Busted: Bankers and The Global Economy

December 2, 2008

Housing Pressure On: Drop of 40%

Filed under: economy, investment, money — Tags: , , , , — digitaleconomy @ 10:02 am

value crisis

value crisis

Selling a home is this recessionary market is challenge enough, but considering that the average homeowner that needs to sell real estate is competing with more than a million bank-owned homes fresh out of foreclosure at low ball reductions of 40%, the downward economic pressure in the housing market persists.

Even in California, the former mecca of high home prices, prices are facing the same downward pressure, forcing home sellers to take huge losses in order to relieve themselves of their property.

As far as home foreclosures are concerned, lenders left holding the bag have already been deluged with expenses in administrative costs, property taxes, insurance, maintenance coupled with the loss of missed payments. As home prices continue to freefall, these bank-owned foreclosures continue to depreciate in a dwindling market as more foreclosures are added to the barrel of distressed properties.

shooting-foot1Once the strength and fire of the U.S. economy, the housing market is facing a correction of unprecedented proportions, further impacting those that have managed to maintain their lifestyles and employment in the face of the progressing recession.  The relunctance and inability to stop foreclosures is bringing about an economic defeat of colossal proportions. An antiquated and inadequate system is shooting itself in the foot. Remember that all of this has stemmed from the unending greed of bankers and investors. Neither education or the lack of it has meant a thing. So much for the economic brain trust. ~ E. Manning

October 30, 2008

Economic Hurricane Ravages Globe

U.S. economic contraction is in the news again as quarterly statistics pour in. Central bankers in economies across the world are cutting interest rates in the vain hope of sustaining banking rates for lending. While the United States is reporting the sharpest economic contraction in seven years, this statement is likely quoted to throw you off the economic trail that this is the worst economic fallout in a century. Why? It makes no sense to quote such a fact when the rest of the world is reeling with fear and trepidation with a full factual account. We are still on the front side of the hurricane as it comes into shore.

U.S. business collateral damage is being reported as U.S. citizen bail out of making major purchases and cut back on spending in an effort to avoid the plight of shrinking prosperity. Business have been hit hard by consumer cutbacks and lack of credit. Huge job losses have the nation staggering as confidence wanes. The talk of fiscal stimulus is in the air, now a constant topic in U.S. Congressional hearings. Strangely, many bankers, notably on Wall Street are still trying to issue bonuses to commissioned employees despite record losses and major taxpayer bailouts.

One bright light in the eyes of many is huge cash infusion and enlargement of central banking swap lines. This is seen as relieving the stress of frozen interbank lending even though this has not been thoroughly proved. U.S. bankers of any size have been notoriously resistant to anything but their own interests as they seek government guarantees for every aspect of their businesses. The other down side is the deflationary havoc that this will ultimately play on the dollar in the long term. However, short-term stability is main concern of most parties across the globe.

The International Monetary Fund has become the latest scorekeeping organization for tracking the plight of foreign and emerging economies in crisis. In any event, the news is overwhelmingly bad. While the news is mostly bad, it isn’t bad for everyone. Economic damage from the recession has slowed global growth, but has strengthened the dollar, allowing for a temporary export blitz for many capital goods like in the aviation industry. This temporary bonus can’t last, but is the lone bright spot in business on the U.S. horizon. The United States has once again become a global store house for many investors that need the feeling of safety.

The world certainly isn’t over, but Americans and other economies are going to have to reduce their expectations and living standards for some time while everyone waits for the cyclical upturn. Unfortunately, we are still seeing downturns in most markets, notably in the housing industry as nearly 2700 homes are day are foreclosed by U.S. bankers. This is putting a huge strain on the housing market and the U.S. economy. For the first time in history, the U.S. government has seen fit to bail out everyone but the American people. In the past, the American people were the ONLY recipients of U.S. economic bailouts.

The banking criminals that brought this debacle about are hanging in the dark shadows, hoping that the massive crisis will render them bulletproof as far as criminal prosecution is concerned. Unfortunately, ignorance continues to rear its ugly head. Government, business and the people are so overwhelmed, they really can’t see the forest for the trees. Whether the nation has the will to punish for past conduct as well as protect against future conduct of abusive practices remains to be seen. It is clear that the world cannot afford another financial debacle like this again. Politicians are looking to the upcoming Summit for answers and ideas. Have no doubt that security is on the minds of most politicians and global citizens. Decisions will be made with that in mind.
~ E. Manning

September 8, 2008

Billions Lost: Bailing Out U.S. Mortgages

The Freddie Mac and Fannie Mae bailout has effectively destroyed the paper value of all investments in those institutions, effectively cleaning the slate in a modified sort of bankruptcy for the mortgage twins as the federal government steps in. Billions of dollars have been lost by the banking community that was invested through common and preferred stock. The mouthpiece and supporter of the federal government, the Federal Reserve, points out hopefully that only some smaller banking institutions have stock holdings that threaten their existence.

