Perspectives on the global economic meltdown (Jan 26 2010)

ldev · Post by **ldev** » 11 Oct 2010 00:57

Some random thoughts

MV=PQ

M= Monetary base
V= Velocity
P= Price Level
Q= Quantity of Production

This theory is credible within clearly defined national borders. But when you are dealing with a global currency such as the USD, the leakages in the system spill over into global asset categories and the theory may not clearly explain the disconnect between the monetary base and price levels.

Inflation may not exist for manufactured goods due to Chinese overcapacity and continuing fixed asset investment, but it has taken off for commodities and food. Oil is the key for determing whether the expansion of the US monetary base will translate into cost push inflation.

What is muddying the waters is the mixing up of historical consumption goods with investment assets and the wholesale translation of all of these into securitized assets which in turn have spawned derivative assets.

Availability of liquidity and credit is not the issue. It is demand for it which is shaky given consumer lack of confidence as the ultimate driver.

The pseudo gold standard ushered in by Bretton Woods lasted 27 years from 1944. The era of fiat currencies is now 39 years old. Taleb is correct in his recent pronouncements when he says that the Fed will be history. But as a trader his timing could be off although he is really not a classical trader anymore but a portfolio "insurance advisor/specialist".

PS: Interesting that Credit Default Swaps on 5 year Chinese Government bonds are trading within 10 basis points of 5 year US Treasuries. The shape of things to come?

Neshant · Post by **Neshant** » 11 Oct 2010 01:13

The federal reserve is doing its utmost to transfer the savings of people to its insolvent banking cartel.

--------------

Some top Federal Reserve officials have come up with a really bizarre proposal for stimulating the U.S. economy. As unbelievable as it sounds, what they actually propose to do is to purposely raise the rate of inflation so that Americans will stop saving so much money and will start spending wildly again. The idea behind it is that if inflation rises a couple of percentage points, but consumers are only earning half a percent (or less) on their savings accounts, then there will be an incentive for consumers to spend that money as the value of it deteriorates sitting in the bank.

Yes, that is how bizarre things have gotten. It is not as if U.S. consumers are even saving that much money. Several decades ago, Americans typically saved between 8 and 12 percent of their incomes, but over this past decade the personal saving rate got down near zero a number of times as Americans were living far beyond their means. Once the recession hit, Americans very wisely started saving more money, and so now the personal saving rate has been hovering around the 5 to 7 percent range. This is well below historical levels, but the folks at the Fed apparently are eager for Americans to pull that money out and start spending it again.

http://www.dailymarkets.com/economy/201 ... ing-again/

Carl_T · Post by **Carl_T** » 11 Oct 2010 01:20

Raising the inflation rate sounds reasonable but they need to raise interest rates first before they do that. Personally I would prefer if they reduce the deficit by reducing defense spending, and in turn reduce taxation. But all iz well!

So who will win the Econ Prize on Monday? I'm going to say Eugene Fama and Paul French. It's been over a decade since it's gone to a finance winner and I think it'll be their turn this time.

ldev · Post by **ldev** » 11 Oct 2010 01:30

The federal reserve is doing its utmost to transfer the savings of people to its insolvent banking cartel

Any savings rate at/below the 2-% level implies borrowings for current consumption, the de-rigueur in the US especially in California in the go-go years. The Fed hopes that inflation reality or better still expections will reignite the US consumers hunger for asset classes which appreciated and which can again be used as personal piggybanks i.e. homes and equity. The real estate side of the equation will kill two birds with one stone i.e. help aggregate demand as people go back to the bad old ways of getting home equity loans to finance current consumption and increase asset prices so that the banks look a little less insolvent with the pile of underwater mortgages that they currently have on their books.

As for the hardworking, diligent, living-within-his-means saver, does his baap own the Fed or do the banks own the Fed?

Neshant · Post by **Neshant** » 11 Oct 2010 04:37

Its already apparent to me that fools like bernanke have no clue what they are doing fiddling around with interest rates & money printing. So the financing & high rolling, easing that and looseing that jive talk just flies past my ears. The profession of economics in general has fallen into disrepute.

