Rolling Hills of Mid Devon, England, by Simon Ward.
Showing posts with label Financial Markets Crisis. Show all posts
Showing posts with label Financial Markets Crisis. Show all posts

Wednesday, June 13, 2012

Wednesday, January 19, 2011

The Eight States Running Out Of Homebuyers

The single biggest problem in the U.S. real estate market is simple: There are very few homebuyers.

That seems obvious, but the "buyers' strike" has caused house prices to drop, along with an epidemic of foreclosures. What's worse, the long depression in real estate is probably not over. S&P has forecast that home prices will drop by 7% to 10% this year. The S&P Case-Shiller Index has dropped for most of the 20 largest real estate markets over the last several months. RealtyTrac recently reported that more than 1 million homes were foreclosed upon in 2010.

Many economists argue that the housing market may take four or five years to recover. Even if that's proven to be true, the all-time highs of 2006 may never be reached again.

The devastation in some regions will never be repaired. Parts of Oregon, Georgia and Arizona have become progressively more deserted. Since jobless rates may never recover, there is little reason to hope that the populations in these areas will ever rebound. Some homes will be torn down in these pockets of high foreclosures in the hopes that reducing supplies will boost prices. Whether that idea will work in hard-hit areas such as Flint, Mich., and Yuma, Ariz., remains to be seen.

Wednesday, January 27, 2010

Massachusetts Dem to Geithner: "Stinks to High Heaven"

Reprsentative Stephen F. Lynch (D-MA):

"It makes me doubt your commitment to the American people." ... "I think the commitment to Goldman Sachs trumped the responsibility that our officials had to the American people."

Friday, January 22, 2010

Economic Black Hole: 20 Reasons Why The U.S. Economy Is Dying And Is Simply Not Going To Recover

From The Economic Collapse
By Michael Snyder

Even though the U.S. financial system nearly experienced a total meltdown in late 2008, the truth is that most Americans simply have no idea what is happening to the U.S. economy. Most people seem to think that the nasty little recession that we have just been through is almost over and that we will be experiencing another time of economic growth and prosperity very shortly. But this time around that is not the case. The reality is that we are being sucked into an economic black hole from which the U.S. economy will never fully recover.

The problem is debt. Collectively, the U.S. government, the state governments, corporate America and American consumers have accumulated the biggest mountain of debt in the history of the world. Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here.

And it is going to be painful.

The following are 20 reasons why the U.S. economy is dying and is simply not going to recover....

#1) Do you remember that massive wave of subprime mortgages that defaulted in 2007 and 2008 and caused the biggest financial crisis since the Great Depression? Well, the "second wave" of mortgage defaults in on the way and there is simply no way that we are going to be able to avoid it. A huge mountain of mortgages is going to reset starting in 2010, and once those mortgage payments go up there are once again going to be millons of people who simply cannot pay their mortgages. The chart below reveals just how bad the second wave of adjustable rate mortgages is likely to be over the next several years....

#2) The Federal Housing Administration has announced plans to increase the amount of up-front cash paid by new borrowers and to require higher down payments from those with the poorest credit. The Federal Housing Administration currently backs about 30 percent of all new home loans and about 20 percent of all new home refinancing loans. Tighter standards are going to mean that less people will qualify for loans. Less qualifiers means that there will be less buyers for homes. Less buyers means that home prices are going to drop even more.

#3) It is getting really hard to find a job in the United States. A total of 6,130,000 U.S. workers had been unemployed for 27 weeks or more in December 2009. That was the most ever since the U.S. government started keeping track of this statistic in 1948. In fact, it is more than double the 2,612,000 U.S. workers who were unemployed for a similar length of time in December 2008. The reality is that once Americans lose their jobs they are increasingly finding it difficult to find new ones. Just check out the chart below....

#4) In December, there were also 929,000 "discouraged" workers who are not counted as part of the labor force because they have "given up" looking for work. That is the most since the U.S. government first started keeping track of discouraged workers in 1949. Many Americans have simply given up and are now chronically unemployed.

#5) Some areas of the U.S. are already virtually in a state of depression. The mayor of Detroit estimates that the real unemployment rate in his city is now somewhere around 50 percent.

#6) For decades, our leaders in Washington pushed us towards "a global economy" and told us it would be so good for us. But there is a flip side. Now workers in the U.S. must compete with workers all over the world, and our greedy corporations are free to pursue the cheapest labor available anywhere on the globe. Millions of jobs have already been shipped out of the United States, and Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be offshorable within two decades. The days when blue collar workers could live the American Dream are gone and they are not going to come back.

