Market crash: are we there yet ?

[BubbleheadMd]

The steps needed to really repair the economy are very painful and politicians are afraid to inflict that pain on their constituents because there are people who don't understand all of this and aren't willing to make sacrifices. These people will vote them out of office.

So, the politicians cling to power by handing out gifts in the form of unsustainable social programs to keep people happy.

[TropicCat]

Originally Posted by BubbleheadMd

So, the politicians cling to power by handing out gifts in the form of unsustainable social programs to keep people happy.

Gifts?

By "Unsustainable social program" I take it you mean Social Security? In that case your comment is a red herring in that what you just stated is a republican talking point, and not true.

"According to the latest figures from the trustees of the Social Security Trust fund, the trust fund will be bankrupt in the year 2041, at which point it will be able to pay only about 75% of promised benefits. That does not mean it collapses entirely, as those who are predicting doom and gloom for it." (from the Social Security website)

Don't confuse republican talking points with reality, they made not coincide.

The 2nd thing is that Social Security is not an entitlement. Again, that's a republican talking point. I've paid into that program since I was 15 years old. I haven't taken a penny from it. How can expecting to get something in return be considered a gift..or..a handout???

Entitlements are in fact handouts, Social Security is not a handout as we all pay into it in advance. It's they who are paying us back our own money.

Certain Republicans have lead the charge to dismantle Social Security since it's inception. In fact there are two bills pending right now. Those 'certain Republicans" all owned investment services companies and some still do. What they want is for you and I to use their firms to invest instead of letting the government do it. I will point out that if that proposed program was in place in 2007, we'd all be broke right now.

[Bene505]

Originally Posted by BubbleheadMd

So, the politicians cling to power by handing out gifts in the form of unsustainable social programs to keep people happy.

... who then vote for them.

And by handing out gifts (in the form of tax breaks, relaxed regulation, bailouts, lucrative contracts, information on the timing of things) to keep companies happy ...who then contribute to their campaigns or careers.

Regards,
Brad

[fjon]

Originally Posted by TropicCat

Yesterday the State of Connecticut filed a civil suit against the bond rating companies claiming conflict of interest in their role of turning sub-prime mortgages into AAA rated Mortgage backed securities.

When I read this brief notice, it got me thinking about the housing market collapse all over again and revisiting the reasons why it's not going to recover any time soon. As a matter of fact, the worst is yet to come.

Most people don't realize that the GSEs (Fannie Mae and Freddie Mac) were constructed to take mortgages from banks and securitize them decades ago. The practice was distorted and abused recently, when banks were essentially allowed to do the same and sell sub-prime Mortgage backed securities (MBS) to investors. When these mortgages began failing, both the housing collapse and the financial collapse resulted. It's stating the obvious to point out that if folks paid these mortgages on time, there would have been no crisis to begin with, and both the housing crisis and the banking crisis would have been avoided along with this Great Depression we find ourselves in.

If that were the end of the story, new banking rules would have been quickly enacted and we'd be out of recession by now. Unfortunately it's what isn't being discussed that's the real force driving both mortgage defaults and the recession. You see Fannie Mae and Freddie Mac are insolvent. As a result of the financial meltdown, they were left as the only buyer of mortgages and are now losing money faster than anyone can count.

If you 'look under the hood', you learn fairly quickly that these loans they've been buying are defaulting at a record pace, resulting in losses. Why would they be buying loans that will default is the obvious question? The answer to that question rocks the foundation of the US economy, and is the reason no one is asking.

As America shed jobs and family incomes began shrinking, traditional mortgage guidelines were adjusted to make it possible for people to buy a home. The 'line' was crossed in 2001 when the latest adjustment to guidelines allowed the issuing of Sub-prime first Mortgages. Until then sub-prime was restricted to 2nd mortgages. The reason for the relaxed guidelines? It was because fewer and fewer people could qualify for the traditional, conservative mortgage. Why? Because their incomes no longer were increasing, and in fact were shrinking. Under the old guidelines, the entire mortgage industry would have either come to a screeching halt or at the very least slow considerably, and as we all know, construction and sales of residential properties is a big chunk of our economy. No administration was going to allow this to happen, so guidelines were relaxed. It didn't hurt that low mortgage rates created a feeding frenzy, but when the rest of the economy was tanking, this hid the problems nicely.

Fast forward to today and we find that even without the banks (or rating agencies) playing any role at all, the GSEs are now in big trouble instead. The path to mortgage securitization was restored, but the underlying market fundamentals remain the same. The relaxed mortgage guidelines just don't work and if we restore them to what they ought to be, housing (and our economy) will not recover in our lifetimes.

The problem with the American economy was never... ever... housing, or even mortgage (directly) defaults. The problem was and still is that the middle class in this country is disappearing. Most can't afford a home today.

Instead of passing more unemployment benefits, Congress should be addressing the real problem and stop dealing with the symptoms. If they do not, I can only conclude that it's their plan to reduce America to third world status. This simply can't be allowed to happen.

Just my opinion

And on it goes down the road to the end of empire. The elite keep privatizing the profits and socializing the risk. Robbing the poor to pay the rich. Here's a few bits of art to illustrate some of the points of your essay.

