In a very alarming sign for the U.S. economy, foreclosures have continued to dramatically increase in 2010. But there has been a shift. Back in 2007 and 2008, experts tell us that most foreclosures were due to toxic mortgages. People were being suckered into mortgages that they couldn’t afford with “teaser rates” or with payments that would dramatically escalate after a few years, and when those mortgages reset, the people who had agreed to them no longer could make the payments. But now RealtyTrac says that unemployment has become the major reason for foreclosures. Millions of Americans have become chronically unemployed during the economic downturn and many of them are losing their homes as a result. But whatever the cause, one thing is certain – foreclosures have continued to skyrocket at a staggering rate.

According to a new report from RealtyTrac, foreclosure filings climbed in 75% of the nation’s metro areas during the first half of 2010. At a time when the Obama administration believes that we are “turning the corner”, things just seem to get even worse.

Some areas of the country continue to be complete and total disaster areas when it comes to real estate. For example, you have got to feel really sorry for anyone trying to sell a house down in Florida right now. According to RealtyTrac, Florida led the way with nine of the top 20 metro foreclosure rates in the country during the first half of 2010.

Ouch.

But the worst city for foreclosures continues to be Las Vegas.

According to RealtyTrac spokesman Rick Sharga, unemployment has replaced bad loans as the number one cause of foreclosures there….

“Las Vegas has seamlessly shifted from having a high level of foreclosures due to bad loans to defaults caused by a high level of unemployment.”

But other cities with high unemployment rates are having huge problems as well.

For those who believe that the economy is supposed to be “improving”, it must seem really odd that foreclosure rates in major cities such as Chicago continue to soar.

RealtyTrac says that foreclosure filings in Chicago have increased 23 percent year-over-year to one out of every 48 households.

But it isn’t just cities like Las Vegas and Chicago that are nightmares right now.

The truth is that this is a national crisis.

The Mortgage Bankers Association recently announced that more than 10% of all U.S. homeowners with a mortgage had missed at least one mortgage payment during the January to March time period. That was a new all-time record and represented an increase from 9.1 percent a year ago.

Unfortunately, new all-time records are being set all over the place….

*The number of home foreclosures set a record for the second consecutive month in May.

*Banks repossessed 269,962 U.S. homes during the second quarter of 2010, which was a new all-time record.

*As of March, U.S. banks had an inventory of approximately 1.1 million foreclosed homes, which was a new record and which was up 20 percent from a year ago.

So is there any hope that things are going to get better soon?

Well, according to RealtyTrac’s CEO James Saccacio, that depends on the U.S. economy….

“The fragile stability achieved in many local housing markets hinges on improvements in the underlying economy, specifically job growth. If unemployment remains persistently high and foreclosure prevention efforts only delay the inevitable, then we could continue to see increased foreclosure activity and a corresponding weakness in home prices in many metro areas.”

Without good jobs, the American people are not going to be able to pay their mortgages.

So are the millions upon millions of jobs that have been lost coming back soon?

No, unfortunately they are not.

As we discussed at length in a previous article, the big global corporations that dominate our economy are figuring out that they don’t really need the rest of us anymore. The American worker is becoming obsolete. After all, why pay an American ten times as much to do the same job? Big corporations can hire two people in China or India to do the same job and still pocket 80% of the difference.

In addition, big corporations don’t really need the headache of making employer contributions to Social Security, setting up benefit packages and pension plans or of trying to comply with the thousands upon thousands of ridiculous regulations that the U.S. government continues to spew out.

At this point, the American worker has become extremely unattractive for large corporations, and so jobs will continue to migrate to other areas of the world.

We allowed our politicians to merge us into a “global economy”, so now we are all going to have to deal with being part of a “global workforce”.

As jobs continue to be offshored and outsourced, more Americans are going to become unemployed and the foreclosure crisis is going to continue to be a nightmare.

It would be nice to put a positive spin on all of this, but there isn’t one.

Source: theeconomiccollapseblog.com
Published by: economyexposed.com

For more detail on the report, check out this post in USA TODAY’s The Oval.

Republicans, who have been talking a lot about the debt in recent months, pounced on the report. “The driver of this debt is spending,” said New Hampshire Sen. Judd Gregg, the top Republican on the Senate Budget Committee. “Our existing debt will be worsened by the president’s new health care entitlement programs…as well as an explosion in existing health care and retirement entitlement spending as the Baby Boomers retire.”

At the end of 2008, the debt equaled about 40 % of the nation’s annual economic output, according to the CBO.

The report comes as the National Commission on Fiscal Responsibility and Reform meets today. The group, created by President Obama, is expected to issue recommendations in December to curb the debt – a point Democrats raised today.

The CBO report “reinforces the importance of the work being done right now by the president’s fiscal commission,” said Sen. Kent Conrad, D-N.D., who chairs the Senate Budget Committee. “We simply cannot allow the federal debt to explode as envisioned under CBO’s projections. The economic security of the country and the quality of life for our children and grandchildren are at stake.”

Source: USA Today

For starters, look at unemployment. During Great Depression I, unemployment broke 25%. If government statistics are taken at face value, the current unemployment rate is 9.9%, but a closer look reveals that the broadest measure of unemployment is currently at 20% – and rising. So, today’s numbers are in the same ballpark as the ’30s even though the federal government is using unprecedented measures to keep the economy afloat. Remember, in Great Depression I, FDR never ran a deficit nearly as large as President Obama’s. Moreover, the Federal Reserve of the 1930s still had a gold standard with which to contend, while today’s Fed has increased the monetary base with impunity. Yet even with all that intervention, unemployment figures still indicate that we have entered depression territory.

What is demoralizing to an unemployed person is not simply being let go, it is being unable to find a new job for an extended period of time. And this is where Great Depression II really rears its ugly head. According to the US federal government’s own data, the median duration of unemployment is now over five months – and rising. This is the highest it’s been since the BLS started compiling this statistic in 1965. As workers start to go this long without jobs, they eat into their savings. Eventually – and especially in a country with a savings rate as low as ours and debt as high as ours – they run out of cushion and hit the street. Formerly middle-class people have to make decisions never thought possible: do I eat in a shelter or go hungry in my home?