What I'm more concerned with is not being the sucker left holding the bag from their con artistry.

Its something anyone who has worked hard to earn money in the real economy should be careful of especially in the next 5 years. Suckers are desparately needed to offload a torrent of losses this most useless "industry" has racked up.

ldev · Post by **ldev** » 11 Oct 2010 05:35

What I'm more concerned with is not being the sucker left holding the bag from their con artistry.

Unfortunately that will be more difficult than expected. Unless you plan to buy up farmland with rich soil, stockpile fertilizer for your lifetime, and grow your own food and have your own water supply, you will will be at the mercy of those institutions that control your money. And when you get your farmland carry your remaining savings to it in gold coins to exchange for what you need to buy, arm yourself to the teeth with enough handguns and preferably submachine guns to defend yourself against predators both human and otherwise and find a way of generating wind, solar or hydel power if you want any creature comforts and heat in the winter.

Otherwise you will and shall be a sucker - whether you like it or not.

Ofcourse you could also get into the racket and become part of the establishment so you get the paper money while it still has value to buy real real assets and then pass on the devalued currency to other suckers

Might be easier than becoming a hermit on a remote farm!!

shyam · Post by **shyam** » 11 Oct 2010 05:42

If Fed tries to increase inflation, first casuality will be commodity. Once that happens, instead of consuming more, people will cut down spending as the economic situation is not good.

I hope Fed is planning to give free money to people to create inflation.

Hari Seldon · Post by **Hari Seldon** » 11 Oct 2010 06:54

From twitter:

http://bit.ly/dbACml Subbarao Says India May Act If Capital Inflows Disrupt Economy | Act to do what? Hold the deluge with a finger?

Aha. So the Hon Guv has said it out loud. Was wondering when this choice would be forced upon us.

Meanwhile:

http://bit.ly/d165UN Finance Chiefs Fail to Resolve Currency Spat as G-20 Splits | The truth behind all those stupid headlines

Well, well. The trade war I was long looking out for has chosen to manifest first as a currency crisis -> now a currency war.

Watch this space and all. Things heating up at work a bit. Posting may perforce be light. Happy to see many more BRFites join in to comment on this dhaga.

Added later:
Aha. Sri AEP has also weighed in. AWAMTA or what....

Ambrose Evans-Pritchard: Currency wars are necessary if all else fails http://bit.ly/aCaobl

The overwhelming fact of the global currency system is that America needs a much weaker dollar to bring its economy back into kilter and avoid slow ruin, yet the rest of the world cannot easily handle the consequences of such a wrenching adjustment. There is not enough demand to go around.

And a signif part of what 'healthy' demand there is left in the world, IOW willingness + ability to pay for goods and services at sustainable levels into the future, exists in Aamchi Yindia only. If only we knew better the signif of the way the cards have currently been dealt, we'd push a harder bargain and try to insulate ourselves from further crashes and crises to come.
Only.

Oh, mucho more from AEP:

The atomic bomb, of course, is quantitative easing by the Federal Reserve. America has in effect issued an ultimatum to China and G20: either you stop this predatory behaviour and agree to some formula for global rebalancing, or we will deploy QE2 `a l’outrance’ to flood your economies with excess liquidity. We will cause you to overheat and drive up your wage costs. We will impose a de facto currency revaluation by more brutal and disruptive means, and there is little you can do to stop it. Pick your poison.

This is what QE2 means, though Fed officials prefer to talk of their “mandate” of supporting employment. It is nothing like QE1, which was emergency action to halt the economic free-fall of late 2008 and early 2009. This time the Fed is using QE as a long-term tool to manage America’s chronic ailments.

Jai ho and all that.

Ambar · Post by **Ambar** » 11 Oct 2010 08:30

Hari Seldon wrote:From twitter:
http://bit.ly/dbACml Subbarao Says India May Act If Capital Inflows Disrupt Economy | Act to do what? Hold the deluge with a finger?
Probably increase the tax of capital inflows. This could 'solve' 2 problems : Check inflation and curb rupee appreciation.

