Tag: banks

The Washington Post finally notices that there might be a little problem in the housing market:

Senior Obama administration officials said Friday that a nationwide moratorium on foreclosure sales may be inevitable, despite their grave reservations about the impact a broad freeze would have on the nation’s housing market and economic recovery…. With foreclosed properties comprising one in every four homes sold in the United States, the spreading moratorium could disrupt real estate deals in progress, slow down the process of clearing the backlog of troubled home loans and prolong the economic recovery, analysts said.

A freeze would also strike at the financial sector, just two years after it suffered one of the worst crises in its history. One government official who has been in discussions with several big financial firms said the banks are bracing themselves for a wave of lawsuits from homeowners who are fighting to keep their homes and from investors who had bought mortgage loans on Wall Street. On Friday, while the Dow Jones industrial average crossed 11,000, most major bank stocks fell.

Translation: Senior Obama administration officials said Friday that a nationwide moratorium on foreclosure salesallowing the big insolvent banks to go bankrupt may be inevitable, despite their grave reservations about the impact a broad freezefailure to enact a second banking bailout would have on the nation’s housing market and economic recoverydepression.

Yesterday’s post about the 13.3% decline in bank credit didn’t really do proper justice to the seriousness of the situation. One also has to factor in the historical 8.4% annual increase in bank credit. This means that there is presently a $2.2 trillion gap between the current credit supply and the $8.477 trillion in credit that a nominally healthy economy would have at the end of 2010.

That is the gap that the massive increase in Federal outlays are attempting to fill. In other words, the magnitude of the problem isn’t defined by a 13.3% decline from where we were, but rather, the 25.8% shortfall from where we should be.

At least, the biggest fraud exposed to date. And I have no doubt there will be more. Notice that as I concluded in yesterday’s column, it is the states, not the Feds, who are leading the charge on this:

The Texas Attorney General’s office called for a halt on all foreclosures today amid widespread scrutiny over the way foreclosures are processed nationwide. Notices to suspend foreclosures were sent to 27 loan servicers doing business in Texas, including Bank of America and JPMorgan Chase & Co

Here’s hoping that they follow up with the appropriate prosecutions. Not only of the bankers, but their regulatory enablers such as Ben Bernanke and Tim Geithner as well.

UPDATE: In which we are given a lesson in how the defenders of the banks are going to play this one:

“Judge Jack S. Cox of the 15th Judicial Circuit ruled that Attorney General Bill McCollum lacked standing to file his subpoena against Shapiro & Fishman law firm of Boca Raton, effectively blocking an investigation of that firm’s foreclosure practices.”

Notice what was ruled here – a Judge ruled that consumer protection laws do not apply if the person defrauding you is an attorney.

The Law of Rule is at work again. It’s become increasingly apparent how the courts are utilizing that “no standing” concept in order to throw out damaging lawsuits that threaten the favored classes. No doubt some court will discover that the laws don’t apply if the corporation defrauding you is a bank.

Citi’s chief economist takes the concept of financial insanity to new heights:

To restore monetary policy effectiveness in a low interest rate environment when confronted with deflationary or contractionary shocks, it is necessary to get rid of the zlb completely. This can be done in three ways: abolishing currency, taxing currency and ending the fixed exchange rate between currency and bank reserves with the Fed. All three are unorthodox. The third is unorthodox and innovative. All three are conceptually simple. The first and third are administratively easy to implement.

The first method does away with currency completely. This has the additional benefit of inconveniencing the main users of currency—operators in the grey, black and outright criminal economies. Adequate substitutes for the legitimate uses of currency, on which positive or negative interest could be paid, are available.

The second approach, proposed by Gesell, is to tax currency by making it subject to an expiration date. Currency would have to be “stamped” periodically by the Fed to keep it current. When done so, interest (positive or negative) is received or paid.

The third method ends the fixed exchange rate (set at one) between dollar deposits with the Fed (reserves) and dollar bills. There could be a currency reform first. All existing dollar bills and coin would be converted by a certain date and at a fixed exchange rate into a new currency called, say, the rallod. Reserves at the Fed would continue to be denominated in dollars. As long as the Federal Funds target rate is positive or zero, the Fed would maintain the fixed exchange rate between the dollar and the rallod.

This helps explain why gold prices have remained so strong despite declining debt and the deflationary environment. The one scenario that makes sense for the price of gold to continue to rise despite deflation (an increase in the value of money due to a decrease in the available supply of it) is if the “store of value” aspect of that money is increasingly under threat. Gold prices rising during deflation indicates that the increasing value of gold as denominated in non-gold goods and services is rising faster than the increasing value of money is rising against them, which is basically what we have been observing for the last two years.

