What next for the U.S. economy, the banking crisis and what are the consequences for the world? An answer to these questions could Mike Whintey translate his articles have here. What he predicted is bleak, very bleak.
A look into the crystal ball: Expect them to improvise the Dow at 6,000 points
Last Wednesday, at a press conference George Bush probably had the funniest performance in the eight years of his presidency. While he tried his best to reassure the public that "all is well" with the economy and that everyone's deposits would be absolutely safe in the fast resolution of the U.S. banking system, he looked like the captain on the bridge of the Hindenburg. Bush leaned casually on the podium, shrugged his shoulders and said,
"My hope is that people take a deep breath and realize that their deposits are protected by our government. We do not see the growth that we would like to see, but the financial system is basically intact. "
Right, "deep breathing" and relax, no need to panic. One should not its basic serenity of the long queues of anxious savers who try to, what's left of their savings, most out of the no longer existing IndyMac Bank can destroy. The banking system is absolutely safe, you heard it from the president himself.
same time as Bush offered his soothing words on all major TV channels, central bank director was Ben Bernanke at the other end of a decidedly darker Washington assessment of the economy:
"The contraction in the real estate market that began in 2006, and the related decline of the mortgage market, which last year became obvious, have led to significant losses of the banks and a tightening of general credit conditions. The effects of the contraction of the real estate market and the financial headwinds on spending and economic activity, were exacerbated by the rapid rise in prices for energy and other commodities, the purchasing power of households have just as weak as they have fueled inflation. Against this background, growth during this first half year was very slow, while inflation remained elevated. "
Keep in mind that these two events were perfectly coordinated to take place at the same time, Wednesday, 10:20. Quite a coincidence, right? Again, a masterful PR campaign, orchestrated by Bush's PR team, the last functioning agency in the entire bureaucracy. Surprising to no one: the agreed media made it to the attention of the impending financial firestorm to distract long enough to lull the American people so that it does not believe that something really is wrong, the economy is ok.
re Federal Reserve Chairman Bernanke:
"The economy does continue to face various problems, including continued tensions in the financial markets, deteriorating House prices, a softening labor market and rising prices for oil, food and some other commodities ... The deteriorating results of the sub-prime mortgages in the United States triggered turbulence in domestic and international financial markets, as investors were noticeably less willing to credit risks of any kind to bear .... Many financial markets and institutions remain under considerable pressure, in part because the outlook on the economy, and thus the credit quality, remains in question. "
While Bernanke a hammer after another brought, worked our commander in chief so, rumble to and funny stories with your mates of Washington press corps exchange. The small press conference turned out to be a typical Bush fraternity party with lots of on-the-back-tapping and neighing.
"They had a question, stretch" (Ha, ha)
And that's it. Bernanke open and (obviously) anxious assessment of the economy has been made of Bush's distracting palaver and showing off in the shade, a further, astonishing victory for the twists of the White House. Nonetheless, the statement can be dug up and examined the Director of the Central Bank of all, the want to know how bad things really are, to prepare them for the upcoming hard times can prepare.
(To be found here: Bernanke's Semianual Monetary Policy Report to Congress; http://www.federalreserve.gov/newsevents/testimony/bernanke20080715a.htm )
re Bernanke:
"In the real estate market activity continues to fall ... The Real estate prices are falling, particularly in regions earlier this decade, the biggest price increases were told. The drop in home prices has contributed to the flood of auctioning. By increasing the supply of homes to be sold, they have the same pressure on house prices increased in some regions ... investigations into the investment plans indicate indicates that the companies concerned about the economic and financial environment, including sharply rising costs of acquisition and marking to stay scarcity of loans. And they are likely to be cautious with their spending in the second half of this year. "
The economic sky is getting dark quickly and Bernanke made no effort to hide his concern. His statement was as close to the truth, how to get in Washington, where honesty is usually like a malignant tumor removed from her. In any case, it is worth it to wade word for word by Bernanke's speech, even if it only reinforces one's own opinion that the economy is about to get a sleigh ride to take through a deflationary blast furnace, which will likely end in the dissolution of Brenton Woods, irregular replacement of the dollar as a reserve currency in the world, and one end of the United States as short-lived, the only superpower. The American century is out of steam, just eight years in the new millennium. Bernanke's presentation confirms what the industry bloggers have been saying for three years, the end is near, bring its house in order.
Consumer spending is down, the labor market yields and the food and fuel prices are rising rapidly. Property values are in free fall, wages have stagnated and American households are overworked, underpaid and under greater pressure than they ever were in history. Everything is bad. No wonder that consumer confidence is at its low point.
"Summer 1931"?
The next stone will fall, the stock market. This is not so complicated when the wholesale prices of rare materials and supplies go up, but those costs can not be passed on to consumers because they are exhausted. Then crash, corporate profits and the stock markets slide down with the force of an avalanche.
