FedUpUSA

Archive for December 9th, 2009

A new foreclosure tactic, whereby lenders or debt collectors holding second mortgages freeze bank accounts or garnish pay checks of already struggling homeowners, is emerging and making it even more difficult for people to hold onto their homes.

Lawyers for troubled Staten Island homeowners say they are beginning to see examples of clients who go to the bank to take out money and find that their accounts have been frozen or wiped out by other banks or debt collectors — the entities holding second mortgages on houses already in default on the first and primary mortgage. Some are learning the lender or debt collector has already gone to court and secured a judgment to garnish paychecks.

It’s a move more in line with the traditional debt collection industry, which typically targets credit card debt, and it’s dragging the house and what little cash reserves people often have into the foreclosure battleground. Experts say it’s an end-run by second lien holders around the traditional foreclosure process, which involves only the first mortgage holder and provides important legal protections for the homeowner.

“It’s a fast and dirty process,” Margaret Becker, lead attorney with the Homeowner Defense Project of Staten Island Legal Services in St. George, said of the new trend.
LINK HERE

New Underground Economy
Key indicator: Avoidance of bank accounts
LINK HERE

Off Bloomberg:

Dec. 9 (Bloomberg) — Former Bank of England policy maker Willem Buiter said Greece may be the first major country in the European Union to default on its debts since the aftermath of World War II.

“It’s five minutes to midnight for Greece,” Buiter, who will join Citigroup Inc. as its chief economist next month, said in a Bloomberg Television interview today. “We could see our first EU 15 sovereign default since Germany had it in 1948.”

Was your first hint the unsustainable social spending, the ramping debt-to-GDP ratio, or an intractable government that has refused to put forward any sort of reasonable austerity measures?

Next question: How is the US any different or, for that matter, Great Britain?

Calling Captain Obvious on Line 1!

Yves is calling it – the carry trade is officially in trouble. Of course my readers know that I have seen and reported the same with the dollar breaking up and out of its descending wedge formation:

This move up in the dollar was first precipitated by action versus the Yen as Yves points out, but is now being fed also by action in the Euro. This is an important point as it is more than one region that is contributing. The following chart is quite telling, it shows the EUR/USD cross that has clearly broken its uptrend with an ascending wedge formation. That type of formation when it breaks generally targets the base, or the beginning point of the formation. This is the same formation that exists and has also already broken in our stock indices:

The carry trade is now in trouble…

I don’t share the recent stock optimism as the tail is wagging the dog. The higher the stock index goes the greater the number of bulls and the greater the amount of decimated bears. Those burned bears will not be adding to the buy side at lower prices to cover shorts. See chart courtesy Market Harmonics). Good news about this will also turn out to be bad when the party is up.

The party by the way is almost up. The not-so-smart money of 2008 might be getting its mojo back. If the commercials are getting it right in the futures market then they might as well be calling the top of many markets.

One huge problem is that the bulk of the long side is now carried by speculators with cheap money. A simple rule of Wall Street where bulls die from their own weight may apply right here. Its all about mechanics rather than economics and becomes self-reinforcing. That’s been my point throughout 2007. Perhaps an early call but the right one nevertheless. We have come full circle once again. Leverage has been put back on as if nothing ever happened. I have underestimated the great desire of participants for suicidal tendencies. The cracks start to appear in select markets first. We have observed a number of those already. We did fire our first gold warning recently even though we have been long term bulls.

The second warning concerns the Japanese currency. I show a timing model based on expansion/contraction of the Japanese monetary aggregates. The recent stimulus from Tokyo is too small to make a large contribution to things. However it is relevant to us because money is already expanding and just might act to depreciate the yen at a faster rate.

You can see here another version of the same timing model showing the recent bump up in monetary aggregates. I have been a very long-term bull on the yen. If relative money expands in Japan while American money contracts then you have us bullish on the USD to come.

I have studied the behavior of commercials in the futures market for a long time. They usually have a success rate of over 8/10. The year of 2008 was not so gracious to the not looking so smart anymore crowd. The commercials would appear to have gotten their mojo back. They are relatively short in big ways in too many markets. For that reason alone it bears watching as this is a significant development.

