Busted: Bankers and The Global Economy

September 10, 2008

Is U.S. Mortgage Banking a House of Cards?

U.S. Senator Richard Shelby testified that U.S. Treasury officials found Fannie Mae and Freddie Mac were “playing games with their accounting'” to meet reserve requirements. This virtually guaranteed that the federal government would seize control of the government-backed companies once a comprehensive plan was developed. “Once they got someone looking closely at Fannie and Freddie’s books, they realized there just wasn’t adequate capital there.”

Digital Economy has held that accounting games are very common within the banking and mortgage industry. Public proof of this facts regarding predatory loans, highly questionable and illegal actions across the board relating to mortgage loans and instruments. The nation has learned that bankers cannot be trusted and yet little has been done to persuade the industry to stay away from graft and corruption.

What is worse with Fannie and Freddie, nothing is being done to those that falsified information and documentation because those actions are “legal.” In fact, the federal government has changed nothing beyond eliminating the upper crust of management. They still intend to involve themselves in the dangerous business of selling mortgage bond securities without considering previous consequences that has brought the nation to its knees. The unprofessional and dishonest conduct is considered as business as usual.

Fannie Mae and Freddie Mac have been a house of cards for years. Corruption and mismanagement within the organizations has been overlooked and rubber stamped in the name of protecting the economy and reputations. FHFA Director James Lockhart had declared Fannie and Freddie as fit just before the U.S. Treasury hired Morgan Stanley. Morgan Stanley has decided that the accounting tricks were legal, but simply allowed the mortgage twins to overstate their reserves.

Richard Fisher of the Dallas Federal Reserve noted that the capital held by the government-backed institutions was “of poor quality.” Where is the national outrage? When are spineless accountants going to stand up for right instead of creating new ways to cheat the system? Who is responsible and accountable for the corporate abuse of taxpayer money and developing methods that resulted in the unraveling of the economy for the short-term profit of a system of investors and mortgage bankers? Not a soul except for you. You are the taxpayer. You are on the hook, enslaved by the greed, incompetence and spinelessness of the people within “the system.”

This writer came from this culture and because of the abuse and attitudes in the system, retired from it. Instead ivy leaguers and young boss-pleasers without regard for balanced or honest accounting simply follow the rules put out by “mysterious forces.” If 911, overzealous government surveillance and the price of fuel is a national security issue, surely this abuse trumps them all. The tragedy is that you don’t really care. ~ E. Manning

September 9, 2008

Investor Confidence: History of Short Rallies

Since the current mortgage crisis has been officially publicly documented around July of 2007, investor profitaking has barraged the stock market under the pretense of confidence after each bailout. Each time the bailout grows larger. The market scores big gains followed by a drop “as reality takes hold.” The media circus and investors appeared to rejoice upon the bailout of Fannie Mae and Freddie Mac, but the joy has proved to be short-lived.

bailout fever

bailout fever

The federal government seems to enjoy playing the same game, now using Sundays as a day of economic rescue and salvation. Traders are in agony as they mourn the loss of another fall downward in the markets. Why can’t we just get the problems over with so we can get back to making money like we used to? That is the essence of Wall Street’s attitude about the economy, an attitude of frustration. These self-centered expressions are expected in a market that has no moral compass beyond profit.

investor dunce award

investor dunce award

Self-absorbed traders and profiteers shouldn’t need to ask. The bailout of Fannie and Freddie, like the bailout of Bear Stearns has prevented a complete meltdown of the economy, certainly saving the plight of every investor from the jaws of bankruptcy today. Considering the short-term mentality of investors, the bailout is good when you consider that investors can come to play another day.

~ E. Manning

September 5, 2008

FDIC: Dismal Banking and Another Failure

As you’ve probably heard by now, industry results for banking in the second quarter were pretty dismal. The results were not surprising as the industry coped with financial market disruptions, the housing slump, worsening economic conditions, and the overall downturn in the credit cycle.

The main reasons for the drop off are the same that we’ve been seeing since the second half of last year:

declining non-interest income,
rising non-interest expense,
decrease in gains on securities sales,
and mounting loss provisions.

The eleventh bank failure of the year came into play with Silver State Bank of Henderson, Nevada. What is the problem with banking? Mainly liquidity. That is often an elusive problem for banks with abused balance sheets and a nation full of securitized bonds that are pretty much worthless.

September 3, 2008

A New Banking Crisis for Britain and Europe?

