Obama walking in Hoover's shoes?
I’ve been saying for a long time Barack Obama is walking in Herbert Hoover’s shoes. And they’re making the same mistakes – almost unconsciously. I think it’s much the same as it was in the Twenties and the Thirties. The government then didn’t realize what was happening. And I think our leaders are caught in the same problem." Chris Whalen Link
Showing posts with label MBS. Show all posts
Showing posts with label MBS. Show all posts
Friday, October 22, 2010
Chris Whalen describes foreclosure issue as a cancer
Chris Whalen on Bloomberg 10/21/10 discussing the foreclosure issue and describes it as a cancer. Mr. Whalen also notes that many MBS holders don't know what they own and have little to no recourse given the laws and procedures. Chris foresees the states telling home owners to stay in homes and just pay the real estate taxes and let Washington deal with the mortgage foreclosure aspect.
Wednesday, August 25, 2010
Michael Pento: The Fed's Biggest Bubble
By: Michael Pento
Tuesday, August 24, 2010
(thanks to Euro Pacific Capital)
I’ve made a living out of exposing economic fallacies, but there’s one whale that I can’t seem to harpoon. Even top-flight Wall Street analysts seem to believe that the Fed’s doubling of the monetary base after the credit crunch has not had an inflationary impact on our economy. Their logic can be summed up like so: “The money the Fed created and dropped from helicopters has all been caught in the trees.” In other words, the Fed is creating money, but it is just being held as excess reserves by the banking system instead of being loaned to the public. Therefore, the money supply hasn’t truly increased, there is no money multiplier effect, and aggregate price levels are behaving themselves.
But this is only a half-truth. Yes, most of the money created by the Fed has been kept by commercial banks as excess reserves. However, the Fed doesn’t conjure reserves by magic. It first creates an electronic credit by fiat, then purchases an asset held by a financial institution. Those primary dealers then deposit that Federal Reserve check into a bank, thus creating excess reserves for the banking system. The act of creating money from nothing and buying an asset — be it a Treasury bond or Mortgage Backed Security (MBS) — drives up the price of that asset in the open market. Those price distortions send erroneous signals to private buyers and sellers, eventually creating gross economic imbalances.
Therefore, the inflation created by the Fed first gets concentrated in whatever asset it has chosen to purchase – before spreading throughout the economy.
In the latest example of the Fed’s monetary manipulations, Bernanke & Co. purchased $1.25 trillion in MBS. The prices of MBS were therefore driven up (and yields down). Before that, the Fed forced the entire yield curve lower by purchasing not only Treasury bills but also $300 billion in notes and bonds. The Fed has also recently indicated that it will be swapping maturing MBS for longer-dated Treasury securities in an effort to keep its balance sheet from shrinking.
While it is true that — for now at least — we have been spared from the imminent curse of skyrocketing consumer prices, thanks to the falling money multiplier, it is blatantly untrue that the trillion-plus dollars the Fed created have been rendered inconsequential.
Not only has the huge buildup in the monetary base put pressure on the US dollar and caused gold to soar, but it has also broadcast an egregious and distortive price signal for US debt securities. The 10-year note is now trading just above 2.5%. That yield is near its all time record low, nearly 5 percentage points below its 40-year average, and 13 percentage points below its record high of September 1981.
US sovereign debt should only enjoy such historically low yields due to an overabundance of savings, low inflation, and low debt. None of those preferable conditions currently exist. Hence, US Treasuries are the most over-supplied, over-owned, and over-priced asset in the history of the planet! Once the debt dam breaks, it will send the dollar and bond prices cascading lower, and consumer prices and bond yields through the roof.
While Wall Street and Washington are petrified of the deflation boogieman, the real menace lurking in the shadows is the Fed’s bond bubble – and it’s going to eat small investors alive.
Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.
Tuesday, August 24, 2010
(thanks to Euro Pacific Capital)
I’ve made a living out of exposing economic fallacies, but there’s one whale that I can’t seem to harpoon. Even top-flight Wall Street analysts seem to believe that the Fed’s doubling of the monetary base after the credit crunch has not had an inflationary impact on our economy. Their logic can be summed up like so: “The money the Fed created and dropped from helicopters has all been caught in the trees.” In other words, the Fed is creating money, but it is just being held as excess reserves by the banking system instead of being loaned to the public. Therefore, the money supply hasn’t truly increased, there is no money multiplier effect, and aggregate price levels are behaving themselves.
