Ben’s not the problem, but is he the “Man to Solve It”?

Now wait one second, Mr. Ron Paul. I don’t think it’s fair to suggest that Ben Bernanke caused the recession. That would be like saying that he personally engineered the subprime mortgage security, these… as Greenspan called them, creative Financial Products. As well it would be like suggesting that he, and not Greenspan, first became aware of these derivatives and how if left unchecked, like most objects the bubbles surround, could have a greater fallout on the bigger economy. Unfair if you ask me, but a saint in this affair he is neither.

Ben, Your crime is negligence my friend. You had a chance to study the possible effect of the subprime fallout in its making. You knew by the figures that it had reached the title of bubble based on the intel you collect on the economy daily. Crunching the numbers would have told you that the value of these products were highly inflated. He also knew that the subprime lendees were starting to default at a rate exceeding what the current (at that time) secondary housing market could absorb (2 million that year alone). And you ignored the fallout.

The housing industry supports so many other industries and about 30% of the blue collar work force, how could you be so naive that you would forget about small appliances and turf farms, or the trillions of dollars worth of collapsible wealth there was hidden in two highly regulated markets; the banks and real estate.

The one thing no one wants to admit is the part that 140 a barrel oil played into that scenario. How it was the real pull that was slowing the economy. It was just bad timing that the subprime fallout occurred simultaneously. Timing was the real culprit of this decades recession, if you ask me.

But… Ben, you could have made a real difference when it started in Dec. 2006. This would have been a great time to look at the senarios the fallout could have, mixed with the fuel pressure. Greenspan warned us that natural gas would peak in the US and that without building new infrastructure to trasfer the reigns to importers, that the preasure it would put on the economy could be catastrophic beyond repair, which coupled with the war in Iraq and the inflation which follows war, it would have taken a real genius to worm us out of that without a flu shot!

Act 2, Scene 2011 – INFLATION

So, here’s the dealio folks. We know that although Greenspan was a economic muse it didn’t save him from ignoring the truth sometimes. Struggle as we do, it’s life! Ben on the other hand has not been at all the successor we were expecting. I think we were into the whole moderating side of Keyenian economics. Sure it won’t last forever, but it does tend to keep inflation and unemployment in check, for the most part. And, here’s where it gets a little tricky, and I see Ben looking ahead a little bit, but… how do you tame a super-hyper inflation.

We just poured approximatly 4 Trillion dollars into the US economy, Europe is already beginning to see an uptick in there inflation from the money they poured into there central banks. The problem is that when these banks start loaning out this money it is going to multiply, as they loan it. This mixed with inflation in every other country that followed this lead will have a global effect of manic deflation.

Seriously we should have let the fallout happen and build a health economic plan that was based on total value, including energy and global costs of repair. It’s not really a choice if we understand what we are facing.

Fed to markets: Let the bubble blow David Callaway – MarketWatch

Fed to markets: Let the bubble blow David Callaway – MarketWatch

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A Taxing Tea Party

In response to Congress’ new Stimulus Package A site called taxdayteaparty.com/ has become the highly vocal spirit behind the movement to protest the taxation built into the new Congressional Stimulus Package. Fox News, as well, have begun running commentary ringing the theme “Take Back America”. A big position for a National News Service, to say the least.

It has been my opinion that there is a strong and steady building of sides that has cast a shadow on the Obama Administration. Probably not as potent as the separation of ideals that originally led to the breakaway states that ignited the Civil War in the 1800’s, but America has definitely come to a turning point in its History.

As Fox News has pointed out there is almost no coverage from many of the Major News Services in the US or abroad for that matter. It doesn’t seem PC to discuss it.

Michael Steel, RNC Chairman, had to respond publicly to rumors that he was asking to be counted in as a participant of the Tax Day Demonstrations. According to his response he had never considered himself involved in any way, nor had he suggested that to Tax Day Tea Party or its organizers.

In the past few months since Obama has taken office there have been a cacophony of voices cheering on one side of the isle, while another less casual voice from across the way that has begun chanting descent of the Liberal Pull that has swept through Congress.

But, lets not forget that the Republicans got the ball rolling with the TARP program request to Congress which gave $700 bil to financial institutes, who essentially put the US in dyer straights with reckless decisions, while ignoring the systemic risks involved, not to mention the bailout of Bear Stearns and AIG, Instigated by George Bush’s choice for Fed Chief, Ben Bernanke.

Some of America have become quite upset with the bailout and feel that the economy should have followed the natural course it had created for itself, which could have brought a huge number of major banks to ruin. It’s hard to say what’s really helping, but it is well known in economic circles, that the Government isn’t responsible for the health of the economy, or shouldn’t be. Hence the idea of Free Enterprise.

Its very hard to predict where this movement will take us, as it is equally difficult to predict whether or not the now Trillions of dollars being spent on these broken financials will ultimately do what it has been intended to do.

The good news is that people are talking about topics that were once considered taboos in America. Lets just hope it comes to wholesome and constructive ends!

Congress Averting another Catastophe: But this time a Revolution

Man, talk about a close call. The public uproar on the whole AIG bonus Scandal was quite a fervent scene to observe. Congress was so worried about it that they basically lynched anyone who was supposed to get any kind of bonus, that had anything to do with any financial agency that took Fed or Treasury funds.