Meanwhile:

The atomic bomb, of course, is quantitative easing by the Federal Reserve. America has in effect issued an ultimatum to China and G20: either you stop this predatory behaviour and agree to some formula for global rebalancing, or we will deploy QE2 `a l’outrance’ to flood your economies with excess liquidity. We will cause you to overheat and drive up your wage costs. We will impose a de facto currency revaluation by more brutal and disruptive means, and there is little you can do to stop it. Pick your poison.

This is what QE2 means, though Fed officials prefer to talk of their “mandate” of supporting employment. It is nothing like QE1, which was emergency action to halt the economic free-fall of late 2008 and early 2009. This time the Fed is using QE as a long-term tool to manage America’s chronic ailments.
Jai ho and all that.

Qe2 is easier said than done. GOP has already made this an election mandate. It'll be an all out war with the Whitehouse if they pass another 500 billion$+ stimulus. Probably it'll be more of a string of mini-packages : Like the recently announced 50 billion $ infrastructure package. Unkil needs to fix his budget deficit instead of waging pointless wars against emerging economies about currency fixing.

Neshant · Post by **Neshant** » 11 Oct 2010 08:34

Suckers are being found.

Sacrifices have to be made to pay for the losses the federal reserve is offloading on the public. It may as well be old folks who are a few years away from kicking the bucket.
----

No cost-of-living hike for Social Security again

WASHINGTON — As if voters don't have enough to be angry about this election year, the government is expected to announce this week that more than 58 million Social Security recipients will go through another year without an increase in their monthly benefits.

http://www.msnbc.msn.com/id/39603054/ns ... retirement

Manu · Post by **Manu** » 11 Oct 2010 12:49

shyam wrote:
Manu wrote:There is more liquidity crunch (as in lack of cheap credit) for US Corporate Houses compared to their Indian Counterparts.
How come liquidity crunch is not causing interest rates to go up?

Because the real fear is deflation. Simple.

Neshant · Post by **Neshant** » 11 Oct 2010 14:45

Too many MBA goons and banking scammers have infested the system.

Anyone doing anything sensible like saving money, living within his means, holding down an honest job in the real economy or paying his debts on time - is being played for a sucker.

---------

So, let's get down to the nitty gritty. If consumer debt was $13.8 trillion at the end of 2008 and the banks have since written off 5.66% of that debt, total write-offs were $800 billion. If total consumer debt now sits at $13.5 trillion, then consumers have actually taken on $500 billion of additional debt since the end of 2008; consumers haven't cut back at all. They're still spending and borrowing. It's beyond my comprehension that no pundits or mainstream media outlets can do the simple math to realize that this deleveraging story is a fairy tale.

The truth is that the debt has simply been shifted from criminal Wall Street banks to the American taxpayer. These consumer debts were created in a private transaction between individuals and these banks. When the loans went bad, consumers should have lost their homes, cars, etc., and their credit ratings should have been ruined, keeping them out of the credit market for a number of years. If the banks that made these bad loans made too many, they should have failed and had their assets liquidated in bankruptcy. Instead, the federal government has inserted the American taxpayer into the equation by using our tax dollars to prop up insolvent Wall Street banks and allowing people who took on too much debt to live in houses for over two years without making a mortgage payment

http://www.minyanville.com/businessmark ... 0/id/29825

ramana · Post by **ramana** » 11 Oct 2010 19:31

Neshant, Dont be so shrill. Use temparate language.

Thanks, ramana

Hari Seldon · Post by **Hari Seldon** » 11 Oct 2010 19:41

ramana wrote:Neshant, Dont be so shrill. Use temparate language.

+1 only. Though the urge to vent against the thieving establishment is very real, admittedly.

Meanwhile, what do we have here....:
Finance Chiefs Fail to Resolve Currency Spat as G-20 Splits (bloomberg)

Leaders of the world economy failed to narrow differences over currencies as they turned to the International Monetary Fund to calm frictions that are already sparking protectionism.

