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Archive for August, 2010
How Banks Avoid Protections of 2009 Credit Card Act
August 29th, 2010 | 
Author:
If you’ve received an offer for a credit card in recent months called a “professional card” and you are not a small business owner, you are not alone. Banks are flooding the market with solicitations for these pieces of plastic that aren’t covered by the protections afforded in the Credit Card Accountability and Responsibility and Disclosure Act of 2009.
Banks such as Capital One, J.P. Morgan Chase and Citibank have mailed offers for these hybrid cards that until recently used to be dedicated to small business owners or corporate executives. In the first quarter of 2010, issuers mailed out 47 million professional offers, a 256% increase from the same period last year, according to research firm Synovate.
The Wall Street Journal reported that with a few small tweaks in the application, the offering banks no longer require specific information that would identify the consumer as the owner of a business. No one is screaming fraud, however, since the banks are not obligated to disclose that the cards are not covered by the terms of the Card Act of 2009. Some of the consumer protection items that do not apply to these kinds of cards are, controversial billing practices such as hair-trigger interest rate increases, shortened payment cycles and inactivity fees.
Professional Cards Are Not Covered by Consumer Protections of Card Act of 2009
Prior to the legislation taking effect, banks’ applications for professional cards asked prospective cardholders to provide the name of their company, the nature of the business, its address and its federal employer identification number. In the last sixty days, applications have been amended to ask for less specific data and have opened up eligibility to people who don’t own a business. The Journal reported that In the July mailing cardholders merely had to check a box that said “Yes, I am a business owner” or “Yes, I am a business professional with business expenses.”
Here are five things that separate the professional cards from those consumer cards covered by the Card Act of 2009.
Payments in excess of the minimum can be applied to balances with the lowest interest rates.
Terms of the agreement between the consumer and the bank are changeable without notice.
Payments can be demanded with fewer than 21 days after the latest invoice is sent to the card holder.
Large fees can be assessed if a card holder exceeds the credit limit.
If you have any doubt about whether an application for credit is covered by the Card Act, call the company that sent you the offer and ask for specifics. Record the date, time and the name of the person to whom you spoke to help you untangle a mess if you were given incorrect information.
Posted in Banks, Corruption, Credit Cards, Debt, Economic Crisis, Economy, Financial System, Fraud | 
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The Struggling Class – The emergence of consistent poverty. How the other half live financially. 40 million Americans on food assistance and large unbanked population. Family Dollar up over 80 percent through the recession.
It is disturbing to see many articles published in foreign newspapers and magazines highlighting the plight of the middle class in America. You would think that our own media would want to cover this issue which should be at the top of the list for everyone. Instead, our mainstream media systematically attempts to keep everyone financially in the dark and shell shocked into spending money (assuming they still have disposable income). They do this by pumping out inane show after inane show to keep people numb to the deeper problems of the day. The middle class is giving way to a new struggling class. This is a class that is defined by a constant struggle merely to chase the middle class carrot on the stick while the large banking sector becomes ever more powerful and the resource pie shrinks. The recovery never even appeared for millions of Americans.
It is troubling to see articles talking about the erosion of the middle class especially when they come from overseas:
“(Spiegel Online) Ventura is a small city on the Pacific coast, about an hour’s drive north of Los Angeles. Luxury homes with a view of the ocean dot the hillsides, and the beaches are popular with surfers. Ventura is storybook California. “It’s a well-off place,” says Captain William Finley. “But about 20 percent of the city is what we call at risk of homelessness.” Finley heads the local branch of the Salvation Army.
Last summer Ventura launched a pilot program, managed by Finley, that allows people to sleep in their cars within city limits. This is normally illegal, both in Ventura and in the rest of the country, where local officials and residents are worried about seeing run-down vans full of Mexican migrant workers parked on residential streets.
But sometime at the beginning of last year, people in Ventura realized that the cars parked in front of their driveways at night weren’t old wrecks, but well-tended station wagons and hatchbacks. And the people sleeping in them weren’t fruit pickers or the homeless, but their former neighbors.”
