Collapse of U.S. economy is a certainty - only the manner in which it happens

[Christians4LessGvt]

Is the End Game Hyperinflation or Debt Implosion?

By W Lorimer Wilson

Mon, 2 Aug 2010

The collapse of the U.S. economy is a certainty - only the manner in which it will happen has yet to be determined. It is just a matter of time before the global derivatives bubble will produce the same result that has occurred to every other currency not backed by gold throughout history - those currencies, our "money", will become worthless.

Derivatives: An Unregulated One Quadrillion Dollar Market

Warren Buffett once described derivatives as "financial weapons of mass destruction" - and for a very good reason. While U.S. "unfunded liabilities" are larger than the entire global economy, the derivatives market is 20 times larger than the entire global economy at an astonishing $1 quadrillion. Yes, you heard me correctly - $1 quadrillion!And get this - this derivative market is totally unregulated. It is totally lacking in transparency, meaning that all we know about this $1 quadrillion mountain of banker-paper is what the bankers tell us.

Nielson pointed out that "During the 2008 U.S. financial crisis, the Wall Street banks required $10 trillion in loans, hand outs and guarantees just to temporarily prevent their bankruptcy more than all other bail-outs for all the rest of the world, for all of history, combined - and the entire crisis was based upon settling the derivatives positions of just one Wall Street investment bank, namely, Lehman Brothers - and even that $10 trillion was not enough to prevent the collapse of the U.S. financial sector."

Furthermore, the Wall Street banks also needed to have the U.S. accounting rules changed, so that they could assign their own "fantasy valuations" to the debts/assets on their books, instead of the actual market value of those assets said Nielson. "Without those most radical accounting changes in history the Wall Street banks would have been reporting their own bankruptcies rather than reporting their supposed "record" profits."

All Is NOT As It Seems

Nielson went on to say that "While the Wall Street banks brag about billions in supposed profits, there are still trillions of dollars of toxic assets being hidden off their balance sheets. We know there has been no increase in the real value of these "assets" because, in just 2 years, the average amount of losses on their books has increased 5-fold relative to the value of their assets when the first bank failures occurred. Thus, if anything, these "toxic assets" are even more worthless than they were when the collapse began."

Despite this huge mountain of unstable debt, Wall Street has actually increased the size of the derivatives bubble by 30% since the U.S. housing-bubble first burst. This caused Neil Barofsky, the U.S. "watch-dog" assigned to oversee the TARP bail-out, to exclaim recently that the risk of collapse of the entire U.S. financial sector has increased not decreased saying:

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding road, but this time in a faster car."

A Serious Dilemma Faces Investors

"As I see it," said Nielson, "there is no solution for the U.S.'s economic problems. With U.S. hyperinflation likely, but a deflationary collapse still possible, this not only creates a frightening scenario for us to face as individuals, but a serious dilemma for investors. Do we prepare for deflation, or hyperinflation? or, is it possible to prepare for both?"

"Such a defensive investment philosophy is called wealth preservation and, in my opinion," said Nielson, "investors need precious metals components, i.e. good money", in their portfolios because they are "currencies" that cannot be diluted through inflation or destroyed by imploding debt."

Why the Need for "Good Money?"

Nielson pointed out that, while paper "money" is both uniform and evenly divisible, it is neither rare nor precious and that the paper it is printed on has no intrinsic or aesthetic value compared to precious metals., reminding his audience that "In less than the 100 years that the Federal Reserve has existed, the U.S. dollar has lost approximately 97% of its purchasing power."

It important to understand the above properties of "good money" said Nielson "because, contrary to the economic propaganda from the mainstream media, the events of today are unparalleled in history."  He then conveyed that:

- more countries are carrying debts than at any time in history

- the aggregate size of these debts are more than ten times greater than at any other time in history

- the whole world is off a "gold standard?"for the first time in history meaning there is nothing backing all these mountains of debt.