British bankers have began to hoarde their reserves and have become reluctant to engage in the usual interbank lending process that commercial banking enjoys daily. The resulting freeze in liquidity and tightening of credit that will shortly result is reminiscent of the reaction of U.S. bankers during the initial stages of the U.S. mortgage and credit crisis before the Federal Reserve Auction was created.

Apparently, the pressure from bad securitized mortgage bonds continues to rack the United Kingdom bankers. As a result fearful bankers simply shut down the process of usual banking trust, freezing the free exchange of capital that the modern world has grown accustomed to.

In April, the Bank of England offered to take on shaky mortgage-backed bonds in an effort to liquify the frozen banking system. This effort has not worked. Bankers are instead working to prop up their own internal banking instead of dealing with the larger marketplace, another reaction similar to U.S. bankers.

The liquidity freeze points to the distinct possibility of more banking failures in the UK similar to Northern Rock, in which the British government nationalized the debt. Lack of confidence is once again becoming the buzz word in British banking as fears mount. Fears in the commercial banking community are showing their reflections once again as a global financial slowdown or recession looms. ~ E. Manning

August 22, 2008

The National Deficit Time Bomb

national security time bomb

national security time bomb

Discussion of the U.S. national debt is reasonably prominent on this website and is core to what is often discussed. Recently, Warren Buffet, famed trader extraordinaire has taken some of the spotlight to warn about the excesses and pitfalls of the U.S. national debt that continues to build unabated.

If the U.S. doesn’t move quickly to tame the federal government’s debts, the idea is that the nation will enslave coming generations with economic problems that make this bad year in economic finance look very rosy indeed. Warren Buffet and Pete Peterson are fielding the idea that the national deficit matters this election year. It does, but do the politicians and the nation of people realize it?

Tops in the discussion and recent advertising for the documentary movie “I.O.U.S.A.” is the idea that the United States will continue to be enslaved for future generations to debt that we are creating now. Buffet, Peterson and many others are considering not only the huge $10 trillion dollar national debt, but the projected needs for a soon bankrupt Medicare and Social Security system that threaten to swallow up the system that Congress built. When the additional debt is considered, the U.S. is looking at a national deficit of more than $50 trillion. Keep in mind that this is the future and whether these brilliant money mongers say so or not, is not indefinitely sustainable.

This writer, from all my vast experience in corporate finance and economics, says that the United States doesn’t have the time to indulge in fantasy-land thinking. The future of the nation as the United States is actually at stake now and the crossroads of no return is somewhere in the immediate future. A nation of people cannot continually spend more than they make and put off paying for today tomorrow, while sending huge quantities of economic resources overseas. The International Society of Bankers, at some point and time are going to cut off the “worthless, self-destructive” attitudes that Americans insist on bathing their collective lives in, politicians included. This nation is quickly running out of the clout and the economic strength that it needs to continue to garner the interest and affection of global bankers, the holders of all the credit based on the money system that has been developed. The United States is bleeding itself to death as politicians and business continue the carnage for their own empowerment.

“Our situation is a lot worse than advertised, and we need to start making some tough choices if we want our future to be better than our past,” announced former U.S. Comptroller David Walker. Mr. Walker, the bottom line is that the nation doesn’t have a future if politicians and business interests don’t take notice of the impending crisis. They are too busy dealing with their own self-absorbed ideas and plans for profit. In essence, the people that you are listening to in the documentary “I.O.U.S.A.” are the very ones that had a role in bringing this financial crisis about.

Naturally, the knowledgeable know that the national debt has mushroomed like a nuclear cloud since George Bush took office, which has been in the last eight years. Before that, we screamed about the national debt without realizing what would be cast upon us by reckless politicians in the new millennium. Republican “cost-cutting” and “low taxation” are a myth because politicians have become something other than what they represent themselves to be. The definition of party politics has become a definition bordering on meaninglessness for most of the lawmakers that America continues to appoint. Politicians have denuded the U.S. economic and financial landscape for the appearance of power and the personal interests for the short term with the idea that the United States of America is a “forever deal”.

Walker and the movie cite government figures that show the U.S. government owed roughly $53 trillion more than it had at the end of the 2007 fiscal year. According to the documentary promoters $11 trillion of that debt covers the publicly traded government debt, the amount the federal government owes to employee pensions and the cost of environmental cleanup of federal land. The rest of the $53 trillion figure accounts for projected shortfalls in Medicare and Social Security.

Dealing with such luxuries as land cleanup and the future of health care and retirement won’t matter if the nation spends itself into oblivion and poverty. Even pensions, government guarantees and publicly traded debt won’t matter if politicians don’t get a grasp on some of the realities of what they are doing. The finances of the federal government of the United States threaten the nation more than any subprime mortgage crisis. The mortgage and housing crisis is merely a prelude to an economic house of cards.