Keep in mind this is for a relatively expensive Southern California county. I think many people in foreign nations are used to seeing areas like California through the eyes of reality television shows like “Laguna Beach” or “The Hills” but that only paints a caricature of a region. The fact of the matter is, many people are falling off the middle class treadmill right onto the poverty floor. There is very little safety net in the America of today at least if you are part of the middle class. If you are a big bank, you can fail in grandiose fashion and have billions of dollars funneled your way. This painful transition doesn’t happen seamlessly:
“Finley also noticed a change. Suddenly twice as many people were taking advantage of his social service organization’s free meals program, and some were even driving up in BMWs — apparently reluctant to give up the expensive cars that reminded them of better times.
Finley calls them “the new poor.” “That is a different category of people that I think we’re seeing,” he says. “They are people who never in their wildest imaginations thought they would be homeless.” They’re people who had enough money — a lot of money, in some cases — until recently.”
Now I know most of you have little sympathy for someone holding onto a BMW while they are going for free meals at the Salvation Army. That is understood. But there are many more millions that never over extended and thought they were doing the right thing financially but were launched off the road from this painful recession. There is an emerging struggling class in this country and their numbers are looming large.
Food assistance
In every recession those seeking food assistance grows with the times. Yet this recession has pushed more people off the edge since the Great Depression:
Source: SNAP
Over 40 million Americans are now receiving food assistance. This is the highest rate ever recorded. We can’t compare this to the Great Depression because there was no safety net back then. Where did these new millions come from? Many came from the shrinking middle class. It is easy to see how financially things can unmask so quickly. You lose a job then you lose your home. A few months are bought before being evicted with the millions of foreclosures in the pipeline. But eventually, you are chasing a ticking clock. We have spent too much time focusing on the needs of Wall Street and banks and so little on the working and middle class. Don’t expect the media to show you charts like the one above.
The U.S. is spending $5 billion a month on food assistance. This money is spent quickly into the economy and that is why you see dollar stores doing well in this recession:
Just drive by any dollar store and you’ll see a wide range of people shopping there. There is a reason why Family Dollar is up over 80 percent since the recession started.
Unbanked
Source: FDIC
Nearly 30 percent of Americans are either unbanked, underbanked, or simply are off the financial grid. These people are simply struggling to keep their financial lives in order. The banking bailouts haven’t even come close to touching this group here. If you were to talk to that above person living in their car, their most pressing issue is getting a job. To them, this verbiage of quantitative easing and protecting big banks is merely a shell game to protect the rich. People have a strong sense of the financial injustice that is currently happening.
Retraining but for what?
In past recessions, many go back to school to retrain for new jobs. By the time most were done with their new training, the job market was usually rebounding or their new skills were in demand. That was an old world:
“(New York Times) For six weeks, Mr. Valle, 49, absorbed instruction in spreadsheets and word processing. He tinkered with his résumé. But the interviews his caseworker eventually arranged were for low-wage jobs, and they were mobbed by desperate applicants. More than a year later, Mr. Valle remains among the record 6.8 million Americans who have been officially jobless for six months or longer. He recently applied for welfare benefits.
“Training was fruitless,” he said. “I’m not seeing the benefits. Training for what? No one’s hiring.”
Hundreds of thousands of Americans have enrolled in federally financed training programs in recent years, only to remain out of work. That has intensified skepticism about training as a cure for unemployment.”
This job market is absolutely weak. Banks are turning out billions of dollars in profits thanks to taxpayer money. At the moment, this is a zero sum game. Banks have eaten 90 percent of the pie and have left 10 percent of it for the entire nation to fight over. This is why it feels like people are struggling for the scraps. While that is happening, the Federal Reserve has gone out of its way to secretly to purchase billions in bad commercial real estate deals from banks but they have tried to keep this under wraps.
The long-term unemployed chart is not pretty:
We really need to shift our entire focus on jobs and figuring out where we want to take our economy moving forward. Things are broken at the moment and it is largely the fault of the financial sector with government advocating for its bailouts. The new struggling class is merely a reflection of the broken system.
Bernanke: I Have a Squirt Gun! Honest!
How does anyone take this guy seriously?
