Not Out of the Woods By a Long Shot!

This sobering report is from Martin Weiss, a renowned financial consultant...

By Martin D. Weiss
June 16, 2009

While most pundits are still grasping at anecdotal "green shoots" to celebrate the beginning of a "recovery," the hard data just released by the Federal Reserve reveals a continuing collapse of unprecedented dimensions.

It's all in the Fed's Flow of Funds Report for the first quarter of 2009, which I've posted on our website with the key numbers in a red box for all those who would like to see the evidence.
Here are the highlights:

Credit disaster (page 11). First and foremost, the Fed's numbers demonstrate, beyond a shadow of a doubt, that the credit market meltdown, which struck with full force after the Lehman Brothers failure last September, actually got a lot worse in the first quarter of this year.

This directly contradicts Washington's thesis that the government's TARP program and the Fed's massive rescue efforts began to have an impact early in the year.

In reality, the credit market shutdown actually gained tremendous momentum in the first quarter. And although it's natural to expect some temporary stabilization from the government's massive interventions, the first quarter was SO bad, it's impossible for me to imagine any scenario in which the crisis could be declared "over."

Here are the facts:

• We witnessed one of the biggest collapses of all time in "open market paper" — mostly short-term credit provided to finance mortgages, auto loans, and other businesses. Instead of growing as it had in almost every prior quarter in history, it collapsed at the annual rate of $662.5 billion. (See line 2.)
• Banks lending went into the toilet. Even in the fourth quarter, when the meltdown struck, banks were still growing their loan portfolios at an annual pace of $839.7 billion. But in the first quarter, they did far more than just cut back on new lending. They actually took in loan repayments (or called in existing loans) at a much faster pace than they extended new ones! They literally pulled out of the credit markets at the astonishing pace of $856.4 billion per year, their biggest cutback of all time (line 7).
  
• Meanwhile, nonbank lenders (line 8) pulled out at the annual rate of $468 billion, also the worst on record.
  
• Mortgage lenders (line 9) pulled out for a third straight month. (Their worst on record was in the prior quarter.)
  
• And consumers (line 10) were shoved out of the market for credit at the annual pace of $90.7 billion, the worst on record.
  
• The ONLY major player still borrowing money in big amounts was the United States Treasury Department (line 3), sopping up $1,442.8 billion of the credit available — and leaving LESS than nothing for the private sector as a whole.

Bottom line: The first quarter brought the greatest credit collapse of all time.

Excluding public sector borrowing (by the Treasury, government agencies, states, and municipalities), private sector credit was reduced at a mindboggling pace of $1,851.2 billion per year!

And even if you include all the government borrowing, the overall debt pyramid in America shrunk at an annual rate of $255.3 billion (line 1)!

Asset-backed securities (ABS) got hit even harder (page 34). This is the sector where you can find most of the new-fangled "structured" securities — the ones Washington had already identified as a major culprit in the credit disaster.

Did they make any headway in stopping the ABS collapse? None whatsoever! The total outstanding in this sector (line 3) fell at an annual pace of $623.4 billion in the first quarter, the WORST ON RECORD!

U.S. security brokers and dealers were smashed (page 36). Brokers were forced to reduce their total investments at the breakneck annual pace of $1,159.2 billion in the first quarter, after an even hastier retreat in the prior quarter (line 3)!

What's even more revealing is that they were so pressed for cash, they had to dump their Treasury security holdings in massive amounts — at an annual pace of $424 billion (line 7)!

Given the Treasury's desperate need for financing from any source, that's not a good sign!
Government agencies got killed (page 43). Households dumped their Ginnie Maes, Fannie Maes, Freddie Macs, and other government-agency or GSE securities like never before in history, unloading them at the go-to-hell annual clip of $1,395.7 billion (line 6).

And the rest of the world (mostly foreign investors), which had started unloading these securities in the third quarter of last year, continued to do so at a fevered pace (line 10).

Mortgages got chopped again (page 48). Home mortgages outstanding were slashed at an annual clip of $87.3 billion in the second quarter of last year, $324.2 billion in the third quarter, $271 billion in the fourth, and another $61 billion in the first quarter of this year (line 2).

A slowdown in the collapse? For now, perhaps. But the first quarter also brought the very first reduction in commercial mortgages, an early sign of bigger commercial real estate troubles ahead (line 4).

Trade credit is dying (page 51, second table). If you're in business and you don't have cash on hand to buy inventories, supplies, or other materials, beware! Large and small corporations all over the country have been slashing trade credit at an accelerating pace (line 3).

In the first quarter of last year, this aspect of the credit crisis was still in its early stages; trade credit outstanding was shrinking at an annual pace of just $15 billion. But by the second quarter, this new disaster burst onto the scene at gale force, with trade credit getting docked at the rate of $151.2 billion per year. And most recently, in the first quarter of 2009, it was slashed at the shocking pace of $277.2 billion per year.