The journalist Ambrose Evans-Pritchard is summarized as follows:
"It feels like the summer of 1931. The two largest financial institutions in the world had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No leader of the world seems to be able to perceive the problem, let alone solve it. The International Monetary Fund has approved in schizophrenia ... My view is that the crash of the dollar will be prevented if it becomes clear that the disease has spread all over the world. But we are now at the point of maximum danger. (Ambrose Evans-Pritchard, "The Global Economy is at the point of maximum danger", UK Telegraph)
"highest risk", in fact. The chaos of the stock market is right around the corner. Expect the Dow at 6,000 and then you take care of around the pure survival. The indices will collapse and that Wall Street will be in Dresden-like ruins, nothing left but toxic fumes and twisted steel. By the end of 2009, the last few bulls will be taken to the streets and one by one to have been slaughtered. It will not be pretty.
According to Bloomberg News: "Investors worldwide are more than a trillion dollars to a collapse in stock prices."
But no matter how bad it is, the media still have their market predictions make merry while they recite each and every sentence pressed confused thoughts of our dear leader alcoholic. The queues at the emergency shelters, mortgage houses and soup kitchens can be drawn from the Golden Gate Bridge to the Statue of Liberty, but the ever-optimistic predictions of a "valley of the property market" or an "economic turnaround" will ring out still from each Medienmegafon the nation. America's financial media is a never ending source of baseless optimism and hogwash.
It's funny: while Bush held his faux-pas Conference, were on other channels live recordings of up to Teeth showed armed police who were sent to various offices IndyMac. Their task was to the Assembly of older "blue-haired women and white middle-aged men in Tommy Bahama T-shirts to remind them that any sign of public outrage would be immediately met with King Rondey moderate justice. Hmmm. So now the talk of savings by the bank not only dangerous, it is tantamount to committing a crime. Mei, as America has changed. Set to
have spent only the frustration before, 5 dollars for a gallon of gasoline to drive to the next IndyMac branch and the to get what may have remained from the savings left, only to then be mixed up by the local police. Nice thought, eh?
go into the bank? Do not forget the protective lever!
The truth is that the banking system is built on a foundation of pure quicksand and it's only a matter of time, begin to Bush's stick-swinging robocops to tasers old ladies and single flow white guys for being in front of the boarded up their doors local bank have gathered. Go on now.
Denninger Market Ticker made from this insightful observation of the current situation of the banking system. He said: "Why tell us Paulson every time it to within 200 yards of a microphone will be established, that our banking system is perfectly okay? Perhaps because the banking system teeters on the brink of total collapse and he knows that you could bring it fall over with a feather to "(The Market-Ticker)
know it is worthwhile that the demise of IndyMac, the FDIC [ Deposit Protection Fund] estimates as cost eight billion of its meager reserves of 53 billion dollars. Four or five failures of this size and the FDIC will be set, which is a serious problem because even every conservative estimate assumes that the bank failures in the hundreds will go. The Fed will be forced to assume the debt and further weaken the dollar.
But IndyMac is a small fish compared to the obligations of the two giants Fannie Mae and Freddie Mac. Years of shoddy accounting and risky investments, unfair lending and political cronyism have eroded the balance sheets of both support from the government and companies to the brink of insolvency. If they fail, then it will be disastrous for the American taxpayer is expected to to guarantee 5.2 trillion dollars in American real estate loans, of which hundreds of billions were given to borrowers, are very likely to go bankrupt on their own credit in the coming years.
And the housing bubble continues hissing, Fannie and Freddie, losses of 500 billion dollars and more have to accept what angered foreign investors forces them to get rid of their government bonds and to make the dust. If that happens, the long-term interest rates will skyrocket and the dollar will break down aging to a garbage heap. The Bush administration can not let this happen, and so is Henry Paulson in Congress for more emergency funding request (which he does now), so he rebuilt the confidence of investors and the flight of foreign Capital can stop. Whether Fannie and Freddie are saved or not, there will always be a blow to the dollar, which can only be weaker with soaring deficits and dwindling confidence. There is really very little chance that the dollar will survive as an "international currency".
The economist Nouriel Roubini summed it up thus:
"The existence of support by the government enterprises (GSEs) is an important part of the overall U.S. subsidization of housing equity, which will ultimately lead to bankruptcy of the American economy. Over the past 70 years has been investing in property - the unproductive form of capital to accumulate - to 100 different species in the U.S. heavily subsidized: tax benefits, tax deductibility of loan interest rates, use of the FHA [home funding], the massive role of Fannie and Freddie, the role of the Federal Home Loan Bank System [Federal Mortgage System] a huge amount of legal and regulatory measures.
The truth is that the U.S. - particularly in the last eight years - invested too much (whose effect on the productivity of labor is zero) in their stock of wasteful housing equity, and not enough in the accumulation of productive, physical capital ( equipment, machinery) leading to an increase in the productivity of labor and a long-term growth, have invested. This financial crisis is a crisis caused by the accumulation of too much debt - by households, government and the country - to finance the accumulation of the most useless and unproductive form of capital, real estate, offering consumers only the ministry of housing and no effect on the productivity of labor have "(Seeking Alpha," Just How Terrible is Housing as an Asset Class? Roubini Weighs In ")
Fannie and Freddie made this mistake in the 90's on mortgage-backed securities (MBS) pivoted around . grew between 1997 and 2007 Fannie's portfolio of bad MBS of 18.5 billion 127.8 billion dollars. The numbers are even higher at Freddie. Now they are in exactly the same downward spiral as the investment banks caught with billions of dollars in assets that lose value steadily each month. It is death by a thousand cuts. The losses have bled the two GSEs and left in a desperate search for new sources of fresh capital to fill their pads. Unfortunately, the investment funds of foreign governments believe is burned in the rescue of Citigroup, the fingers so they are no longer in the market for distressed American investment banks.