A year ago, in my remarks to this conference, I reviewed the response of the global policy community to the financial crisis.1
Yeah, a financial crisis you created by willfully ignoring everything that was going on around you for the last two decades, including massive fraud in housing, massive collusive dealing in the financial system, off-balance sheet exposures that exceeded GDP in a number of firms you allegedly regulated and complex schemes intended to cover all of this up – facts that you were well-aware of.
Never mind the fact that the entire premise on which your thesis has rested has been the ever-expanding level of credit in the economy at a rate exceeding GDP growth. You’re not alone in this of course; such a record extends back to the inception of the Fed Z1, but that doesn’t change the fact that your theories and practice have been bereft of mathematical reality.
This list of concerns makes clear that a return to strong and stable economic growth will require appropriate and effective responses from economic policymakers across a wide spectrum, as well as from leaders in the private sector.
Let’s see, as we going to find anything like “lock up the crooks and claw back their expensive toys in the Hamptons” among that list? Of course not. Nor will we see “contract leverage and systemic debt to a sustainable level”. Yet both are required.
At best, though, fiscal impetus and the inventory cycle can drive recovery only temporarily. For a sustained expansion to take hold, growth in private final demand–notably, consumer spending and business fixed investment–must ultimately take the lead. On the whole, in the United States, that critical handoff appears to be under way.
No it isn’t. The consumer hasn’t de-levered and neither has anyone else. Not to a sufficient degree anyway. Oh sure, consumer credit has been contracting now for many months, and continues to – getting continually bent over the table with 29% interest rates will do that to you – if you don’t go bankrupt first.
And don’t start with that “increase in savings” bullcrap – you’re well-aware, as am I, that the government defines “savings” as “income less consumption”, which means that debt paydown or default is defined as “savings.” Like hell – that which is saved has to remain yours once saved – if you pay off debt you’ve saved nothing.
Corporate “rebounds” have all been fueled by cost-of-labor decreases. To put it in terms everyone can understand, that’s what happens when your boss gets in your face and says “work harder, get paid less, or get fired – pick!“ Average Americans understand this, but you either don’t or refuse to speak the truth about it.
Household finances and attitudes also bear heavily on the housing market, which has generally remained depressed. In particular, home sales dropped sharply following the recent expiration of the homebuyers’ tax credit. Going forward, improved affordability–the result of lower house prices and record-low mortgage rates–should boost the demand for housing. However, the overhang of foreclosed-upon and vacant housing and the difficulties of many households in obtaining mortgage financing are likely to continue to weigh on the pace of residential investment for some time yet.
There is no such thing as “residential investment.” Housing is a consumer durable good and is in fact consumed!
Never mind that governments add to that “consumption” with confiscatory tax systems on real estate. What’s the real rate of return on a $500,000 house that has a $14,000 a year tax bill, as is the case in many of our major cities and their suburbs? If the house goes up in price at the rate of your claimed inflation (2%) then the entirety of the so-called “increase in value” is absorbed by the property tax bill and more, and we haven’t begun to sock back a capital fund for things like a new water heater, roof and furnace – all of which are in fact consumed with time.
Consequently, investment in equipment and software will almost certainly increase more slowly over the remainder of this year, though it should continue to advance at a solid pace.
Intel doesn’t think so.
In contrast, outside of a few areas such as drilling and mining, business investment in structures has continued to contract, although the rate of contraction appears to be slowing.
You don’t get out much do you? There are more strip malls than we’ll need for the next 20 years. Indeed, there is more commercial property in the general than we will need for the next 20 years. This was also fueled by fraud – particularly among your buddies in the banking system that put everything they could get their hands on into some sort of dodgy security like a CDO, then self-dealt themselves to riches, while leaving the rest of us to ruin.
Once again government is “helping” by making tax uncertainty the order of the day, which means that business is having and increasingly hard time figuring out what the liability side of the balance sheet will look like a couple of years hence. And that’s a problem, because while everyone seems to lie about the assets, especially banks, liabilities are always good to the penny and have to be covered.
Bank-dependent smaller firms, by contrast, have faced significantly greater problems obtaining credit, according to surveys and anecdotes. The Federal Reserve, together with other regulators, has been engaged in significant efforts to improve the credit environment for small businesses.
