I could not believe my eyes when I read this article on the evening of the 28th of April on Bloomberg.
In my life and yours there will never be another program like this. It is the biggest payoff to the mortgage industry / banks / speculators who hold mortgage debt ever devised disguised as a "homeowner bailout".
Our government has wrapped legislation designed to benefit big business with "consumer friendly" titles for years. Why? I guess it works. People in this country live by headlines and PR spouted by the loudest paid idiot so I guess it is fitting that congress and or the White House has long ago learned to give corporate legislation a consumer friendly title and all will be fine. Shame I use "consumer" to describe the American "citizen" but that is what American citizens are, consumers and nothing more (well solders but nobody will admit that).
The insanity of the government paying $2500 to "loan servicers" to rework a loan needs no explanation. This is taxpayer money going to help "homeowners" refinance their mortgage. Needless to say, "homeowners" (debtors) in this country already get the biggest damn government subsidy on the planet, living "rent free" as they write off the "interest" (majority of mortgage cost for the bulk of the loan) from their income on their taxes. Secondly, the spoiled, spoon fed, suburban raised baby boomers, were given the biggest "gift" in the history of tax giveaways under the Clinton administration (yea Clinton not Bush) with a $250,000 tax exemption on the sale of a primary residence with the only stipulation that one have lived in the property for 2 of the last 5 years.
So, "homeowners" live rent free, get to keep $250,000 in cap gains when they sell their home and NOW, they get a $2500 benefit from the mortgage company that refinances their tax free loan PLUS mortgage servicers (the people who collect the mortgage payment each month, first mortgages only) can get $4500 over three years if the loan stays on their books that long PLUS the BORROWER or the person refinancing their loan gets $5000 over five years as an "incentive" to pay their mortgage! An "incentive" to pay their mortgage? This money goes directly to towards reducing their principal balance.
Help me out here. Please? What in the hell is on the minds of the folks at the Treasury? I will tell you. Their G** D*** buddies! That is what is on their minds. They created the house of cards; this "economy" based on Usury, which has been advised against by every religion, every economic textbook of any useful significance and anybody with any common sense. We don't produce anything anymore so we have to base our economy on something right?
We cannot build tangible products in this country any longer at anywhere near the rate to maintain employment because we have dumbed down our economic expectations and wages as much as humanly possible to fatten the real "tax" in this country, huge profit margins on national oligopolistic business that control the sale and distribution of over 50% of the value of goods and services sold in this country, so we create an economy engineered by mathematicians with computer models that make it possible for one loan to one person to generate income and profits 5 different ways. Then when this pathetic, manipulated, unregulated house of cards comes crashing down we look to Washington (taxpayers) to finance the bail out?
I am absolutely disgusted by this entire thing and economically speaking, the Fed / Treasury / Government has borrowed, guaranteed, bought, lent and backed enough of the "economy" to last till about October 2009. After that, the entire thing comes crashing down big time. Get out now!
For more comical reading try this (subscription may be requred)
Wednesday, April 29, 2009
Thursday, April 16, 2009
CDS's and their Twisted Incentives
I love this stuff. I wrote some time ago about how the CDS market was dictating the rates that companies were forced to pay when trying to borrow money. This implied the CDS market knew best which is a dangerous president.
Today Henry Sender of the FT reported about how lenders who covered their loans through the CDS market are actually pushing their own borrowers into default so they can collect the CDS payoff instead of negotiating with the borrower. This is perverse and brings to light again the reality that these "derivative" contracts are insurance and if enough companies with significant debt are forced into bankruptcy, there will be great strains on companies who sold these products and we could see more "bail outs" in the near future if the government is stupid enough to continue throwing money after the idiots who wrote them.
The articles (may require subscription) states in part:
So lend with abandon because you can "cover yourself" with some of those profits from writing the loans by buying "protection" from whatever idiot is crazy enough to write a contract on the debt. This reality has much to do with why we are in the mess we are in and how our US spineless government continues to fail to regulate this industry or it's players and instead shoves cash into the accounts of incompetent idiots who wrote the contracts for the benefit of those who purchased the contracts. Now the government owns the banks that benefited from the bailout and the company of the largest number of idiots who wrote them. Is there a conflict here? Are there conflicts everywhere? Can the government "be the market"? Hell no.