#7) During the 2001 recession, the U.S. economy lost 2% of its jobs and it took four years to get them back. This time around the U.S. economy has lost more than 5% of its jobs and there is no sign that the bleeding of jobs is going to stop any time soon.

#8) All of this unemployment is putting severe stress on state unemployment funds. At this point, 25 state unemployment insurance funds have gone broke and the Department of Labor estimates that 15 more state unemployment funds will likely go broke within two years and will need massive loans from the federal government just to keep going.

#9) 37 million Americans now receive food stamps, and the program is expanding at a pace of about 20,000 people a day. The United States of America is very quickly becoming a socialist welfare state.

#10) The number of Americans who are going broke is staggering. 1.41 million Americans filed for personal bankruptcy in 2009 - a 32 percent increase over 2008.

#11) For decades, the fact that the U.S. dollar was the reserve currency of the world gave the U.S. financial system an unusual degree of stability. But all of that is changing. Foreign countries are increasingly turning away from the dollar to other currencies. For example, Russia’s central bank announced on Wednesday that it had started buying Canadian dollars in a bid to diversify its foreign exchange reserves.

#12) The recent economic downturn has left some localities totally bankrupt. For instance, Jefferson County, Alabama is on the brink of what would be the largest government bankruptcy in the history of the United States - surpassing the 1994 filing by Southern California's Orange County.

#13) The U.S. is facing a pension crisis of unprecedented magnitude. Virtually all pension funds in the United States, both private and public, are massively underfunded. With millions of Baby Boomers getting ready to retire, there is simply no way on earth that all of these obligations can be met. Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the collective unfunded pension liability for all 50 U.S. states for Forbes magazine. So what was the total? 3.2 trillion dollars.

#14) Social Security and Medicare expenses are wildly out of control. Once again, with millions of Baby Boomers now at retirement age there is simply going to be no way to pay all of these retirees what they are owed.

#15) So will the U.S. government come to the rescue? The U.S. has allowed the total federal debt to balloon by 50% since 2006 to $12.3 trillion. The chart below is a bit outdated, but it does show the reckless expansion of U.S. government debt over the past several decades. To get an idea of where we are now, just add at least 3 trillion dollars on to the top of the chart....

#16) So has the U.S. government learned anything from these mistakes? No. In fact, Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $2 trillion to pay its bills, a record increase that would allow the U.S. national debt to reach approximately $14.3 trillion.

#17) It is going to become even harder for the U.S. government to pay the bills now that tax receipts are falling through the floor. U.S. corporate income tax receipts were down 55% in the year that ended on September 30th, 2009.

#18) So where will the U.S. government get the money? From the Federal Reserve of course. The Federal Reserve bought approximately 80 percent of all U.S. Treasury securities issued in 2009. In other words, the U.S. government is now being financed by a massive Ponzi scheme.

#19) The reckless expansion of the money supply by the U.S. government and the Federal Reserve is going to end up destroying the U.S. dollar and the value of the remaining collective net worth of all Americans. The more dollars there are, the less each individual dollar is worth. In essence, inflation is like a hidden tax on each dollar that you own. When they flood the economy with money, the value of the money you have in your bank accounts goes down. The chart below shows the growth of the U.S. money supply. Pay particular attention to the very end of the chart which shows what has been happening lately. What do you think this is going to do to the value of the U.S. dollar?....

#20) When a nation practices evil, there is no way that it is going to be blessed in the long run. The truth is that we have become a nation that is dripping with corruption and wickedness from the top to the bottom. Unless this fundamentally changes, not even the most perfect economic policies in the world are going to do us any good. In the end, you always reap what you sow. The day of reckoning for the U.S. economy is here and it is not going to be pleasant.

Michael Snyder is an attorney, a Christian activist and a conservative blogger who lives and works in Arlington, Virginia. More of his work can be found at his daily news blog ( and on his blog about conservative politics (

Wednesday, April 8, 2009

Obama's Moves a Step Toward Fascism

From The Chicago Sun-Times
By Steve Stanek

This week has brought two more reasons to be afraid --very afraid -- about what our federal government is up to.

