Record Low Mortgage Rates, A Record Low Federal Funds Rate And Obscene Economic Stimulus Spending Have All Failed – Will Nothing Stimulate This Dead Horse Of An Economy?

by ilene - September 4th, 2010 5:30 am

Record Low Mortgage Rates, A Record Low Federal Funds Rate And Obscene Economic Stimulus Spending Have All Failed – Will Nothing Stimulate This Dead Horse Of An Economy?

Courtesy of Michael Snyder at Economic Collapse

Over the past several years, the Federal Reserve and the U.S. government have tried everything that they can think of to stimulate this dead horse of an economy but nothing has worked. The Fed has slashed the federal funds rate to record low levels, mortgage rates have been pushed to all-time lows and the U.S. government has spent hundreds of billions of dollars in an effort to get the economy going. But despite all these of these extraordinary efforts, the U.S. economy continues to just lie there like a dead corpse.

Never before have the Federal Reserve and the U.S. government done more to try to stimulate the economy and never before have their efforts produced such poor results. Home sales continue to set new record lows, more than 14 million Americans continue to be unemployed, foreclosures continue to soar, personal bankruptcies continue to soar and an increasing number of Americans continue to sign up for food stamps and other anti-poverty programs. All of the things that once worked so well to stimulate the U.S. economy seem to be doing next to nothing here in 2010, and the American people are becoming increasingly frustrated by economic problems that just keep getting worse.

Once upon a time, a big drop in mortgage rates would get Americans running out to buy homes in big numbers. But that is just not happening this time.

As you can see from the chart below, mortgage rates are at ridiculously low levels right now. The average rate for a 30-year fixed mortgage was 4.32 percent this week. That is the lowest it has ever been since Freddie Mac began tracking mortgage rates back in 1971.

These low rates have motivated millions of Americans to refinance their existing home loans,…

Tags: economic recovery, economic stimulus, Economy, Helicopter Ben Bernanke, Housing Market, low federal funds rate, low mortgage rates, the Federal Reserve, U.S. Government

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We Need Real Financial Reform That Directly Ends Too Big To Fail

by ilene - March 11th, 2010 12:17 pm

We Need Real Financial Reform That Directly Ends Too Big To Fail

By Senator Ted Kaufman (via Clusterstock)

(In a speech on the Senate floor this morning, Ted Kaufman (D-Del.) blasted current financial reform proposals. He called for reform that sets strict limits on the size of banks and doesn’t depend on regulatory discretion.)

Introduction: Where the Burden of Proof Lies

Financial regulatory reform is perhaps the most important legislation that the Congress will address for many years to come. Because if we don’t get it right, the consequences of another financial meltdown could truly be devastating.

In the Senate, as we continue to move closer to consideration of a landmark bill, however, we are still far short of addressing some of the fundamental problems – particularly that of “too big to fail” – that caused the last crisis and already have planted the seeds for the next one. And this is happening after months of careful deliberation and negotiations, and just a year and a half after the virtual meltdown of our entire financial system.

Following the Great Depression, the Congress built a legal and regulatory edifice that endured for decades. One of the cornerstones of that edifice was the Glass-Steagall Act, which established a firewall between commercial and investment banking activities. Another was a federally guaranteed insurance fund to back up bank deposits. Other rules were imposed on investors to tamp down rampant speculation, like margin requirements and the uptick rule on short selling.

That edifice worked well to ensure financial stability for decades. But in the past thirty years, the financial industry, like so many others, went through a process of deregulation. Bit by bit, many of the protections and standards put in place by the…

Tags: Banks, regulation, Senate, Senator Ted Kaufman, U.S. Government, Wall Street

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Senator Bob Corker Needs to Be Updated on His Bank Failure History

by ilene - February 2nd, 2010 7:08 pm

Senator Bob Corker Needs to Be Updated on His Bank Failure History

Courtesy of Reggie Middleton

Senator Corker challenged Mr. Volcker’s stance in today’s congressional hearings on the Volcker Rule by saying that no financial holding company that had a commercial bank failed while performing proprietary trading. It appears as if Mr. Corker may have received his information from the banking lobby, and did not do his own homework.

Let’s reference the largest commercial bank/thrift failure of all:

From …

Tags: Bank of America, CDS, Deutsche Bank, Goldman, Ken Lewis, Merrill, Merrill Lynch, Mr. Corker, Paul Volcker, prop HVOL4 trade, Ten. Senator Bob Corker, too big to fail banks, U.S. Government, US taxpayer, Zero Hedge

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Senate Approves Raising Government Borrowing Limit By $1.9 Trillion

by ilene - January 28th, 2010 1:19 pm

Is that today’s picture? They sure look happy. And the stock market seems to like it. But isn’t this like celebrating a decision to up your dose of antibiotics? – Ilene

BREAKING: Senate Approves Raising Government Borrowing Limit By $1.9 Trillion

barack obama nancy pelosi joe biden Courtesy of Vince Veneziani at Clusterstock

We just got word from a trader that the Senate has passed a measure to increase the Federal borrowing limit by $1.9 trillion to $14.3 trillion.