Most small business loans have been in fact collateralized by the owner’s home. That owner’s home is now underwater, and the owner likely has blown the (falsely believed) equity expansion on Hummer, vacation condo (also seriously underwater) or boat. He therefore has no collateral to put up for a loan, and the bank is entirely correct in saying “No”, given that 9 out of 10 businesses fail within the first five years.
There is no solution to this problem with “lending”, other than “don’t borrow.” And that, in fact, is the right answer – run a business that doesn’t require lending – that is, leverage – to be viable. This means that only productive enterprises get started, instead of ponzi-based things like building $400,000 craptastic McMansions at grossly-inflated prices.
Firms are reluctant to add permanent employees, citing slow growth of sales and elevated economic and regulatory uncertainty.
Why would I hire people into falling demand, a confiscatory government environment and the ever-present threat of your buddies at Humongous Bank Inc. shoving a stallion up my backside? I’ll pass, and logical businessmen and women nationally are doing exactly that.
Despite the weaker data seen recently, the preconditions for a pickup in growth in 2011 appear to remain in place. Monetary policy remains very accommodative, and financial conditions have become more supportive of growth, in part because a concerted effort by policymakers in Europe has reduced fears related to sovereign debts and the banking system there
You’re smoking crack dude. 12% of GDP in deficits here and you call this “accommodative”? I call it “idiotic” and “that which can’t go on forever won’t.” We’re arguing when (it goes boom), not if.
Maintaining price stability is also a central concern of policy. Recently, inflation has declined to a level that is slightly below that which FOMC participants view as most conducive to a healthy economy in the long run.
Inflation should be zero. That way I can choose to save and invest without having your cronies try to force me into dodgy deals. But of course that’s what you do on the FOMC, right – try to coerce people into getting involved in dodgy investments which are guaranteed to eventually blow up, as are all Ponzi Schemes. You managed to pull it off twice in ten years – congratulations. I hope you don’t mind if the public decides to erect the middle finger in your direction, having learned by hard experience what listening to you will do their financial (and emotional!) stability.
In support of the stock view, the cessation of the Federal Reserve’s purchases of agency securities at the end of the first quarter of this year seems to have had only negligible effects on longer-term rates and spreads.
Really?
Looks to me like when you quit jacking around with your nutty programs rates on the long end declined – that is, when you were jacking around rates were generally rising!
But I thought “Quantitative Easing” was supposed to suppress rates? At least this is what you sold to Congress and the American People. How “suppressed” were they Ben? NOT! Never mind that this is just government debt – how about credit cards? Were those rates “suppressed” by your little game? Oh I know, the little guy doesn’t matter, right?
A first option for providing additional monetary accommodation, if necessary, is to expand the Federal Reserve’s holdings of longer-term securities. As I noted earlier, the evidence suggests that the Fed’s earlier program of purchases was effective in bringing down term premiums and lowering the costs of borrowing in a number of private credit markets.
It was? Well spreads, yes. But let me ask this: Were mortgage rates higher or lower while you performed “QE” than they are now? Oh, they were higher, right?
Oh sure, banks were able to issue debt into the market at very low rates. But why? Was it really “QE” or was it really the government backstop – some of it explicit – that was attached to that debt? Ditto for “Build America Bonds”.
As for private credit, well, that’s a different matter. Show me the reduction in actual interest rates while you were tampering with the market in places that mattered to average Americans. You can’t – because in fact rates went the wrong way!
A lot of that had to do with what I argue was your intended purpose behind “QE” – to provide a “risk-free” arb opportunity for certain “special people”, while the rest of America twisted in the wind. Funny how the banks all seemed to know which coupons you would buy in advance, and how certain asset managers had the prescience to know what you buy before you came in and lifted every offer, all the way up. Nice for them, but of absolutely no benefit to the average American.
However, uncertainty about the quantitative effect of securities purchases increases the difficulty of calibrating and communicating policy responses.
How about the truth: The effect was exactly the opposite of what you claimed it would be!
Another concern associated with additional securities purchases is that substantial further expansions of the balance sheet could reduce public confidence in the Fed’s ability to execute a smooth exit from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might lead to an undesired increase in inflation expectations.