Today Henry Sender of the FT reported about how lenders who covered their loans through the CDS market are actually pushing their own borrowers into default so they can collect the CDS payoff instead of negotiating with the borrower. This is perverse and brings to light again the reality that these "derivative" contracts are insurance and if enough companies with significant debt are forced into bankruptcy, there will be great strains on companies who sold these products and we could see more "bail outs" in the near future if the government is stupid enough to continue throwing money after the idiots who wrote them.
The articles (may require subscription) states in part:
Credit default swaps, the derivatives instruments that have figured prominently in the global financial crisis, are now being blamed for playing a role in two bankruptcy filings this week.
Bankers and lawyers involved in restructuring efforts say they are concerned some lenders to troubled companies, such as newsprint producer AbitibiBowater and mall owner General Growth Properties, stand to benefit from a default because they also hold default swaps, which entitle them to payments in such events.
“We have seen CDS becoming a significant factor” when negotiations on out-of-court restructurings fail, said Alan Kornberg, the partner in charge of the bankruptcy practice at Paul, Weiss, Rifkind, Wharton & Rice, speaking generally. “We used to talk about the practice theoretically but now we see cases where it is hard to get lenders to agree to tender or to compromise and then you find out that these holdouts had significant CDS protection.”
Such exchange offers require the support of a significant number of lenders, 97 per cent in the case of bondholders in this case. But those who withhold support often have powerful incentives to do so, either because they hope to be made whole or because they are seeking to force a filing that would trigger payments under their credit protection agreements, bankers and lawyers say.
So lend with abandon because you can "cover yourself" with some of those profits from writing the loans by buying "protection" from whatever idiot is crazy enough to write a contract on the debt. This reality has much to do with why we are in the mess we are in and how our US spineless government continues to fail to regulate this industry or it's players and instead shoves cash into the accounts of incompetent idiots who wrote the contracts for the benefit of those who purchased the contracts. Now the government owns the banks that benefited from the bailout and the company of the largest number of idiots who wrote them. Is there a conflict here? Are there conflicts everywhere? Can the government "be the market"? Hell no.
Wednesday, April 15, 2009
Have fun with this rant to my friend James...
Hello James,
I don't have Doug's email but I thought of him today when I was reading about new solar power plants being built in Arizona and Nevada.
My fear is that all these solar power plants we are building to "capture" the sun's energy are actually going to exaggerate our planet's move toward global warming. See, even though burning fossil fuels create CO2 and soot (which gets in atmosphere and lands on ice helping it to absorb sunlight and thus melt faster) which trap warm air in our atmosphere, at least burning fossil fuels are net planet neutral for now ie; we get fossil fuels out of the ground and burn them and create pollution but the earth is still getting the same amount of sun light as before and hence since we simply "wasted" all the energy of the sun since the beginning of man (except for with respect to planting crops). We were essentially ignoring the real power and energy of the sun.
Now the dilemma is, if we start "capturing" the sun's energy with solar banks covering thousands and even millions of square miles, over time, we are essentially capturing high amounts of the sun's energy and feeding it into transmission lines and sending it to where it is then "used". Anywhere energy is "used" it generates heat at the "use source". Now this heat is released into the atmosphere and it is real heat that did not originate from "within" the earth's crust.
Let me put it another way. If we are going to be "using" or "burning" fossil fuels this is really no big deal because the earth is a zero sum energy source over the short term ie; it took heat and pressure of the earth's crust to create the "energy" sources we use such as coal and oil and now we are simply transforming that "energy" from the earth to usable sources on the surface again. We are not really sure where oil and coal come from, ie; were they once organic matter that pressure and heat and biological happenings over time converted this organic matter into an "energy source"? Not to try and answer that question here, suffice to say, it took millions if not billions of years for the earth to "absorb" enough of the sun's energy to create enough organic matter to ultimately turn into a burnable energy source which we pull from the earth's crust.