Senators voted 60-39 to boost the limit by $1.9 trillion after approving a short-term increase in December.

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Why Is The Fed Happy Buying All Those Mortgages? Because You’re Guaranteeing Them!

by ilene - December 15th, 2009 1:47 pm

Why Is The Fed Happy Buying All Those Mortgages? Because You’re Guaranteeing Them!

Courtesy of John Carney at Clusterstock/Business Insider

Despite the huge and unprecedented rise in the Federal Reserve’s exposure to mortgage backed securities, the Fed says that it is unlikely to face any losses because it is only buying securities backed by Fannie Mae, Freddie Mac and Ginnie Mae.

This is meant to reassure policy makers and the public that the Fed is prudently protecting its balance sheet against losses. Protection against losses at the Fed is important to the public for three reasons.

Fed profits are an important source of revenue for the US Treasury. Any shortfall in that revenue will force the Treasury to borrow more or raise taxes.

Losses at the Fed could hurt its flexibility when it comes to policy decisions. Despite all appearances, the Fed does not have unlimited flexibility to manipulate interest rates without triggering inflation. If the Fed is facing serious balance sheet losses, it will be more difficult to continue low interest rates to combat a recession.

The prestige of the United States is on the line here. A faltering Fed will sap confidence around the world in the US, making it harder for both private and public institutions to raise capital in both debt and equity markets.

In short, the American people are hugely exposed to any losses at the Fed.

Which is what makes it so bizarre that we’re meant to be reassured by the fact that the Fed’s exposure to mortgage securities is limited by taxpayer guarantees from Fannie, Freddie and Ginnie. It’s taxpayer losses all the way down.

To make the situation even more mind boggling, we’ll add a further twist. The massive borrowing of the US government is supported, in part, by the Federal Reserve buying Treasuries. That is, the Fed is funding the very same government it is relying on to fund any losses from mortgage securities.

Look at it this way. Deep losses in the Fed’s mortgage portfolio would trigger payments from the Treasury backed mortgage insurers, which would have to be funded by the issuance of debt, some of which would have to be bought by the Fed to keep the borrowing costs down.

Don’t

…

Tags: Bailout, Banks, Ben Bernanke, Economy, Federal Reserve, Financial Crisis, Housing, Housing Crisis, Jobs, Recession, regulation, TARP, U.S. Government, unemployment, Wall Street

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Volcker: There’s No Growth Other Than What The Fed’s Pouring Into The Economy

by ilene - December 12th, 2009 3:00 pm

Volcker: There’s No Growth Other Than What The Fed’s Pouring Into The Economy

paul volcker Courtesy of Joe Weisenthal at Clusterstock/Business Insider

Obama advisor and former Fed chief Paul Volcker has an excellent interview this weekend with Germany’s Der Spiegel.

An excerpt:

SPIEGEL: The US has not yet instituted any kind of reform policy. What we see is the government and the Federal Reserve pouring money into the economy. If one looks beyond that money, one sees that the economy is in fact still shrinking.

Volcker: What should I say? That’s right. We have not yet achieved self-reinforcing recovery. We are heavily dependent upon government support so far. We are on a government support system, both in the financial markets and in the economy.

SPIEGEL: To get the recovery to the point where it is right now has cost a lot of money. National debt will probably reach $12 trillion in 2019. Just serving the debt costs $17 billion a year — at least according to this year’s forecast. That’s difficult to sustain.

Volcker: You’ve got to deal with the deficit and you’ve got to deal with it in a timely way. Right now, with the unemployment rate still very high, excess capacity is still evident, and the economy is dependent on government money as we said. We are not going to successfully attack the deficit right now but we have got to prepare for attacking it.

Read the whole thing >>

Tags: Economy, Jobs, Paul Volcker, Recession, U.S. Government, unemployment

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Yes, Let’s Tax The Speculators

by ilene - November 27th, 2009 1:00 pm

Yes, Let’s Tax The Speculators

Should we use taxes to deter financial By Paul Krugman, courtesy of Clusterstock

Should we use taxes to deter financial speculation? Yes, say top British officials, who oversee the City of London, one of the world’s two great banking centers. Other European governments agree — and they’re right.

Unfortunately, United States officials — especially Timothy Geithner, the Treasury secretary — are dead set against the proposal. Let’s hope they reconsider: a financial transactions tax is an idea whose time has come.

Keep reading at the NYT >

Tags: AIG, Tim Geithner, Treasury, U.S. Government, Wall Street

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Herding the Sheep

by ilene - October 22nd, 2009 6:05 pm

Herding the Sheep

propaganda Courtesy of George at Washington’s Blog

Financial insider and commentator Yves Smith wrote an essay last week entitled "MSM Reporting as Propaganda" arguing that the government has been using propaganda to make people think that things are getting better, no one is angry, and – therefore – no one should get upset:

The message, quite overtly, is: if you are pissed, you are in a minority. The country has moved on. Things are getting better, get with the program…

Per the social psychology research, this “you are in a minority, you are wrong” message DOES dissuade a lot of people. It is remarkably poisonous. And it discourages people from taking concrete action.