The headline-grabbing reason is, of course, the firing of General Motors chief executive Richard Wagoner by President Obama and his administration's attempt to force a merger of Chrysler with Italy's Fiat. The other reason, all but ignored by the news media, is the declaration by Timothy Geithner that some banks will receive huge amounts of new government Troubled Asset Relief Program money even if they don't want it.

GM and Chrysler have received about $17.4 billion from the federal government over the past few months and want $22 billion more. Obama is holding off on the additional $22 billion to force the moves he wants. Those moves include the removal of Wagoner and remaking of GM's board of directors (with no concern for what GM stockholders want) and giving Chrysler 30 days to merge with Fiat.

Obama, Geithner, et al. tell us they do not want to run companies. But when they fire chief executives, install new ones, remake boards of directors and force mergers, that is exactly what they are doing.

Geithner's announcement that his agency is conducting "stress tests" that could force banks to take more federal money comes just a week after leaders of the nation's largest banks met with Obama and told him they want to pay back the TARP money they have already received, not take more of it.

Last week, Geithner announced he would decide, apparently with no firm guidelines, which companies -- including nonfinancial firms -- could pose "systemic risk" to the financial system. Such a designation would give the government unprecedented powers to inject itself into any business it chooses.

All of us -- not just corporate executives and shareholders -- should be shocked and frightened by these actions. The Constitution gives Congress, not the president, the power to appropriate money, yet trillions of dollars have been spent, borrowed and committed in the form of various guarantees without congressional approval.

The Constitution also blocks the government from interfering in private contracts. Various court rulings since the 1930s have weakened the protections, and now the executive branch is shredding them.

In addition to recent attacks on (admittedly unjustifiable) contractual bonuses at American International Group, the administration has recently moved to impose unjustifiable mortgage "cram downs" that require lenders to rework loans.

These recent actions amount to a fundamental move away from individual rights and toward state corporatism -- better known as fascism.

Steve Stanek is a research fellow at the Chicago-based libertarian Heartland Institute.

Thursday, March 26, 2009

Daniel Hannan: A New Conservative Superstar?

Hat Tip to Gates of Vienna for calling attention to this British Member of the European Parliament. America has its Glenn Beck and Rush Limbaugh, but if we had one Republican member of Congress who could as effectively challenge the same insanity in this country, America would rally around as we did for Ronald Reagan.

Wednesday, March 25, 2009

EU President Calls Obama Economic Plan a 'Way to Hell'

Czech prime minister Mirek Topolanek addresses
deputies at the European Parliament.
From CNN International

zech Prime Minister Mirek Topolanek
shocked the normally civil European Parliament Wednesday by warning that Washington's plans to fight the global economic crisis are "the way to hell."

The apparently off-the-cuff remarks of the leader of a small Central European country might not normally make waves -- particularly since his parliament had pulled the rug out from under him just the night before.

But the Czech Republic currently holds the rotating six-month presidency of the European Union, making Topolanek, in some sense, one of the leaders of the 27-country bloc that is larger than the United States.

President Barack Obama plans to visit the Czech capital of Prague next week after stopping in London for the G-20 summit of leading industrialized and emerging economies.

So for Topolanek to attack the United States -- and its Treasury Secretary Timothy Geithner by name -- is a big deal.

"The path the United States has chosen is historically discredited," he said, advising Americans to "read dusty history books" so as to avoid repeating "the errors of the 1930s" and the Great Depression.

Read the rest of this entry >>

What Kind of President Thrives on Chaos?

From American Thinker
By James Lewis

Lincoln did not pray for a Civil War to befall the country to make him look good; just the opposite. Washington and the Founders did not want the Revolutionary War. FDR did not actually want to worsen the Great Depression, though he ended up doing just that according to some economic historians.

To be sure, New Deal Democrats deliberately parlayed economic crisis into political opportunities. FDR's sidekick Harry Hopkins never stopped trying to "Tax and tax, spend and spend, elect and elect." The Hopkins formula kept the Democrats in control of Congress for forty years, and now they are trying it again with a trillion-dollar Harry Hopkins Memorial Act. Even European socialists are aghast at our gluttonous Democrats.

Needless to say, the Hopkins formula led to decades of stupid and destructive social policies, devastating Black families that had managed to stay together during the worst years of Dixiecrat oppression in the South, corroding our inner city schools, popularizing abortion and divorce, rationalizing hedonism and drugs, undermining the work ethic, setting women against men, the poor against the rich, illegals against citizens, and phony liberal pacifists against American national security. The Left sprinkles poison seeds wherever it goes -- which is why even Vladimir Putin (!!) just advised us not take the Marxist road to ruin, like Russia did. Imagine that.