Exchange rates dominated the IMF’s annual meeting in Washington on concern that officials are relying on cheaper currencies to aid growth, risking retaliatory devaluations and trade barriers. China was accused of undervaluing the yuan, while low interest rates in the U.S. and other rich nations were blamed for flooding emerging markets with capital.
{Yawn. So what's anyone gonna do about it, eh?}

Finance ministers and central bankers pledged to improve cooperation, yet did little to show how they would alter their ways beyond agreeing to let the IMF to study the matter.

Days after Brazilian Finance Minister Guido Mantega set the tone for the gathering by declaring a “currency war” was underway, officials held their traditional battle lines. U.S. Treasury Secretary Timothy F. Geithner and European Central Bank President Jean-Claude Trichet were among those to signal irritation that China is restraining the yuan to aid exports even as its economy outpaces those of other G-20 members.

Sorta old news, you say? Sure. But look closely at what's hidden within the body of the report...

“Global rebalancing is not progressing as well as needed to avoid threats to the global economic recovery,” Geithner said. “Our initial achievements are at risk of being undermined by the limited extent of progress toward more domestic demand- led growth in countries running external surpluses and by the extent of foreign-exchange intervention as countries with undervalued currencies lean against appreciation.”

Some forms of protectionism may already be on the rise. Ukraine’s Deputy Premier Serhiy Tigipko said in an interview in Washington that his country may follow South Korea, Poland, Brazil and other emerging markets in introducing capital controls to prevent short-term investments from fueling currency volatility. India may also intervene to “prevent the disruption of the macroeconomic situation,” Reserve Bank of India Governor Duvvuri Subbarao told reporters.
{Aha!}

Unable to find common ground themselves, governments agreed the IMF should serve as currency cop by preparing reports which show how the policies of one economy affect others. The studies will focus on the U.S., China, the U.K. and the euro area.

“The need to have this kind of spillover report has been discussed for months and now it’s part of our toolbox,” IMF Managing Director Dominique Strauss-Kahn said.

ROFL only.

SwamyG · Post by **SwamyG** » 11 Oct 2010 21:46

Why Are China, India and Brazil Rebounding Faster Than the U.S.?

Why did China, India and Brazil all emerge so much more rapidly from the global financial crisis than advanced economies did? In a presentation in Denver to the National Association for Business Economics, Nobel Prize-winning economist Michael Spence, now of New York University, offered several reasons:

* These economies learned bitter lessons in the 1997-98 crisis that afflicted them more than advanced economies.
* They were in “a good initial position” with relatively low leverage, and thus didn’t get hit with the severe “balance sheet recession” that hit the U.S.
* They hadn’t any complex securitized financial instruments.
* They had built up large foreign-exchange reserves.
* Their central banks responded, much as advanced countries’ central banks did, with speed and agility to the credit tightening.
* Their economic managers displayed “a high degree of competence.”

“Is this sustainable? Will they keep growing? I think the answer is a qualified yes,” he said. “I wouldn’t have said that 10 years ago.”

ps: good to peek into this thread, RJB verdict took lot of attention

SwamyG · Post by **SwamyG** » 11 Oct 2010 22:10

Srilanka is pondering "How does all this affect me?"

Re-ORIENTing the World System

We have been trained and instructed up till now to view the world from the western perspective that placed the two sides of the North Atlantic as the epicentre of the global system. Furthermore, we were asked to treat this historically contingent context within which the Western world has become the global centre as fixed and omnipresent. However, Friedrich Engels, Marx’s friend and co-thinker, in his dialectical imagination anticipated at the end of the nineteenth century that the epicentre of the world might shift from the two sides of the North Atlantic to the two sides of the North Pacific. Should we still look at the global system from the same western perspective? Are there different windows open to us? David Harvey once stated: "There are many windows from which to view the same world …. The view from China looking outwards or from the lower classes looking up is very different from that from the Pentagon or Wall Street. But each view can be represented in a common frame of discourse, subject to evaluation as to internal integrity and credibility."

SwamyG · Post by **SwamyG** » 11 Oct 2010 22:15

Philippines is pondering "How does all this affect me?"