Dollar devaluation is in the now and in the future in a very real way as the Federal Reserve continues to serve its’ ailing and senile patient, the U.S. economy. The Federal Reserve is one of many leeches that hang on the national economy, draining it of its lifeblood and purpose. This election year may rank as among the most important in this country, but for all the “wrong” reasons and the people of the country don’t fully realize it. Perhaps the movie “I.O.U.S.A.” can have a profound effect if enough citizens take interest and are willing to demand accountability and change. It won’t be easy. Whether the nation will survive depends on the resolve of the people and their determination to force the current attitudinal corruption out of politics. The problem remains that most Americans live in a very self-absorbed world of their own making, refusing to deal with anything other than what immediately affects them. That is the national Achilles heel. This is a national security issue larger than any war could ever be.

Powers come and go. Like Rome that preceded us and every power before and since, nations rise and fall. Our failures are due to our own corruption and selfishness.

~ E. Manning

August 21, 2008

Wages in America: Faking Lifestyle

web of deception

wages: web of deception

The concept of wage stagnation is in the news once again even though the economic blight is a mere 35 to 40 years old. The media and economic bean counters are curiously worried about the “standard of living bubble.” Imagine the idea that this news at all. Most Americans, except during times of heady expansion in certain markets, have been fully aware of the concept as jobs head out of the American economy in droves because of corporate multinationals and careless politics. For years, the idea was that you could beat wage stagnation with a well-heeled education, but reality has proved that this idea is no longer true if it ever really was.

Americans and other high-faluting nations have been loading up on credit for years to bolster the appearance of bettering the Joneses next door. The contracting market cut into that fantasy for many credit afficianados. Now the contracting job market, which in reality has been imploding in the United States for some time is hampering the ability of Americans to cope with lifestyle choices.

If that prospect wasn’t enough, now Americans risk losing the ability to use their precious credit cards because contracting credit markets threaten to limit access of credit cards to many participants. The entire economy of the United States seems to be facing a reality check where fiscal relevance is concerned.

credit is good for America

credit is good for America

The media has suddenly cooked up the idea that inflation has been increasing more rapidly than pay increases, which goes against what the U.S. government has preached for decades. A modest 3 percent raise in pay was supposed to cover the national inflation rate. The reality from the 80’s to 2006 shows a ten percent yearly-averaged inflation rate. Using these humble and easily accessible figures, no fool would admit that wages have kept pace, even if those wages were not stagnant. The term stagnant is relative, depending on how you want to justify the term.

The cold reality that we all know is that we have supported our lifestyle dreams on credit. We lost the incentive to save, which we have lost anyway due to the monster of inflation. Saving a few dollars now with a regular inflation loss means a dollar saved is a dollar lost, just a little slower over time. The endless printing of American greenbacks combined with a burgeoning national debt has ensured that a dollar saved ten years ago is worth zero today. Any interest gained on that dollar is worth very little unless you were able to invest that dollar to somehow create more. When viewed in reality, inflation is really a hungry bear. The working man has been royally and cruelly worked over, even though the government has denied the reality all along.

semantics in wealth perception

semantics in wealth perception

Since the mortgage debacle and the contracting real estate market has hit the economy (not pointing fingers today), Americans have embraced the last source of easy money to keep up their lifestyle or to avoid the reality of bankruptcy from relentless spending.

Americans aren’t ones to be told no when it comes to lifestyle. According to bean counters, credit card debt is growing much faster than the economy as Americans use credit cards with interest rates as high as 30% as a substitute for income. Last year, use of credit card increased around 7% each quarter. That is a 28% increase in an attempt to sustain economic lifestyle. Last May reported an increase of credit card use of 7%. If that were to continue for 12 months, the humble increase is a mere 84%. Obviously, this economic miracle is not sustainable.

A big crush is coming, but not just because you can’t pay your credit card bill. Banks are “securitizing” everything including your beautiful credit card debt to be sold off to eager desperate investors, at least bankers hope. Citigroup alone lost $176 million through securitized bonds for credit cards in the last quarter. Sweet. Delinquency rates devalue the securitized bonds, forcing a writedown in value.

Since banks can’t sell of all that glorious credit card debt, banks are going to make customers pay more for the privilege of easy money resulting in less easy money and a contracting credit market over time because creative money creation is not working to the advantage of wiley bankers.