It’s no surprise, then, that about 40 million people – or one out of every eight Americans – are receiving food stamps in Great Depression II. During the height of Great Depression I, the rate was just one out of thirty-five Americans. Even with the stimulus programs, Great Depression II is actually worse on this measure than Great Depression I – and the USDA estimates that the program could grow by another 50%. Soon, out of ten people you know, one may depend on federal assistance for daily survival.

Despite tax credits that have created a rush of purchases this spring, housing is in just as bad shape. During Great Depression I, home prices dropped some 15% from their pre-depression peak (achieved in 1925). In Great Depression II, housing is down at least 30% from the pre-depression peak (achieved in 2005), with some markets down more than 50%.

So, many of the people expected to keep making mortgage payments as they eat tuna fish to stay alive will be paying double their home’s resale value. This is a tremendous incentive to walk away, with disastrous consequences for the country’s social fabric in these trying times. Empty homes breed crime and vandalism, encouraging more to flee in a negative feedback loop. Moreover, the many ‘walkaways’ may create a class of Americans with ruined credit – right when many employers have started checking credit scores before hiring.

Even more worrisome, the present drop in home prices is against a backdrop of price inflation. In Great Depression I, our grandparents may have lost value in their home, but everyday goods (milk, diapers, automobiles, etc.) got cheaper at the same time. That made their savings ‘cushion’ deeper when they needed it most. Today, as home equity (now our main store of savings) declines, prices for consumer goods are rising. It’s a tight squeeze indeed.

From jobs to food to the roofs over our heads, the current period of economic turmoil is at least as bad as the First Great Depression, whether or not the financial media wishes to acknowledge it. The main difference is that unlike in the ’30s, the US dollar is now the world’s fiat reserve currency, so we are able to push our problems overseas for awhile. The plight of the rural Chinese is really our plight – we are living lavishly on the wealth they create. Were they to quit this dastardly arrangement, the full effects of Great Depression II would be felt in America.

By contrast, in Great Depression I, the US was on the gold standard like everyone else, which forced us to live within our means. This, in turn, made it easier to recognize that the economy was in decline and changes had to be made.

Unfortunately, because of the responses of the Administration and the Federal Reserve, which I believe to be deeply misguided, I remain concerned that Great Depression II could develop into something far more devastating than its predecessor, something that other countries in the world have experienced but was thought impossible in the United States: a hyperinflationary depression. As bad as the current downturn has been, inflation would make it immeasurably worse. It would require an honest accounting of the problems we face today to avert the disaster we see coming tomorrow.

Source: www.financialsensearchive.com – EURO PACIFIC CAPITAL

Published by: Economy Exposed.com

The impact on markets has been severe. The euro has slumped more than 12% against the dollar since the sovereign-debt crisis flared in southern Europe. Gold has marched to new highs as investors seek a safe haven and, perhaps most alarming, it is now more expensive to buy insurance against national default than it is to insure against corporate failure.

“The sovereign-debt crisis spun out of control in the past week, and we see no easy way to resolve it,” said Madeline Schnapp, director of macroeconomic research at TrimTabs Investment Research.

Some investors and analysts are increasingly concerned that governments may be no more capable of repaying their debts than the banks and insurance companies they saved. And, they warn, if a major country comes close to default, it could trigger a financial meltdown that would eclipse the panic that followed the bankruptcy of Lehman Brothers in 2008.

The world has seen sovereign debt crises before. Latin America, Africa and Asia have all experienced upheavals sparked by excessive debt. These crises were all accompanied by stunted economic growth, inflation and weak stock market returns, which make it even harder to pay off debts. As investors and government officials ponder the current state of affairs, they see ominous signs that the developed world may be facing a similarly bleak future.

“The problem of the western world is that we have too much debt,” said Daniel Arbess, who manages the Xerion investment strategy at Perella Weinberg Partners. “Rather than reducing our debt, we’ve been moving it from one balance sheet to another.”

“All we’re doing is shifting chairs on the deck of the Titanic,” he added.

Europe’s bailout

Some governments have started to respond to market pressure, with the U.K. pledging billions of pounds in spending cuts this week. Spain and Portugal also unveiled austerity measures. But the problem is so big that investors remain wary. Check out Portugal’s plans.

Stock markets plunged and credit markets shuddered last week on concern Greece and other indebted European countries like Portugal and Spain might default. See the story on market impact.

“What’s happened on a corporate level is now happening on a national level. The first nation to experience this is Greece, but other nations will, too,” Schnapp said.

To stop Greece’s debt troubles turning into a run on the euro and a global stock market rout, the European Union unveiled an unprecedented package of almost $1 trillion in emergency loans, stabilization funds and International Monetary Fund support on Sunday.

In the days that followed, the European Central Bank bought the government debt of Greece and other countries on the periphery of the region’s single-currency zone, such as Portugal, Spain, Italy and Ireland, investors said. Such a drastic step has been shunned by the ECB until now. Read about the market response on Monday.

“Temporarily the crisis in terms of liquidity has been averted, but the underlying problem hasn’t gone away,” Schnapp added. “Giant debt and expenditures by governments are still there.”

TrimTabs cut its recommendation on U.S. equities to neutral from fully bullish on Sunday, in the wake of the European bailout.

Protection

The sovereign crisis has been brewing for months.

For much of the financial crisis, investors worried about financial institutions defaulting, rather than sovereign nations. But that pattern has been upended.

In early February, the cost of insuring against a sovereign default in Western Europe exceeded the price of similar protection against default by North American investment-grade companies. That was the first time this had happened, according to data compiled by Markit from the credit derivatives market.

The move “symbolizes how credit risk has been transformed from corporate to sovereign risk, as the solution to the financial and economic crisis was government intervention,” Hans Mikkelsen, credit strategist at Bank of America Merrill Lynch, wrote in a note to investors at the time.

Since then, the cost of insuring against sovereign default in Western Europe has climbed further, hitting a record of 169 basis points on May 7.

The European bailout pushed that down to 120 basis points on Tuesday. But that’s still more expensive than default protection on North American corporate debt which cost 100 basis points on Tuesday. (In the credit derivatives market, 100 basis points means it costs $100,000 a year to buy default protection on $10 million of debt for five years).

’100%’

While much of the concern has focused on Western Europe, unsustainable government debt is a global problem. And it is developed world governments that are accumulating the biggest debts, not emerging market countries — a big change from previous sovereign crises.