What's the actual evidence that Obama is trying to make things worse?

Read the rest of this entry >>

Friday, March 20, 2009

Maxine Waters Raises Questions about Obama, Geithner and Dodd

California Congresswoman Maxine Waters (D-Los Angeles), a member of the House Financial Services Committee, is raising questions about President Obama and Treasury Secretary Tim Geithner with regard to the AIG bonus debate.

In an exclusive interview on The Joe Scarborough Show on WABC in New York, Waters says, “They’ve got some explaining to do. The President is going to have to clarify to the American public what took place between Treasury and Mr. Dodd…there appears to have been some kind of agreement that they would protect AIG from having to give those bonuses.” To hear the interview in its entirety click here.

Thursday, March 19, 2009

Obama's Penal Code

Tax Cheat Treasury Secretary Timothy Geithner greets Tax Cheat Representative Charlie Rangel and Representative Dave Camp prior to a Ways and Means Committee hearing.

From The American Spectator
By George Neumayr

Barack Obama allowed himself another moment of juvenile socialism this week, quickly assenting in principle to the Democrats' proposed penal use of taxation against AIG executives. Even Charlie Rangel, chastened by his own tax troubles, hesitated at the sound of his colleagues' raw Bolshevik braying. "It is difficult for me to think of the code as a political weapon," Rangel was quoted as saying.

Not so for Obama. Taxation is his avenging angel. But why doesn't his avenging angel, while he's at it, also swoop down and take money away from other publicly financed failures? Perhaps it is time for an excise tax on the bonuses of principals at disastrous public schools. Or how about an excise tax on the ballooning salaries of bureaucratic managers whose social-engineering schemes extend pathologies year after year?

No, in the special-interests sweepstakes that is Obamaism, failure produced by liberal recklessness is to be rewarded generously: public-school teachers can expect to see their salaries rise as test scores fall; bureaucrats are more likely to receive bonuses for enlarging their client case load than reducing it.

Obama gets worked up about rewarding failure at AIG, but rewarding failure has never stopped him before. Indeed, rewarding failure is the organizing principle of liberalism; the squeaky, destructive special interest almost always gets the grease. It complains about some needless or corrupt government project failing, demands more money for said project, and in short order receives more millions to waste. Were AIG executives a liberal special-interest group, they could expect bonuses for years to come.

Obama's supposedly transcendent, fresh politics is drearily familiar, a populism of the cheapest and most unimaginative sort. Yet another week is wasted on a nothing issue.

Instead of focusing on problems at AIG, its government-appointed head, Edward Liddy, had to belly up to the socialists' scapegoat-spit and spin it around a few times while pretending to explain to Congress what it already knew and permitted, all so that Chuck Schumer could find a microphone and say to bonus-receiving executives, "If you don't return it on your own, we will do it for you."

The legality of AIG's bonuses is due to the incompetence of the Obama administration: Treasury Secretary Tim Geithner, who had awarded himself an inadvertent bonus through clueless tax evasion and still got the job, apparently just didn't notice them. In other words, the Obama administration is using an outrage it helped create to justify a new one -- the hasty, amateurish use of taxation as an instrument of retaliation.

Earlier in the week Obama's press secretary, Robert Gibbs, captured the cheapness of this presidency by indulging in a sophomoric slight at Dick Cheney. Not even Clinton's shabby and immature press aides ever behaved that boorishly. The touchiness of Gibbs was particularly gross and hypocritical given that the Obama campaign spent a good year or so defaming Cheney at every chance. Cheney has every right to unload on them.

In their Olympian arrogance, Obama and his surrogates can dish criticism out, but they refuse to take it. Notice that Gibbs' idea of a comeback was to gloat over Cheney's unpopularity.

The Obama presidency is as much or more of a demagogic "permanent campaign" than Clinton's, moving from one phony, poll-tested issue to the next. During the campaign Obama pandered to crowds by promising to confiscate the wealth of oil executives. Now, seeking more quick applause, he finds another villain of the hour and sanctions confiscatory excise taxes for AIG executives.

His political gain is the economy's loss. Turning the tax code into a penal code will just frighten markets even more.