All three of these Citi-endorsed suggestions go significantly beyond the Helicopter Ben’s conventional Keynesian lunacy. It wouldn’t only destroy the global economy, but as Mike Shedlock points out, it wouldn’t even accomplish the increase in credit that the banks are attempting to create in the first place. Implementing any of these three measures, but especially the first, would be rather like burning down the house to collect on fire insurance when you haven’t bothered with the minor step of taking out an insurance policy on the place first.

So this proposal to abolish currency should eliminate any last vestiges of doubt that the banks are a) insane with greed, b) incompetent, and c) totally uninterested in the well-being of the rest of the country. It seems increasingly obvious that abolishing the banking industry would be a much better idea.

In AFGHANISTAN?

As depositors thronged branches of Afghanistan’s biggest bank, Mahmoud Karzai, the brother of the Afghan president and a major shareholder in beleaguered Kabul Bank called on Thursday for intervention by the United States to head off a financial meltdown.

“America should do something,” said Karzai in a telephone interview, suggesting that the U.S. Treasury Department guarantee the funds of Kabul Bank’s clients, who number about a million and have more than a billion dollars on deposits with the bank.

Kabul Bank handles salary payments for soldiers, police and teachers. It has scores of branches across Afghanistan and holds the accounts of key Afghan government agencies. The collapse of the bank would likely spread panic throughout the country’s fledgling financial sector and wipe out nine years of effort by the United States to establish a sound Afghan banking system, seen as essential to the establishment of a functioning economy.

Good luck selling that one to the American people. Even the most rabid neocons won’t want to touch it. It’s insanity squared.

The purported defection of China’s chief central banker would not appear to bode well for the so-called recovery:

Rumors have circulated in China that People’s Bank of China Gov. Zhou Xiaochuan has left the country. The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBOC, including Zhou.

I doubt it’s going to help the animal spirits much either if he quietly turns up dead. Of course, if he did defect to Panama or some other offshore center, one has to wonder if Ben Bernanke is giving some thought to joining him soon.

UPDATE – STRATFOR says Zhou hasn’t defected after all:

People’s Bank of China governor Zhou Xiaochuan has not defected from China to the United States, authoritative sources have informed STRATFOR. The Washington Post has also spoken with unnamed officials who said there was no indication that Zhou had defected, that he was not in U.S. custody and that the rumors on Chinese internet discussion forums should be ignored.

Is anyone genuinely surprised that the White House’s foreclosure plan is designed to help the banks, and not the homeowners as advertised?

Banks will get the biggest benefit from an Obama administration housing program designed to help unemployed homeowners escape foreclosure. Housing experts expressed concern that banks, not homeowners, will be helped by the White House’s $3 billion funding infusion — $2 billion from the Treasury Department and another $1 billion from the Housing and Urban Development Department — going to those states hit hardest by the housing market crash and unemployment.

This is exactly the same trickle-down assistance approach that was previously taken by Ben Bernanke and the Federal Reserve and failed miserably. The fact of the matter is that the only reason foreclosures are a concern to the admininstration and the central bank is because they threaten to expose the insolvency of the banks. As is quite clearly the case, they are indifferent to the fate of the homeowning peasantry, otherwise they would have simply used that trillion in bailout cash to pay off problem mortgages.

Inflationistas have long insisted that the Fed can “print” all the money it wants. Deflationistas argue that it can’t. And now, we are beginning the process of finding out who is correct:

Fed Looks to Spur Growth by Buying Government Debt. Federal Reserve officials decided to reinvest principal payments on mortgage holdings into long-term Treasury securities, making their first attempt to bolster growth since March 2009 to keep the slowing U.S. economy from relapsing into recession.

The conventional inflationist argument is that the government can print as much paper as it wants. The problem with that is that in the US system, the government doesn’t print any paper, the Fed prints it and the government borrows from the Fed. So, the revised inflationist argument is that the purchase of Federal government debt is effectively the same thing as simply printing paper. I am dubious of this, as I am confident that the addition of these two intermediary steps with all the various complications they likely entail will derail the assumed equivalence. And then, of course, there is the question of whether the government can create debt as fast as it can print money even with the Fed promising that it will buy some of that debt. It is, after all, a mistake to assume that because the Fed has shown a willingness to buy a small portion of the newly-issued Federal debt, it will be willing to buy all of the newly-issued debt for an indefinite period of time. Which, you will note, is necessary if the equivalence is to hold.

I, for one, have seen absolutely no sign that the Federal Reserve is willing to put the interests of the national economy ahead of the health of its member banks, let alone itself. Have you? And remember, the $8 trillion in the M2 money supply is dwarfed by the $53 trillion in outstanding debt. The theoretical “printing” of the former will have to make up for the decline of the latter. Do the math.