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This Crisis Has Many Faces
Decades ago, there was a very famous actor, Paul Muni, who played a variety of different historical figures in the movies. From "Scarface" to Louis Pasteur to Toulouse Lautrec to Emile Zola, Muni was a character actor known for his many faces.
This financial market crisis that we have been battling over the last year has also had many faces. Delinquencies, defaults and foreclosures in sub-prime mortgages have caused many different types of investment based on sub-prime securities to plummet in value. Banks and brokers have written off, to date, over $130 billion in losses based on these bad investments. Financial stocks have plummeted, homebuilders have had the roof cave in on them, and the global stock market has lost $7.7 trillion in value since the crisis began and the U.S. dollar has plunged in value.
As foreclosures have mounted and bank lending has become extremely scarce, consumers have begun pulling in their horns, bringing the U.S. economy to the brink of recession. A friend of mine in the home interior furnishings business told me that his multi-national firm has seen orders from his two biggest U.S. distributors, plunge 20% in January alone, suggesting that the housing recession is having a huge impact on consumer spending and may continue to do so for months ahead. The U.S. is now, by far, the weakest market in which he operates.
Those are just some of the faces of this growing and deeply complex financial problem.
The many faces of Paul Muni may also have some relevance to the financial market crisis we are experiencing today ... since the next crisis that may rock Wall Street is a "Muni" crisis that will shake the municipal bond market to its core.
Municipal Bonds are facing a series of difficulties thanks to a variety of unexpected circumstances. Municipal Bond insurance companies have unexpectedly found themselves with too little capital to back the bonds that municipalities use to raise money for public works projects ... from roads to schools to parks.
Municipal Bond insurers, are called "Monolines" by Wall Street, because everyone thought they were only in one business ... the business of insuring municipal bonds. Instead, they have insured all forms of exotic investments, unbeknownst to the general public and most regulators and policymakers.
The "monolines" are suffering huge losses because they insured, not just muni-bonds, but also credit instruments tied to money-losing sub-prime mortgages. So, now that they are losing money, having insured these soured investments, they arguably have scant capital left to insure the trillions of dollars of muni-bonds that have been sold over the last many years. The monolines deny they are capital impaired, but regulators are scrambling to find billions of dollars in new capital to make sure that monolines have adequate capital to make good on their promises to insure everyone's favorite investment ... tax-free municipal bonds.
If the municipal bond insurers can't back those bonds, many institutions that were counting on the insurance to protect their muni-bond investments, may dump them in huge amounts, putting downward pressure on muni-bond prices and upward prices on yields ... hurting "mom and pop" investors who thought their "insured," tax-free muni-bonds were the safest investment around.
There are other dislocations going on in the muni-market that could also cause trouble. Some are quite complex and difficult to explain. But suffice to say, that if the situation in municipal bonds continues to deteriorate, it will affect not only the markets, but individual investors as well.
This is a perfect time to check the credit quality of your muni-bond holdings, their insurance and their prices and yields.
And like Paul Muni, the actor, many seemingly safe investments masquerade as bulletproof investments. We know from history that some investments can act like very safe securities, until a crisis rips off their protective masks and exposes their underlying weaknesses.
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It's Time to Dump the Federal Reserve ...
Martin Feldstein:
""There is plenty of blame to go around for the current situation. The Federal Reserve bears much of the responsibility, because of its failure to provide the appropriate supervisory oversight for the major money center banks. "
And now the Fed is bailing out the banks at our expense:
The move has sparked unease among some analysts about the stress developing in opaque corners of the US banking system and the banks' growing reliance on indirect forms of government support." ("US Banks borrow $50 billion via New Fed Facility", Financial Times)
(The story appeared no where in the US media)
http://www.marketoracle.co.uk/Article3776.html
FIRREA blows! Appraisal regulation assists in pushing up the money supply (by way of helping to increase the value of collateral), economic activity (via higher and higher loan amounts in cash out refinancings), and lender profits. As such, regulation is little more than a ruse designed to shift financial liability for losses from the appraisal client (i.e., the lending industry) to the Federal government who is now responsible for appraisal oversight.