What Happens to Money During a Deflationary Implosion or a Hyperinflationary Scenario?

a) Hyperinflationary Scenario"Gold and silver have always retained 100% of their value in past hyperinflationary environment while paper money has gone to zero" maintained Nielson.

b) Deflationary Scenario

Nielson believes the circumstances surrounding a potential deflationary collapse are unique this time round in that we are not talking about a "recession" or even a "depression" but, instead, about entire nations effectively going bankrupt and defaulting on their massive debts claiming that "with none of the world's currencies backed by anything, paper "money" is now essentially nothing but the unsecured IOUs of the governments issuing those currencies. As such, he postulated that:

1. were such governments to default then billions (trillions?) of dollars of government bonds would have very "questionable" value if not become totally worthless

2. were government bonds to become worthless, then the paper currencies of those governments would also become worthless

3. were government bonds to become worthless, then the government would have no ability to borrow any money to fund government spending and would have no choice but to simply print unlimited amounts of un-backed paper money that would be nothing more than unsecured IOUs. Nielson conclude the aforementioned with the question: "What is the value of an IOU from a debtor who has already defaulted on his debts? The answer is: zero."

Summary
Nielson explained that "Where a deflationary implosion differs from hyperinflation is that in such an implosion all asset-prices become severely depressed and most people are more likely to move to cash because of its supposed buying power. Eventually, however, in either scenario, paper currencies would go to zero."

Conclusion
He concluded his remarks with the following advice: "You need to hold "good money" and the ultimate "stores of value" -  the only "good money" -  is gold and silver and thus the best protection from the events that lie ahead.?

http://www.financialsense.com/contributors/w-lorimer-wilson/is-the-end-game-hperinflation-or-debt-implosion

[Kramer]

Why not, if you examine the financial condition of just about every US city governed by a majority of African Americans they are going broke, bankrupt, and in financial crises.

So why wouldn't the US Government be following in the same path? They all have the same mindset as Obama, the Democrat Party, Socialism, Marxism and liberalism.

Yeah sure I know that was racist but you know what I call em as I see em, and it is what it is. Sorry for the bad news.

[Xavier_Onassis]

Yeah, that's the ticket: US cities have Black mayors and that is the reason for everything.

[Kramer]

Yeah, that's the ticket: US cities have Black mayors and that is the reason for everything.

Name one black mayor that is Conservative or a Republican for that matter? Just one

FYI, you are really stupid to keep falling into these traps...

[Michael Tee]

<<Nielson went on to say that "While the Wall Street banks brag about billions in supposed profits, there are still trillions of dollars of toxic assets being hidden off their balance sheets. We know there has been no increase in the real value of these "assets" because, in just 2 years, the average amount of losses on their books has increased 5-fold relative to the value of their assets when the first bank failures occurred. Thus, if anything, these "toxic assets" are even more worthless than they were when the collapse began.">>

Can anyone make sense of this paragraph?  No, because it's total nonsense.  First of all, this guy has no way in hell of knowing if Wall Street banks still have "trillions of dollars of toxic assets hidden off their books."  What a load of crap.  How could Federal and State bank inspectors miss trillions of dollars of hidden assets?  What were they purchased with?  How were they acquired?   More to the point, "We know there has been no increase in the real value of these assets [what assets???] because . . . the average amount of losses on their books has increased 5-fold  relative to the value of their assets when the first bank failures occurred."   BFD.  How in the hell does a 5X increase in book losses relative to anything relate in any way to "hidden" (i.e., off-the-book) assets, whether they exist or not? 

That entire statement was just pure bafflegab. 

Actually there was a giveaway in the second sentence of the article:  <<It is just a matter of time before the global derivatives bubble will produce the same result that has occurred to every other currency not backed by gold throughout history - those currencies, our "money", will become worthless.>>  Ever since the U.S.A. went off the gold standard, various kinds of right-wing kooks have been predicting disaster would inevitably follow because while only God can make gold, the "international bankers" (i.e., "the Jews") can produce commercial paper virtually at will.  The return to the gold standard is part and parcel of a revolt against modernity by frustrated conservatives and usually finds itself in the company of nativist, Know-Nothing movements historically similar to today's Tea Parties - - anti-immigrant, racist, neo-Darwinian, pro-2nd amendment, anti-welfare, rural Americans who really want nothing more than to return to some imaginary pre-Civil War "paradise" of ignorance and "self-sufficiency."  Obviously the gold standard had to be abandoned because of the limitations it necessarily put on the money supply of the world, not because of some "bankers' plot" or other conspiratorial nonsense.