The carry trade as a barometer of things to come will show the unwind at the early stage. From my perspective it is here & now that the carry trade ends.

Yves Lamoureux, Investment Advisor, Blackmont Capital, Inc.

The opinions contained in this report are those of the author and are not necessarily those of Blackmont Capital Inc. or Yelnick. Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor BCI makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CIFinancial. CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and IIROC.

Stephen Colbert destroys “Dr. Blankcheck von Moneypants.” Must watch clip.

h/t Zorro

Funny how this speech didn’t get any ink over here in the United States… I wonder why?

The former US Federal Reserve chairman told an audience that included some of the world’s most senior financiers that their industry’s “single most important” contribution in the last 25 years has been automatic telling machines, which he said had at least proved “useful”.

Echoing FSA chairman Lord Turner’s comments that banks are “socially useless”, Mr Volcker told delegates who had been discussing how to rebuild the financial system to “wake up”. He said credit default swaps and collateralised debt obligations had taken the economy “right to the brink of disaster” and added that the economy had grown at “greater rates of speed” during the 1960s without such products.

Right on both points.

But what Mr. Volcker didn’t say (but should have) is why government has sat back and watched all this so-called “innovation” that, in fact, has done nothing but screw us.

Let’s go back to the “big picture” chart on GDP and debt:

Note that the debt-to-GDP ratio for the entire financial system was around the 150-175% level for a long time. 

It was only in the 1980s that this ratio became “unhinged” and started its parabolic blowoff toward the present level of approximately 375% – more than a doubling.

Why?

For that one must look at the aggregate GDP generated since 1980.  That’s roughly $228 trillion (give or take a bit.)

So let’s “back” out the accumulation of half of this debt – that is, take the $53 trillion and reduce it to a reasonable 175% of GDP, which would cut some $25ish trillion from the debt in the system.

What would have happened?

We would have to subtract 10%, roughly, from GDP during the entire period.

That is, the accumulation of this debt has caused an over-reporting of GDP by 10% over it’s true value on an annual basis, since every dollar of debt buys something, and that “something” winds up being counted in GDP.

So we have a perverse cycle here fed by government and private business – both with a simple motive to cheat for as long as possible.

What holds this behavior back?

Only the certainty that when the math catches up with the cheating (and all the participants in this scam know it will) those who cheated will be the ones who get the bill.

Unfortunately our so-called “financial innovation” has impaired this natural feedback function in two distinct but intertwined ways:

1. By bailing out “too big to fails”, starting with LTCM and continuing onward, we have made clear that there is an implicit taxpayer backstop.  That is, you won’t wind up in the street if you’re a (big) bank and push the math too far.
2. By refusing to enforce the laws forbidding fraud in all it’s forms, including fraud by deception, we have put in place an economic and political system where large firms can cheat while smaller ones (and others unprotected, from consumers to municipalities) suffer.

A dramatic example of the latter was offered up by McClatchy yesterday in the following article:

During the past three years, some of the nation’s largest financial firms have been accused by the government of cheating or misleading clients and ripping off tens of thousands of consumers of their investments.

Despite these findings, these financial giants got, sometimes repeatedly, special exemptions from the Securities and Exchange Commission that have saved them from a regulatory death penalty that could have decimated their lucrative mutual fund businesses.

If you remember a month ago I talked about how Pfizer had pled guilty to two instances of the same felony charge.  The man who was their general counsel in the first case and the firm’s CEO in the second was subsequently “elected” to the Board of the Federal Reserve Bank of New York.

The voters were not, however, the general citizenry.  Rather they were the members of the NY Fed, which just happens to include those firms that the NY Fed regulates.

I’m quite sure you could have elected Charles Manson to the position of County Sheriff – so long as those doing the voting were all imprisoned felons!

Look at who is running The SEC today – and the revolving door that exists in that agency.  From the private sector (regulated by the SEC) to the SEC and then back to the so-called “regulated” firms.