A: It’s not unjustified.
B: You know damn well this Ponzi can’t go on forever, and proof of that is found in your refusal to identify the conditions under which you will exit – and how.
A second policy option for the FOMC would be to ease financial conditions through its communication, for example, by modifying its post-meeting statement.
Lying has worked so well up until now in producing lasting prosperity. You should do more of it.
A third option for further monetary policy easing is to lower the rate of interest that the Fed pays banks on the reserves they hold with the Federal Reserve System.
Right – 25 basis points is so much that it’s a huge incentive. “I have a squirt gun and I’m not afraid to get you wet!“ Pull the other one Bernanke.
A rather different type of policy option, which has been proposed by a number of economists, would have the Committee increase its medium-term inflation goals above levels consistent with price stability. I see no support for this option on the FOMC.
That’s probably because pitchforks and torches are a universal language, and nobody on the FOMC (except perhaps you) is really all that interested in finding out if there really is a breaking point in American Society beyond which The Wizard of Oz is revealed to be a tiny little man with an even-smaller johnson that has been jacking the town around for years, at which point the citizens of Oz simply decide to eat him.
Oh wait – they were “more civilized” in the novel. Yeah, well, that was a children’s story. This is the real world, and the people do have a limit of tolerance for abuse. When they’re unable to find redress through the law and are homeless, jobless and starving, they have nothing left to lose. That’s not something I or anyone else who’s sane wants to see.
First, the FOMC will strongly resist deviations from price stability in the downward direction. Falling into deflation is not a significant risk for the United States at this time, but that is true in part because the public understands that the Federal Reserve will be vigilant and proactive in addressing significant further disinflation.
Deflation on a moderate scale is only bad if you’re in debt. Never mind that we’ve got it and have had it for more than 20 years in certain areas. Who among the citizens is upset with deflation in technology, for instance?
Anyone remember the price of a color television 30 years ago? How about a computer in 1981? A calculator? A cell phone – oh wait, there was no such thing. All of these things and more have undergone massive and continual deflation since their introduction. We love it as consumers, because, well, we consume these things. When our computer wears out we buy a new one that is both faster and cheaper. Same with our cellphone. Same with our color TV.
Exactly how is this bad? It’s not – unless you went massively into debt to buy the thing, at which point you got serious problems, as the debt has to be paid off for a product that is worth a tiny fraction of what you paid for it!
Finally, we need to distinguish between genuine deflation and attempted support of a price level that was achieved by fraudulent economic and monetary policy – that is, it was through fraudulent inducement that the original INFLATION of those prices occurred.
Deflation through greater productivity per unit of labor cost is a good, not bad thing. It means you can buy more capability with less work. This is a net societal positive.
The latter is an adjustment that is necessary to restore balance. The question there is not whether we should have “deflation”, it is whether those who caused the inflation of the price level through these fraudulent manipulations in the market should be held to account for their activity and imprisoned while the economy is allowed to contract back to a sustainable level of price on a macro basis, such that playing ponzi finance is no longer necessary to do basic economic things like buy a home or automobile.
My answer to that question is “yes”, but I’m just one of 330 million.
Posted in Banks, Ben Bernanke, Corruption, Debt, Economic Crisis, Economy, Federal Reserve, Financial System, Fraud, Government, Money |
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10 Practical Steps That You Can Take To Insulate Yourself (At Least Somewhat) From The Coming Economic Collapse
Most Americans are still operating under the delusion that this “recession” will end and that the “good times” will return soon, but a growing minority of Americans are starting to realize that things are fundamentally changing and that they better start preparing for what is ahead. These “preppers” come from all over the political spectrum and from every age group. More than at any other time in modern history, the American people lack faith in the U.S. economic system. In dozens of previous columns, I have detailed the horrific economic problems that we are now facing in excruciating detail. Many readers have started to complain that all I do is “scare” people and that I don’t provide any practical solutions. Well, not everyone can move to Montana and start a llama farm, but hopefully this article will give people some practical steps that they can take to insulate themselves (at least to an extent) from the coming economic collapse.