The U.S. economy is obviously on the brink and will in fact plunge over if major changes are not made soon.  However to say that the collapse is a "certainty" flies in the face of history.  The U.S. has been on the verge of currency collapse before, for example in the course of the Viet Nam war, when the business community finally had to put its foot down and, through Melvin Laird, let Nixon know in no uncertain terms that the country could no longer afford the war.  I think the U.S. is in deeper shit today, but course correction is not only possible but inevitable.  At some point the country will have to come to its senses and abandon its wars of choice in Iraq and Afghanistan, but even more importantly, it will have to make drastic cuts to its standing peacetime armed forces/"homeland security" and similar wasteful and unsustainable enterprises.  To the extent that this leaves any genuine threats unaddressed, the country will be forced to modify its foreign policy, particularly in those areas in which the foreign policy directly contributes to the threats that were previously being dealt with (successfully or not) by the armed forces.  Thus a more realistic foreign policy has to be in the cards.

What is not in the cards is the total collapse of the  U.S. economy as predicted.

[Christians4LessGvt]

Name one black mayor that is Conservative or a Republican for that matter? Just one

Not a Mayor, but this ex-NFL Player is an upcoming Republican who is running against the corrupt Charlie Rangel.

Michel Faulkner for Congress on Money Rocks w/ Eric Bolling

[Kramer]

Go Michael Go

[Christians4LessGvt]

"First of all, this guy has no way in hell of knowing if Wall Street banks still have
"trillions of dollars of toxic assets hidden off their books."  What a load of crap"

What planet are you living on?
Of course the banks are sitting on HUGE toxic assets "hidden" off their books.
A huge fraud is going on!
Look below and thats just a few examples of the residential market, commerical real estate isn't even in these figures!



Why Are Banks Withholding Highend Repossessions
Over $300,000 From the Market?
 
By Keith Jurow  

July 20, 2010

With the expiration of the first-time buyer tax credit on April 30, there are now two main props keeping the housing market afloat.  One is the growing percentage of home sales financed by Federal Housing Administration (FHA) loan guarantees.  The other is the refusal of banks to put on the market foreclosed homes over $300,000.

In this article, we will take a look at the second factor.  A future report will examine the role of the FHA in keeping the market from collapsing.

Chicago and Cook County, IL

Let's begin with Chicago.  Cook County is comprised of Chicago and its contiguous suburbs and has a population of roughly 5.3 million residents.  It experienced a huge bubble during 2004-2006 and has suffered a substantial drop in both prices and home sales.

RealtyTrac.com has the most comprehensive database on foreclosures.  It claims to have specifics on over 1.5 million defaulted, auction-ready, and bank-owned properties.  The information is updated daily.  You can organize listings of defaulted properties; those scheduled for auction, and repossessed homes (REO) by date as well as by amount.  The website also provides a separate listing of those properties which have been put up for sale by the lender.

As of July 15, RealtyTrac listed 28,829 properties which had been foreclosed and repossessed by lenders.  Some have been owned by the bank as long as 2? years without having been placed on the market.  Roughly half have been repossessed by the lender since late January 2010.

This year, banks in the Chicago area have foreclosed on a huge number of expensive homes.  RealtyTrac lists 2,650 repossessed homes for more than $300,000 and 169 for more than $1 million.

Here is where it gets really interesting.  Out of 28,829 repossessed properties, there were only 1,292 listed by lenders as "for sale."  The vast majority of these available homes were inexpensive.  A mere 29 homes over $300,000 were for sale.  In other words, the banks have withheld from the market 2,621 properties listed at $300,000 or higher.