Back to the solar thing. So if you get my drift, what we are essentially doing is accelerating dramatically the earth's absorption of the sun's energy, shoving that energy into our "energy transportation infrastructure" and exporting it back out again as heat. Allot of heat. More heat than the earth would be remotely capable of absorbing without the added technology of the solar panels to be able to absorb. These panels are not "reflecting" the sun's energy and heat back to the atmosphere, they are absorbing every bit of the sun's Light or better put the Sun's electromagnetic radiation. In fact the more they absorb the better the technology for capturing the sun's energy and the more efficient the energy production and unfortunately the more heat is released when the energy is used.
Another technology which provides power from the sun is called concentrated solar power" (CSP). This essentially means creating an array of large concentrators (not unlike you concentrate the sun with a magnifier as a kid and can burn stuff), concentrating the suns energy and using that energy to boil water which turns turbines and creates energy in a more traditional way. (Note: I am more in favor of this type of power generation from sun's energy as these plants can be run by natural gas when the sun's energy is not sufficiently strong and can be use in more northern and southern hemispheres and the boilers store enough energy to run the turbines at night acting as stores of energy.)
To summarize, I thought of Doug because even though we were quite trashed when we were out in the woods talking about wind power and Doug's hilarious observation that the windmills would somehow alter the rotation of the earth and or currents (in the case of under water "current mills") his observation has stuck in my mind and I do believe there is a real need to study the long term effects of so effectively "capturing" the sun's energy in such a way that produces real heat upon it's output.
Hope I did not bore you to death:-)
Patrick
I don't have Doug's email but I thought of him today when I was reading about new solar power plants being built in Arizona and Nevada.
My fear is that all these solar power plants we are building to "capture" the sun's energy are actually going to exaggerate our planet's move toward global warming. See, even though burning fossil fuels create CO2 and soot (which gets in atmosphere and lands on ice helping it to absorb sunlight and thus melt faster) which trap warm air in our atmosphere, at least burning fossil fuels are net planet neutral for now ie; we get fossil fuels out of the ground and burn them and create pollution but the earth is still getting the same amount of sun light as before and hence since we simply "wasted" all the energy of the sun since the beginning of man (except for with respect to planting crops). We were essentially ignoring the real power and energy of the sun.
Now the dilemma is, if we start "capturing" the sun's energy with solar banks covering thousands and even millions of square miles, over time, we are essentially capturing high amounts of the sun's energy and feeding it into transmission lines and sending it to where it is then "used". Anywhere energy is "used" it generates heat at the "use source". Now this heat is released into the atmosphere and it is real heat that did not originate from "within" the earth's crust.
Let me put it another way. If we are going to be "using" or "burning" fossil fuels this is really no big deal because the earth is a zero sum energy source over the short term ie; it took heat and pressure of the earth's crust to create the "energy" sources we use such as coal and oil and now we are simply transforming that "energy" from the earth to usable sources on the surface again. We are not really sure where oil and coal come from, ie; were they once organic matter that pressure and heat and biological happenings over time converted this organic matter into an "energy source"? Not to try and answer that question here, suffice to say, it took millions if not billions of years for the earth to "absorb" enough of the sun's energy to create enough organic matter to ultimately turn into a burnable energy source which we pull from the earth's crust.
Back to the solar thing. So if you get my drift, what we are essentially doing is accelerating dramatically the earth's absorption of the sun's energy, shoving that energy into our "energy transportation infrastructure" and exporting it back out again as heat. Allot of heat. More heat than the earth would be remotely capable of absorbing without the added technology of the solar panels to be able to absorb. These panels are not "reflecting" the sun's energy and heat back to the atmosphere, they are absorbing every bit of the sun's Light or better put the Sun's electromagnetic radiation. In fact the more they absorb the better the technology for capturing the sun's energy and the more efficient the energy production and unfortunately the more heat is released when the energy is used.