“Looking beyond the immediate crisis in Europe, I am particularly worried about the next stage involving the U.S., the U.K. and Japan,” Xerion’s Arbess said.

Debt to GDP ratios in the world’s advanced economies will top 100% in 2014, 35 percentage points higher than where they stood before the financial crisis, the IMF estimated last month.

Three percentage points of this increase came from government bailouts of financial institutions, while 3.5 percentage points was from fiscal stimulus. Another four percentage points has been driven by higher interest on government debt and 9 points came from revenue lost from the global recession, according to the IMF.

“Public finances in the majority of advanced industrial countries are in a worse state today than at any time since the industrial revolution, except for wartime episodes and their immediate aftermath,” Willem Buiter, chief economist at Citigroup Inc. (NYSE:C) and former member of the Bank of England’s Monetary Policy Committee, wrote in a recent note on sovereign risk.

Even though the current epicenter of the crisis is focused on the euro zone, the overall fiscal position of the single currency area is stronger than that of the U.S., the U.K. and Japan, he noted.

“Unless there is a radical change of course by those in charge of fiscal policy in the U.S., Japan and the U.K., these countries’ sovereigns too will, sooner (in the case of the U.K.) or later (in the case of Japan and the U.S.) be at risk of being tested by the markets,” Buiter said.

Ultimately, these countries face the risk of being “denied access to new and roll-over funding, that is, of being faced with a ‘sudden stop,’” he warned.

Economic drag

Once government debt levels approach 100% of GDP, things can get tricky.

That’s because a lot of a country’s income from taxes and other sources has to be spent on interest payments.

John Brynjolfsson, chief investment officer at global macro hedge fund firm Armored Wolf LLC, illustrated the point with a simple example. With debt at 100% of GDP, interest rates at 3% and real economic growth of 3%, all the extra income collected by a country would be used to pay interest on its debt.

If a lot of government debt is owned by foreigners, like the U.S., the money leaves the country rather than being invested in more productive ways. This dents economic growth.

A study published this year by economists Carmen Reinhart and Ken Rogoff found that, over the past two centuries, government debt in excess of 90% of GDP produced economic growth of 1.7% a year on average. That was less than half the growth rate of countries with debt below 30% of GDP.

“Most lenders realize that once growth disappears, there’s little reason to lend more,” Brynjolfsson said. “That’s because new lending is just going towards paying off old debt, not investment in productive activities.”

U.S.

The U.S. government has spent more than $1 trillion bailing out financial institutions like American International Group (NYSE:AIG) and rolling out fiscal stimulus programs to bolster the flagging economy.

In 2009, the government took in about $2.1 trillion in taxes and other revenue and spent more than $3 trillion, according to TrimTabs’ Schnapp. The gap, or deficit, is made up by borrowing more money through sales of Treasury bonds and notes.

In coming years, U.S. government debt will exceed 100% of GDP, according to economists at Exane BNP Paribas and elsewhere.

In the next 20 years, if fiscal policies aren’t changed, U.S. debt to GDP will exceed 150%, putting the country in the same league as Greece and Portugal, according to recent research led by Stephen Cecchetti, head of the Monetary and Economic Department at the Bank for International Settlements in Switzerland.

And the official data don’t tell the whole story, Buiter says.

Fannie Mae and Freddie Mac have been the responsibility of the U.S. government since the mortgage giants were placed into conservatorship by the Federal Housing Finance Agency during the financial crisis in 2008, he noted.

Fannie and Freddie’s liabilities at the end of last year’s third quarter were almost $1.8 trillion, according to Buiter. This equals 13% of U.S. GDP and should be included in measurements of the country’s general government debt, he added.

U.K.

The U.K. government committed 850 billion pounds ($1.25 trillion) to bailing out banks including Royal Bank of Scotland (LONDON:UK:RBS) and Lloyds Banking Group (LONDON:UK:LLOY) and providing guarantees and insurance to the sector, according to the country’s National Audit Office.

The U.K.’s debt to GDP ratio will soon reach 100% and could top 200% in the next two decades if fiscal policies aren’t changed, according to Cecchetti’s research.

The country’s new coalition government, which came to power this week, called for 6 billion pounds in spending cuts starting this fiscal year. Bank of England Governor Mervyn King applauded the plan.

“We are still halfway through the world’s worst financial crisis ever,” King warned. It’s “imperative that our own fiscal problems are dealt with sooner rather than later.” Read about his comments.

Japan

Japan’s government debt to GDP, at over 200%, already dwarfs the U.S. and the U.K., a hangover from its own financial crisis at the end of the 1980s.

“The perfect example of sovereign risk that is contained today but could be dramatic in the future is Japan,” Pierre-Olivier Beffy, chief economist at Exane BNP Paribas, wrote in a recent note to investors.

Such high debt levels aren’t a problem now because Japanese people save so much and invest a lot of that money in the country’s bonds. Financial institutions in the country are also big buyers.

With more than 90% of all Japanese government debt purchased domestically, interest payments get funneled back into the country, helping to support economic growth.

However, Japan’s population is getting a lot older. At some point, savers may stop buying government bonds and start spending their money in retirement. If that happens, the government may be forced to pay higher interest rates when it borrows.

Rates on 10-year Japanese government bonds are below 1.4%. So, despite huge debt, interest payments aren’t too cumbersome. But if rates climb, that would change with painful consequences.

“Japan, as an economy, has never admitted its mistakes. Twenty years ago they transferred the bad private assets to the public balance sheet, while nominal GDP has gone nowhere for 20 years,” Kyle Bass, managing partner at global macro hedge fund firm Hayman Capital, said during an April industry roundtable run by Opalesque Ltd.

“When your biggest holders turn into sellers overnight, what do you do? You have to finance yourself at G7 rates,” he added. “If they borrow where Germany borrows at a bit over 3%, they are out of business.”

Bass is betting on higher Japanese interest rates, similar to positions that other hedge fund firms including David Einhorn’s Greenlight Capital and John Paulson’s Paulson & Co. have put on. Read about Einhorn’s views.

‘Final chapter’

How will all this debt be repaid? Brynjolfsson discusses the three main alternatives.

Developed nations could generate strong productivity gains, while rising exports from their pharmaceutical, technology and financial-services industries could generate better-than-expected income. Combined with “frugality, sacrifice and good fortune,” there could be enough money to repay debts, he explained. This may include lower government spending and higher taxes.