There are probably two important reasons why banks have pursued this strategy.  First, they are concerned that placing these more expensive homes on the market will severely weaken an already thin upper tier market.

Even more crucial is that selling substantial numbers of expensive homes at discounts of 50% or more would compel the lenders to take substantial losses which have been avoided by keeping them off the market.

To give you an example, one repossessed home in the upper income suburb of Glencoe was purchased in January 2004 for $850,000.  Though not listed for sale yet, its opening bid price is $2,819,000.  This suggests that the foreclosed owner had refinanced the property to the tune of $2.8 million.  If the holder of the first lien put a home like this on the market, it could be forced to swallow a loss approaching $2 million or perhaps even more.

One big problem with this strategy is that the banks have also ramped up their placing of seriously delinquent borrowers into default - the first step in the foreclosure process.  RealtyTrac listed 39,963 defaulted properties in Cook County as of July 15.  All of them have been placed into default since August 2009 and half of them since early February of this year.  That is nearly 4,000 per month for the past five months and nearly 10,000 in the last two months alone.  Of these defaulted properties, there are 7,550 listed over $300,000.  Sooner or later, these homes are coming on to the market either as foreclosures or short sales.

What does the market for non-foreclosed properties in Cook County look like now?  As of July 15, trulia.com posted 38,877 properties for sale of which 14,866 were listed for $300,000 or more.

Sales of all new and existing homes and condos totaled only 9,057 in the first quarter of 2010 according to DataQuick.  That is an average of slightly more than 3,000 per month for a county with over one million owner-occupied units.  Since the peak in early 2006, home sales in the Chicago area have plunged by nearly 75%.  Median sale prices for Cook County slid to only $175,000 in the first quarter, down 10% from a year earlier according to DataQuick.

With so many homes listed for more than $300,000 now languishing on the Cook County market, it is somewhat understandable that the banks would be reluctant to add their foreclosed homes in this price range to a weak market.  When you add in the 7,550 defaulted properties in this price range which have not yet been repossessed by the banks, you can get a sense of the soaring number of homes that is ready to inundate an already glutted market.  When these homes come onto the market, as they eventually must, prices will inevitably plunge.

Current home sellers may have been taken in by all those reports lately which have been claiming that the housing market is "stabilizing."  Only 35% of all the homes listed for more than $300,000 have had their asking price reduced since posting on Trulia.  So these homes just sit ... and sit.

Miami-Dade County, FL

Most readers know that the collapse of the housing market in south Florida has been more severe than anywhere except perhaps Las Vegas.  A recent REAL ESTATE CHANNEL article reported that banks have been repossessing south Florida homes at a rate of 4,000 per month in 2010.  That would seem to suggest that the foreclosure debacle might soon stabilize.  Let's see.

According to RealtyTrac, on July 16 there were 10,858 repossessed properties in Miami-Dade County.  More than 2,100 have been held by the banks for more than a year without having been placed on the market and 600 for more than two years.  Over 1,400 of these foreclosed properties were listed at more than $300,000.

Out of 10,858 bank-owned homes, a mere 983 were listed for sale.  Nearly all were very recently placed on the market -- after June 1 of this year.  Only 11 of the 1,400 homes listed for at least $300,000 were actually on the market.  Same as in Cook County.  The problem is very similar.  Trulia posted 13,114 Miami-Dade County non-foreclosed homes for sale at asking prices of more than $300,000.  Only 21% have lowered their asking price.  As with Cook County, most just sit ... and sit.

Banks in the Miami area are also very reluctant to dump these higher-priced homes onto a still weak market.  But they have the same problem that banks in the Chicago area are facing.  RealtyTrac listed 22,753 defaulted properties for Miami-Dade County as of July 16.  All have been put into default since late January of this year.  Over 500 were defaulted in one day - July 15.  More than 1,500 of these defaulted properties were listed at more than $300,000.  All of these defaulted properties will be coming onto the market either as foreclosures or short sales.

