I'm sure most who may read this may know the basics (which I'm posting anyway just in case). But I'm including interesting facts with them as of December according to the Wall Street Journal.
Sub Prime Loans are mortgages (and car loans) that go to people with poorer credit. Regarded as risky loans they carry higher interest rates. More than half of those $1.9 trillion (including Jumbo) issued from 2004-2007 are delinquent, in forclosure, or owned by the banks as of December. (These loans were made using math assuming less than 20% would default). This what is referred to as the "Sub-Prime meltdown."
Prime loans are mortgages (and car loans) that go to people with good credit. Regarded as less risky loans, they carry lower interest rates. 6% (so far) of prime loans issued from 2004-2007 are delinquent, in forclosure or owned by banks (again as of December).
Option ARM loans are prime loans that carry a multiple payment options including the ability to pay less than the interest for a given month (thus adding to the principle). Approxiamately $750 million of these loans were issued from 2004-2007. Of these, 28% are delinquent, in forclosure, or owned by the banks. Goldman Sachs estimates that 61% of those issued in 2007 will end in default (not that I trust Goldman Sachs to know what they are talking about; I bet it will bemuch more).
Jumbo loans are loans larger than $500k. I couldn't find numbers for Jumbo loans, but I don't think it is unfair to classify them with sub prime (as mentioned above) for purposes of estimating default rates.
There are additional types of loans that fall under Prime or Sub-Prime headings, but the above basicly covers the vast majority by description. When you see those numbers, you must realize that the "voo-doo math" that was used to compute rates of default and thusly interest rates to charge, basicly yielded less than a 20% default rate. So far, only true prime loans have lived up to that number. So far.
So when you think about the trouble that our banking system is in, you must realize that it is at least three times worse than has already been revealed. And that does not include derivatives trading, which I will address in a future post. Or the leverage problems the banks face which I will also address soon. But this is why I will harp time and time again about the need for our banks to come clean and "reveal what is in their vaults." The truth being told is THE ONLY WAY for us to get out of this mess we are in.
And the truth is not being told because if it ever is, all (and I mean ALL) the people who have power (CEO's, Bankers, Congresspeople) will be exposed as liars or stupid. And we know none of them want that.
Friday, January 30, 2009
Thursday, January 29, 2009
Bailout after Bailout after Bailout
This article was of particular interest to me so let's talk about it:
http://www.businessweek.com/magazine/content/09_06/b4118000455725.htm?chan=top+news_top+news+index+-+temp_top+story
I don't suppose Obama/Bush or Paulsen/Geithner would admit they knew ahead of time that their $700B bailout late last year wasn't going to work. But it is hard for me to see how they couldn't. It's only been three months and they are already talking about $4T and a bad bank idea. And that smells fishy to me. As those who know me would attest, I saw this coming. So why couldn't they?
I just love this quote from the article I linked above: "New Treasury Secretary Timothy F. Geithner is exploring the creation of a government-funded "bad bank" to buy up mortgage-backed securities and other troubled assets from banks in hopes of boosting their capital levels so they can begin lending again."
So it's not just enough to get all those bad loans they've made in the past off their books, they have to get them to make still more loans? How stupid can these people actually be? Do they really think that debt spending is going to produce a healthy economy? I suppose they know that 70% of our growth since the 90's has been consumer spending and debt has been the primary driver of all of that spending, so they must think that is the only way to grow the economy. It all has me wondering if growth is what we really want if this is where it gets us.
Meanwhile still more layoffs were announced today by Fedex, Cessna, and others. Every day the announcements are coming now. And each month the numbers grow larger. ABC news reported today that 4.5 million people are collecting unemployment. The highest number ever.
The other big news was Obama's televised disgust at the $18B in bonuses paid out to Wall Street companies who received hundreds of billions in bailout finds last year. Sure, it's 40% less than last year, they say, but it is still the sixth highest payout ever! I'm sure you feel the same disgust Obama and I do at this news. But there is a much bigger problem brewing that nobody is talking about yet. You mix more and more bailout money for Wall street with Unemployment at record levels with big bonuses for the fat cats and you've got yourself a recipe for social strife (also known as riots in the streets). In many counties this means a coup d'etat.
Remember Congress and President Bush did the opposite of what the American people wanted last October when they passed the $700B bank bailout. And it didn't work. And now, as soon as this economic stimulus becomes law, you just watch them come back to the troth for more Wall Street funds. Heck they're already writing about it at BusinessWeek.
http://www.businessweek.com/magazine/content/09_06/b4118000455725.htm?chan=top+news_top+news+index+-+temp_top+story
I don't suppose Obama/Bush or Paulsen/Geithner would admit they knew ahead of time that their $700B bailout late last year wasn't going to work. But it is hard for me to see how they couldn't. It's only been three months and they are already talking about $4T and a bad bank idea. And that smells fishy to me. As those who know me would attest, I saw this coming. So why couldn't they?