Countries could also default, either because they can’t pay or won’t, Brynjolfsson said. In this scenario, lenders would likely agree to a reduction, or haircut, on the amount of money they’re owed — either voluntarily or after courts impose a settlement.

A third outcome may be inflation, Brynjolfsson said. Sovereign debts would be honored but would be repaid in currency that’s worth a lot less than when the debt was sold.

“The sovereign debt problems encountered by most advanced industrial countries are the logical final chapter of a classic ‘pass the baby’ (aka ‘hot potato’) game of excessive sectoral debt or leverage,” Buiter said.

“First excessively indebted households passed part of their debt back to their creditors – the banks. Then the banks, excessively leveraged and at risk of default, passed part of their debt to the sovereign,” he explained. “Finally, the now overly indebted sovereign is passing the debt back to the households, through higher taxes, lower public spending, the risk of default or the threat of monetization and inflation.”

Inflation

Brynjolfsson and other investors are in the inflation camp.

One tell-tale sign of potential inflation is that the U.S. Treasury Department is trying to extend the average maturity of its debt from about 48 months to roughly 84 months, Brynjolfsson said.

“That makes me a little uncomfortable and suspicious,” he added.

With lots of short term debt, it’s hard to inflate the debt away. That’s because interest rates should rise quickly to adjust for higher inflation expectations and investors will charge a higher rate when it comes time to refinance the bonds.

But the longer the maturity of government debt, the easier it is for inflation to kick in before bonds need to be refinanced, Brynjolfsson explained.

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) Chairman Warren Buffett said this month that he’s bearish about the ability of all currencies to hold their value over time because of massive deficits being run up by governments in the wake of the financial crisis.

The U.S. will never default on its debt because the dollar is the world’s reserve currency. But the country may print more dollars to repay with devalued currency, he suggested. Check out Buffett’s take on currencies and inflation.

The ECB’s actions this week added to inflation concerns. The bank has been in the market buying the government debt of Greece and other indebted European countries, according to Brynjolfsson.

Some investors worry this amounts to so-called quantitative easing that could devalue the euro and produce inflation. The ECB says it plans to neutralize the effects of government bond purchases by selling other assets, limiting growth of the money supply.

Xerion’s Arbess sees “a round of devaluations of a lot of different currencies.”

“That will be accompanied by inflation in the price of non-renewable assets like gold, other precious metals and industrial commodities,” he said. “People start to hold on to things that they think will retain value.”

Source: Marketwatch.com

Published by: EconomyExposed.com

And as for the savers, the hard workers, the ones who chose to honor their debts and live within their means? Nothing but a bunch of suckers. (They’re the ones paying for it all.)

If you’re one of those “suckers,” at least you’ve got company. I’m a sucker too.

All this time, I thought working hard for my money and staying debt free was wise. I thought sticking with one credit card – paying down the balance every month, no exceptions – was prudent. I thought driving a five-year-old car – fully paid off, nothing flashy – was a sensible thing to do.

Nope. Turns out those were sucker moves. What I should have done, to be in synch with this economy, was to have bought a 3,000-square-foot McMansion at the peak of the bubble… pulled out a cool hundred thousand in home equity loans… and then defaulted on the place.

That way I could have had the cash for a jet ski and a new convertible and a Hawaiian vacation – you know, the means of living in style – without having to worry about a thing.

No Morals Is the New Normal

Apologies for my cranky tone today. I hope I’m not messing up your Monday. It’s just that, heading into the weekend, I read something that absolutely made me sick. More on that in a moment…

Two weeks ago your humble editor asked, “Did the Housing Bust Fuel the Consumer Spending Binge?” In that piece, it was explained step by step how the phenomenon of “strategic defaults,” i.e. homeowners walking away from their mortgages, may have fueled a surge in retail spending by way of freeing up cash.

As it turns out, it looks like the strategic default thesis was correct. And this helps show why those who were expecting a “new normal” got it wrong.

See, guys like Mohamed El-Erian at Pimco (and yours truly) at first thought the “new normal” meant consumers tightening up and living within their means. What we failed to realize is that “new normal” actually translated to “NO MORALS,” as in “deadbeats ripping off the banks with abandon” (while the banks in turn screw the taxpayers).

In the piece two weeks ago, I hat-tipped a blog called Credit Writedowns for helping me solve the strategic default puzzle. The main blogger there, Edward Harrison, continues to do solid investigative work. Below are some of the anecdotes he recently reported (underscore emphasis mine). After reading them, I think you’ll understand my mood:

• My 25 year old niece had $10,000 of outstanding credit card debt. Recently, she told the bank she couldn’t pay. She is not unemployed so the ‘hardship’ is all relative. Nevertheless, the bank offered her a concession which she refused. They offered another concession, she refused again. Finally, they told her if she paid $150/month for 2 years (total of only $3600 with no interest), they would call it paid in full! She accepted in a heartbeat. It is less than a month later, and she celebrated her good fortune by going on a cruise to Hawaii.
• A friend owns a small manufacturing co. He tells me of one of his female employees who was saddled with a $450,000 home she purchased almost five years ago with no down pmt. One year after her purchase she pulled $75,000 home equity and purchased ‘fun stuff’ including a boat. She recently walked away from the house (now saddled with $525K mortgage), purchased a new house for $200,000 (in her sister’s name) and kept all the goodies purchased from the home equity withdrawal. With the much lower mortgage payment she just bought a new car.
• Almost everyone in my “survey” is aware of, or knows someone living rent free in their home for an extended period of time, having stopped paying their mortgage. Many of these free boarders are spending lavishly on non-essentials. My hard-working part-time assistant knows two different 35+ yr olds who have enjoyed over 9 months (one is up to month eleven) of rent-free living in very nice homes they purchased in 2004/2005! Both are employed and both enjoy a non-frugal lifestyle. My assistant wonders if he should do the same or have me pay him more so that he too can enjoy the ‘good life’.
• My sister is a nurse with 25+ years on the job. She told me of a young couple that she is good friends with that both work at her hospital making a decent joint income. They didn’t like the fact that they grossly overpaid for their 3000 sq ft home in 2006. They stopped making hefty monthly payments six months ago and haven’t yet been contacted by the bank. They have decided to wait until contacted and then walk away. In the meantime, they just returned from NYC from a week vacation in the Big Apple.
• My brother-in-law wanted to know if he should stop making payments on everything. He lives in Virginia and his carpentry skills are not as marketable as they were in the height of the boom. He and his wife’s best friend have lived close-by for many years. For the past 13 months since they strategically decided to stop paying their mortgage, they had yet to be contacted by their bank. Not even one letter! My brother-in-law doesn’t understand how they get to pocket the mortgage and spend carefree, including a 10-day Caribbean vacation.