But before I get into what people need to do, let’s take a minute to understand just how bad things are getting out there. The economic numbers in the headlines go up and down and it can all be very confusing to most Americans.
However, there are two long-term trends that are very clear and that anyone can understand….
#1) The United States is getting poorer and is bleeding jobs every single month.
#2) The United States is getting into more debt every single month.
When you mention the trade deficit, most Americans roll their eyes and stop listening. But that is a huge mistake, because the trade deficit is absolutely central to our problems.
Every single month, Americans buy far, far more from the rest of the world than they buy from us. Every single month tens of billions of dollars more goes out of the country than comes into it.
That means that every single month the United States is getting poorer.
The excess goods and services that we buy from the rest of the world get “consumed” and the rest of the world ends up with more money than when they started.
Each year, hundreds of billions of dollars leave the United States and don’t return. The transfer of wealth that this represents is astounding.
But not only are we bleeding wealth, we are also bleeding jobs every single month.
The millions of jobs that the U.S. economy is losing to China, India and dozens of third world nations are not going to come back. Middle class Americans have been placed in direct competition for jobs with workers on the other side of the world who are more than happy to work for little more than slave labor wages. Until this changes the U.S. economy is going to continue to hemorrhage jobs.
The U.S. government has helped to mask much of this economic bleeding by unprecedented amounts of government spending and debt, but now the U.S. national debt exceeds 13 trillion dollars and is getting worse every single month. Not only that, but state and local governments all over America are getting into ridiculous amounts of debt.
So, what we have got is a country that gets poorer every single month and loses jobs to other countries every single month and that has accumulated the biggest mountain of debt in the history of the world which also gets worse every single month.
Needless to say, this cannot last indefinitely. Eventually the whole thing is just going to collapse like a house of cards.
So what can we each individually do to somewhat insulate ourselves from the economic problems that are coming?….
1 - Get Out Of Debt: The old saying, “the borrower is the servant of the lender”, is so incredibly true. The key to insulating yourself from an economic meltdown is to become as independent as possible, and as long as you are in debt, you simply are not independent. You don’t want a horde of creditors chasing after you when things really start to get bad out there.
2 - Find New Sources Of Income: In 2010, there simply is not such a thing as job security. If you are dependent on a job (“just over broke”) for 100% of your income, you are in a very bad position. There are thousands of different ways to make extra money. What you don’t want to do is to have all of your eggs in one basket. One day when the economy melts down and you are out of a job are you going to be destitute or are you going to be okay?
3 – Reduce Your Expenses: Many Americans have left the rat race and have found ways to live on half or even on a quarter of what they were making previously. It is possible – if you are willing to reduce your expenses. In the future times are going to be tougher, so learn to start living with less today.
4 – Learn To Grow Your Own Food: Today the vast majority of Americans are completely dependent on being able to run down to the supermarket or to the local Wal-Mart to buy food. But what happens when the U.S. dollar declines dramatically in value and it costs ten bucks to buy a loaf of bread? If you learn to grow your own food (even if is just a small garden) you will be insulating yourself against rising food prices.
5 – Make Sure You Have A Reliable Water Supply: Water shortages are popping up all over the globe. Water is quickly becoming one of the “hottest” commodities out there. Even in the United States, water shortages have been making headline news recently. As we move into the future, it will be imperative for you and your family to have a reliable source of water. Some Americans have learned to collect rainwater and many others are using advanced technology such as atmospheric water generators to provide water for their families. But whatever you do, make sure that you are not caught without a decent source of water in the years ahead.
6 – Buy Land: This is a tough one, because prices are still quite high. However, as we have written previously, home prices are going to be declining over the coming months, and eventually there are going to be some really great deals out there. The truth is that you don’t want to wait too long either, because once Helicopter Ben Bernanke’s inflationary policies totally tank the value of the U.S. dollar, the price of everything (including land) is going to go sky high. If you are able to buy land when prices are low, that is going to insulate you a great deal from the rising housing costs that will occur when the U.S dollar does totally go into the tank.