But this is only a half-truth. Yes, most of the money created by the Fed has been kept by commercial banks as excess reserves. However, the Fed doesn’t conjure reserves by magic. It first creates an electronic credit by fiat, then purchases an asset held by a financial institution. Those primary dealers then deposit that Federal Reserve check into a bank, thus creating excess reserves for the banking system. The act of creating money from nothing and buying an asset — be it a Treasury bond or Mortgage Backed Security (MBS) — drives up the price of that asset in the open market. Those price distortions send erroneous signals to private buyers and sellers, eventually creating gross economic imbalances.
Therefore, the inflation created by the Fed first gets concentrated in whatever asset it has chosen to purchase – before spreading throughout the economy.
In the latest example of the Fed’s monetary manipulations, Bernanke & Co. purchased $1.25 trillion in MBS. The prices of MBS were therefore driven up (and yields down). Before that, the Fed forced the entire yield curve lower by purchasing not only Treasury bills but also $300 billion in notes and bonds. The Fed has also recently indicated that it will be swapping maturing MBS for longer-dated Treasury securities in an effort to keep its balance sheet from shrinking.
While it is true that — for now at least — we have been spared from the imminent curse of skyrocketing consumer prices, thanks to the falling money multiplier, it is blatantly untrue that the trillion-plus dollars the Fed created have been rendered inconsequential.
Not only has the huge buildup in the monetary base put pressure on the US dollar and caused gold to soar, but it has also broadcast an egregious and distortive price signal for US debt securities. The 10-year note is now trading just above 2.5%. That yield is near its all time record low, nearly 5 percentage points below its 40-year average, and 13 percentage points below its record high of September 1981.
US sovereign debt should only enjoy such historically low yields due to an overabundance of savings, low inflation, and low debt. None of those preferable conditions currently exist. Hence, US Treasuries are the most over-supplied, over-owned, and over-priced asset in the history of the planet! Once the debt dam breaks, it will send the dollar and bond prices cascading lower, and consumer prices and bond yields through the roof.
While Wall Street and Washington are petrified of the deflation boogieman, the real menace lurking in the shadows is the Fed’s bond bubble – and it’s going to eat small investors alive.
Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.
Sunday, July 11, 2010
The Con of the Decade Part I by Charles Hugh Smith
Great Post by Charles Hugh Smith (http://www.oftwominds.com/)
The con of the decade (Part I) involves the transfer of private debt to the public (the marks), who then pays interest forever to the con artists.
I've laid out the Con of the Decade (Part I) in outline form:
1. Enable trillions of dollars in mortgages guaranteed to default by packaging unlimited quantities of them into mortgage-backed securities (MBS), creating umlimited demand for fraudulently originated loans.
2. Sell these MBS as "safe" to credulous investors, institutions, town councils in Norway, etc., i.e. "the bezzle" on a global scale.
3. Make huge "side bets" against these doomed mortgages so when they default then the short-side bets generate billions in profits.
4. Leverage each $1 of actual capital into $100 of high-risk bets.
5. Hide the utterly fraudulent bets offshore and/or off-balance sheet (not that the regulators you had muzzled would have noticed anyway).
6. When the longside bets go bad, transfer hundreds of billions of dollars in Federal guarantees, bailouts and backstops into the private hands which made the risky bets, either via direct payments or via proxies like AIG. Enable these private Power Elites to borrow hundreds of billions more from the Treasury/Fed at zero interest.
7. Deposit these funds at the Federal Reserve, where they earn 3-4%. Reap billions in guaranteed income by borrowing Federal money for free and getting paid interest by the Fed.
8. As profits pile up, start buying boatloads of short-term U.S. Treasuries. Now the taxpayers who absorbed the trillions in private losses and who transferred trillions in subsidies, backstops, guarantees, bailouts and loans to private banks and corporations, are now paying interest on the Treasuries their own money purchased for the banks/corporations.
9. Slowly acquire trillions of dollars in Treasuries--not difficult to do as the Federal government is borrowing $1.5 trillion a year.
10. Stop buying Treasuries and dump a boatload onto the market, forcing interest rates to rise as supply of new T-Bills exceeds demand (at least temporarily). Repeat as necessary to double and then triple interest rates paid on Treasuries.
11. Buy hundreds of billions in long-term Treasuries at high rates of interest. As interest rates rise, interest payments dwarf all other Federal spending, forcing extreme cuts in all other government spending.
12. Enjoy the hundreds of billions of dollars in interest payments being paid by taxpayers on Treasuries that were purchased with their money but which are safely in private hands.
Since the Federal government could potentially inflate away these trillions in Treasuries, buy enough elected officials to force austerity so inflation remains tame. In essence, these private banks and corporations now own the revenue stream of the Federal government and its taxpayers. Neat con, and the marks will never understand how "saving our financial system" led to their servitude to the very interests they bailed out.
