Busted: Bankers and The Global Economy

July 24, 2010

U.S. Worries Over Deflation

The nation has a nasty case of stagnation, fueled by significant employment issues and rising defaults. Prices are falling while most consumers resist buying. When deflation begins and prices fall, it seems like a good thing. Then, lower prices cut into business profits which results in trimming payrolls. This further undermines buying power, which leads to lower profits, fewer jobs and lower wages. All this results in economic contraction.

With all the cutbacks, buyers that have the funds wait for better deals through even lower prices, which magnifies deflation. As a result, the nation plunges into a downward economic spiral that is hard to escape. This is exactly what the United States faces.

The nation’s capital is feeling the guilt as they look at other in dismay about the rising deficit and inflation, even though they advertise to the world that inflation doesn’t exist here. Economists around the world see great potential for deflation of the dollar, which already would be the case, were it not for declining currencies across the globe.

The statistics say it all. Consumer prices have declined each month for the last three months, putting inflation above last year. They claim that the core inflation rate is at a 44 year low at less than one percent. So why are they worried? The Federal Reserve likes to see an inflation rate of 3% because this puts more money in their corporate pockets.

Private economists and financial experts are more concerned. Some of them see the possibility of deflation at more than fifty percent. This is compounded by unemployment, lack of production and lower spending.

Should deflation occur, the central bank has the tools to reverse it according to Ben Bernanke, even though the Federal Reserve has interest rates at historical lows and has pumped trillions into the financial system. The books have been cooked baby, to the loss of the United States. Bernanke claims the U.S. economy is more vibrant and productive than Japan’s was in the 90s. The difference is supposed to be that Japan’s labor face was actually declining, while the States has plenty of labor.

In my words, there are plenty of financially-broken and impoverished Americans to take advantage of, with the hope of restoring the economy on their collective backs. Wall Street and multinationals aren’t suffering beyond the losses of jobs they incurred during the recession. Let’s face facts, they didn’t suffer much at all. Their employees did. That’s the way it is.

The little guy at the bottom, so far, is the one that has truly paid for the recession and the remainder of its fallout. They are ones that will continue to pay.

February 20, 2010

20 US banks collapse in 2010 so far

Filed under: banking, economy — Tags: , , , , , , — digitaleconomy @ 11:07 am

In less than two months, 20 American banks have been closed by the FDIC. A staggering 174 U.S. banks have hit the skids since the collapse of Wall Street giant Lehman Brothers in September 2008, which has sparked one of the worst financial crises in modern times.

What is to blame? A high unemployment rate has resulted through increased defaults at small and medium size community banks.

July 3, 2009

U.S. Banks, Economy Continue Up in Smoke

Filed under: banking, economy, money — Tags: , , , , , , , , , , , , , — digitaleconomy @ 10:28 am

economic fire sale

economic fire sale

Even though this website hasn’t been dwelling on bank closures lately, the number of bank closures is definitely on the increase. In anticipation of the holiday weekend, seven U.S. banks have been closed, bringing the total of banks closed this year to 52.

What has made the closures this week unique is that many of the banks have been financially interlinked, which has exposed them to closure because of CDOs and loan losses. Local banks, not too large to fail, have been hit especially hard during the economic crisis, as a drop in home values has devalued mortgage-backed assets. The rising unemployment numbers have also impacted the banks, as more consumers are defaulting on their loans.

What really highlights the current economic crisis to me was a visit to a large retailer yesterday. I spent an hour in the store and as I shopped, I heard all manner of phone conversations and scuttlebutt between employees about the economy, economic failure, job losses and financial family crises. This snapshot in time on a Thursday afternoon would seem to indicate that the nation is enduring some uncommon suffering as you read this commentary. While I was shopping, I wasn’t looking for what I discovered. The conversations, many of them quite loud, were impossible to ignore. ~ E. Manning

January 23, 2009

U.S. Employment and Recovery Dilemna

The U.S. government is in denial of classic facts the majority of the time. Even though Barack Obama has been reasonably honest concerning the immediate future, the figures he used before the inauguration to promote his plans to Congress are hopelessly underestimated and fail to add up on a mathematical level. In the meantime, Americans have the magic and charisma of a new president to chart the uncertain tragic waters of what will ultimately be a recovery given enough time. However the bad news and underlying economic factors coming out of 2008 do not speak of a speedy recovery on any level. When Barack Obama suggests that the American population in general will sacrifice, he isn’t kidding. Even the most optimistic reports paint “a bleak economic landscape ahead” with real unemployment approaching 18% with a sudden increase expected (see recent Digital Economy articles for more details).