Is Smith right? And even if she is, isn’t "propaganda" too strong a word?

Think Positive

Sure, William K. Black – professor of economics and law, and the senior regulator during the S & L crisis – says that that the government’s entire strategy now – as during the S&L crisis – is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").

Admittedly, 7 out of the 8 giant, money center banks went bankrupt in the 1980′s during the "Latin American Crisis", and the government’s response was to cover up their insolvency.

It’s true that Business Week wrote on May 23, 2006:

President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations.

I can’t deny that the Tarp Inspector General said that Paulson and Bernanke falsely stated that the big banks receiving Tarp money were healthy, when they were not.

Okay, the government and Wall Street have traditionally tried to dispense happy talk when there is an economic crash, and Arianna Huffington recently pointed out:

There is something in the current DC/NY culture that equates a lack of unthinking boosterism with a lack of patriotism. As if not being drunk on the latest Dow gains is somehow un-American.

And I’ll give you that a recent Pew Research Center study on the coverage of the crisis found that the media has largely…

Tags: DOW, Equities, main stream media, Markets, Propaganda, U.S. Government

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The Final Demise Of A Speculative Housing Bubble

by ilene - September 16th, 2009 3:24 pm

The Final Demise Of A Speculative Housing Bubble

housing bubble Courtesy of Charles Hugh Smith Of Two Minds

The speculative mania in housing has been extended by massive Federal Reserve and government intervention; the government now owns or guarantees 2/3 of U.S. mortgages.

While speculative bubbles may pop in terms of sales and valuations, the psychology that underpinned the mania lives on for some time--especially if government extends the speculation with massive interventions.

I sincerely doubt the average American understands the full measure of Federal intervention to prop up the U.S. housing market. The numbers casually dropped (with little context, of course--this is pure MSM "coverage," after all) in the Wall Street Journal report No Easy Exit for Government as Housing Market’s Savior (WSJ.com) are truly mind-boggling:

To keep funds flowing to the housing market, the government bailed out Fannie Mae and Freddie Mac last year and now effectively owns the mortgage finance giants and their combined $5.4 trillion in loan portfolios. To keep mortgage rates low, the Federal Reserve is on track to purchase nearly $1.5 trillion in debt issued or guaranteed by the government’s various mortgage arms and another $300 billion in Treasurys, which set the benchmark for home lending.

What the reporters fail to mention is the value of all U.S. mortgages is about $10 trillion-- meaning the U.S. government now guarantees over half of all mortgages just with Fannie and Freddie.

But wait--it gets worse--much worse:

Since the beginning of the year, the Fed has purchased $836 billion of mortgage backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae, the federal body that securitizes FHA loans. The purchases have helped push down interest rates on mortgages guaranteed by the firms from nearly 6.5% last October to 5.25% today, according to HSH Associates, which tracks the mortgage market.

The Fed is likely to decide to carry on buying until it reaches the $1.25 trillion target it set in March, and then taper off gradually.

So the Fed is buying $1.2 trillion in toxic, doomed mortgages, fully 12% of the entire mortgage market of the U.S., just this year alone. And why would the Fed print all that nice new money and exchange it for toxic mortgages worth a mere fraction of their original value? To clear the sludge off

…

Tags: Economy, Housing, Housing Crisis, Mortgages, Real Estate, U.S. Government

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Gasparino: It’s Still The Government’s Fault For Enabling The Crisis

by ilene - September 15th, 2009 2:16 am

Gasparino: It’s Still The Government’s Fault For Enabling The Crisis

charlie gasparino

Courtesy of Lawrence Delevingne at Clusterstock

Whatever President Obama says today about financial reform, Charlie Gasparino says the U.S. government is sowing the seeds of another financial crisis — and it’s nothing new.

NY Post: But the biggest villain, in my view, is that ultimate enabler of Wall Street’s greed and stupidity — the federal government, in the form of the Federal Reserve and Treasury Department.

Throughout the last 30 years of market ups and downs, the feds have bailed out the financial system by cutting interest rates to excessively low levels or, when Long-Term Capital was about to explode, by orchestrating a bailout of a hedge fund that had spread its virus throughout the banking system.

Each time, the financial bureaucrats told us the bailout was necessary to prevent total financial calamity — and that Wall Street had finally learned its lesson and wouldn’t engage in the risky practices again.

Well, not quite. Here’s Gasparino’s solution:

Goldman, Morgan and the rest of the “banks” should either become hedge funds — with no backing from the federal government and taxpayer funds when they engage in risk — or start handing out debit cards and toasters and become real commercial banks by concentrating on signing people up for checking accounts, instead of trading esoteric bonds If we don’t impose such hard rules, expect a repeat of what happened last year. If history is any guide, that implosion will be bigger and more dangerous than ever before.

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