Now that the Nation is experiencing another serious financial 'adjustment' just like the S&L Crisis, lenders and GSEs will be able to point to Federally mandated appraisal regulation as their free pass to escape a Congressional inquisition (where property valuations may be called into question). They will have the appearance of having done everything according to 'the book'. The investor groups suffering damages from having purchased loan packages (with this designer gift wrap) will have to seek a bail out from the government - the ultimate underwriter and overseer of lending and appraisal regulation. The government will not accept blame, but it will go looking for a villain. Guess whom they will find? -from "The Fraud of Appraisal Regulation" by Larry Levy 2004.
If we can't dump the Federal Reserve...-we could do with a good book about the Fed. Are you up to it, Ron, or can you shop it to a publisher or writer & start the research & writing of a book on the Fed...? The idea & the book could fly.
Oh my god, those poor banks and all of their fees they had to write off...forgetting of course that they put them there in the first place, usually without consulting with the account holder and based upon fine print extortion immunities. Why do you think some of us refuse to use banks? Because they are deceptive and manipulative. I've had to fight several times to get a $5 fee waived when I've gone into Wells Fargo to cash a Wells fargo check...ridiculous! It's the people, stupid--as the turn of phrase goes. The "US." It will only be solved from the bottom up. It's time for a year of jubilee...then again, maybe that's what the Fedral Monetary Whateveritis was counting on all along...seeing as how the deficit is practically a 1 with a series of infinite imaginary zeroes behind it.
You know, Ron, it's not "just subprime mortgages."
It's usury.
It's banks defrauding their account-holders and share-holders alike through abusive practices regarding the "opportunistic" posting of transactions to accounts. By "optimizing" this order in favor of the banks, which they claim we have all "agreed" to let them do, a single well-known national bank FOR EXAMPLE posted $14 BILLION in income from "fees and penalties."
It's struggling to cover for the fact that "the money's just not there," because if you look at that for-example-bank's balance sheet and subtract those "ill gotten gains," there's nothing left.
There was a reason why Usury was once a reprehensible crime ... you got your hand chopped off for it, just like a common thief.
There was a reason why many cultures had a "day of jubilee" in which all debts were cancelled, once every so-many years.
Our economy, world-wide in fact, is awash in dollar-bills (on our computers, that is) and utterly bereft of any actual value. We have taken our riches from a leprechaun, and now it is morning.
Let's start a war.
Well "DUDE", Please tell us how this FREE MARKET is going to be help or the American People helped in anyway by BAILING OUT THE BANK AND SUBPRIME LENDERS?
This GIANTIC TRANSFER OF WEALTH amount to REFUNDING LOSSES TO GAMBLERS WHO LOST IT ALL AT THE CRAP TABLES.
Thier bets covered by those who choose not to bet the farm on the misery of poor people!
Where is it in the Constitution that the American people have to bail out businesses the makes bad investment decision?
Ron, Your not on CNBC anymore so you can tell the truth. We are not on the brink of a recession. Mainstreet has been in one for
the last 4-6 months. We could be on the brink of a depression if you talk to a lot of people.
Everything you described in the article is horribly ominous, and goes far beyond recession. Your old pals, and the new bimbo,
are still pumping the American public full of hot air over there on CNBC. Aren't you glad your out and now can make some real money.
A person once said regulations were inposed because of abuses. The present administration came in and started removing or ignoring alot of the safe guards. Now we have the results of when greed runs the markets uncontrolled. The wealthy will not suffer, just the little guy.
Ah yes the glory of The Markets! Who needs demon government regulation like Glass-Steagal (put in place the last time this kind of screwjob happened) or indeed any oversight of those cultural Icons of American Enterprise like..like..Milken, Boesky, Lay, etc etc ad nauseum. Let the Markets rule all! Homo Economicus is what we is and we need more of Everything! More crap for the masses, the planet be damned! I'd like it best if everyone had their TV repossesed. Then maybe Americans could begin to think for themselves again and actual necessary changes could occur. But given the extent of hypnotic trance that most people labor in we're probably doomed to countless continuing days of abject misery. Buy the ticket, take the ride...
