Wednesday, September 30, 2009

SAR #9272

Disney World should not be confused with reality; ditto Wall Street.

Tender Mercies: For incomprehensible reasons (Hint: Follow the money) five Senate Democrats have condemned Americans to continued servitude to the health insurance industry. The Senate, you may remember, was designed to represent the property owners. Nice to see the system still works.

Down is Still Down: House prices fell another 13.3% y/y in July. The data is not seasonally adjusted nor was the effect of the $8,000 buyers bribe considered. Prices are back to their 2003 level.

Two Rights Make a Wrong: Iran has the right to develop a nuclear power industry. And yes, it has the right to develop missiles. But nowhere is it written that they have to be so damned stupid about these things, especially when the US is more than willing to misunderstand.

On the Never-Never: The FDIC wants the banks to give it an advance on its allowance. A three year advance, as the banks pay their 2010, 11, and 12 assessments now, giving the FDIC $45 billion to use to rescue failed banks - an undertaking the FDIC has said will require at least another $100 billion. How this solves the problem was unclear. What have you got planned for 2013?

Training Wheels: Not only do Fannie and Freddie and the FHA now underwrite 90% of mortgages, the Fed buys up more than 100% of them. Ah, capitalism. And Bernanke says he's going to wean the housing market from government support.

Trouble Now, Trouble Later : US bank loans have been defaulting at an annualized 14% rate this summer. US car sales are expected to finish September 40% down y/y, and new house sales are still 70% below their peak rate. Private credit is contracting on both sides of the Atlantic and the M3 money data indicates deflation for much of the world next year.

New Indoor Record: In 2010 and 2011, for the first time, Social Security will take in less than it pays out. Previously, Social Security has run surpluses - $142 billion in FY 2009 – which Congress has gleefully spent on other things and left IOU's on Social Security's desk. Next year the federal government will have to find tax income to replace the $142 billion, plus come up with $10 billion or so more to start paying back what they've so gladly borrowed over the years. The big surprise is not that the day is here already, it wasn't expected until 2017 or later, but the economic crash moved things along.

Tangles: Physicists have figured out how to make quantum entanglement (sort of telepathy for tiny things like photons) visible to the human eye. Now if they could just make it understandable to the human brain.

Planning Ahead: If the US does not solve its health cost problems, solving the other financial problems facing the country is immaterial.

Excess Excesses: No mater how bright the brains behind derivatives are – or were - it is not possible for the cumulative value of the “products” after slicing and dicing to be higher than the original loan. There is no free lunch, no matter how many times you cut the sandwich up and slap it back together.

Egress: To get out of the unemployment swamp, the US must crate a quarter million jobs every month for the next five years. That would bring unemployment down to the 5% range. This would require a GDP growth rate of about 7% each year for the next five years. Neither is going to happen.

A Quote: "The recovery is not real... Deep structural problems haven't been solved and it's unclear how we will create jobs and get the economy growing again -- that's long been my thesis and it still is."

Porn O'Graph: The Peak Housing curve.


Anonymous said...

On the Never-Never: The FDIC wants the banks to give it an advance on its allowance....

This is a very positive sign indicating that the system is now savaging itself, that is cannibalizing. The FDIC as one large institution in the system has to savage the institutions it supervises in order to not experience a recession and to continue its growth. What next? The War Racketeers start charging BIG OIL? One can only hope.

fajensen said...

@ Excess Excesses:

There is indeed a free lunch: Every time your slice & transfer something there is a fee involved. That is your lunch.

When slicing cars (and people), the spare parts are worth MUCH more than the previous, working, assembly!!

On the darker side. When a mortgage or an insurance disappears into MERS or a Cayman Trust and is recast into bonds there is really no way to confirm that there actually exist something "in the other end" that produces an income stream that will continue to pay you, the soon to be unhappy, owner of the recast AAA bond. So you can, in fact, print many more bonds than you have debt for. Who will ever know as long as you pay the interests and not many people try to sell their bonds back to you?

Those bonds are precisely like those leather bags that the Assyrians used for money; they were meant to contain an amount of gold or silver and the "coins" value was stamped on the outside of the leather.

Opening or tampering the bag would naturally destroy its value ... that would be forgery and punished severely. Of course, after a while, concerned people opened their bags anyway to find ... sand. The gold and silver had disappeared into the vaults of the king.

Thats where the TARP money is going:

Paying the wig so angry bondholders will not sell, then discover that there was no value inside their bonds, sue the banks for securities fraud, win, and then force the banks to buy the bonds back at par.

If the FED & Government together can keep printing, bailing and overspending enough to either get investors to hold all that crap to maturity -or- piss investors off so someone like China triggers a default on the USD debt by not buying any, then all the problems will go away. In case of default the instigators can blame the Machinations of Evil Chinese Mecantilists for the mess. In case of recovery, after 2020 or so, they can say that their policies worked. IOW - All Will Be Well.