Geopolitical Shifts in Global Power: The Rise of Asia

Today, since the most populated and most economically weighty of these new powerholders are Asians – China, Japan, India, South Korea, and the ASEAN regional bloc (principal among them Indonesia) – the center of global gravity has shifted from the Atlantic to the Pacific.

The Philippines, like it or not, will find itself in the orbit of these happenings

SwamyG · Post by **SwamyG** » 11 Oct 2010 22:17

Austalia is asking "How does all this affect me?"

Wild time to ride the tigers

SwamyG · Post by **SwamyG** » 11 Oct 2010 22:20

New Zealand does not want to be left out from the crowd that is asking "How does all this affect me?"
The future of economic integration in Asia Pacific

What is happening right now in the Asia-Pacific region is extraordinary.

The Asian region is currently driving the world economy. The IMF forecasts that average growth for developing and emerging countries in the Asia will be around 9.4% for 2010 and 8.4% in 2011. This contrasts with IMF forecasts for growth in advanced economies of 2.7% in 2010 and 2.2% in 2011.

This growth dynamic is occurring right on our doorstep and presents major opportunities for the large populations of Asia. It is also good news for our friends and trading partners in Europe and in North America who are looking at an extended period of fiscal consolidation on the top of major demographic pressures. These pressures will inevitably constrain US and European growth and so growing consumer markets in Asia will continue to be an important source of world growth

It means that within the next few decades we could see four economic super-powers in the world: China, India, the US and the EU, plus a number of significant second-tier economies such as Japan, Korea, Indonesia, Russia and Brazil.

Each one of us in the Asia-Pacific region feels this change. Each one of us wants to position our economies to take full advantage of it. And we are all implementing strategies to ensure we have the opportunity to contribute to and benefit from these change

Neshant · Post by **Neshant** » 12 Oct 2010 04:05

An interesting read at zerohedge.

Anyone who plays by the rules banking crooks have setup is a sucker. Read the story of this couple who paid the mortgage on their underwater home on time and got burnt. Problem is even if they are given a loan modification, all that means is someone else in society has to eat their loss.

Something is very rotten with a system of passing on losses to suckers down the line. I get this sick feeling its all going to collapse soon.

--------

http://www.zerohedge.com/article/gonzal ... ss-anarchy

The Coming Middle-Class Anarchy

True story: A retired couple I know, Brian and Ilsa, own a home in the Southwest. It’s a pretty house, right on the manicured golf course of their gated community (they’re crazy about golf).

The only problem is, they bought the house near the top of the market in 2005, and now find themselves underwater.

They’ve never missed a mortgage payment—Brian and Ilsa are the kind upright, not to say uptight 60-ish white semi-upper-middle-class couple who follow every rule, fill out every form, comply with every norm. In short, they are the backbone of America.

Even after the Global Financial Crisis had seriously hurt their retirement nest egg—and therefore their monthly income—and even fully aware that they would probably not live to see their house regain the value it has lost since they bought it, they kept up the mortgage payments. The idea of them strategically defaulting is as absurd as them sprouting wings.

When HAMP—the Home Affordable Modification Program—was unveiled, they applied, because they qualified: Every single one of the conditions applied to them, so there was no question that they would be approved—at least in theory.

shyam · Post by **shyam** » 12 Oct 2010 09:16

Manu wrote:
shyam wrote:How come liquidity crunch is not causing interest rates to go up?
Because the real fear is deflation. Simple.

That was too simple

. Interest rate, in other words - cost of borrowing, should have two components. One to address expected inflation, and the other for market demand. Fear of deflation explains the inflation component. But during credit crunch, there is a huge demand for credit while there is equally huge shortage of credit. This demand for credit alone should drive the interest rates sky high. Why doesn't that happen?

Ambar · Post by **Ambar** » 12 Oct 2010 10:01

shyam wrote: That was too simple . Interest rate, in other words - cost of borrowing, should have two components. One to address expected inflation, and the other for market demand. Fear of deflation explains the inflation component. But during credit crunch, there is a huge demand for credit while there is equally huge shortage of credit. This demand for credit alone should drive the interest rates sky high. Why doesn't that happen?