"The Economist sheds some light on the creative accounting at Fannie and Freddie:
"The companies were also unwilling to understand the difficulty of the market with delinquent loans. If the borrower does not make it their repayments for loans payment as part of the pool, the plant-based lending support to Fannie and Freddie to buy back the loan. But that requires an immediate depreciation, are at a point at which the market prices of loans anlagengestĂĽtzen under pressure. Instead, the twins sometimes paid the interest in the pool to ensure that loans remained above water. According to Mr. Rosner is driving the losses simply in the future (The Economist, "The End of Illusions")
nice, no? Would not it be nice if women did not have to explain to their men, so they have squandered the paycheck at the racetrack? Apparently this is okay for Fannie and Freddie, just continue to pay the interest on bad loans and no one will ever know. What a ripoff. This is the Enron-like, sloppy bookkeeping, the unchallenged in Washington is because everyone doctored the figures for losses to the shareholders or the taxpayers to hide, as in this case. Therefore, these effeminate regulators at the SEC [SEC] by a couple of Abu Ghraib interrogators to be replaced. If Fannie and Freddie is going on nothing that is not a pair of leg braces and a couple of times could move into hiding when waterboarding again right.
The road to perdition: Paulson moron capitalism
was something terribly wrong with the economy, but no one will say what it is. This is more than just a typical downturn in the demand cycle or a temporary "rough adapter. In fact, it is not even a recession, there is a decline of the financial system. And it's obvious. The well-stocked Federal Reserve Bank is just the most cowardly speculators on this planet, the investment banks, hundreds of billions of dollars available through their tender and facilities.
precisely these banks have no option to pay this money back. Show me your income, show me your works, you show me their capital cushions, which are mainly exported to the terms of the "Level 3 assets" is calculated, and which allow banks to attribute their own values to the bad paper from their vaults over floats. Have you ever heard of something ridiculous? One blogger called Level 3 assets "of a" fancy size ". And he has to be right. It is all noise and smoke. So why we let crooks decide how much their assets are worth?
True, some investment banks recently reported better earnings than expected, but no one can be in Wall Street from this nonsense kidding. The SEC changed the rules for writing off of investments had only a few days before the earnings reports will be handed to another gift from Uncle Sam to hide the dirty laundry. Also, some banks have begun to extend their write-downs of 120 to 160 day to yourself to buy a little more time to deceive their shareholders about the size of their losses. It's all a big Dizziness of another follows. The whole business stinks to high heaven and the Bush administration lies nestled in a bed with them, holding on tight and hands.
Had the public the importance of the Bear Stearns fiasco meant she would have understood how bad the situation really is. The technical details are irrelevant and do not worry about that. What IS important that the Fed has ergeräumt that the investment speculators had so polluted the financial system, with its unregulated toxic waste (credit default swaps) that if the transaction had failed, with JP Morgan, the whole system would implode. Think about it. In other words, the "real Economy "is now inextricably tied to a $ 500,000,000,000,000 large, unregulated shadow banking system that operates without rules, without oversight and without sufficient capital. The free, unregulated derivatives trading is a cancer that has spread to every part of the system and it eats from within. It's just a matter of time until the patient succumbs. That's what the rescue of Bear Stearns really, the rest is nonsense.
The banking system is bankrupt, ruined, penniless, and still allow the Fed and the G7 to play this comedy continues as if nothing wrong. When will the American people wake up? And could someone please
explain how free markets exist, if speculators can be subsidized by the state or if the risk is abolished in risky investments? That means, namely, when the Fed will open its tender and facilities for investment banks and brokerage firms. It makes no sense. "Safety nets" of the governments are an abomination to the free market capitalism. "You pay your money and you have the chance." That's finance capitalism, you will with it.
What we see is a hybrid version of capitalism, "Paulson moron capitalism", a patchwork of rescue operations at the expense of taxpayers, government intervention and gibberish from the open market. It is a toxic mix of companies with unbalanced budgets, unregulated derivatives, economy, opaque hedge funds, sloppy Enron accounting and complex, difficult to pronounce debt instruments that are packaged in a cheap, unsustainable shell game, which is administered by fraudulent Harvard graduates and guarantees the government to 100%. This is the system we support with our tax dollars and is driving us right into bankruptcy.
This is not capitalism, my friend. It is a criminal system that is maintained by speculators and banking vermin. They have created this nightmare and they have condemns us all.
As long as we support the existing system, roll the economy, rising unemployment, forced verses Hilfiger revisions will increase rapidly, and tremble under the good old dollar will continue its march toward Mickey Mouse currency. It's time to clean up the house, and we can start to fire Paulson.
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