George Neumayr is editor of Catholic World Report and press critic for California Political

Tuesday, March 10, 2009

Black Swans, Butterflies, and the Economy

From The Freeman
By Max Borders

One side blames the market. The other blames government. We get two causal stories going in opposite directions and a lot of animus. But both perhaps are missing something important in this titanic debate about our current financial crisis. It’s time we exposed a complicated truth about the economy of the 21st century.

Nassim Nicholas Taleb is famous for introducing us to black swans. Though these rare creatures have long been used among academic philosophers to explain the shortcomings of reasoning by induction (“Every swan I’ve ever seen has been white, therefore all swans are white.”), Taleb uses the black swan as a stark metaphor for the inevitability of highly improbable events. In other words, black swans are rare, but one will swim by eventually.

As far as Wall Street—particularly the people with a large stake in getting things right—is concerned, this financial crisis involved a confluence of events. Some of these black swans were set in motion by government, like flexible lending standards to extend home ownership, Fannie and Freddie, and a mortgage-friendly tax code. Others were set in motion by willfully ignorant bankers, big shot risk-modelers, and people believing they could live beyond their means. It all came together in a fantastic cascade of failure. The trouble is, no one—neither government nor market actors—can predict such a large-scale event. Black swans happen.

The other important thing to remember is that the economy is a chaotic system. Most of the time chaotic systems achieve a sweet spot between order and chaos, which is a good thing if an economy is to be robust. Chaotic systems, though, change constantly and involve dynamics that are highly sensitive to initial conditions.

Read the rest of this entry >>

Thursday, February 26, 2009

No One Trusts John McCain's Shoe Shine Boy

It would seem from the comments reported in the following column that Lindsey Graham's Democrat colleagues don't know him very well. They are suspicious that he might harbor some ulterior motives in advocating nationalization of the banks and socialism for the American economy. We wish he had some conservative instincts and loyalty to Republican principles, hidden or otherwise. Haven't they noticed that he's John McCain's shoe shine boy?

What is Lindsey Graham Up To?

From The New Republic
By Noam Scheiber

You may recall that Lindsey Graham has been strongly intimating we should nationalize our banks. Not only that, but he says several other Republican senators are open to it.

So why won't Democrats, many of whom feel the same way, at least discuss it with him? Obviously one issue is the enormous complexity, which everyone would like to avoid. But the bigger hold-up is that Democrats just don't trust Graham. The same senior Senate aide I spoke with yesterday told me, "I think they’re betting on failure. I don’t know what his angle is. I’m hesitant to give him credit given my severe loathing for the guy."

Then today, another senior Democratic source elaborated, suggesting Democrats think Graham's nationalization comments are designed to talk down the banks' stock, making it impossible (as opposed to just extremely difficult) to attract private capital and making nationalization more likely. That is, the fear is that Graham wants to force the Democrats' hands. “These people say ‘free markets,’ ‘leave everything alone,’ ‘let them fail,’” says the source. “Now all of a sudden they’re saying ‘nationalize the banks?'” The cynicism is just incredible.”

For what it's worth, I'm personally torn. There are plenty of reasons to be suspicious of Graham and the Republican caucus. But he did sound genuinely exercised about the situation when he spoke to the Financial Times last week. (Graham’s office didn't return a call seeking comment.) And even Democratic senators like Chris Dodd and Chuck Schumer have inadvertently talked the markets down with comments about nationalization.

Saturday, February 21, 2009

More from South Carolina's Government Nationalizer

Lindsey wants the nation's banks to be run from government offices in Charlotte, North Carolina. In this interview with the Charlotte Observer he explains his big plans for government takeovers.

Tuesday, February 17, 2009

We've Been Unfair to New York and Massachusetts

In our utter contempt for South Carolina's pusillanimous senior Senator, Sunlit Uplands has frequently accused Lindsey Graham of being the third Senator from Massachusetts or New York. We owe those states an apology. As the following video makes clear, New York's liberal senior Senator, Charles Schumer, has expressed opinions about the nationalization of banks that accord with conservative, South Carolina views, while our own Marxist Obamabot has given it a limp-wristed thumbs up.

Thursday, February 12, 2009

Bailing Out Statism

From The Freeman
By Sheldon Richman

The key to understanding the saga of Fannie Mae and Freddie Mac—the recently nationalized twin government-sponsored enterprises (GSEs) that dominate home financing—is this: They were set up—intentionally—to distort the housing and mortgage markets. Government planners were not content to let voluntary exchange and spontaneous market forces configure those industries unmolested. So—holding the taxpayers hostage—they intervened.