That's because people are busy running towards the explosion instead of running away from it. The so called 'flight to safety' at such ridiculous interest rates shows how scared investors+funds are, and who wouldn't be after 2008-09 crash and the May 2010 mini-crash ? Besides, the feds buying treasuries worth hundreds of billions has also kept the interest rates artificially low.

Neshant · Post by **Neshant** » 12 Oct 2010 10:56

the real economy is going downhill along with savers

------------
Wall Street pay to grow 4 percent in 2010: report

http://ca.news.finance.yahoo.com/s/1210 ... eport.html

Hari Seldon · Post by **Hari Seldon** » 12 Oct 2010 17:02

Final End of Bretton Woods 2?

In essence, a nasty surprise awaited US policymakers - after two years of scrambling to find the right mix of policies, including an all out effort to prevent a devastating collapse of financial markets and a what Administration officials believed to be a substantial fiscal stimulus, the US economy remains mired at a suboptimal level as stimulus flows out beyond US borders. The opportunity for a smooth transition out of Bretton Woods 2 was lost.

Consider the enormity of the situation at hand. The Federal Reserve is poised to crank up the printing press for the sake of satisfying their domestic mandate. One mechanism, perhaps the only mechanism, by which we can expect meaningful, sustained reversal from the current set of imbalances is via a significant depreciation of the dollar. The rest of the world appears prepared to fight the Fed because they know no other path.

Bad things happen when you fight the Fed. You find yourself on the wrong side of a whole bunch of trades. In this case, I suspect it means that Bretton Woods 2 finally collapses in a disorderly mess. There may really be no other way for it to end, because its end yields clear winners and losers. And the losers, in this case largely emerging markets, [are] not prepared to accept their fate.

Bottom Line: The time may finally be at hand when the imbalances created by Bretton Woods 2 now tear the system asunder. The collapse is coming via an unexpected channel; rather than originating from abroad, the shock that sets it in motion comes from the inside, a blast of stimulus from the US Federal Reserve. And at the moment, the collapse looks likely to turn disorderly quickly. If the Federal Reserve is committed to quantitative easing, there is no way for the rest of the world to stop to flow of dollars that is already emanating from the US. Yet much of the world does not want to accept the inevitable, and there appears to be no agreement on what comes next. Call me pessimistic, but right now I don't see how this situation gets anything but more ugly.

Agreed.

ramana · Post by **ramana** » 13 Oct 2010 00:36

CNBC story:
Foreclosure Fraud worse than realized

Neshant · Post by **Neshant** » 13 Oct 2010 06:17

^^All kinds of excuses will be made to not foreclose to prevent more housing inventory from coming on the market - especially with mid term elections coming up. Banks will go along with it as long as the government / federal reserve makes good their losses by offloading the loss on the rest of society.

The mortgage deadbeats meanwhile will live in their houses for months if not years for free until a forclosure notice arrives (which it won't be...)

The sucker is anyone who pays their mortgage/debts on time - you are paying for someone else's failed gambling losses. Its downright dangerous to pay your bills/debts on time these days. The consequences of just defaulting and letting some other sucker eat the loss carries with it no penalties.

Hari Seldon · Post by **Hari Seldon** » 13 Oct 2010 06:44

shyam I think putup the Chris Walen vid last page. Awesome source, must add..... From Denninger's site:

Chris Whalen Predicts Death Of The Fed - And The Banks

As we have said before and we'll say again, the FOMC's zero rate policies imply that the dollar and all assets denominated in dollars have no value. Stocks, bonds and other financial assets depend upon income to make these obligations money good. Without a positive return, there is no reason to hold dollar assets.

Uh-oh. So what, you may say? What option do janta have anyway?

Non-commercial demand for dollars is collapsing in much of the global economy, in part because the Fed is transferring something like three quarters of a trillion dollars annually from individual and corporate savers to the Wall Street banks. And even this vast subsidy will be insufficient to prevent the ultimate restructuring of the top three U.S. banks. What will Fed Chairman Ben Bernanke and the other members of the FOMC say to Dianna and the millions of other Americans impoverished by their policy errors when we have to break up the top-three U.S. banks anyway?