With that in mind, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision are prepared to work with these institutions to develop capital-restoration plans to keep the system operating. The Federal Reserve will buy the stock holdings at fair market value before the bail out. The banks holding the stock must report holdings as available for sale and deducted from bank capital to complete the bailout.

In the minds of politicians and bankers, due diligence has been done. However, confidence will likely be shaken on many levels and a stock market effect is likely to be seen in a big way tomorrow as the economy adjusts to the new emotional and fiscal reality. How to restore confidence?

To make the boo-boo all better the Federal Reserve and Ben Bernanke has stepped up to the financial altar to make the following statement:

“I strongly endorse both the decision by FHFA Director Lockhart to place Fannie Mae and Freddie Mac into conservatorship and the actions taken by Treasury Secretary Paulson to ensure the financial soundness of those two companies. These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets. I also welcome the introduction of the Treasury’s new purchase facility for mortgage-backed securities, which will provide critical support for mortgage markets in this period of unusual credit-market uncertainty.”

The appearance is that the “Treasury’s new purchase facility” will be through the Federal Reserve. Whether that is the ultimate truth or not, the Federal Reserve will finance it because the United States doesn’t have the cash or credit for the bailout. The federal government is bailing out Fannie Mae and Freddie Mac as well as the bankers that have invested. The taxpayer is securing all the debt for the bailout which has been predicted to run up as high as $65 billion. That is likely a conservative figure to bail out the entire mortgage and banking system. Authorities claim that the U.S. taxpayer will profit from the move. The word profit can be used in a number of ways. Doubtless, the American taxpayer will profit in regards to the current status quo. The public will be much more comfortable with the lastest plans versus total collapse of the economy because of a failed banking system. The future success of the nation depends on the future success of Fannie Mae and Freddie Mac. Too bad they didn’t see fit to rename the companies with a clean sweep, but perhaps that move was considered as too bold. 

The interesting truth is that a temporary effect of the bailout is likely to be instability rather than stability based on the old demon of fear and lack of confidence. Later today we will discover the pulse of the nation. ~ E. Manning

August 25, 2008

Are You Better Off This Millenium?

Media pundits, in any economic times often present the idea that it doesn’t matter how the economy is doing, but how well you are doing. This is an especially potent question during this election year as Americans prepare to vote their conscience for the next 4 years of public and political policy.

Most people consider the foundation of economic well-being as their job. While this aspect of life puts food into your mouth and determines what kind of car that you buy or the size and beauty of the house you live in, a job is probably not a realistic determination of where you truly stand in the economic world.

Most people consider income as the ultimate measure of economic success. You may have seen your wages remain flat over the years. Does your money go as far as it used to even if you do make more? Wage stagnation has been a national problem for years.

The crumbling housing market is at the root of much of America’s current economic instability. Despite declines in value, most homes at this point and time are still worth more than they were at the turn of the millennium. How has your asset value fared?

What about your net worth? Have you managed to put away money for the future or are you stuck in an endless cycle on the treadmill of debt? How you feel about your life probably hinges in large measure on a combination of all these sentiments. What is the reality?

Inflation is what determines the real value of all these measures and sentiments. Inflation is a silent robber that you don’t always see and yet is responsible for a large measure of any financial issue that comes along, whether accidental or intentional.

Inflation is often understood to mean a rise in the general level of prices of goods and services over time in any given economy. Inflation is much more. Inflation also refers to the increase of the money supply without the increase of monetary value or devaluation of currency.

We’ve grown fond of referring to the inflation as a beautifully small number such as 3%. At this level, inflation seems well-controlled and quite harmless. However, the grand scheming lie is that inflation is a low as it is. While inflation figures are computed monthly and change constantly, monthly figures, often average over time are the figures that are used for public consumption.

You only need to visit a place like inflationdata to begin to understand inflation’s effect on your finances in the grand payment plan of life. We have been taught to understand that common statistics are somehow an average of economic forces for the month, magically balanced for the year at a certain point and time. The reality is very different. Inflation is always portrayed as low and controlled.

The reality is that modern financing is built on monthly estimates to make the appearance of costs appear lower. Take the figure presented for any month as a reduction in your income for that given month. In theory, if the rate could stay the same, you would multiply that rate by 12 (for the number of months in a year) to get your inflation rate for the year. Whatever that yearly inflation rate is the amount of loss in your real spending power. That is the brutal truth.