Another technology which provides power from the sun is called concentrated solar power" (CSP). This essentially means creating an array of large concentrators (not unlike you concentrate the sun with a magnifier as a kid and can burn stuff), concentrating the suns energy and using that energy to boil water which turns turbines and creates energy in a more traditional way. (Note: I am more in favor of this type of power generation from sun's energy as these plants can be run by natural gas when the sun's energy is not sufficiently strong and can be use in more northern and southern hemispheres and the boilers store enough energy to run the turbines at night acting as stores of energy.)
To summarize, I thought of Doug because even though we were quite trashed when we were out in the woods talking about wind power and Doug's hilarious observation that the windmills would somehow alter the rotation of the earth and or currents (in the case of under water "current mills") his observation has stuck in my mind and I do believe there is a real need to study the long term effects of so effectively "capturing" the sun's energy in such a way that produces real heat upon it's output.
Hope I did not bore you to death:-)
Patrick
Goldman upgrades REIT's
So Goldman put Simon Property Group (SPG) on conviction buy list and upgraded SL Green Realty (SLG) today. Can anybody guess why? The commercial property sector is the next potential dominoe to fall in the credit mess we are in. This is a funny quote also from Wachovia analyst Carl Reichardt from Dow Jones:
"As a result of lower interest rates, aggressive pricing and the Federal Government's tax credit program for first-time homebuyers, we expect macro-news flow related to customer/builder sentiment and new home sales activity to be increasingly positive over the next four to six weeks,"
He does not say the industry is going to improve, only that the "spin machine" will be touting a "recovery" in these stocks over short term.
Now, why is that? Why is Goldman upgrading these stocks at levels where they have already recovered by nearly double their recent lows? You guess. Yea, Goldman has a huge amount of exposure to the commercial real estate sector as do other "investment" firms and they need to get out before the thing crashes bring wave 2 of losses to their books.
Will the Government bail them out again? Can one say "Awe, those poor commercial real estate developers" the way they can spin "Awe, those poor homeowners"?
Be VERY wary of buying any REIT stock right now, very wary.
"As a result of lower interest rates, aggressive pricing and the Federal Government's tax credit program for first-time homebuyers, we expect macro-news flow related to customer/builder sentiment and new home sales activity to be increasingly positive over the next four to six weeks,"
He does not say the industry is going to improve, only that the "spin machine" will be touting a "recovery" in these stocks over short term.
Now, why is that? Why is Goldman upgrading these stocks at levels where they have already recovered by nearly double their recent lows? You guess. Yea, Goldman has a huge amount of exposure to the commercial real estate sector as do other "investment" firms and they need to get out before the thing crashes bring wave 2 of losses to their books.
Will the Government bail them out again? Can one say "Awe, those poor commercial real estate developers" the way they can spin "Awe, those poor homeowners"?
Be VERY wary of buying any REIT stock right now, very wary.
Monday, April 13, 2009
Good little post by Adrian Salbuchi
http://www.youtube.com/watch?v=xnnajAVspWU
This summary deserves merit because of a couple good points. One being the idea that the "derivative" market has become so huge no government has the resources to bail out the system. I have mentioned this many times. The other value is his analysis of the global financial situation based on four parts, as the four sides of a pyramid.
However, he should technically have a pentagon since his rant about the derivative markets are really a 5th side but he obviously would loose his theses title of the pyramid in global financial markets. To bad, the guy is smart bout could not figure out a catchy way to use a 5 sided analysis.
There are also 2 areas he is weak in presentation (first part of video):
1) Ponzi analysis flaw 1 second side of pyramid: "Private money exercises control over central banks." Actually, in the US the "central bank" is a "private bank" so this analysis does not work. However, he could have said the "private banks" (including the central bank or fed reserve bank in US) exercises control over the "government" through the insufficient supply of money, hence forcing not only private industry to borrow but also the government to borrow (since the government no longer issues money directly) and thus the "central bank" has the power to control interest rates and the cost of money to both private industry and the government and ultimately it's populace since they pay for government through taxes.
2) After analysis of privatising profits but socializing losses he mentions the Fed Reserve issuing "fake money" which "we all" pay for. Actually the rest of the world does not pay for this unless the issuance of money causes a collapse in the dollar which much of the rest of the world holds as a reserve currency. If in fact the dollar is highly devalued then his statement holds up. The world will indeed pay for the recklessness of the Fed's actions.