Apparently there are lots more anecdotes of this type – potentially “millions of similar stories across the country.”

I thought I was about as cynical as I could get. I thought that, after the initial outrage of the bailouts, my anger was all but spent. But this makes me feel righteously ticked off all over again.

The Revolutionary Rip-Off Machine

Why be furious? A few reasons.

First of all, because these happy-go-lucky knuckleheads spending strategic default “mad money” like water have the attitudes of fiscal dope fiends. They are likely going to go broke again en masse, or otherwise need bailing out, and someone else will have to pay. AGAIN.

Second of all, because it’s just damn disgusting that those people who scrimped and saved to own their homes and pay their debts – i.e. the “suckers” who lived by a moral code of personal obligation and free market ethics – have to see such blatant debauchery not just flaunted, but rewarded by the system. It’s a breakdown of ethics and common sense that threatens the future of the country as a whole.

And third, because even though the banks are the ones eating strategic default losses, they aren’t the ones getting screwed in this deal. TAXPAYERS and SAVERS are the ones getting shafted – people like you and me. (Oh, and your kids too. They’re going to pay out the nose for all this. Big time.)

To understand why the banks don’t really care about strategic default losses – why they can let defaulters go a year or more without so much as a slap on the wrist – take a look at the following chart from Gluskin Sheff.

The chart shows the financial sector’s profits as a percentage of all corporate profits in total.

Before the crisis hit, the financial sector had worked its way up to more than a third of all corporate profits at the peak – an obscene number in itself. Thirty-three cents out of every dollar earned by way of financial engineering? You don’t see that kind of imbalance in a healthy economy… only in a paper casino “phinance” economy, where the “ph” is for phony.

As the financial crisis took hold, the financial sector’s profits plummeted, which the chart shows. But then, post crisis, they bounced back with a vertical vengeance. See that rocket ride on the right side of the chart? It comes courtesy of the Federal Reserve and U.S. Treasury, finding any way they can to shovel huge profits into Wall Street’s pockets. At the taxpayer’s and saver’s expense.

Here is how the revolutionary rip-off machine functions:

• Lavish-spending “strategic defaulters” feel justified in ripping off the banks.
• The lawless deadbeat culture spreads – as sparked by the banks’ own example.
• The banks don’t care because they are in the rip-off game too, on a larger scale.
• The banks can ignore strategic defaults by way of taxpayer-funded profits.

The whole thing winds up being a backdoor political transfer. Washington pumps torrents of money into the rotten banks. The banks look the other way as strategic defaulters catch on that “the way to play the game” is to defraud, deny and spend. And politicians get to enjoy the illusion of recovery.

A License to Print

So how are the banks ripping off the taxpayer, you ask? By way of the record steep yield curve. In keeping short-term rates near zero, the Federal Reserve has given the banks a license to print money.

Thanks to Ben Bernanke, banks can borrow as much as they want for practically nothing… plow that cash into longer-dated U.S. Treasuries… and make perpetually huge profits with little to no risk. It’s like a permanent backdoor bailout subsidy.

Meanwhile, again, the powers that be, to the extent they truly know what is going on, are happy about the strategic default situation. They see the defaults and rampant spending binges as a good thing. Why? Because all that “mad money” creates the illusion of a healthy consumer!

All these jokers going out to buy new cars and Hawaiian vacations and whatnot are fueling a new spending surge, which in turn boosts corporate earnings, which in turn gets Wall Street cheering and the average citizen thinking “hey, things are okay.”

And as for the banks – why should they trip over pennies on their way to dollars? The big banks have far more money coming in by way of the Federal Reserve’s magic gift (zero interest rate policy) than they do going out.

A Criminal Disaster

The whole thing is a criminal disaster. Here’s why:

• Zero interest rates are a cruel punishment for savers, especially elderly savers.
• Backdoor inflation (via the creation of excess reserves) is a means of rewarding profligate debtors and punishing savers harshly (making “suckers” of them).
• Businesses are gearing up based on the notion that this consumer spending surge is sustainable, when in actuality it’s a giant mirage.
• The massive profits being accrued by the banks are pooling disproportionately in the pockets of fat cats and deeply connected investment players (as usual).
• The real backbone of America’s economy – small business – is still being neglected. So are genuine savers.
• The up-and-coming generations – the children that will inherit all the debt being created – are in some ways the most voiceless victims of all in this scheme.

Small Business Pain

Meanwhile, even as corporate America rejoices, small business continues to starve. According to a recent survey from the National Federation of Independent Business (NFIB), the credit picture is worsening for small business now. Despite all the hoopla, the employers of more than half of America’s workforce have reason for pessimism, not optimism, in the quarters ahead.

But who cares, right? The economic recovery, or at least the illusion of it, will be carried on by the revolutionary rip-off machine. The Federal Reserve has found a neat new way to funnel cash into the hands of those who least deserve it, just as it did with AIG.

And taxpayers and savers – the few of them left that is – will just keep getting squeezed on both sides. An estimated 47% of Americans pay no taxes at all… and the fat cats at the top of the oligarchy ladder certainly get a lot more out of the system than they put in.

So that leaves the “suckers” in the middle (i.e. you and me) to pay the final tab. For all of it. The whole rotten thing.

To be honest, I don’t really know what to think of my country any more. This ridiculous, debauchery-ridden, quasi-socialist Ponzi-scheme of a recovery is going to end in absolute disaster. Crushing deflation, hyperinflation, heck, maybe even martial law… it could all be coming down the pike, in wave after debilitating wave, when the music finally stops.

Maybe we’re just fulfilling the old prophecy:

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

Source: Daily Markets.com

Published on: Economy Exposed.com

Most people interviewed in the Bloomberg National Poll say they don’t like Wall Street, banks or insurance companies and favor letting the government punish bankers who helped cause the worst financial crisis since the Great Depression.