Ok. If you thought sri AEP was alarmist, what do you think sri chris walen is now? Still, sri walen actually has credibility and smarts and record to go with it. Most notably Institutional risk analytics is *not* tainted with pro-bank incentives or associations. Yet.

Of course, shall keep tabs on this story. Let us see where this goes.

Hari Seldon · Post by **Hari Seldon** » 13 Oct 2010 08:01

TAE tweets: D&G watch.
https://twitter.com/#!/AutomaticEarth

David Rosenberg: Sell The News, QE Will Do More Harm Than Good For The American Consumer http://read.bi/cl9Tlp 10 charts for you

Fed ought to consider global bubbles http://reut.rs/caf3pS There is a very clear emerging market bubble fueled by loose policy. {Er, OK, maybe there's an emerging mkt bubble but again, why should the Fed care exactly??}

US Federal Reserve set on QE2 course as dissenter speaks out ("no strong evidence" it will work) http://bit.ly/92X1yI

Republicans Prove Unpopular With Voters Opposing Obama in Poll http://bit.ly/cNbgZg (The people desire a third choice...)

French strikes: 3.5 million take to streets to protest pension reform http://bit.ly/9srvDg 4th protest in a month!
{Bah, just declare these nosy protestors as Roma and deport them in the middle of the night. Countries like TSP with ample empty land in Baluchistan will be happy to take them in for a price, am sure....LOL}

Josh Rosner: “Could Violations of PSA’s Dwarf Lehman Weekend?” http://bit.ly/dqljpE Mortgage mess has a deep rabbit hole.{The Lehman weekend resulted in a sudden full stop of all finanical transactions for a few agonizing hours on wall street - akin to a stroke. Commentators now seem to want to make outrageous predictions so as to be able to claim 'I first predicted that' should the event actually pan out, seems like.}

Google to map inflation using web data http://bit.ly/dyVMTV So far Google has seen a clear deflationary trend.{well, satyamev jayate, I guess. The truth will emerge and prevail, ultimately.}

WSJ reporting that Wall Street banksters are set to get a record $144 Billion in bonuses for 2010. Courtesy of fraud and fudged accounting.{Wow. 'em wall street gangs could teach even 'em Pakis new things about plunging the depths of shamelessness and deceit....}

Too putoff to continue only. Have a nice day, all. Jai ho and all that.

shyam · Post by **shyam** » 13 Oct 2010 10:18

ramana wrote:CNBC story:
Foreclosure Fraud worse than realized

If the rot described in this article is true, this is the beginning of the end of securitization of mortgage. If there is no mortgage securitization there will be no cheap home loans. In that case house prices must fall to the bottom. Didn't somebody extrapolate some time back that house prices may fall to $0?

God must have sent Y V Reddy to RBI to save India from this type of disaster.

Carl_T · Post by **Carl_T** » 13 Oct 2010 10:28

Not really, there will be fewer loans, but it's fantasy to think cheap home loans will vanish.

shyam · Post by **shyam** » 13 Oct 2010 10:43

Without securitization, what will be the source of those cheap loans?

Neshant · Post by **Neshant** » 13 Oct 2010 11:24

Chris Whalen Predicts Death Of The Fed - And The Banks

I've predicted the federal reserve will be shut down within 3 to 5 years.

Fidel Guevara · Post by **Fidel Guevara** » 13 Oct 2010 21:34

shyam wrote:
ramana wrote:CNBC story:
Foreclosure Fraud worse than realized
If the rot described in this article is true, this is the beginning of the end of securitization of mortgage. If there is no mortgage securitization there will be no cheap home loans. In that case house prices must fall to the bottom. Didn't somebody extrapolate some time back that house prices may fall to $0?

Before there was securitization of mortgages, banks gave out mortgages and lived happily off the cash flow over the next 20-25 years per mortgage. These were small local banks all over the world, doing basic banking for the local community, not the global trillion $ monoliths which also do investment banking and buy & sell countries. When any of these local banks went bust, a few local people were hurt, it didn't lead to a global recession.

So I don't see anything wrong if banks are forced to go back to basics.