And I repeat:

With ALL of these figures, we're not talking about a decline in new credit being provided, which would be bad enough. We're talking about a collapse that's so deep and pervasive, it actually wipes out 100 percent of the new credit and brings about a net reduction in the credit outstanding — a veritable dismantling of America's once-immutable debt pyramid!

For the long-term health of our country, less debt is not a bad thing. But for 2009 and the years ahead, it's likely to be traumatic, delivering...

The Most Wealth Losses of All Time

Who is suffering the biggest and most pervasive losses? U.S. households and nonprofit organizations (page 105)!

The losses have been across the board — in real estate, stocks, mutual funds, family businesses, life insurance policies, and pension funds.

In U.S. households alone, the losses have been massive: $1.39 trillion in the third and fourth quarters of 2007 (not shown on page 105) ... a gigantic $10.89 trillion in 2008 ... $1.33 trillion in the first quarter of 2009 ... $13.87 trillion in all, by far the worst of all time.

And these losses have equally massive consequences for 2009 and 2010:

• Deep cutbacks in consumer spending ahead, plus a virtual disappearance of conspicuous consumption ...
• More massive sales declines at most of America's giant manufacturers, retail firms, transportation companies, restaurants, and more, plus...
• Big losses replacing profits at most U.S. corporations!
• Rescues That Make the Crisis Worse

The U.S. government has taken radical, unprecedented steps to counter this credit collapse. And for the moment, it HAS been able to avert a financial meltdown.

But no government, even one run amuck with spending and money printing, can replace $13.87 trillion in losses by households.

Consider just two of the government's most egregious escapades:

On January 7, Fed Chairman Bernanke was so desperate to revive U.S. mortgage markets that he embarked on a new, radical program to buy up mortgage-backed securities. So far, he has pumped over a half trillion dollars of fresh federal money into that market. But it has barely made a dent; despite all his efforts, mortgage rates have zoomed higher anyway, snuffing out a mini-boom in mortgage refinancing.

Four months later, on May 17, the Fed was so desperate to revive other credit markets, it even caved in to industry appeals to finance recreational vehicles, speedboats, and snowmobiles, according to Saturday's New York Times. But that has barely made a dent in those industries.

And the expansion of direct Fed financing to these esoteric areas is not possible without greatly damaging the credibility — and credit — of the U.S. government. Result: Higher interest rates.
Can Mr. Bernanke take even MORE radical steps? Can he trek where no other modern-day central banker has ever gone before?

Not without shooting himself in the foot! It still won't be enough to avert a continuation of the debt crisis. Indeed, all it can accomplish is to kindle inflation fears, drive interest rates even higher, and actually sabotage any revival in the credit markets.

Look. The nearly $14 trillion in financial losses suffered by U.S. households has inevitable consequences. And massive, nonstop borrowings by the U.S. Treasury in the months ahead — driving interest rates still higher — can only make them worse.

My urgent warning: If you fall for Wall Street's siren song that "the crisis is over," you could be in for a fatal surprise.

Don't believe them. Follow the numbers I have highlighted here. Then, reach your own, independent conclusions.

My Kind of Teacher!

This letter was written by a fourth grade teacher and sent to President Obama. We need more teachers like this...

April 17, 2009
The White House
1600 Pennsylvania Avenue NW
Washington , DC 20500

Mr. Obama:

I have had it with you and your administration, sir. Your conduct on your recent trip overseas has convinced me that you are not an adequate representative of the United States of America collectively or of me personally.

You are so obsessed with appeasing the Europeans and the Muslim world that you have abdicated the responsibilities of the President of the United States of America. You are responsible to the citizens of the United States. You are not responsible to the peoples of any other country on earth.

I personally resent that you go around the world apologizing for the United States, telling Europeans that we are arrogant and do not care about their status in the world. Sir, what do you think the First World War and the Second World War were all about if not the consideration of the peoples of Europe? Are you brain dead? What do you think the Marshall Plan was all about? Do you not understand or know the history of the 20th century?

Where do you get off telling a Muslim country that the United States does not consider itself a Christian country? Have you not read the Declaration of Independence or the Constitution of the United States? This country was founded on Judeo-Christian ethics and the principles governing this country, at least until you came along, come directly from this heritage.

Do you not understand this? Your bowing to the king of Saudi Arabia is an affront to all Americans. Our President does not bow down to anyone, let alone the king of Saudi Arabia. You didn't show Great Britain, our best and one of our oldest allies, the respect they deserve yet you bow down to the king of Saudi Arabia. How dare you, sir! How dare you!

You can't find the time to visit the graves of our greatest generation because you don't want to offend the Germans but make time to visit a mosque in Turkey. You offended our dead and every veteran when you give the Germans more respect than the people who saved the German people from themselves. What's the matter withyou?