Almost seven out of 10 people surveyed support using current bank regulators for consumer protection, backing positions held by the financial industry and Republicans over President Barack Obama’s proposal to establish an independent agency.

The poll’s findings come as the White House and congressional Democrats pivot to focus more election-year attention on an unpopular political target — banks and Wall Street — following this week’s victory on health-care legislation.

“Let’s not paint all of Wall Street with the same brush, but there are those who really did tremendous harm to our economy,” House Speaker Nancy Pelosi told reporters. “So now we will have a bill because we can’t ever let this happen again to the American people.”

As the country struggles with a 9.7 percent unemployment rate while financial stocks surge, 57 percent of Americans have a mostly unfavorable or very unfavorable view of Wall Street, versus fewer than one-quarter who have a favorable opinion. Banks are viewed badly by 54 percent of poll respondents, and 60 percent have a negative opinion of insurance companies.

Disdain for Executives

The poll also shows most Americans don’t like the nation’s top corporate bosses. Almost two-thirds say they have an unfavorable opinion of business executives, a rating that rivals the public’s disdain for Congress, which was viewed with disfavor by 67 percent of respondents.

The poll of 1,002 U.S. adults was conducted March 19-22 by Selzer & Co. of Des Moines, Iowa. It has a margin of error of plus or minus 3.1 percentage points.

Low esteem for financial firms was reflected in resentment of big paychecks on Wall Street.

Fifty-six percent of those polled say they would support government action to limit compensation of those who helped cause the financial crisis, or to ban those people from working in the banking industry.

“The amount of money that people on Wall Street make seems to be really out of bounds,” said Laure Sinclair, 52, a part- time accountant who lives in Dallas. “But I don’t know that the government can regulate that because we want to be a capitalist society.”

Consumer Protection

Obama’s proposal for a stand-alone consumer agency has been a main sticking point in negotiations between Senate Democrats and Republicans on broader legislation to increase oversight of Wall Street.

The Senate Banking Committee on March 22 approved a bill by Senator Christopher Dodd, the panel’s chairman and a Connecticut Democrat, to set up a consumer-protection bureau at the Federal Reserve with the authority to write and enforce rules. Obama continues to make the agency a priority as part of what would be the biggest overhaul of the system policing Wall Street since the 1930s.

“By creating a new consumer agency, we will finally set and enforce clear rules of the road across the financial marketplace,” Obama said in a March 22 statement. “I will continue to fight to strengthen the bill and against attempts to undermine the independence of this agency.”

Populist Ire

As Democrats and Republicans seek to tap populist ire, the poll shows there may be political advantage in taking on big financial institutions such as Charlotte, North Carolina-based Bank of America Corp., and New York’s Goldman Sachs Group Inc.

The majority of poll participants — 56 percent — say big financial companies are more interested in enriching themselves at the expense of ordinary people, while 40 percent say such firms play a vital role in enabling the economy to grow.

At the same time, Americans are divided over the scope of government regulation. More than 40 percent of Americans say the government has gone too far in measures to fix the financial industry; 37 percent say it hasn’t done enough. Almost six out of 10 people say Wall Street hasn’t gone far enough on its own to protect against future emergencies.

“Anything the government gets their fingers in, they mess it up,” said poll participant Norman White, 60, a community college electronics instructor who lives in Colfax, Louisiana. “I don’t have a very high opinion of the government running anything.”

Views of Fed

The Fed could use some marketing help, the poll shows. More than a quarter of participants don’t have an opinion about the central bank, while 42 percent have a favorable view and 31 percent hold an unfavorable view.

While gloomy about the nation’s economic outlook, most Americans believe there is little chance in the next few years of another financial upheaval like the 2008 crisis that caused a near collapse of the U.S. banking industry. While 42 percent say they think such a scenario is at least fairly likely, 57 percent say it is only somewhat likely or not likely at all.

Source: Bloomberg

Published by: Economy Exposed.com

Those who promote the Olympics are interested in power, prestige and profit.
Developers and construction companies stand to benefit from the public money spent on road construction and new sports facilities. Politicians get to preside over a large-scale spectacle. But what will the rest of us get from the [three-year] lead up to the Olympics? What will be the real legacy of the Olympic games?

Politicians and business leaders are quick to promise that the Olympics will not lose money, and that people will not be pushed out of their homes by rent increases, but we can see from the experience of other cities that these promises have not panned out — they are simply a strategy to try to co-opt those opposed to the Games.

In searching the historical record, it is hard to find anything good to say about the Olympics. There are, however, some very good reasons to oppose the Games:

1. Massacres and Concentration Camps: The Bloody History of the Games

The modern Olympics have walked hand-in-hand with political repression and violence. The 1936 Olympics in Berlin (held despite a call from the Jewish community to boycott the games) actively promoted the Nazi regime. IOC members who opposed holding the Games in Berlin were dropped from the organization. Witnesses reported that there were more swastikas on stage at
the opening ceremony than Olympic flags. By the time the Games opened, a concentration camp was operating just half an hour’s journey from the Olympic site. As well, the Nazi regime initiated the modern Olympic torch relay as a way of promoting fascism throughout Europe.
Hundreds of people (mostly students) were massacred by a special forces unit called the Olympia Brigade in the Tlateloco Plaza in Mexico City ten days before the Olympics began in August 1968. A recently declassified document written to President Lyndon Johnson reported that “… the current tensions in Mexico City point toward the possibility that the Olympic games will be used as a focal point for demonstrations and actively favoring leftist, subversive, and militant radical elements.” Other documents show how the US Government directed the FBI to actively investigate any Americans planning to go to Mexico to protest the Olympics. These documents show that there was active pressure on Mexican President Diaz Ordaz to quell any student rebellion before the start of the Games.

Repressive laws and security build-ups are hallmarks of recent Olympic Games. The Games have been used as a convenient cover for permanent repressive laws and to create new police and military units. In Sydney there were four cops for each athlete at the Games for a total of 35,000 police and security guards, 4000 troops and elite commando units, and BlackHawk helicopters.

The Sydney Olympics were also used as a pretext to allow the Australian government to introduce permanent legislation that allows the military to be called out to quell domestic unrest. Steve Martin, the Labour Party’s Defense Critic, called the Olympics the “catalyst” for the bill. The Olympics Arrangements Act was passed giving the police the unfettered use of cameras and recording devices, and the powers to prevent the distribution of materials, and the powers to search and detain people in both Olympic and public spaces.