7 – Get Off The Grid: An increasing number of Americans are going “off the grid”. Essentially what that means is that they are attempting to operate independently of the utility companies. In particular, going “off the grid” will enable you to insulate yourself from the rapidly rising energy prices that we are going to see in the future. If you are able to produce energy for your own home, you won’t be freaking out like your neighbors are when electricity prices triple someday.
8 – Store Non-Perishable Supplies: Non-perishable supplies are one investment that is sure to go up in value. Not that you would resell them. You store up non-perishable supplies because you are going to need them someday. So why not stock up on the things that you are going to need now before they double or triple in price in the future? Your money is not ever going to stretch any farther than it does right now.
9 – Develop Stronger Relationships: Americans have become very insular creatures. We act like we don’t need anyone or anything. But the truth is that as the economy melts down we are going to need each other. It is those that are developing strong relationships with family and friends right now that will be able to depend on them when times get hard.
10 – Get Educated And Stay Flexible: When times are stable, it is not that important to be informed because things pretty much stay the same. However, when things are rapidly changing it is imperative to get educated and to stay informed so that you will know what to do. The times ahead are going to require us all to be very flexible, and it is those who are willing to adapt that will do the best when things get tough.
The trillion dollar bailout you didn’t hear about – Commercial real estate values plummet again yet banks hide losses. A $3.5 trillion financial disaster in the making. We are now proud owners of an AMC theater and Chick-fil-A.
The latest data on existing home sales should tell you exactly where we are in this so called recovery. Average Americans are unable to purchase big ticket items without massive government subsidies. It is also the case that all the too big to fail banks are standing only because of the generous support of taxpayer money. Without large tax credits and the Federal Reserve buying down mortgage rates the housing market is extremely weak. Yet very few of the housing “analysts” actually bother to ask why they are weak in the first place. The employment market is in disarray and wages have fallen for everyone outside of the top 1 percent of income earners. The bailout fatigue is running out of steam but banks are using clandestine methods to offload trillions of dollars of commercial real estate to taxpayers. The next giant bailout is already happening but you probably haven’t heard about it.
Commercial real estate values continue to slide:
Source: MIT
For the latest month of data prices fell an additional 4 percent. Now this is coming at a seasonal time when real estate values usually see price increases. But people are pulling back and spending less money on discretionary items. This is happening for a couple of reasons including the fact that wages have been stagnant for over a decade and the underemployment rate is still near peak levels. Commercial real estate in places like Las Vegas has crashed because who is out buying million dollar condos in this market? Very few and that is why you are seeing many places having vacancy rates of 50, 60, or even 70 percent.
“TALLAHASSEE — Condo bills have flooded the Capitol.
More than five dozen have been filed during the legislative session, as Florida grapples with its real estate crisis. But boil down the language of the proposals to help cash-strapped condo dwellers, and there are only a handful of ideas:
Make it easier for investors to buy multiple units in empty buildings. Delay state-mandated upgrades. Discover ways to punish owners who don’t pay skyrocketing association dues.”
So instead of letting prices correct and allowing markets to set the actual price based on lower incomes, the government and specifically the banking and housing industry are trying to do everything to keep home prices inflated. Ironically they are using agencies that were intended to help low to moderate income buyers purchase, in essence, affordable housing. And if the prices don’t stay inflated, they offer big discounts only to their crony friends. So how exactly is this benefitting the typical American family?
Over a year ago, the U.S. Treasury was secretly discussing “Plan B” about gearing up for a giant commercial real estate bailout. Not much was said about this in the mainstream media. Yet now we know that banks specifically the Fed are taking on incredible amounts of CRE loans onto their books. In other words, the bailout is already happening. Think this isn’t the case? We now own a mall out in Oklahoma:
Source: NPR
“(NPR) As part of the bailouts of AIG and Bear Stearns, the Federal Reserve Bank of New York spent more than $70 billion to buy toxic assets the companies owned. Last week, prompted by a lawsuit filed by Bloomberg News, the Fed finally told the world exactly what it bought.
The Fed now owns loans to Hilton hotels in Hawaii, Puerto Rico, Malaysia and Trinidad. It owns loans to the Miami airport, and the Civic Opera House in Chicago.