This sort of incestuous nonsense is part and parcel of why we are here.  It is, indeed, one of the biggest issues we face in any attempt to enact meaningful reform.  The big banks and other financial interests have intentionally designed things this way to guarantee weak or non-existent “enforcement” of the laws that purport to protect the public against various forms of deception and even outright theft and then they come bleating to Congress and the people claiming that Armageddon will ensue if they’re not bailed out and allowed to shift the consequences of their idiocy to the taxpayer.

Paul Volcker is right to expose the charade, but he doesn’t go anywhere near far enough.  What we need is people who are willing to talk about the why – not just the “what” – and who are willing to raise whatever amount of hell it takes to get the public enraged enough to demand change.

Unless, of course, you like having your pocket serially picked and are willing to suffer the inevitable consequence of economic collapse that the math says must eventually be the outcome of the policies we have promulgated and practiced over the last two decades.

Treasury Department Releases Text of Letter from Secretary Geithner
to Hill Leadership on Administration’s Exit Strategy for TARP

WASHINGTON – The U.S. Department of the Treasury released the
text of identical letters sent today from Secretary Tim Geithner to
Speaker Nancy Pelosi and Senator Harry Reid outlining the
Administration’s exit strategy for the Troubled Asset Relief Program
(TARP) established by the Emergency Economic Stabilization Act of 2008
(EESA). The text of the letter to Speaker Pelosi follows.

December 9, 2009

The Honorable Nancy Pelosi
Speaker          
U.S. House of Representatives
Washington, DC 20515

Dear Madam Speaker:

I am writing to update you on the status of the Obama
Administration’s financial policies, including programs initiated under
the Troubled Asset Relief Program (TARP) established by the Emergency
Economic Stabilization Act of 2008 (EESA), the results they have
achieved, the challenges ahead, and our plan for exiting TARP.

These policies are working.  When the Obama Administration took
office, the financial system was extremely fragile and the economy was
contracting sharply.  The Administration’s financial and economic
policies have helped to shore up confidence in our financial system. 
Credit is starting to flow again to consumers and businesses, and the
economy is growing.  Further, private capital is replacing public
capital in our major institutions.

As a result of improved financial conditions and careful stewardship
of the program, losses on TARP investments are likely to be
significantly lower than previously expected.  We now expect a positive
return from the government’s investments in banks.  These banks will
soon have repaid nearly half of the TARP funds they received.  We also
expect to recover all but $42 billion of the $364 billion in TARP funds
disbursed in FY2009.  Further, we plan to use significantly less than
the full $700 billion in EESA authority.  As a result, we expect that
TARP will cost taxpayers at least $200 billion less than was projected
in the August Mid-Session Review of the President’s Budget.

But significant challenges remain.  Too many American families,
homeowners, and small businesses still face severe financial pressure. 
Although the economy is recovering, foreclosures are increasing, and
unemployment is unacceptably high.  Businesses are still cautious in
the face of uncertainty about the strength of the recovery, and many
small businesses face very difficult credit conditions.  Although bank
lending standards are starting to ease, many categories of bank lending
continue to contract.  This contraction has hit small businesses very
hard because they rely heavily on such lending, and do not have the
ability to substitute credit from securities issuance.  Commercial real
estate losses also weigh heavily on many small banks, impairing their
ability to extend new loans.

Further, the recovery of our financial system remains incomplete. 
And near-term shocks to that system could undermine the economic
recovery we have seen to date.

Exit Strategy for TARP

Our exit strategy for TARP balances the mandate of EESA to address
these challenges with the need to exercise fiscal discipline and reduce
the burden on current and future taxpayers.  There are four broad
elements to our strategy.

First, we will continue terminating and winding down many of the
government programs put in place last fall.  In September, Treasury
ended its Money Market Fund Guarantee Program, which guaranteed at its
peak over $3 trillion of assets.  The program incurred no losses, and
generated $1.2 billion in fees.  The Capital Purchase Program, through
which the majority of TARP investments in banks have been made, is
effectively closed.  Before this Administration took office, nearly
$240 billion in TARP funds had been committed to banks.  Since January
20, we have committed about $7 billion to banks, much of which went to
small institutions.  Major U.S. banks subject to the “stress test”
conducted last spring have raised over $110 billion in high-quality
capital from the private sector.  And banks will soon have repaid $116
billion of TARP funds

Second, we will limit new commitments in 2010 to three areas.