The situation is even worse than in Chicago, however.  Loan Performance, a division of Core Logic, tracks those metros with the highest percentage of seriously delinquent prime mortgages.  This included loans that are either delinquent for more than 90 days or in the process of foreclosure.  The Miami metro had the highest percentage of any metro in the country at the end of this year's first quarter - 28%.  This means that more than ? of all outstanding prime mortgages in Miami were either in the foreclosure process or almost certainly heading there.

The cure rates tracked by Core Logic tell us that practically all of these serious delinquencies will eventually follow the 22,000+ defaulted properties into foreclosure or short sales.  The reluctance of banks to put higher end foreclosures onto the market will do nothing except delay the inevitable collapse in prices of homes purchased for $300,000 and above during the bubble years.

Orange County, CA

Orange County is situated between Los Angeles and San Diego.  With a population of roughly 3 million, it includes such cities as Irvine, Santa Ana, and Anaheim as well as the tony towns of Newport Beach and Laguna Beach.

Like so much of California, the housing collapse after the bubble peak has been severe.

As of July 16, RealtyTrac listed 6,270 repossessed properties.  Although 3,200 of them have been taken back by banks within the last six months, 650 have been in the inventory of banks for more than two years without having been placed on the market.  As with Cook County and Miami-Dade County, very few foreclosed homes in Orange County are listed for sale - 227.

More than 3,800 of these repossessed homes are priced above $300,000 and 650 for more than $1 million.  Yet not a single home over $1 million is currently on the market.  Only 85 of the 3800 bank-owned properties priced at more than $300,000 have been listed for sale.  This strategy is looking familiar, isn't it?

There are 5,694 defaulted properties listed by RealtyTrac as of July 16.  Although banks accelerated the foreclosing of properties in 2010, they have placed delinquent homes into default at an even faster pace.  Half of the 5,694 defaults occurred in the past two months.  More than 2,400 defaulted properties are listed at more than $300,000.

Are there a substantial number of non-foreclosed homes for sale at more than $300,000?  You bet.  Of the 15,599 homes listed for sale on Trulia, 12,249 have asking prices more than $300,000.

The inventory of homes for sale rose steadily in the second quarter of 2010 according to the Orange County Real Estate Blog.  Short sales now comprise 20-30% of all sales in most cities in Orange County and this has put downward pressure on home prices.  Had the banks placed more of their REOs on the market, prices would have very likely crumbled on the upper end.  When banks finally release these repossessed and defaulted homes to the market, which is what will happen.

Bergen County, NJ

Finally, let's take a look at the Northeast.  Bergen County is made up of fairly affluent communities which are located in northern New Jersey just west of the George Washington Bridge.  Although home prices have dropped rather substantially since the peak, it has not been nearly as bad as in California or Florida.

RealtyTrac listed 615 repossessed properties as of July 16.  Roughly 120 have been owned by the banks for more than a year without having been placed on the market.  Two-thirds have been repossessed since the beginning of 2010.

Similar to the three other counties we have reviewed, many of the foreclosed properties in Bergen County are expensive homes.  More than 100 are listed on RealtyTrac for $500,000 and above.  More than 350 of these homes are listed for at least $300,000.

Are the banks withholding most foreclosed properties from the market as banks have in the other three counties?  Absolutely.  On July 16, there were only 31 repossessed homes on the market.  A total of four were listed higher than $300,000.  That is four out of more than 350 foreclosed homes in Bergen County that are listed on RealtyTrac for more than $300,000.

Bank Withholding of High-End Foreclosures from the Market is Nationwide

The four counties which we have looked at reveal a clear pattern on the part of banks to withhold most repossessed homes from the market and nearly all of those listed on RealtyTrac for more than $300,000.  Is this occurring throughout the nation?  Take a look at the following table and judge for yourself.


 
Will this bank strategy keep the market for homes over $300,000 from imploding?  Not a chance.