2. Racism and Racial Profiling

Increased Olympic security has also led to the increased racial profiling of immigrants and people of colour by both police and immigration authorities.
During the 1984 Games in Los Angeles, police cordoned off the mostly black neighborhood surrounding the Olympic Village and required identification from everyone entering or leaving the area. There was a similar lock-down of the Black community in Atlanta during the 1996 games.

During the 2004 Athens Olympics, Islamic communities in Greece were subjected to state surveillance of places of worship, and mass document-checks and inspections. A spokesman for the Greek branch of Amnesty International warned that “security for the 2004 Olympics is used in Greece as a pretext to systematically break international treaties on the right to refugees.”

3. Grandstands not Homes: The Olympics Create Homelessness

In Salt Lake City the government planned to create 2500 new units of affordable housing — only 150 units were created. There was a 300 per cent rent increase in some residential hotels. In the year before the Sydney Olympics, there was a 400 per cent increase in tenant evictions. In Atlanta, Project Homeward Bound gave Atlanta’s homeless a one way ticket out of town before the Olympics began. In Calgary, the government promised to create low-income housing. None was created—only a few new university residences were built.
In B.C., Jack Poole has promised social housing and no displacement. But, Poole’s track record is not exactly stellar—former Vancouver mayor, Gordon Campbell gave Poole land, virtually free, for the creation of affordable housing. No affordable housing has been created.

4. Skyrocketing Public Costs

The B.C. Olympics will have a costly price tag of more than six billion dollars — money much better spent on housing and healthcare. The Olympics shouldn’t be a spending priority at time when the provincial government is slashing funding to social supports, and refusing to provide low-cost housing.
No modern games have ever made money when all costs are included: public money, land transfer, infrastructure and security. The current bid includes costs of 1.7 billion dollars in highway upgrades—$600 million each from the Provincial and Federal governments. Rapid transit will cost 2 billion, and staging the games themselves will cost 1.3 billion dollars. Interestingly, security ($560 million in Salt Lake and $1.5 billion for the 2004 Athens
Olympics) is left out of the official costs.
Host cities have taken on huge debts to stage the games. The debt for the 1976 Montreal Olympics was finally paid off in 2002 [with interest, a total of $1.2 billion]. Calgary took on a $910 million debt, Barcelona a $1.4 billion debt, and Sydney, billed as self-financing, had a $2.3 billion deficit. The Nagano games are described as being paid off by future
generations.
In the original 2004 Athens Olympic bid, Greece estimated that the Olympics would cost $1 billion dollars. They ended up costing at least $9 billion.
The claim that there are long-term economic benefits doesn’t ring true. In the state of Utah, the average job growth for the Olympic impact period was 37 per cent less than the pre-Olympic period. And Professor Frank Atkins, University of Calgary economist stated that the Calgary Olympics “did not present a measurable long-term [economic] impact.”

5. The Olympics: Privatize the Profits; Socialize the Losses

Senator John McCain, Republican Senator from the State of Arizona, said, “It’s (the Olympics) got to do with land swaps, exchanging worthless land for valuable land, wealthy developers, and the enrichment of billionaires.”
In 1900 and 1904, the games were attached to trade fairs. Governments saw sports as an avenue for commercial gain. And more recently, prior to the Sydney Olympics, the World Economic Forum was held in Melbourne.
Corporatization of the Olympics accelerated after 1983. Professional athletes were allowed to compete, and the Olympic logo was allowed to be associated with corporations. This change in Olympic policy opened the market floodgates. As a result, selling the corporate sponsorship rights to the Games has become big business. At the Sydney Olympics, fifty student lawyers were hired as “T-shirt police” to ensure that only corporate logos bought and paid for were displayed in venues. In 2002, the IOC came under fire because uniforms for torchbearers were made in Burma — a country known for routinely using forced labour in factories. The Olympics are frequently sponsored by multi-nationals like Nike and Shell, companies with terrible environmental and human rights records.
Locally, the Olympics are strongly supported by developers and construction companies. Both Jack Poole and the former-chair of the VOTE YES plebiscite committee are prominent local developers — the people who will profit from the real estate booms, and increase in housing and rental costs that will surround the Games. Public money will undoubtedly be spent on costly highway upgrades and the rapid transit line to the airport.
As an Olympic host city, we are one of the fronts of the opposition movement. We must join our sister bid cities in the spirit of international solidarity and cooperation and say NO! to the Olympics. We must be part of a broader international movement, called for by The Anti-Olympic Alliance in Sydney, to expose the role of the Olympics industry in urban displacement, privatization of public space, displacement of indigenous peoples, and increasing profits for the rich.
Saying NO! to the Olympics means saying no to nationalism and militarism, to political repression, to racism, to corporate greed, and to the suppression of indigenous rights.

Hundreds of thousands of people have descended on Vancouver for the 2010 Winter Olympics. Three billion are projected to follow on TV and 75 million more on vancouver2010.com.

And people around the world are learning to love obscure sports like curling and biathlon for a couple of weeks.

But before you get too caught up in the sports, remember that the Olympics have little to do with sports.  They’re mostly about money.

In the United States, NBC demonstrates this every day — ruining the Olympics for millions of sports fans by tape-delaying events so it can show a highlight reel during prime time.  (To their credit, other countries don’t do this: Our readers remind us every day how great the coverage is in Canada).

But NBC is just a small part of the global industry known as Olympics, Inc.

In the last four years (2005-2008), the International Olympic Committee (the owners and controllers of “Olympics, Inc.”) generated nearly $6 billion of revenue. For the next cycle, revenues are on track to be significantly higher, with Vancouver already doubling Turin for domestic sponsorship.

It’s enough to make you look twice at the IOC, which is based conveniently in tax-haven Switzerland.

Although the IOC is a non-profit organization, employment (“membership”) in the organization is a cushy job with many benefits.

Where does all that money come from and go? Is anyone making a profit? And who put the IOC in charge anyway?

WASHINGTON (Dow Jones)–The U.S. unemployment rate unexpectedly declined in January, but the economy continued to shed jobs and revisions painted a bleaker picture for 2009, casting doubt over the labor market’s strength.

