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.
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
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.
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.
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?
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.
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.
>>> http://www.youtube.com/watch?v=lIbdnM8Ts88
-- 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
U.S. currency has been transformed into 'Tokens of the Realm".
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).
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..