Where America will turn next is anyone’s guess. Barring black market prices for selling off children as collateral, Americans may be faced with the joys of living within their means. The good news behind all of this drama is not the perceived pain. Contraction of any marketplace is a mixed blessing. Billions will be lost and millions of Americans will see hard times, but in the end everyone is a winner because, at least in theory, the marketplace achieves a value balance. America has needed a long-awaited correction that politicians are deathly afraid of. Market contraction means that prices and everything that is assigned a dollar value decreases in relative cost. The exception to that blessing is the specter of devaluation or the possibility of hyperinflation due to stagflation. That however, is another story. ~ E. Manning

August 14, 2008

American Households Face Financial Headwinds

Americans survived the attack of Hurricane Katrina and much of the nation felt the effects for years. What Americans are going now is not a hurricane or strong storm winds, but headwinds of a financial nature brought about by a number of converging factors. If you pick up the paper or look at the internet, you can hardly avoid the headlines and the details of economic carnage.

financing prosperity
financing prosperity

Aside from the banking and mortgage crisis, automakers are on top of the economic worry list, facing a continual onslaught of sliding auto sales as Americans can no longer afford to finance overpriced vehicles. Instead, many Americans out of necessity are keeping what they already drive. That is life in America today in the current economic cycle of life.

Gasoline prices have brought about hardship and fueled inflationary pressures for the nation and the world. Complaining sources indicate that retail sales have fallen again after downward pressure from lack of taxpayer stimulus payments. All of that bad news is presented with the auto industry, which is pulling down retail sales figures. Indications were that stimulus payments received by Americans did what they were designed to do, but never enough for the longing imaginations of business. Were it not for autos, retail sales would be up .4 percent, comparable to the month before. The nation has seen gains in retail since February for small ticket items, a bright spot despite the bleak outlook. The majority of Americans are buying smaller purchases for disposable items. Devalued money only goes so far and consumers are stretching it to the max.

retailer desperation
retailer desperation

Retailers are once again grousing about less than perfect sales as back-to-school shopping hits the retail scales. This reality reflects the desperate nature of retailers. Business inventories are overstocked, even despite negative forecasts, business chose to invest in stock for sales in the hope for a better holiday. They choose to talk about the cautious consumer, further enforcing a negative business mindset by downplaying the prosperity they have. The reality is that business is counting on the Holiday Season to somehow pull them through into a pinnacle of victory that rarely comes. They talk the same games every year. Talking business down even when business is up is not the way to foster prosperity.

Enough with the auto industry and consumer financing schemes! Americans don’t need all that now. This writer has made certain that he is on a spending vacation. Many others are in the same reality, whether out of necessity or self-imposed discipline. Americans need to regroup and explore the economic world they live in for any advantage that they can find to keep them moving forward. The nation is catching its collective breath after a financial burnout. The nation cannot continue to finance away the future for the moment nor continue to give money away. Money is our blood, sweat and tears: the building blocks of life. Bankers and Americans alike must face the facts. We are at a new place in the business cycle and in life.

If we stop grousing about how bad things are when they are not Mr. Retailer, we can actually enjoy what we have. Prosperity is relative. Unfortunately, Retail America has outrageous expectations and government statisticians are ever hopeful of a tax windfall, yet eternally unsatisfied that they can’t fleece their victims more effectively to bolster government agendas with more give-away programs.

big ticket greed

big ticket greed

Hope springs eternal in government to squirm away from the worst slump in housing in many decades and a severe credit crunch from pushing the country into a deep recession, ignoring the fact that we didn’t get here as a nation simply as part of an economic cycle or downturn. Bankers and financiers brought us here, fare and square to this place in the road and aside from a few unscrupulous home buyers, Americans are victims from lack of banking regulation and integrity, endless profiteering through investment vehicles combined with government inattention, always hoping for better on the gravy train of tomorrow. The nation has been firmly addicted to credit and keeping up with the Joneses. This part of the cycle is payment for that.

It time for a new chapter in America including rethinking what we do for a better future, inflation aside. Todays sales figures will ultimately take care of themselves as the nation rebalances from a huge economic and worldwide debacle perpetrated through boundless greed and financed through predatory lending across the board by winners like GMC, Capital One and Countrywide. Financial predators have abounded.

What the nation does will either slow down the cycle of recovery or get it over with faster. The decision is up to America, partly grounded in our own attitudes. As a retired financial analyst and economist, I know the difference between economic theory and reality. I’ve lived it in the trenches. This writer is for getting the economic pain over with instead of prolonging the pain through more addictive medication. ~ E. Manning

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