I just love this quote from the article I linked above: "New Treasury Secretary Timothy F. Geithner is exploring the creation of a government-funded "bad bank" to buy up mortgage-backed securities and other troubled assets from banks in hopes of boosting their capital levels so they can begin lending again."
So it's not just enough to get all those bad loans they've made in the past off their books, they have to get them to make still more loans? How stupid can these people actually be? Do they really think that debt spending is going to produce a healthy economy? I suppose they know that 70% of our growth since the 90's has been consumer spending and debt has been the primary driver of all of that spending, so they must think that is the only way to grow the economy. It all has me wondering if growth is what we really want if this is where it gets us.
Meanwhile still more layoffs were announced today by Fedex, Cessna, and others. Every day the announcements are coming now. And each month the numbers grow larger. ABC news reported today that 4.5 million people are collecting unemployment. The highest number ever.
The other big news was Obama's televised disgust at the $18B in bonuses paid out to Wall Street companies who received hundreds of billions in bailout finds last year. Sure, it's 40% less than last year, they say, but it is still the sixth highest payout ever! I'm sure you feel the same disgust Obama and I do at this news. But there is a much bigger problem brewing that nobody is talking about yet. You mix more and more bailout money for Wall street with Unemployment at record levels with big bonuses for the fat cats and you've got yourself a recipe for social strife (also known as riots in the streets). In many counties this means a coup d'etat.
Remember Congress and President Bush did the opposite of what the American people wanted last October when they passed the $700B bank bailout. And it didn't work. And now, as soon as this economic stimulus becomes law, you just watch them come back to the troth for more Wall Street funds. Heck they're already writing about it at BusinessWeek.
A Funny
Tip of my cap to Emil, a good friend who turned me on to this. It is funny enough to post and rings true enough not to laugh much. Remember this is only a joke. Well, mostly anyway.
*****************************************************************************
This year, taxpayers will receive an Economic Stimulus Payment.This is a very exciting new program that I will explain using the Q and A format:
Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.
Q. Where will the government get this money?
A. From the taxpayers.
Q. So the government is giving me back my own money?
A. No, they are borrowing it from China. Your children are expected to repay the Chinese.
Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.
Q. But isn't that stimulating the economy of China?
A. Shut up."
Below is some helpful advice on how to best help the US economy by spending your stimulus check wisely:
If you spend that money at Wal-Mart, much of the money will go to China.
If you spend it on gasoline it will go to Hugo Chavez, the Arabs and Al Quada
If you purchase a computer it will go to Taiwan .
If you purchase fruit and vegetables it will go to Mexico, Honduras, and Guatemala (unless you buy organic).
If you buy a car it will go to Japan and Korea .
If you purchase prescription drugs it will go to India
If you purchase heroin it will go to the Taliban in Afghanistan
If you give it to a charitable cause, it will go to Nigeria.
Yet none of it will help the American economy. We need to keep that money here in America .
You can keep the money in America by spending it at yard sales, going to a baseball game, or spend it on prostitutes, beer (domestic ONLY), or tattoos, since, those are the only businesses still in the US.
*****************************************************************************
This year, taxpayers will receive an Economic Stimulus Payment.This is a very exciting new program that I will explain using the Q and A format:
Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.
Q. Where will the government get this money?
A. From the taxpayers.
Q. So the government is giving me back my own money?
A. No, they are borrowing it from China. Your children are expected to repay the Chinese.
Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.
Q. But isn't that stimulating the economy of China?
A. Shut up."
Below is some helpful advice on how to best help the US economy by spending your stimulus check wisely:
If you spend that money at Wal-Mart, much of the money will go to China.
If you spend it on gasoline it will go to Hugo Chavez, the Arabs and Al Quada
If you purchase a computer it will go to Taiwan .
If you purchase fruit and vegetables it will go to Mexico, Honduras, and Guatemala (unless you buy organic).
If you buy a car it will go to Japan and Korea .
If you purchase prescription drugs it will go to India
If you purchase heroin it will go to the Taliban in Afghanistan
If you give it to a charitable cause, it will go to Nigeria.
Yet none of it will help the American economy. We need to keep that money here in America .
You can keep the money in America by spending it at yard sales, going to a baseball game, or spend it on prostitutes, beer (domestic ONLY), or tattoos, since, those are the only businesses still in the US.