I'm taking a deap breath before I write this.
America's economy in the last 10 years has been built on debt, that's because we produce very little here anymore.
And now that debt, is loosing value. Wal- Street, used that debt as a way of creating imaginary castles in the air, castles of wealth and power.
But as the dollar goes down, the value of the debt does too. And all those protections they created for the debt they leveraged, from Bankrupcy Reform, to credit card reform, are being undone.
What we're seeing is not, a recession or a depression, instead it's a crash in the standard of living. Simply because American's can no longer create more debt for themselves. Which the banks can in turn leverage.
Yes, we could allow waves of immigrants to come into this country so we could turn them into debtors, but our money is loosing it's value so that won't work very well.
Instead we will have a new wave of immigrants, those with our money, buying our corporations, and turning America into a hollow shell. The corporate genuis MBA's who did this deserve to be poor, but not the hard working American's who got turned into debt slaves by their government, and their employers.
The brink of recession? How much does this guy earn annually and from where?
And this face is the Alfred E. Newman of our current crisis.
>>> http://www.youtube.com/watch?v=lIbdnM8Ts88
If the banks have written off that much, why are the debtors still on the books? Shouldn't those homeowners own those homes outright since the banks have decided they're not expecting any payment?
-- Still another face of the crisis is Asian. Fed rate cuts have exacerbated inflation in the rapidly expanding export-oriented oriental economies. So the prices of their goods to us are going to rise. As they put the breaks on their domestic inflation by raising their interest rates, the value of the dollar will fall faster, thereby adding another source of upward pressure on the prices we pay. Last but not least, to keep basic necessities affordable for populations growing restive, many Asian governments have begun imposing price controls. These risk explosions in black marketeering while they stay on and explosions in popular dissatisfaction when they come off. In other words, a political fuse has been stuck in an economic powder keg surrounded by folks playing with matches. When they finally catch America's recession bug, if not sooner, many will succumb to pyromania.
-- But, of course, the most perilous face of all is the continuing inability or refusal of the American public and its presidential candidates to face facts. A limp-wristed stimulus package won't tighten the countless credit screws come loose at the same time. Neither will rearranging the furniture in a gargantuan shadow banking system* whose very foundation is crumbling. The crisis is global. The crisis is severe. The crisis is Greatly Depressing. The American public's mindless consumerism is no less to blame than the predatory practices of the corporate vultures who gorged on it and the pathologically insatiable electoral lust of politicians who turned a blind eye to the feeding frenzy in order to pile up contributions from the economic predators and win votes from the mindless consumers. Be ye Clintonistas, Obamatons, McCainanites, or Huckamaniacs, whether you want to face it or not, it's time to face the music, a long, slow dirge.
*Credit for the phrase to Bill Gross of PIMCO
Time to prepare ourselves, folks. From here on out, AMERICAN infrastructure will be built by FOREIGN entities, and we'll be required to pay a TOLL every time we use it.
U.S. currency has been transformed into 'Tokens of the Realm".
You can take Toulouse Lautrec (note spelling) off the list of Muni roles, and add the poor schlub in "I Am A Fugitive From a Chain Gang" - a war hero forced into a life of crime because postwar society had no place for him.
Yes, he had many faces, but that's no excuse for obscuring some of the more disturbing ones (especially with a face that didn't belong to him).
Ron,
Another "muni" face...not mentioned here..
ARS (Auction rate securities)...short term paper..7 - 28 days...the secondary market..has dried up..caputski... while this may not affect the average joe today..it IS symptomatic of a bigger problem..i.e., the inability for municipalities to get short term financing...(by the way..these rates were upward of 6-7%...while money markets pay 2%)..
But..for me..I truly believe this should show Americans that we cannot continue to be a nations of consumers...my gawd..W's (and congress of both parties)..giving us $500 to "spend"...jeezus..Bloomberg is right..it's like giving hair of the dog to an alkie...
We SHOULD be a nation of builders, manufacturers...dare I say..exporters!
I doubt we'll learn our lessen..but hope springs eternal..
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