Bankers have seen the massive destruction of their net worth and the ability to conduct business. As a result, so have we all. What was your hard-earned 401K last year? What was your net worth two years ago? The Bush administration had only seen to slowly respond to the crisis in addition to adding sweet Federal Reserve liquidity to keep failing institutions and most of the relevant power structure in place solvent. They used laissez-faire economics as an excuse to do little or nothing until their hand was forced by extreme circumstances and the national plight of total economic failure. Henry Paulson admitted his team’s inability to find and deal with the real scope of the national banking toxic-debt, instead choosing the easy course of simply recaptalizing bank with nationalized capital from taxpayers. As a confessed seasoned professional insider, Paulson was unable to determine or realize the full extent of the national collateral damage or he simply isn’t saying, which may be closer to the truth.

America has this plight to look forward to in 2009 barring other unforeseen issues:
* A huge rush of residential housing mortgage failures due to ‘housing resets’, the blight of unemployment and the inability for Americans to qualify for loans because of tightening banking rules which were conveniently ignored previously.
* A tsunami of commercial mortgage foreclosures.
* Billions in credit card defaults that threaten to further decimate the banking system coupled with banking cutbacks in anticipation of the same.
* As unemployment skyrockets, a tsunami of auto repossessions and loan defaults.
* Economic decimation through toxic banking instruments and complex debt instruments combined with $500 trillion in unmanageable credit default swaps.

25% real unemployment is realistic by the summer of 2009, near the estimated high of depression unemployment charted in the 1930s.  Unhappily, the resulting fallout will simply get worse and the economy spirals downward as more unpredicted events occur. Some areas in close relation to the Big Three automakers could see unemployment much higher than that. This commentary just touches the beginning as municipalities and states sink into further debt this year. The nation that used to live on credit will truly be living on credit in order to sustain America on any level. The profitaking of the last decade coupled with predatory banking designs has truly taken its toll. The U.S. economy didn’t have enough energy to maintain a stagflation last year. Deflation will be the ultimate result as the nation pulls into recovery years down the road. These are likely the unpleasant facts unless central bankers have a better idea. That is unlikely unless they start thinking outside the box they have built. ~ E. Manning

credit-default-swap

July 29, 2008

Foreclosure: Minefield of Saving Your Skin

The provisions touted by government lawmakers is projected to be a real help for honest home buyers throughout the United States. Clearly, the rules do not assist speculators or business investors. Still, the “home buyer bailout” may not help as many American citizens or prevent as many foreclosures as government authorities claim.

Qualified borrowers must live in their homes with loans issued between January 2005 and June 2007, while spending at least 31% of their gross monthly income on mortgage debt. If you qualify on these standards, you can note two check marks.

Further, home buyers must prove that they cannot or will not be able to keep paying their existing mortgage while signify that they are not deliberately defaulting on their home loan to obtain lower payments. Whether a home buyer is in a current state of default doesn’t matter. Proving circumstances does. If you qualify on these standards, you can note another two check marks.

Home equity lines of credit must be retired. If you qualify, make another check mark.

Total loan debt cannot exceed (more…)

July 14, 2008

May 19, 2008

Mortgage Vultures and Congress

In a recent hearing on mortgage servicing, Senators probed Countrywide Mortgage on exactly how mortgage servicers make their profits. Servicers earn revenue through a fee that is a percentage of the mortgage, float income from interest on temporarily-held funds, and through retained fees like late charges and other fees paid by borrowers.

Senator Charles Schumer described the addition of these fees as “piling on”. Mr. Schumer is convinced that a “vulture mentality” is developing among mortgage servicers as defaults rise. Senator Schumer called Steve Bailey of Countrywide to task for attempting to deny that mortgage servicers profit everyday from delinquent homeowners, even when borrowers and loan holders might benefit if the family retained its home, rather than struggle to pay an avalanche of default costs. (more…)

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