the next regime, so you will see a slow and painful winding down. Of bigger concern are a couple of fundamental issues that are affecting this blow-up which are pervasive across all the financials. There is little capital to be raised and mortgage assets can only be sold at a loss. In the current environment of deflation, this is a death-blow to balance sheet impaired banks. This is and will not be contained to IndyMac. They are large, but not too large to fail and there are others like them out there. This will ultimately get unwound through the FDIC and the FDIC is woefully under-capitalized to handle the significant amount of loss that is headed its way. This administration knows this and does not want any semblance of a public funded bail-out on its watch and in a worse case, a panic on teetering banks.

Look for a significant number of bank failures beginning this year and accelerating into next. FDIC will be overwhelmed by the sheer numbers of banks and the size of the losses. The next administration has a hell-storm on its hands. There's no difference between the levee's in New Orleans and the FDIC. Both were built to contain disasters and neither was adequately built. We'll be testing that statement over the next two years.

Why history repeats itself

Here is an excerpt from an article that discusses the economic problems in Las Vegas. This is a typical statement from somebody who is destined to continually make the same mistakes over and over. I've bolded the telling statement.

"This is the map of Vegas," he said. "Inside that circle is the city. Outside it, everything is owned by the Bureau of Land Management. So there's really nowhere else for the city to expand. And yet, the census bureau has forecast that the population of Vegas will grow from two million now to three million by 2016. There's nowhere for those people to go. So this town is another Tokyo, with land as a commodity. You fly in here and you see desert and you think, 'Building, building, building'. But it can't be built on, so prices must go up. And all those Harvard economists are missing that key component when doing their prognosis of our market. The way I see it, we have been in check, and are now aligned for the next spurt, and I'm talking a power arc that's got between seven and 10 years to run."

Anybody who compares a recovering real estate industry to the age old adage of Tokyo, Japan and limited real-estate is showing their absolute ignorance when it comes to real estate. Does he even realize that real estate prices in Japan went down for almost 20 years straight and are still in the crapper comparatively? Real estate can and will go down on an island, in a city, on a train, in a house, on a mouse...sorry I have kids. Point being, anyone who thinks that the Sin City will recover in any meaningful fashion in the next 5 years and probably 10 is on a one way trip to bankruptcy. The sins of our past economic failures are coming back to roost and they won't be roosting or spending in Las Vegas.

Absurdly funny and so sad

The Economy? Words Fail Me

Read the article and watch the video. It wouldn't be so terrifying if it wasn't real.