I am convinced that you and the members of your administration have the historical and intellectual depth of a mud puddle and should be ashamed of yourselves, all of you. You are so self-righteously offended by the big bankers and the American automobile manufacturers yet do nothing about the real thieves in this situation, Mr. Dodd, Mr. Frank, Franklin Raines, Jamie Gorelic, the Fannie Mae bonuses, and the Freddie Mac bonuses.What do you intend to do about them? Anything? I seriously doubt it.

What about the U.S. House members passing out $9.1 million in bonuses to their staff members - on top of the $2.5 million in automatic pay raises that lawmakers gave themselves? I understand the average House aide got a 17% bonus. I took a 5% cut in my pay to save jobs with my employer. You haven't said anything about that. Who authorized that? I surely didn't!

Executives at Fannie Mae and Freddie Mac will be receiving $210 million in bonuses over an eighteen-month period, that's $45 million more than the AIG bonuses. In fact, Fannie and Freddie executives have already been awarded $51 million - not a bad take. Who authorized that and why haven't you expressed your outrage at this group who are largely responsible for the economic mess we have right now?

I resent that you take me and my fellow citizens as brain-dead and not caring about what you idiots do. We are watching what you are doing and we are getting increasingly fed up with all of you. I also want you to know that I personally find just about everything you do and say to be offensive to every one of my sensibilities. I promise you that I will work tirelessly to see that you do not get achance to spend two terms destroying my beautiful country.

Sincerely,

Ms Kathleen Lyday
Fourth Grade Teacher
Grandview Elementary School
11470 Hwy. C
Hillsboro, MO 63050

Government Motors

This story is from a Ford engineer who reports on the type of people the Obama administration is sending to the auto industry. If it wasn't so pathetic, it would be hilarious...

"I recently attended a breakfast meeting where the speaker/guest was David E. Cole, Chairman, Center for Automotive Research (CAR). You have all likely heard Cole CAR quoted, or referred to in the auto industry news lately.

Mr. Cole, who is an engineer by training, told many stories of the difficulty of working with the folks that the Obama administration has sent to save the auto industry. There have been many meetings where a 30+ year experience automotive expert has to listen to a newcomer to the industry, someone with zero manufacturing experience, zero auto industry experience, zero business experience, zero finance experience, and zero engineering experience, tell them how to run their business.

His favorite story is as follows:

There was a team of Obama people speaking to Mr. Cole (engineer, 40+ years automotive experience, Chairman of CAR). They were explaining to Mr. Cole that the auto companies needed to make a car that was electric and liquid natural gas (LNG) with enough combined fuel to go 500 miles so we wouldn't "need" so many gas stations (a whole other topic).

They were quoting BTU's of LNG and battery life that they had looked up on some website. Mr. Cole explained that to do this you would need a trunk FULL of batteries and a LNG tank as big as a car to make that happen and that there were problems related to the laws of physics that prevented them from...

At this point, the Obama person interrupted and said (and I am quoting here) "The laws of physics? Whose rules are those, we need to change that."

As this government schmuck expounded on the topic, some of his cohorts frantically wrote down the “law name” so they could look it up.

The Obama person continued: “We have the congress and the administration. We can repeal that law, amend it, or use an executive order to get rid of that problem. That's why we are here, to fix these sorts of issues."

Ford Engineer (Name withheld for obvious reasons)

P.S. Liquid natural gas (LNG) is stored at -260F. I don’t believe they had their facts correct. Perhaps they were thinking about compressed natural gas (CNG) in which case a huge tank would be required for that service. In any event, tis very sad.

Absolutely Shameless

This is the same man who QUADRUPLED the annual deficit in just FOUR MONTHS in office...

Obama frets on debt, sees U.S. unemployment rising

ReutersTuesday, June 16, 2009

WASHINGTON (Reuters) - President Barack Obama said on Tuesday that worrying about the U.S. government's finances "keeps me awake at night" and the country needed to start planning now to tackle soaring deficits.

In a pair of interviews on CNBC and Bloomberg television, Obama defended increasing government spending to prevent the recession from worsening, and warned the unemployment rate may hit 10 percent this year, a level not seen since 1983.

"There's no doubt that we've got a serious problem in terms of our long-term deficits and debt," he told CNBC. "I make no apologies for having acted short term to deal with our recession."

But he said once the recession ends, "we're going to have to close that gap between the amount of money coming in and the amount of money going out."

The Congressional Budget Office estimated on Tuesday that the federal deficit would hit $1.43 trillion in fiscal 2010 under Obama's budget plan, slightly higher than it had previously forecast.

Obama said unless the United States can contain its long-term debt and deficits, foreign investors may shun U.S. assets, driving up borrowing costs for the government as well as households and businesses.