Hari Seldon · Post by **Hari Seldon** » 14 Oct 2010 05:44

Fidel Guevara wrote:Before there was securitization of mortgages, banks gave out mortgages and lived happily off the cash flow over the next 20-25 years per mortgage. These were small local banks all over the world, doing basic banking for the local community, not the global trillion $ monoliths which also do investment banking and buy & sell countries. When any of these local banks went bust, a few local people were hurt, it didn't lead to a global recession.

So I don't see anything wrong if banks are forced to go back to basics.

Good point. I don't necessarily see a calamity in the making here either.

However, the question does arise how to 'get' there - small banks handling local mortgages - from where we are today - where mortgage ownership by FIs is like at its most concentrated ever: starting from fred-fan-gini backstopped by the fed gubmint itself and the big 6 insolvent banks.

Sure, a transition can (and will) be managed after some trouble, perhaps. I'd be very interested in knowing the dynamics and the compromises and the powerplays and the tamasha that happens in the interim: will serve to reveal the hands of the players behind the scenes, of the man standing behind the curtain, so to say......

Ambar · Post by **Ambar** » 14 Oct 2010 08:18

There was a good reason why 'main street' banks had to expand beyond local communities. These small regional banks that could not diversify and hedge its risk/collateral became badly exposed to regional economic downturns that reduced the value of their real estate holdings and hence had to fan out. Honestly, i don't see anything wrong with big banks,look at SBI and its affiliates, it is just that when both the lenders and borrowers are crooks ,disaster would be the only certainty.

kmkraoind · Post by **kmkraoind** » 14 Oct 2010 08:29

Indian indices are just 2-3 shy away from all times high and FII investments have reached more than 20 Billions. My gut feeling is that if China does not budge in its currency appreciation, Dollar will be depreciated with the rest of global currencies 20-30% in the near future. Other possibilities is that US govt is preempting Chinese dollars entering into stock market and they are inflating stock market around the globe. Really really, unconventional trade war is going on.

shyam · Post by **shyam** » 14 Oct 2010 10:56

Fidel Guevara wrote:Before there was securitization of mortgages, banks gave out mortgages and lived happily off the cash flow over the next 20-25 years per mortgage. These were small local banks all over the world, doing basic banking for the local community, not the global trillion $ monoliths which also do investment banking and buy & sell countries. When any of these local banks went bust, a few local people were hurt, it didn't lead to a global recession.

So I don't see anything wrong if banks are forced to go back to basics.

Nor do I find anything wrong with this. But just compare how things would be then and how it is now. Banks will insist that you make a down payment of 30%, and the interest rate will include following components.
- Projected inflation for next 30 years (loan period may be cut down to 15 years),
- Interest to be paid to Fed/deposits
- Risk of default by loaner
- Profit for the bank

No way that is going to be cheap. Many people may find it cheaper to buy house after paying full cash (after saving for many years). You can guess what would be the house prices then. On top of that there is a huge oversupply of homes in US. Bank business won't be as profitable as it was till now.

BTW, people have already started asking this kind of questions
The Great Mortgage Mystery

The big question from the mortgage meltdown isn't why so many distressed homeowners are defaulting on their loans.

It's why any of them are still making payments.

ShivaS · Post by **ShivaS** » 14 Oct 2010 21:04

Folks the only way to protect dollar is to cheapen it , and there by causing a short term deflation in the world economies both manufacturing and commodities.

yogi · Post by **yogi** » 14 Oct 2010 22:14

^^^ Why does dollar need to be protected?

To me it seems like Gold can see a spike in price similar to one in 1981. Whether it will hold at those levels, is the question.

Christopher Sidor · Post by **Christopher Sidor** » 14 Oct 2010 22:27

ramana wrote:So the BIC are developing countries with developed countries risk? they should be in blue zone but are in red zone?

Since the BRIC countries are growing at a rate in excess of 6% they are not in red. But 129% is still very high as far as India is concerned. I always assumed that our GDP Debt is around 70-80%, this 129% figure is a shocker. This puts us in the company of greece, italy and worse japan.