Fannie Mae now requires an average down payment of 30% for securitized loans which it purchases or guarantees.  According to Fitch Ratings, mortgage delinquencies for prime jumbo mortgages soared to 10.3% in May as underwater owners walked away in droves.  That spells serious trouble for the five states which account for 2/3 of all outstanding jumbo loans - California, Florida, New Jersey, Virginia and New York.  The problem goes well beyond these states, however.  Housing markets throughout the United States for $300,000+ homes are in for rough sailing and prices are extremely likely to be headed for a real plunge.

http://www.realestatechannel.com/us-markets/residential-real-estate-1/real-estate-news-home-buyer-tax-credit-federal-housing-administration-loan-guarantees-fha-realtytrac-home-foreclosures-highend-home-repossessions-bank-reo-sales-2868.php

[Christians4LessGvt]

"Ever since the U.S.A. went off the gold standard, various kinds
of right-wing kooks have been predicting disaster would inevitably follow"

Yeah the "kooks" are the people wanting a return to the Gold Standard and
the "smart" ones are the ones running trillion dollar deficits and stealing
money from Social Security for decades.  


US Treasury Projects A $13.9 Trillion Debt Balance At December 31,
Anticipates Debt Ceiling Breach Some Time In February 2011

By Tyler Durden - August 2, 2010

Debt Ceiling Department of the Treasury Supplemental Financing Program Treasury Department

The Treasury has just released its most recent quarterly borrowing estimate for fiscal Q4 2010 and Q1 2011 (or the next two quarters in normal speak). The government now anticipates a funding need of $350 billion and $380 billion in the next two quarters. While the $350 billion number is a slight reduction from the prior estimate of $376 billion, historically the Treasury has been unduly and overly optimistic in determining its debt issuance requirements. With the June 30 total debt balance of $13.203 trillion, it means the Treasury itself now anticipates total debt at just under $14 trillion (or $13.93 trillion to be precise). This equates to about $13.88 trillion in debt subject to limit (which at last check was $14.3 trillion). Looks like the Treasury will not need to raise the debt ceiling before the midterm elections after all: perhaps this is what the market is celebrating today: nothing less than the latest and greatest example of news slightly better than a worst-case scenario. We also learn that, "during the April - June 2010 quarter, Treasury issued $344 billion in net marketable debt, and finished the quarter with a cash balance of $290 billion, of which $200 billion was attributable to the SFP.  In May, Treasury estimated $340 billion in net marketable borrowing and assumed an end-of-June cash balance of $280 billion, which included an SFP balance of $200 billion.  The increase in the cash balance related to higher net cash flows and net marketable borrowing." And with every new auction pushing the US debt further higher into "never repayable" territory, the Bid To Cover grows ever higher. And in fact, don't look now, but the last time the market was at 1,125, the 10 Year was just 45 bps higher than the current 2.96%, confirming that all is perfectly illogical with the world.

Additionally, based on the hidden rows (71-76) in the treasury's Sources and Uses excel file, the US will see a financing need of $430 billion in the January-March 2011 quarter: in other words the Debt Ceiling will be breached some time in mid-February 2011.

From the Treasury press release:

Treasury Announces Marketable Borrowing Estimates

To view the Sources and Uses Table, visit link below.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/trichet/1%20Borrowing%20Need.jpg

Washington, D.C. -- The U.S. Department of the Treasury today announced its current estimates of net marketable borrowing for the July ? September 2010 and the October - December 2010 quarters:

During the July ? September 2010 quarter, Treasury expects to issue $350 billion in net marketable debt, assuming an end-of-September cash balance of $270 billion, which includes $200 billion for the Supplementary Financing Program (SFP).  The borrowing estimate is $26 billion lower than announced in May 2010.  The decrease in borrowing relates primarily to lower outlays and a higher-than-announced beginning-of-quarter cash balance.

During the October - December 2010 quarter, Treasury expects to issue $380 billion in net marketable debt, assuming an end-of-December cash balance of $270 billion, which includes $200 billion for the SFP.

During the April - June 2010 quarter, Treasury issued $344 billion in net marketable debt, and finished the quarter with a cash balance of $290 billion, of which $200 billion was attributable to the SFP.  In May, Treasury estimated $340 billion in net marketable borrowing and assumed an end-of-June cash balance of $280 billion, which included an SFP balance of $200 billion.  The increase in the cash balance related to higher net cash flows and net marketable borrowing.