"I am concerned about the long-term issue of our structural deficit and our long-term debt because if we don't get a handle on that then there's no doubt that at some point whether it's the Chinese, the Koreans, the Japanese, whoever else has been snatching up Treasuries are going to decide that this is too much of a risk," he told Bloomberg.

Rising health care costs put the biggest strain on the budget, so curbing those costs would help shore up U.S. finances, he said. Obama has proposed overhauling the health care system to cover those without insurance, but critics have questioned how he will pay for that without worsening the fiscal position.

He said the pace of job losses was slowing and the economy was "going to turn around," but the unemployment rate would probably rise from its current level of 9.4 percent.

Economists advising the American Bankers Association forecast earlier on Tuesday that the U.S. unemployment rate would peak at 10 percent, although they did not expect it to reach that mark until early in 2010.

"You're starting to see the engines of the economy turn," Obama said on Bloomberg. "It's going to take a long time. We had a huge deleveraging that took place, but I'm confident that if we take the steps that are necessary on healthcare, on energy, on education. If we get a strong financial regulatory system in place so people have confidence in the markets again, that we will end up seeing a recovery shortly."

Obama Administration Needs Your Help

They can't decide which of the following slogans best describes their mission. Perhaps you can help them. Just click on the Comments link below and let them know what you think...

The $9 Trillion Fraud

Click the link below to see how $9 Trillion of YOUR money just evaporated in eight short months as an "off balance sheet" transaction by the Federal Reserve. This five-minute video is an interrogation of the Inspector General of the Federal Reserve by a member of the U.S. House of Representatives and it is a stunning and downright damning indictment of our central banking system...

http://dailybail.com/home/there-are-no-words-to-describe-the-following-part-ii.html

New Bill Bans You From Selling Your Home Without a Bank!

That's right, your government is about to tell you that you can't sell your home using owner financing...

H.R. 1728: The Death of Creative Financing

Mandelman Matters blog
June 11, 2009

H.R. 1728 passed the House by an overwhelming majority in a record three days time. Now it’s in the Senate and is widely expected to pass quickly as well. Why the rush? Is AIG planning to hand out zillions in bonuses again?

My guess would be that our elected representatives and their banking benefactors would prefer that we don’t know anything about it.

Consider this scenario:

You own a house. You want to sell it.

Someone wants to buy it.

You decide to sell it to the person who wants to buy it and carry the paper yourself for whatever reason. Maybe you want the income instead of the cash. Maybe you’re just particularly fond of the buyer, I don’t know.

I’m sorry… you can’t. It’s illegal.

Huh? Excuse me. It’s my house… Why can’t I sell it to whomever I choose, however I choose.

Nope, sorry. You’ll have to become a “lender” and get a lender’s license.

Why? I’m not a lender.

Well, because you’re only allowed to sell your own house once every three years without going through the bank for a mortgage. And there are a lot more rules than that, believe it or not.

It has to be a 30-year, fully amortizing loan and you must comply with RESPA regulations, provide Truth in Lending documentation, and “verify” that the borrower is able to repay the loan, just like the banks don’t.

You can read the bill for yourself… I’m going to stop right here for a moment.

The moniker for the HR 1728 bill is the Mortgage Lending and Anti-Predatory Lending Act, so it sounds absolutely fabulous, doesn’t it? It sounds like something we’ve needed for a long time… a bill to stop “predatory lending”. Who could possibly be against that?

(Before I go on, I’d like to register my extreme displeasure at being treated like I’m four years old by our elected representatives. They obviously believe that I’ll be happy to eat cow pies if they’ll just call them Ding Dongs.)

Look, obviously this is an important piece of legislation. After all, just look at what caused this unstoppable catastrophic meltdown in the first place. If it weren’t for a bunch of individual homeowners selling their own homes to other people and carrying back the paper themselves we never would have gotten into this mess in the first place. Those sellers obviously have to be stopped.

There’s another clause in this bill that I found absolutely unbelievable. The bill says that if you own rental units and the government decides that you’re at risk of foreclosure, the government can seize your property… before you’re foreclosed on, mind you. Someone wakes up in the morning and decides that you might lose your units to foreclosure, and you are screwed.

You want time to go over that one again? It’s perfectly understandable if you do.

What it said was that the legislation makes it possible for the government to seize your rental units if they deem that you are at risk of losing the property to foreclosure. I assume the intent is to prevent renters from being put out of their rented homes, which is perfectly understandable because everyone knows that it’s only okay to put actual homeowners out of their homes.

Now, I know that usually I like to go into some level of detail on these types of things, but this time I’m keeping it short and sweet. A memo ought to do it…

[Click here for the entire blog: http://mandelman.ml-implode.com/2009/06/now-the-banks-want-to-stop-you-from-selling-your-own-home-without-them/]