Secondly, the Fed is buying back it's debt with "new money" not necessarily "fake money". The "new money" is "real money" and is not being "borrowed" by the government. Instead it is being "printed" new. Now "printed" is also a term to be not misunderstood. This money is actually not being "printed" in the way we all think of $20's rolling off a printing press. The money is being lets say "injected" into the accounts of those who purchased the government debt in exchange for that debt. So even though the institution holding the debt could have simply "sold" the debt to the open market, this action would have resulted in no net gain in "money" in circulation. By the Fed "issuing new" money to buy this debt they are adding "money" to the financial system the institution can then use to expand lending to others or more likely as banks hoard money, simply buy more government debt at the next offering. All these actions are quite unprecedented and these actions have also been taken in Japan and the UK from what I know.
I will not critique the second part of his video as it is all speculation and offers no tangible solutions (Idea about the "good gold vs bad gold" is interesting). To bad, the guy has lived through so many of these crises and still does not tell us what the hell to do but "citizens hold your leaders to account". Like who knows what in the hell to hold them account to? Why does he not say, create a new model of economic / financial regulation and rules of the game so this cannot happen again not unlike what they tried in the 30's before all was reversed in the last 15 years?
Once again, this is a good summary but offers nothing else.
This summary deserves merit because of a couple good points. One being the idea that the "derivative" market has become so huge no government has the resources to bail out the system. I have mentioned this many times. The other value is his analysis of the global financial situation based on four parts, as the four sides of a pyramid.
However, he should technically have a pentagon since his rant about the derivative markets are really a 5th side but he obviously would loose his theses title of the pyramid in global financial markets. To bad, the guy is smart bout could not figure out a catchy way to use a 5 sided analysis.
There are also 2 areas he is weak in presentation (first part of video):
1) Ponzi analysis flaw 1 second side of pyramid: "Private money exercises control over central banks." Actually, in the US the "central bank" is a "private bank" so this analysis does not work. However, he could have said the "private banks" (including the central bank or fed reserve bank in US) exercises control over the "government" through the insufficient supply of money, hence forcing not only private industry to borrow but also the government to borrow (since the government no longer issues money directly) and thus the "central bank" has the power to control interest rates and the cost of money to both private industry and the government and ultimately it's populace since they pay for government through taxes.
2) After analysis of privatising profits but socializing losses he mentions the Fed Reserve issuing "fake money" which "we all" pay for. Actually the rest of the world does not pay for this unless the issuance of money causes a collapse in the dollar which much of the rest of the world holds as a reserve currency. If in fact the dollar is highly devalued then his statement holds up. The world will indeed pay for the recklessness of the Fed's actions.
Secondly, the Fed is buying back it's debt with "new money" not necessarily "fake money". The "new money" is "real money" and is not being "borrowed" by the government. Instead it is being "printed" new. Now "printed" is also a term to be not misunderstood. This money is actually not being "printed" in the way we all think of $20's rolling off a printing press. The money is being lets say "injected" into the accounts of those who purchased the government debt in exchange for that debt. So even though the institution holding the debt could have simply "sold" the debt to the open market, this action would have resulted in no net gain in "money" in circulation. By the Fed "issuing new" money to buy this debt they are adding "money" to the financial system the institution can then use to expand lending to others or more likely as banks hoard money, simply buy more government debt at the next offering. All these actions are quite unprecedented and these actions have also been taken in Japan and the UK from what I know.
I will not critique the second part of his video as it is all speculation and offers no tangible solutions (Idea about the "good gold vs bad gold" is interesting). To bad, the guy has lived through so many of these crises and still does not tell us what the hell to do but "citizens hold your leaders to account". Like who knows what in the hell to hold them account to? Why does he not say, create a new model of economic / financial regulation and rules of the game so this cannot happen again not unlike what they tried in the 30's before all was reversed in the last 15 years?
Once again, this is a good summary but offers nothing else.
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