Additional financing details relating to Treasury's Quarterly Refunding will be released at 9:00 a.m. on Wednesday, August 4.  

And here is Goldman's (once again oddly spin-free) take:

MAIN POINTS:

1. The US Treasury Department estimates that its marketable borrowing will total $350bn in the July-September quarter, the last quarter of fiscal year (FY) 2011.  Three months ago, this estimate was $376bn.  The targeted cash balance at the end of this period remains unchanged at $270bn, of which $200bn is earmarked for the Supplemental Financing Program (SFP).  The agency?s preliminary estimate for Q4 borrowing is $380bn, with a continuing cash balance of $270bn.

2. While the Q3 figure is about $75bn less than we expected, the Q4 figure is quite a bit higher (about $150bn).  Some of this difference is probably seasonal in nature.  Nonetheless, having already cut the issuance of nominal coupons by 10% from its peak rate in May, we think Treasury officials will proceed more cautiously than before along this path.  Accordingly, we estimate the May refunding at a gross issuance of $74bn to redeem $37.7bn in maturing debt and raise $36.3bn in new cash.  We think this will be divided as follows: $34bn for the 3-year note, $24bn for the 10-year note, and $16bn for the 30-year bond.  The 3-year note is $1bn less than was issued a month ago and $4bn below the May offering; the 10- and 30-year issues are the same as in May.

[Christians4LessGvt]

when did Democrats take over Congress?

ANY QUESTIONS?

Cya in November!

[Michael Tee]

<<What planet are you living on?
<<Of course the banks are sitting on HUGE toxic assets "hidden" off their books.>>

OK, thanks for the article, which was interesting.  I did not understand the concept of "off the books" being used in the article.  To me, "off the books" means an asset owned by a bank which is not recorded on the books of the institution.  As for example, the bank "forgives" a loan to a friend of an important client, and the client transfers property to a trust for the bank or its officers as a hidden payment for an illicit favour.

These losses to which you are referring are on the books of the bank, not off the books.  They are recorded as secured receivables and if the bank wants to indulge in some creative accounting, it carries them at face value notwithstanding the default and perhaps even after foreclosure, when they are kept off the market to avoid creating a book loss that would not be recorded until the property is sold.

Actually, I think even these creative accounting tricks can only be carried on for a limited period of time, because there are probably accounting rules requiring periodic re-evaluation of loan accounts within x months of a continuing default.  (I'm just guessing here, if there is no such accounting rule, there should be!)

While I would not call these toxic assets either "hidden" or "off the books," they are definitely losses waiting to happen, and (barring a totally unexpected and unforeseen recovery in the real estate market) almost certain to happen.   In a broader sense than the literal meaning of his words, the author is correct in that many of these banks may well be in much worse shape than their books currently would indicate.  In a nutshell, they may have deferred (legally or not) the timely reporting of losses already almost certainly incurred.

[Michael Tee]

<<Yeah the "kooks" are the people wanting a return to the Gold Standard and
the "smart" ones are the ones running trillion dollar deficits and stealing
money from Social Security for decades.>>

Ridiculous - - politicians have been stealing from trust funds long before the U.S. went off the gold standard and they will continue to steal from trust funds, gold standard or no gold standard.

Similarly, deficit financing was a feature of commerce and government before, during and after the gold standard.  There is nothing new about fiscal irresponsibility, with or without the gold standard.

Of course, since the money supply is expanded when a country goes off the gold standard, the deficit can go higher in absolute numbers.  The article fails to appreciate that the switch to paper money not only boosted the deficit, it also boosted GNP  and GDP as well, which are rough measures of a country's ability to pay down its deficit.  I'd venture to bet that that current deficit has a lot more to do with the balance of trade and America's wars of choice and overall "defence" budgets over the years than with the gold standard.

[Christians4LessGvt]

Michael I understand what you are saying, but I think it is not a stretch to view these bank assets as toxic.