The circle is now complete: in "saving our financial system," the public borrowed trillions and transferred the money to private Power Elites, who then buy the public debt with the money swindled out of the taxpayer. Then the taxpayers transfer more wealth every year to the Power Elites/Plutocracy in the form of interest on the Treasury debt. The Power Elites will own the debt that was taken on to bail them out of bad private bets: this is the culmination of privatized gains, socialized risk.
In effect, it's a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.
Link to Charles Hugh Smith's website
Special thanks to Zero Hedge for calling out the great post and for their commentary.
Sometimes, when chasing the bouncing ball of fraud and corruption on a daily basis, it is easy to lose sight of the forest for the millions of trees (all of which have a 150% LTV fourth-lien on them, underwritten by Goldman Sachs, which is short the shrubbery tranche). Luckily, Charles Hugh Smith, of oftwominds.com has taken the time to put it all into such simple and compelling terms, even corrupt North Carolina congressmen will not have the chance to plead stupidity after reading this.
Of course, to those familiar with the work of Austrian economists, none of this will come as a surprise.
The con of the decade (Part I) involves the transfer of private debt to the public (the marks), who then pays interest forever to the con artists.
I've laid out the Con of the Decade (Part I) in outline form:
1. Enable trillions of dollars in mortgages guaranteed to default by packaging unlimited quantities of them into mortgage-backed securities (MBS), creating umlimited demand for fraudulently originated loans.
2. Sell these MBS as "safe" to credulous investors, institutions, town councils in Norway, etc., i.e. "the bezzle" on a global scale.
3. Make huge "side bets" against these doomed mortgages so when they default then the short-side bets generate billions in profits.
4. Leverage each $1 of actual capital into $100 of high-risk bets.
5. Hide the utterly fraudulent bets offshore and/or off-balance sheet (not that the regulators you had muzzled would have noticed anyway).
6. When the longside bets go bad, transfer hundreds of billions of dollars in Federal guarantees, bailouts and backstops into the private hands which made the risky bets, either via direct payments or via proxies like AIG. Enable these private Power Elites to borrow hundreds of billions more from the Treasury/Fed at zero interest.
7. Deposit these funds at the Federal Reserve, where they earn 3-4%. Reap billions in guaranteed income by borrowing Federal money for free and getting paid interest by the Fed.
8. As profits pile up, start buying boatloads of short-term U.S. Treasuries. Now the taxpayers who absorbed the trillions in private losses and who transferred trillions in subsidies, backstops, guarantees, bailouts and loans to private banks and corporations, are now paying interest on the Treasuries their own money purchased for the banks/corporations.
9. Slowly acquire trillions of dollars in Treasuries--not difficult to do as the Federal government is borrowing $1.5 trillion a year.
10. Stop buying Treasuries and dump a boatload onto the market, forcing interest rates to rise as supply of new T-Bills exceeds demand (at least temporarily). Repeat as necessary to double and then triple interest rates paid on Treasuries.
11. Buy hundreds of billions in long-term Treasuries at high rates of interest. As interest rates rise, interest payments dwarf all other Federal spending, forcing extreme cuts in all other government spending.
12. Enjoy the hundreds of billions of dollars in interest payments being paid by taxpayers on Treasuries that were purchased with their money but which are safely in private hands.
Since the Federal government could potentially inflate away these trillions in Treasuries, buy enough elected officials to force austerity so inflation remains tame. In essence, these private banks and corporations now own the revenue stream of the Federal government and its taxpayers. Neat con, and the marks will never understand how "saving our financial system" led to their servitude to the very interests they bailed out.
The circle is now complete: in "saving our financial system," the public borrowed trillions and transferred the money to private Power Elites, who then buy the public debt with the money swindled out of the taxpayer. Then the taxpayers transfer more wealth every year to the Power Elites/Plutocracy in the form of interest on the Treasury debt. The Power Elites will own the debt that was taken on to bail them out of bad private bets: this is the culmination of privatized gains, socialized risk.
In effect, it's a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.
Link to Charles Hugh Smith's website
Special thanks to Zero Hedge for calling out the great post and for their commentary.
Sometimes, when chasing the bouncing ball of fraud and corruption on a daily basis, it is easy to lose sight of the forest for the millions of trees (all of which have a 150% LTV fourth-lien on them, underwritten by Goldman Sachs, which is short the shrubbery tranche). Luckily, Charles Hugh Smith, of oftwominds.com has taken the time to put it all into such simple and compelling terms, even corrupt North Carolina congressmen will not have the chance to plead stupidity after reading this.
Of course, to those familiar with the work of Austrian economists, none of this will come as a surprise.
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