It also owned a loan to Crossroads Mall in Oklahoma City. Then, when the owners of the mall couldn’t make the payments, the Fed foreclosed. So now it owns the mall, which includes a Chick-fil-A and an AMC theater.”
How much demand exists for this out in the current market? There isn’t much if you look at current CRE values. But prices are continually distorted as more and more money is filtered to the banking sector of the economy. Keep in mind that many banks have incredible amounts of CRE debt. As we just saw with existing home sales, without massive tax subsidies the market is still overpriced. CRE values are coming down to reflect their true values yet the suspension of mark to market and the ability of banks to roll over bad loans keeps price discovery hidden long enough to devise additional ways to push this toxic waste to taxpayers.
The fact that the entire banking system is now held up by taxpayer money, we have in effect nationalized the banking system with no actual benefits of nationalization. That is, all the profits go to banks while all the losses hit the taxpayer. This goes for Bank of America, JP Morgan, Wells Fargo, AIG, Goldman Sachs, Fannie Mae, Freddie Mac, FHA, and every other entity that is a ward of the state in one way or another.
Commercial real estate has gotten zero play in the mainstream media even though this is a $3 trillion market. Does the public drive by an empty condo building or strip mall and think about the larger implications? Maybe they don’t and that is why the government and banks are working together to slowly work their shadow bailout.
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Financial System, Fraud, Government, Money, real estate |
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Gasparino: Citigroup Is Cooking the Books
To Gasparino: It’s Not Just Citi, They ALL Are!
Color me amused. Charlie Gasparino, formerly of CNBS, now over at Fox News, has a new article out about CitiGroup cooking the books. Heh.
An all-out war has broken out between Citigroup CEO Vikram Pandit and a prominent securities analyst who is saying that the big bank may be cooking the books by inflating its earnings through an accounting gimmick, FOX Business Network has learned.
‘Accounting gimmick,’ huh? Oh, you mean like 23-A Letters? Those letters issued to the banks by the Federal Reserve allowing the banks to essentially keep two sets of books, one with the ‘bad assets’ removed from the balance sheet and the other with those ‘assets’ included. The thing is, the one that ‘counts’ is the one that doesn’t include those ‘bad assets.’ Kinda like that sort of ‘accounting gimick,’ Charlie?
Not just a few of us will remember Charlie Gasparino, the darling of CNBC, when he used to breathlessly come on in the middle of the trading day with some much-anticipated update on the mortgage insurers (like AIG) or the big banks (like Citi). Each and every time he was cheerleading for some gimmick or bailout said bank or insurer had received from government largesse. Each time the stock market would suddenly reverse itself from whatever trajectory it was currently on and rip the collective faces off of those people on the other side of what came to be known as the ‘Gasparino trade.’ This was nothing short of market manipulation when it became clear that every time Charlie came on the market was garanteed to move, sometimes very dramatically and almost always at a critical moment.
I hold no ill-will against Charlie. It’s nice to see him taking the side of the people against the banks, but I think it would have been more honest if he’d have come clean on the crap he was helping CNBC run in 2008 and 2009 because he was a big part of it. There WERE people out here trying to tell the truth about what all the banks were (and still are) doing. I’m glad you have joined us, but you made our lives hell for more than two years. It’s much more difficult to get the public to understand that they are being scammed and robbed blind by their own government when there’s a public figure out there cheerleading for the theft and telling people how it will ‘help’ us.
Well as we tried to tell everyone, these things Charlie touted didn’t help anyone but the banks. All the accounting gimmicks like 23-A letters have allowed the banks to rob all of us blind and they continue to allow the banks to hide their junk (these are not, nor were they ever ‘assets’ – you and I have to call them ‘liabilities’) off balance sheet so they can tout their quarterly profits and demonstrate their ‘soundness.’ If you or I could use 23-A letters, no one would have ever been foreclosed upon. None of us would have financial problems, even if we are unemployed. Sound great? Too bad. It’s only for the ‘special banks’ – you know, the ones currently being propped up with your taxpayer money because they’re insolvent. Wow. How bad does an entity really have to be in order to continue to be insolvent even when they don’t have to count their liabilities on their books?
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Financial System, Fraud, Government, Money |
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