You are claiming they are not "toxic" because they have not yet been liquidated so they dont yet show
as a loss.

But isn't that like someone that bought a company's stock at $90 and still owns it at $3
saying "well technically I haven't lost any money because I haven't sold the stock"?

These banks have a huge number of assets that are indeed toxic because they would
take enormous losses if they attempted to sell them. And the only thing that prevented
the banks from collapsing from these toxic assets is a emergency gvt printing press of money.

In my opinion the banks and the US Gvt are "treading water" they are not drowning, but they
are still in water...dog paddling..."printing money"....but they know they are deep, deep
trouble....trying to figure a way to keep playing the shell game to slip away from the trap
of reality once again...but the day of reckoning is coming.

[sirs]

when did Democrats take over Congress?

ANY QUESTIONS?

Cya in November!

D'OH


It is a significant and majority assessment of 2 points, that largely can not be refuted.  They can be argued, but it'd be with rationalizations and misdirection

1) The Debt started to skyrocket when the Dems took over majority control of both houses of congress.  Yes, Bush signed the last 1+bills, which were debt ridden.  Since then, Obama has signed off on an exponential mountain of debt, we likely will never pull out of

2) The epicenter of this country's economic "crash" can be traced to FannieMae & FreddyMac.  OUR Governvermnet pushed banks & lending institutions to say yes to billions in home loans, to folks who had no financial footing to own such a purchase.  With Freddy & Fannie buying much of them up with the "guarantee of the government" (read, tax payers).  And when the housing bubble burst, which was inevitable, all those toxic assets were now "guaranteed by the government" (read; taxpayers), to be payed off.  And the Dominos ensued

And YO, it was BUSH that really spearheaded the idea of home ownership.  I got sucked into it myself.  I recall complimenting Bush on the stats of such great "home ownership".  I wasn't paying enough attention to the Republicans who were sounding the warning.  I do blame the GOP, who did have majority status for not taking charge in fixing Fannie & Freddie, before the dam burst.  I also blame the likes of Frank, Todd, Waters, and the Dems, who made sure no "reforms" were initiated with Fannie & Freddie.

And guess what was the ONE area that had squat significant reforms with the latest regulation bill?  Hint, Frank & Todd are very happy

[Michael Tee]

<<Michael I understand what you are saying, but I think it is not a stretch to view these bank assets as toxic.

<<You are claiming they are not "toxic" because they have not yet been liquidated so they dont yet show
as a loss.>>

No, nobody is disputing that these assets are toxic.  My point was that they're not "off the books" because they're recorded on the books as assets, albeit possibly grossly over-valued assets.  I agree with the writer's point that the banks are recording the assets at a higher value than they would have to be carried on the books at if the assets were sold after foreclosure.

<<But isn't that like someone that bought a company's stock at $90 and still owns it at $3
saying "well technically I haven't lost any money because I haven't sold the stock"?>>

Sure but that's probably what keeps the bank's accountants out of jail - - as long as they can find some legal or accounting loophole that permits them to make this argument, they could well be safe and still produce misleading financial statements for the public or the government auditors.

<<These banks have a huge number of assets that are indeed toxic because they would
take enormous losses if they attempted to sell them. And the only thing that prevented
the banks from collapsing from these toxic assets is a emergency gvt printing press of money.>>

Yeah but the obvious purpose behind the government action was to prevent an immediate dumping of the assets to raise cash, depressing the markets and probably sinking any bank that couldn't ride out the storm on its reserves.  The money infusion allows the banks more time to dump the toxic assets so that all their losses don't materialize at the same time.  This permits them to continue in business, gradually earning enough to pay back the government and weather the storm too.

<<In my opinion the banks and the US Gvt are "treading water" they are not drowning, but they
are still in water...dog paddling..."printing money"....but they know they are deep, deep
trouble....trying to figure a way to keep playing the shell game to slip away from the trap
of reality once again...but the day of reckoning is coming.>>

That may well be, CU4, but why blame them for trying to stave it off?