Business may create new ways to lower costs, for example, by sending work overseas to make less expensive products and thus fueling other economies. When money leaves a regional economy, that money further devalues the currency you are using. Inflation is a fool’s game. Ultimately, whether costs are immediately higher or not, you will come to suspect that your money isn’t going as far, even if you spend conservatively.

Economists and government statisticians are constantly jiggering with how inflation is computed and creating new ways to make inflation appear low or non-existent. The myth of 3% inflation is just that: a myth promoted by the Federal Reserve Bank and global central bankers.

Next time you ask the question as to whether you are better off, you now know the correct answer. As long as bankers run the world using the current standards, including fractional-reserve banking, you cannot be better off unless you beat the real inflation rate. In the workaday world of a 9-to-5 working joe, that is a virtually impossible task. Only creative investors and business entrepreneurs can hope to beat the devaluation of currency after the onslaught of taxes, fees, labor costs and overhead. Even they still lose over time. Devaluing currency is a no-win situation over the long haul. Perhaps now you can appreciate the desperation of investors to beat the system and bankers to devalue your currency to make more money for themselves, while putting a smiley-face on the inflation rate as the value of your money drops.

~ E. Manning

August 18, 2008

Will Global Confidence Cause a Chain Reaction?

Just a few weeks ago, U.S. Treasury Secretary Henry Paulson held that a bailout of Fannie Mae and Freddie Mac to be highly improbable, if not impossible. Now there is talk that an extraordinary Treasury capital infusion may be needed to restore faltering foreign demand for debt issued by Fannie Mae and Freddie Mac. The mortgage twins are the nation’s two top home funding sources that the government is willing to rescue to save the U.S. housing market.

Foreign central banks have dumped nearly $11 billion from the holdings of the “mortgage twins” in the last four weeks. They don’t plan to reinvest in force until the U.S. government is clear when it will back Fannie Mae and Freddie Mac.

Investors and foreign central banks may be concerned, but the reality of a bailout is academic. The entire fabric of the U.S. housing industry depends on the continued functioning of the mortgage twins. Unless foreign bankers and the Fed expect to pull out on their support of the U.S. economy, such paranoia is largely unwarranted. Obviously, the real concern for central banks is the value of the securities that the foreign bankers hold. Devalued securities diminish their investments; hence, their power. Monetary value has really come to be all about appearance and confidence. Central bankers won’t be caught holding any empty sacks in the name of tacit support. They are part of a chain reaction.

Mortgage bonds are trading poorly while investors wait for good news on Fannie and Freddie capital. Meanwhile, U.S. mortgage rates have climbed to their highest levels in a year in reaction to the contracting housing market. Both are part of a chain reaction.

Investors are momentarily in a mood of increasing nervousness about the global economy, with deteriorating growth in the United States, Europe and Japan now beginning to bite into “emerging markets.” There is a growing belief among investors that the world economy in general is at risk, and with it the emerging markets that have been a powerhouse of growth and investment gain over the past few years. The emerging markets cannot and do not stand on their own. At this stage of development, they are step-children of larger marketplace that isn’t all that sound to begin with. Investors are always ready to be nervous, especially in a time of volatility. They can be and usually are part a wild card in the chain reaction.

Oil commodities, which were up and making the world nervous are now down, making the world nervous. It would seem that the world is simply nervous and using oil as an excuse. Previously, oil was a great profit hedge. When the U.S. started openly discussing releasing a large portion of the Strategic Petroleum Reserve on the open market, investors backed off from the heady world of oil commodities. Naturally, they are taking it slow. Nobody wants to rock the boat too hard. This is part of the chain reaction.

Inflation is up, which has been blamed on Big Oil or at least on commodity futures through investment banks. Which came first, the chicken or the egg? While this topic is open for debate, global inflation is up after inflationary pressures shot up in the U.S. and the Middle East from overheated greenbacks. That doesn’t look to get better anytime soon, especially as long as the U.S. keeps stealing money from the taxpayers vis a vis the Federal Reserve. This is part of the chain reaction.

Global banker’s incessant worrying over their central bank interest rate is nonsense. Rates are so low as to have little effect in the real world. Commercial bankers are profiteering from borrowed central banking money as well as keeping their leaky banks afloat during this rough period. This is part of the chain reaction.

The single bright sector in banking remains in Islamic banking with a very different set of rules that bankers have yet to learn to exploit to full potential. In their worry, investors will look at this new hot market in hopes of developing new means of prosperity, which will likely mean a rise in power in Muslim nations. That is enough to worry many political persuasions worldwide as politics feeds into the monetary system. That is part of the chain reaction.

As economists, politicians, bankers, analysts and writers, we are always looking for an excuse, rationalization or explanation to meet a mindset. While most economists would tell you otherwise, it is not science, but rather a facet of human behavior. As such, economics enjoys the same ups and downs as human life does. That is part of the chain reaction.