• We will continue to mitigate foreclosure for responsible American
  homeowners as we take the steps necessary to stabilize our housing
  market.
• We recently launched initiatives to provide capital to small
  and community banks, which are important sources of credit for small
  businesses.  We are also reserving funds for additional efforts to
  facilitate small business lending.
• Finally, we may increase our commitment to the Term
  Asset-Backed Securities Loan Facility (TALF), which is improving
  securitization markets that facilitate consumer and small business
  loans, as well as commercial mortgage loans.  We expect that increasing
  our commitment to TALF would not result in additional cost to taxpayers.

Beyond these limited new commitments, we will not use remaining EESA
funds unless necessary to respond to an immediate and substantial
threat to the economy stemming from financial instability.  As a nation
we must maintain capacity to respond to such a threat.  Banks are still
experiencing significant new credit losses, and the pace of bank
failures, which tend to lag economic cycles, remains elevated.  At the
same time, many of the Federal Reserve and FDIC programs that have
complemented TARP investments are ending.  This creates a financial
environment in which new shocks could have an outsized effect –
especially if an adequate financial stability reserve is not
maintained.  As we wind down many of the government programs launched
initially to address the crisis, it is imperative that we maintain this
capacity to respond if financial conditions worsen and threaten our
economy.  However, before using EESA funds to respond to new financial
threats, I would consult with the President and Chairman of the Federal
Reserve Board and submit written notification to the Congress.  This
capacity will bolster confidence and improve financial stability,
thereby decreasing the probability that it will need to be used.  This
is the third element of our exit strategy.

In order to accomplish these goals, pursuant to Section 120(b) of
EESA, I certify that I am hereby extending the authority provided under
the Act to October 3, 2010.  This extension is necessary to assist
American families and stabilize financial markets because it will,
among other things, enable us to continue to implement programs that
address housing markets and the needs of small businesses, and to
maintain the capacity to respond to unforeseen threats, as described
above.

While we are extending the $700 billion program, we do not expect to
deploy more than $550 billion.  We also expect up to $175 billion in
repayments by the end of next year, and substantial additional
repayments thereafter.  The combination of the reduced scale of TARP
commitments and substantial repayments should allow us to commit
significant resources to pay down the federal debt over time and slow
its growth rate.

Even with this extension, we expect that TARP will cost taxpayers at
least $200 billion less than was projected in the August Mid-Session
Review of the President’s Budget, including $25 billion in potential
costs from new TARP commitments in 2010.  We expect that the vast
majority of these potential costs would come from mitigating
foreclosure for responsible American homeowners as we take the steps
necessary to stabilize our housing market.

The final element to our exit strategy is how we manage equity
investments acquired through EESA while protecting taxpayers.  We will
continue to manage those investments in a commercial manner and seek to
dispose of them as soon as practicable.  We will exercise our voting
rights only on core issues such as election of directors, and we will
not interfere in the day-to-day management of individual companies.  In
addition, as the steward of taxpayers’ funds, Treasury will continue to
manage investments in a manner that ensures accountability,
transparency and oversight.  And we will work with recipients of EESA
funds and their supervisors to accelerate repayment where appropriate. 
We want to see the capital base of our financial system return to
private hands as quickly as possible, while preserving financial
stability and promoting economic recovery.

History suggests that exiting prematurely from policies designed to
contain a financial crisis can significantly prolong an economic
downturn.  We must not waver in our resolve to ensure the stability of
the financial system and to support the nascent recovery that the
Administration and the Congress have worked so hard to achieve. 
Improvements in the financial performance of EESA programs put us in a
better position to address the economic and financial challenges many
Americans still face.  I look forward to continuing to work with you to
achieve these
goals.                                                               

Sincerely,

Timothy F. Geithner

Identical copy of this letter sent to:
            The Honorable Harry Reid

cc:       The Honorable Barney Frank
           The Honorable Spencer Bachus
           The Honorable David Obey
           The Honorable Jerry Lewis