Read the rest of this entry >>

Wednesday, January 7, 2009

Was This Economic Crisis Planned?

From WorldNetDaily
By Joseph Farah

Barack Obama's White House chief of staff, Rahm Emanuel, told business leaders assembled by the Wall Street Journal in November that the economic crisis facing the country is "an opportunity to do things you could not do before."

That has to be one of the most chilling statements I have ever heard uttered by an American political official in my lifetime.

It ranks right up there with the transparent arrogance of Clinton administration hotshot Paul Begala's July 1998 explanation of the use of executive orders by the president to go over the heads of Congress: "Stroke of the pen. Law of the land. Kinda cool."

But there was even more to this quote from Emanuel. He followed up that scary and yet candid statement with this: "You never want a serious crisis to go to waste."

Every so often, an insider among the power brokers in our establishment elite let's slip an extremely telling remark. I suspect Emanuel meant exactly what he said – though he probably wishes he could take it back.

Read the rest of this entry >>

Thursday, November 13, 2008

Conned Again

From Chronicles
By Paul Craig Roberts

If the change that President-elect Obama has promised includes a halt to America’s wars of aggression and an end to the rip-off of taxpayers by powerful financial interests, what explains Obama’s choice of foreign and economic policy advisors? Indeed, Obama’s selection of Rahm Israel Emanuel as White House chief of staff is a signal that change ended with Obama’s election. The only thing different about the new administration will be the faces.

Saturday, October 11, 2008

Red Alert: The G-7 -- Geopolitics, Politics and the Financial Crisis

From Stratfor

The finance ministers of the G-7 countries are meeting in Washington. The first announcements on the meetings will come this weekend. It is not too extreme to say that the outcome of these meetings could redefine how the financial markets work, certainly for months and perhaps for a generation. The Americans are arguing that the regime of intervention and bailouts be allowed to continue. Others, like the British, are arguing for what in effect would be the nationalization of financial markets on a global scale. It is not clear what will be decided, but it is clear that this meeting matters.

The meetings will extend through the weekend to include members of the G-20 countries, which together account for about 90 percent of the global economy. This meeting was called because previous steps have not freed up lending between financial institutions, and the financial problem has increasingly become an economic one, affecting production and consumption in the global economy. The political leadership of these countries is under extreme pressure from the public to do something to solve — or at least alleviate — the problem.

Underlying this political pressure is a sense that the financial class, people who run global financial institutions, have failed to behave responsibly and effectively, and have therefore lost their legitimacy. The expectation, reasonable or not, is that the political system will now supplant these managers and impose at least a temporary solution. The finance ministers therefore have a political mandate, almost global in scope, to act decisively. The question is what they will do?

That question then divides further into two parts. The first is whether they will try to craft a single, global, integrated solution. The second is the degree to which they will take control of the financial system — and inter-financial institution lending in particular. (A primary reason for the credit crunch is that banks are currently afraid to lend — even to each other.) Thus far, attempts at solutions on the whole have been national rather than international. In addition, they have been built around incentivizing certain action and increasing the available money in the system.

So far, this hasn’t worked. The first problem is that financial institutions have not increased interbank lending significantly because they are concerned about the unknowns in the borrower’s balance sheet, and about the borrowers’ ability to repay the loans. With even large institutions failing, the fear is that other institutions will fail, but since the identity of the ones that will fail is unknown, lending on any terms — with or without government money — is imprudent. There is more lending to non-financial corporations than to financial ones because fewer unknowns are involved. Therefore, in the United States, infusions and promises of infusion of funds have not solved the basic problem: the uncertain solvency of the borrower.

The second problem is the international character of the crisis. An example from the Icelandic meltdown is relevant. The government of Iceland promised to repay Icelandic depositors in the island country’s failed banks. They did not extend the guarantee to non-Icelandic depositors. Partly they simply didn’t have the cash, but partly the view has been that taking care of one’s own takes priority. Countries do not want to bail out foreigners, and different governments do not want to assume the liabilities of other nations. The nature of political solutions is always that politicians respond to their own constituencies, not to people who can’t vote for them.