[bacq2bacq]

What an interesting thread to find, and what an odd place to find it, though the discussion is obviously popular amongst sailors!

The "funny" thing is that "we" have known about all this, and how to avoid it, for at least two thousand years.

Cicero, circa 50 BC: "Democracy works until the electorate discovers that their vote is the key that unlocks the public purse."

The problem predates even Fannie Mae, starting with the meeting on Jekyll Island in 1908, and the passing of the Federal Reserve Act in 1913. "Give me control of a nation's money and I care not who makes its laws." M. A. B. Rothschild.

The problem turned global in 1944 with the US dollar being made the global reserve currency at Bretton Woods.

Most people do not seem to understand that debt creates money, that money is debt, and that both are simply a way to account for faith, i.e. the faith that the debt will be repaid. Now, that will most likely not occur, or perhaps our children and grandchildren, if they so choose, will honour our debts.

To bring the discussion back to sailing, I have been thinking lately that gold bars make great ballast!

Thanks all, for the interesting discussion and graphics etc!
ben
PS: I have my personal reading list at the ready for anyone interested in becoming economically literate. It starts with "Economics in One Lesson" by Henry Hazlitt, a great and easy read by a Nobel Laureate.

[fjon]

It's no wonder that American engineering schools go begging for students. Who wants to build stuff when you can join one of the financial mafia families in NYC and make vast sums for just being a member. Michael Lewis on 60 Minutes, a good listen.

Author Michael Lewis On Wall St's Delusion - 60 Minutes - CBS News

[BubbleheadMd]

Wow TropiCat, you really read a lot into my post and shoved quite a few words in my mouth.

First- I'm not a Republican and just because I happen to agree with a few GOP principles does not mean that I parrot talking points, and that I don't do my own research.

Second- I agree. SS is not an entitlement program because we all pay into it and we all have an SS account.

Primarily, I'm referring to government programs (and some things that the state and Fed gov'ts allow to happen by omission) that give services and money to people who DON'T pay into programs.

Please don't draw such specific conclusions about me from such a brief, and general statement.

[TropicCat]

First American CoreLogic just reported that the rate of foreclosures among outstanding mortgage loans was 8.74 percent in January, an increase from 4.46 percent in January 2009. It was 8.25 percent in December. Folks .. That's 8.74% of every outstanding mortgage in America.

The average delinquency is 9 months.

These two bits of data when combined = a WTF moment.

Let's do some quick math. If nearly 10% of people in this country aren't making their mortgage payments and those payments eat up over 30% of their disposable income, doesn't it stand to reason they are spending the money? I mean the savings rate hasn't gone up that much. And.... if they are spending the money, doesn't it stand to reason that it's entering our economy and is measured by consumer spending? This means that although Consumer spending has been relatively steady, when we 'look under the hood' we see that people are in fact buying things with their delinquent mortgage payments!! There isn't enough income to do both.

The bottom line is that when the banks and courts actually get around to removing these people from their homes, consumer spending falls off a cliff.

Wait...there's more ... Real estate hasn't found a bottom yet as mortgage delinquencies have almost doubled year over year. The end of this month the Fed stops their quantitative easing. Translation, no more buying of nasty MBSs from banks.

Bottom line ... Real estate is still sinking and it's about to fall off a cliff again.

This recession hasn't hit bottom, hell, it's just hitting it's stride. The one and only positive number is the stock market which is skewing GDP numbers for the entire economy.

If these two points aren't another WTF moment, I don't know what is.

Buy a gun and plant a garden

[edguy3]

Isn't that just a statistic for the Las Vegas area?

[fjon]

While our national, state and local governments wallow about trying to avoid the hard decisions, and in denial about the almost unthinkably bad crumbling economic system, it's nice to get an unequivacal vision of the future. I care nothing for astrology, unless I'm a bit tipsy and listening to it flow from a pair of lovely ruby lips , but I do pay attention to good predictive track records. As such, here's a recent example of such a vision. Oy vey! enjoy!

- Utterly cataclysmic event predicted for this year. I've never heard him talk like this. Later this year holds possibly the most ominous astrological planetary alignment in 10,000 years. This planetary alignment will occur in "the last week in July to the middle of August".

- Markets to crash "lower than any year in the last 200." Markets may crash after August 1. He has stated in a prior newsletter, "We will do everything but guarantee you that stocks will crash worldwide within three months of August first (that is between May 1 and November 1)."

- Gold to "take off like a rocket" the first week in April.

Arch Crawford's track record has an accuracy of somewhere around 85% and he has been ranked #1 stock market timer out of a field of 500 investment newsletters multiple years by Hulbert's Digest since he started publishing in 1977.

Here's the link to the radio interview with Crawford on 3/16
http://audio.marketviews.tv/audiofil...crawford26.mp3

Edit: I hate to put out misleading info, so here's a little salt to season Crawford's claims of results. It's a table of his market index calls, going back over 43 of his letters from the site listed.



CXOAG Guru Grades – Arch Crawford, Uncanny Acumen?