The unemployment rate, calculated using a household survey, fell to 9.7% last month from an unrevised 10% in December, the Labor Department said Friday. Economists surveyed by Dow Jones Newswires had forecast the jobless rate would edge higher to 10.1%.

Meantime, nonfarm payrolls fell by 20,000 compared with a revised 150,000 drop decline in December. Economists had expected payrolls to be flat. The December figure was revised down sharply from an originally reported 85,000 drop.

The Labor Department’s annual benchmark revision to the survey that produces the monthly payroll report painted a bleaker 2009 picture. Last year, job losses were almost 600,000 more than previously reported, the revisions showed.

===========================================================
Jan Employment Report                 ! Consensus:        !
                       Jan       Dec  ! Payrolls:   Unch  !
 Payrolls             -20K      -150Kr!                   !
 Unemployment Rate     9.7%     10.0% ! Actual:     -20K  !
 Hourly Earnings     $18.89    $18.84r!                   !
===========================================================

The January report was influenced by several special factors that may not be consistent with the underlying jobs trend. Temporary hiring for the U.S. 2010 census collection helped the employment picture in January, while the unusually cold weather probably hurt it. The interaction of a very bad employment year in 2009 with January seasonal factors clouds the picture further, analysts warned ahead of the release.

“We will be inclined to treat either a very strong or a very weak employment report — particularly the payroll portion — with a greater than usual skepticism,” Goldman Sachs economist Andrew Tilton warned in a note.

The so-called “underemployment” rate–which includes everyone in the official rate plus those who are neither working nor looking for work, but say they want a job and have looked for work recently–fell to 16.5% in January from 17.3%.

Since the start of the recession at the end of 2007, payroll employment has fallen by 8.4 million. Over the last quarter, however, employment has shown little net change as the economy’s recovery helped companies retain workers.

Although the revisions show there were more job losses in 2009 than previously reported, the moderation in payroll cuts in the second half of last year remained broadly in place. November was revised to show a 64,000 gain in payrolls from a previous reading that only 4,000 jobs were added.

Last month, employment fell in construction, transportation and warehousing, while retail trade and temporary help services added jobs. Temporary services added 52,000 jobs in January.

The Federal Reserve’s view that U.S. interest rates must remain at a record low for several months shouldn’t change following the jobs report. Fed officials have in the past warned against reading too much from just one set of monthly data.

The central bank’s rate-setting committee left interest rates close to zero last week in the face of low inflation and high unemployment. The labor market’s performance is likely to be the main driver of Fed decisions this year over if and when it is time to raise interest rates.

Fed officials have predicted the unemployment rate will remain above 9% in the fourth quarter of 2010 due to a slow recovery. The economy surged in the fourth quarter of last year, but that was driven by inventories, a factor that will fade this year.

Friday’s jobs report showed that average hourly earnings rose to $18.89 in Janaury from $18.84 the previous month. The average workweek was up by 0.1 hour to 33.3 hours.

These data were also revised by the Labor Department, which started to report hours and earnings for all employees, instead of just for production and non- supervisory workers.

We’ve heard a lot about security issues with the iPhone, but the BlackBerry isn’t immune to threats from malicious apps. Tyler Shields, a senior researcher at the Veracode Research Lab, has written a piece of spyware that allowed me to shoot an SMS command to his phone and have his contact list forwarded to my e-mail address in a demonstration. With another short text command, I was able to get his BlackBerry to e-mail me any SMS messages he sends. And if I had wanted–and he had allowed me–I could have seen a log of all his calls, monitored his inbound text messages, tracked his location in real-time based on the GPS (Global Positioning System) in his device and turned his microphone on to listen to conversations in the room and record them. “It’s trivial to write this type of code using the mobile provider’s own API [application programming interface] they provide to any developer,” Shields said in an interview in advance of his talk on the spyware scheduled for the ShmooCon security show on Sunday. He calls his program “TXSBBSpy” and is releasing the source code but not an executable version of it. “My goal is to show how easy it is to create mobile spyware,” he said. TXSBBSpy “can take data from the phone, both in real-time and in snapshots, and send it off via SMS or e-mail to any Web server or TCP [Transmission Control Protocol] or UDP [User Diagram Protocol] network connections,” Shields said. While I was able to control the spyware using text messages sent from my mobile phone, the spyware had to be first installed on his BlackBerry for the snooping to work. This can be done by sending the target victim an e-mail or text with a link to a Web page where the spyware is surreptitiously installed. Or it can be hidden inside a legitimate-looking app downloaded from the App Store. The risks are similar to those posed by Swiss researcher Nicolas Seriot in his iPhone spyware demo at the Black Hat DC security conference on Wednesday. “These types of behaviors we’re demonstrating will be universal across all mobile platforms,” Shields said. The BlackBerry platform has a “significant number” of security mechanisms in place that could be used to mitigate against these types of attacks, he said. For instance, the user can set the options to limit what access to specific types of data a particular app can have, he said. However, many smartphone users either don’t know about the security risks, don’t think the risks are serious or don’t know how to be more secure with their devices. A Trend Micro survey from last August found that only 23 percent of smartphone owners use the security software already installed on their device. App stores also need to do more to vet the apps, Shields said–the same message Seriot had for Apple. In the meantime BlackBerry users should be more cautious about what apps they download and what rights they give them. “Users should not hit the ‘I trust this app’ button,” Shields said. “That will give it access to all your personal information.” Users should go into the app security configuration within the BlackBerry option screen and tell it specifically what information the app can access or set it to prompt if the app tries to access certain data, he said. “The security models are inadequate because they trust by default,” he added. “Sandboxing [techniques] only protect one app from another app; not from accessing user data. App stores give users a false sense of security.” Shields said he has contacted Research in Motion about the issues and the company’s official comment was: “We won’t make any comment on how the security of the App Center operates.” Shields has also created a video demonstration of his spyware. A Research In Motion representative provided this comment: “Applications containing spyware cannot be installed on a BlackBerry smartphone without the user’s explicit consent unless of course someone else gains physical possession of the user’s device along with knowledge of any enabled password…the spyware app cannot simply install itself stealthily on to a user’s device. Further, a user can review and confirm the list of installed apps on their device by looking in the ‘Options’ area at any time.”

ref. http://news.cnet.com/8301-27080_3-10448545-245.html?tag=mncol