This weekend some basic decisions have to be made. The first is whether to give the bailouts time to work, to increase the packages or to accept that they have failed and move to the next step. The next step is for governments and central banks to take over decision making from financial institutions, and cause them to lend. This can be done in one of two ways. The first is to guarantee the loans made between financial institutions so that solvency is not an issue and risk is eliminated. The second is to directly take over the lending process, with the state dictating how much is lent to whom. In a real sense, the distinction between the two is not as significant as it appears. The market is abolished and wealth is distributed through mechanisms created by the state, with risk eliminated from the system, or more precisely, transferred from the lender to the taxing authority of the state.

The more complex issue is how to manage this on an international scale. For example, American banks lend to European banks. If the United States comes up with a plan which guarantees loans to U.S. banks but not European banks, and Europeans lend to Europe and not the United States, the integration of the global economy will very quickly shatter, leading to significant limitations on international trade, currency convertibility and so on. You will nationalize economies that can’t stand being purely national.

At the same time, there is no global mechanism for managing radical solutions. In taking over lending or guarantees, the administrative structure is everything. Managing the interbank-lending of the global economy is something for which there is no institution. And even with coordination, finance ministries and central banks would find it difficult to bear the burden — not to mention managing the system’s Herculean size and labyrinthine complexity. But if the G-7 in effect nationalize global financial systems and do it without international understandings and coordination, the consequences will be immediate and serious.

The G-7 is looking hard for a solution that will not require this level of intrusion, both because they don’t want to abolish markets even temporarily, and more important, because they have no idea how to manage this on a global scale. They very much want to have the problem solved with liquidity injections and bailouts. Their inclination is to give the current regime some more time. The problem is that the global equity markets are destroying value at extremely high rates and declines are approaching historic levels.

In other words, a crisis in the financial system is becoming an economic problem — and that means public pressure will surge, not decline. Therefore, it is plausible that they might choose to ask for what FDR did in 1933, a bank holiday, which in this case would be the suspension of trading on equity markets globally for several days while administrative solutions are reached. We have no information whatsoever that they are thinking of this, but in starting to grapple with a problem of this magnitude — and searching for solutions on this scale — it is totally understandable that they might like to buy some time.

It is not clear what they will decide. Fundamental issues to watch for are whether they move from manipulating markets through government intrusions that leave the markets fundamentally free, or do they abandon free markets at least temporarily.

Another such issue is whether they can find a way to do this globally or whether it will be done nationally. If they do go international and suspending markets, the question is how they will unwind this situation. It will be easier to start this than to end it and state-controlled markets are usually not very attractive in the long run. But then again, neither is where we are now.

Friday, October 10, 2008

Five Million Illegals Have Illegal Mortgages in U.S.A.!

By Warner Todd Huston

A single report by KFYI radio [1] of Phoenix, Arizona highlights a shocking claim made by the Department of Housing and Urban Development (HUD). HUD says that five million illegal aliens hold illegal mortgages. This is just one more example of the lax lending laws put into place by Democrats like Barney Frank that have contributed to this economic crisis. One would think this would be big news. But, so far we have only this one report to cover it.

There have been earlier stories of home flipping schemes that made liberal use of illegal aliens as straw buyers and the FBI has followed numerous cases [2] to prosecution and conviction. But the Old Media have not done much with this story.

KFYI reports that these fraudulent straw purchases of mortgages by illegal aliens has affected every state in the union.

One illegal alien was arrested this year in Tucson after allegedly using a stolen social security number to buy two homes and rack up over $780,000 in bad debt.

Some five million fraudulent home mortgages are in the hands of illegal aliens, according to the U.S. Department of Housing and Urban Development.

It's not known how many of those have contributed to the subprime housing mortgage meltdown, but it has affected every state, including Arizona.

The problem began years ago when banks were forced to give mortgages without confirming social security numbers or borrower identification. As a result, illegal immigrants were able to obtain home mortgages which they could not afford.

Lax immigration laws have also helped make this crime easy to perpetrate.

In 1965 a Democrat Controlled Congress under President Lyndon Johnson passed the concept of "chain" immigration into law. A later commission named the Hesburgh Commission [3] convened during Ronald Reagan's first term, found that this concept statistically allowed each single immigrant to bring into this country 84 of his family members. Of course, all these people have to live somewhere making such fraudulent mortgages quite attractive.

What illegal struggling to survive is going to pass up a free house that he can move into without having to present any identification, proof of employment, financial history or even a down payment?

This story should be in every paper and on every TV news cast. Yet it isn't. I'll leave the guessing as to why with you, gentle reader.

Notice: the link to the story above is a Google cached page link because KFYI has pulled down their report.