August 10, 2008

Banks Eat Billions; Credit Crunch Expands

paranoid banking firms gamble on their importance

paranoid banking firms gamble on their importance

The Securities and Exchange Commission stepped in and decided that auction-rate securities have been improperly sold to the public. They haven’t said much else as they carefully watch over the fold of now paranoid bankers. Investment bankers have plenty of egg on their face with punitive action in the immediate future by the Feds.

Citigroup and Merrill Lynch have decided to buy back billions of dollars of securities without admitting liability officially because of state regulator pressure. Bank of America and Countrywide are firmly ensconced in trouble. Swiss giant UBS is in the throes of negotiating a payout that could be in the 25 billion dollar region. As private citizens and investors, we know the reality of the situation. Bankers have tried to play us for fools for the almighty dollar and perhaps investors bit off too much, too soon in the haste for profit.

In theory, when times get better larger investors and even banks should be able to sell off the securities once the markets ease and there’s more credit in the system. That is the public line, but the truth is probably altogether different. Selling off investments with major liquidity issues is a big maybe considering the quantity of these beleaguered banking instruments. Following the aftermath of the subprime mortgage debacle, this is yet another blow to the reputation of investment banks, who may struggle to sell such “sweet deals” in future times even at fire sale prices.

British banks are taking huge hits as a result of the credit crunch with increased pressure to perform for stockholders. Lloyds, Halifax and Alliance & Leicester have been fairly decimated profit-wise. Now RBS and Barclays are taking turns with profit thrashing. British banks haven’t found the credit crunch much easier than U.S. banks. Housing prices continue to drop in the U.S. and the United Kingdom. Foreclosures are a uniform blight in both economies while bankers and economies struggle to adjust. The U.S. market has lost nearly a million homes to foreclosure with more on the way: the worst since the Great Depression.

August 4, 2008

U.S.: What Banking Fraud Means to Depositors

There have been a number of bank failures and the recent accumulation is increasing in pace. The FDIC sees many bank failures down the road. If you are uncertain why banks should fail, you are at the right place. “Busted: Bankers” highlights corruption and fraud in the global banking industry without the restrictions of mainstream media and politics.

The public word is that regulators are bracing for 100-200 bank failures over the next 12-24 months. If the FDIC is anywhere near right, the United States has what could be considered to be an alarming increase in the number of U.S. commercial bank failures. This debacle, despite props from the Federal Reserve, has been caused by creative banking instruments and outright fraudulent activities in the name of profits for bankers and investors. The resulting contraction of the housing market and credit squeeze on a global basis are of their making, a hefty portion at taxpayer expense.

FDIC insurance is the ultimate standard for protecting the assets of banking depositors in the United States. The FDIC has raised their mandatory banking insurance rates to cover the expected expense of bailout. The government claims that the FDIC has ample resources. While this reality is debatable if several shoes drop at once, the U.S. federal government backs the FDIC. Deposits that meet requirements under the $100,000 account limit are fully protected, as good as the government that backs them.

How do you protect your money and keep that money in a safe bank? To begin, always look for the FDIC logo at your bank branch. If you are using online services or a bank, look for the logo as well. However, don’t assume that the FDIC label is accurate in the name of safety and healthy skepticism.

Simply go to the fdic.gov and locate “bank find“. In this way, you can be certain that the bank that you selected is FDIC insured. The FDIC also has a list of bank rating agencies on its Web site that can evaluate the financial stability of a bank. To get a free evaluation, check out bankrate.com, remembering where your loyalty lies. Banking information is generally set up to secure confidence. The information you are given is designed to that end. However, regardless of bank strength, FDIC insurance will secure compliant deposits. That is what you really need to know about.

As an individual, personal deposits are insured up to $100,000 in an FDIC-insured institution, including savings, checking, certificates of deposit and money market accounts. This assumes that your accounts are non-brokered. When you register with the bank directly, make sure that your deposits are non-brokered and will reside with the institution instead of being handled by a third-party. This will ensure your financial safety.

While banking fraud has meant plenty as far as creating a troubled economy, as a depositor, you are fully protected with FDIC insurance. The protection is as good as the government protection that is trusted in, which in essence, comes straight out of taxpayer pockets. Bank runs and panic aren’t a necessary part of your reactions.

In the meantime, investing and spending with a certain amount of prudence is importance. If you are involved in large financial transactions, plan ahead without waiting until the last moment. Some depositors with IndyMac put off dealing with large transactions until the last moment, putting a financial kink in meeting their obligations. The problems could have been prevented by securing a cashier’s check a few days ahead instead of at the last minute. A good rule of thumb is to avoid putting off anything that you can do today, especially where your financial life is concerned. ~ E. Manning

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