Wednesday, January 28, 2009
I heart Peter Schiff
I'll start with one of my favorite Youtube events:
http://www.youtube.com/watch?v=2I0QN-FYkpw
This is Peter Schiff, a (now) respected economist, talking about our present economic situation as early as 2006. He successfully predicted the financial boondoggle we find ourselves in today. This one is really funny because the folks on the other side of the desk literally laugh at his face. Ben Stein, Steve Forbes, among others tell him he's lost his mind and go on to recommend their favorite stocks to you.
It just goes to show you that people don''t like to hear the truth when it doesn't suit them. It has been pretty obvious that consumer spending has made up the vast majority of our GDP growth for many many years running now. But even today you can turn on CNBC, Fox Business, ABC, NBC (Lord help you), CBS, or Bloomberg and hear them talk about having reached a bottom, and/or being in a "recession" for another quarter or two before the turnaround.
And they talk about the "stimulus" package that is about to be crammed down our throats as if it is something that "has to be done." Even the most expert of experts says things like "action must be taken," or "any action by the government will help stave off disaster" or worse "our government can't do nothing." As if they really know what they are talking about. And get this: None of them do! Seriously. I know you're going to think they must be smarter than you or me to be where they are. Call me stupid if you must, but Robert Rubin and Larry Summers and Timothy Geithner and Warren Buffet are numskulls if they think that the Government can borrow their way back to 5% GDP growth. And that is exactly what they think. Even you and I know that if you are in debt up to your eyballs, the answer is not to incur still more debt. And poor Obama, whom I think is a good man, is listening to them.
The banks are sitting on credit card debts and commercial loans and home mortgages in which 25% or more of them will not get paid back. But they are valuing them as if they will make 10% interest (compounded) on it! They are so far in the red that they are effectively insovent, the FDIC doesn't have 1% of the money to cover the deposits, and our government wants them to loan us even more money to get the growth going again. This is absolutely insane. And the end result is going to be $20 per gallon of milk in about two years. I will get to the details of why this is true in future posts, but believe me it is coming and it is not hard to understand why.
It all started with a debt as money economy combined with no regard for leverage in the bank vaults. What I mean is our banks have taken your $1,000 and loaned it out 40, 50, even 100 times over. And paid themselves handsome bonuses for doing it. And many if not most of those loans will not be paid back. Our banks are screwed. Which means our businesses (notice I don't classify a bank as a business) are screwed, which means we are screwed.
Oh well at least we are all screwed together right?
http://www.youtube.com/watch?v=2I0QN-FYkpw
This is Peter Schiff, a (now) respected economist, talking about our present economic situation as early as 2006. He successfully predicted the financial boondoggle we find ourselves in today. This one is really funny because the folks on the other side of the desk literally laugh at his face. Ben Stein, Steve Forbes, among others tell him he's lost his mind and go on to recommend their favorite stocks to you.
It just goes to show you that people don''t like to hear the truth when it doesn't suit them. It has been pretty obvious that consumer spending has made up the vast majority of our GDP growth for many many years running now. But even today you can turn on CNBC, Fox Business, ABC, NBC (Lord help you), CBS, or Bloomberg and hear them talk about having reached a bottom, and/or being in a "recession" for another quarter or two before the turnaround.
And they talk about the "stimulus" package that is about to be crammed down our throats as if it is something that "has to be done." Even the most expert of experts says things like "action must be taken," or "any action by the government will help stave off disaster" or worse "our government can't do nothing." As if they really know what they are talking about. And get this: None of them do! Seriously. I know you're going to think they must be smarter than you or me to be where they are. Call me stupid if you must, but Robert Rubin and Larry Summers and Timothy Geithner and Warren Buffet are numskulls if they think that the Government can borrow their way back to 5% GDP growth. And that is exactly what they think. Even you and I know that if you are in debt up to your eyballs, the answer is not to incur still more debt. And poor Obama, whom I think is a good man, is listening to them.
The banks are sitting on credit card debts and commercial loans and home mortgages in which 25% or more of them will not get paid back. But they are valuing them as if they will make 10% interest (compounded) on it! They are so far in the red that they are effectively insovent, the FDIC doesn't have 1% of the money to cover the deposits, and our government wants them to loan us even more money to get the growth going again. This is absolutely insane. And the end result is going to be $20 per gallon of milk in about two years. I will get to the details of why this is true in future posts, but believe me it is coming and it is not hard to understand why.
It all started with a debt as money economy combined with no regard for leverage in the bank vaults. What I mean is our banks have taken your $1,000 and loaned it out 40, 50, even 100 times over. And paid themselves handsome bonuses for doing it. And many if not most of those loans will not be paid back. Our banks are screwed. Which means our businesses (notice I don't classify a bank as a business) are screwed, which means we are screwed.
Oh well at least we are all screwed together right?
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