The problem is that it reminds me of the day the Treasury announced the take-over of Freddie and Fannie. I really think it was the first wave of panic that started the horrible conditions we see today. The second shock was letting Lehman Bros. fail… but the biggest shock so far was when Congress’ Lame duck Republican leaning vote against the original TARP Funds. That was the shot heard round the World.

Within a few hours of the outcome, the LIBOR jumped more than 200 basis points and essentially shut down all loaning. This was the real Credit Crisis. Everything previously experienced was just a warm up. After that everything became a shock to everyone…

So, here we are. 2 years after the fall of the Real Estate Bubble and things were starting to look as though there might be a shift in the momentum, of what many are hoping would be the bottom of this deflationary period, and Congress sounds the Alarm!

I wonder how many people will show up for work tomorrow. At least the ones that are being held responcible for cleaning up the mess at AIG might not be interested in working for free… The one thing that’s certain is that we will find out whether or not Liddy was telling the truth, in his testimony to Congress. He said that without the people who are receiving the bonuses, it would leave about $1.6 Trillion of risk unmanaged, and that that would lead to the collapse of AIG. And… according to Ben Bernanke, a collapse of AIG would lead to a World Financial Systemic Collapse.

hmm… It should be an interesting week ahead.

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60 Minutes with Ben Bernanke

When he was asked “why” are you appearing for an interview, Ben (may I call you Ben?) responded… “These are unusual times!”. Ferderal Reserve Chiefs never give interviews, so Yes, it is an extraordinary time.

He also said it gave him the chance to speak directly to the American People. I, on the other hand, have to blog in order to gain such hope, that anyone wants to really hear anything I have to say. So, you go Ben…

Oh, hey since I’ve got you on the show, do you mind if I ask you an unrehearsed question? “Why are you still ignoring the Mortgage Securities issue. The fact that all these banks are still hiding the amount and real values of all these, “what does wall street call them?”, oh yeah! Toxic Assets. If my memory serves me, you did the same thing in the beginning as the foreclosures began in late 07, and had these results. Weird, so…

Now you go on 60 minutes and tell the AMerican People that the probl;em with the financial system is the financial system, sell us on further bailout “political will”, while you continue to ignore what still seems to have no answer. Nice…

Well here’s my opinion, and you can put this on 60 Minutes!).. Take the paper from the banks as collateral, let them value it as they like and we’ll loan’em the dough. Then! We take all this paper and assemble a crack team of trackers and those ladies that do all those puzzles in the kitchen, and find the missing real estate. Put all those rotten piece of collateral into nice easy to manage mortgages. Then return the assessed value in real estate back to the bank. Once the debts are reassembled, as mortgages, they will have a very clear value and other banks will know for a fact that there books are clean.

Or, come up with something else that doesn’t involve giving the banks more money without a plan to resolve the real issue! It’s the paper that got us here… Come on, Ben!

The US Financial Crisis: Confidence or the Lack of

There’s an old saying that goes, “If it ain’t broke, don’t fix it”. The irony of this statement, in today’s broken financial system,

Bernanke and Paulson testify before Congress

is the concept that what is broken here is the system, when in fact what is broken is confidence in that system.

According to Secretary of Treasury Henry Paulson and Federal Reserve Chief Ben Bernanke the banking system needs more liquidity in order to restart the banks ability to loan to each other. The belief is that they are not lending due to earlier commitments called Drawdowns, prearranged loan agreements to businesses.

The fact is that banks are not loaning to each other for two entirely different reasons. One, the possible write downs from their Subprime Mortgage Security positions, and two, the possibility that anyone of these banks could collapse at anytime. Hense the lack of confidence.

What really needs to be solved in this situation are the things that are truly broken. The biggest break I can see is the continuing collapse of homeowners. Something like 2 million Americans are at risk of loosing their homes this year, either through variable rate mortgages they were sold, or unemployment. This is the foundation of the bigger problem that has led the US to this position and crisis, and it is no longer exclusive to the US. Fannie Mae today announced 29 Billion Dollars in 3Q losses due to foreclosures or delinquencies.

Giving the banks more money to shore up the loses from their overwhelming risk taking won’t solve the problem, as Japan found out after 14 years of recession. What needs to happen is transparency. Banks need to write-OFF all these Subprime Securities and the SEC needs to force them to do it. There is no way they will volunteer to do it on their own for fear of stock holder sentiment being lost, but which is the bigger threat.

Th US Government also needs to do it’s part in a real way, instead of buying shares and Nationalizing companies, or buying up all the bad paper. This kind of give away of American Tax Payers money is reckless and ignorant. This direction is Paulson’s, who actually led the way to giant risk taking out of greed and now he wants to fill the empty coffers of the guilty. read more

The double edged sword of Bailouts sends the message that there is something gravely wrong. It may solve the immediate need for the banks, which by the way are hording this money, but creates it’s own monster. That being loss of confidence. In fact it may be motivating banks to do nothing to solve their own mistakes in order to get their cut. Greenspan may have been guilty of bad decisions, but he was never guilty of bad PR when it came to sending out news.

According to Adam Smith, the father of theoretical economics based on Free Enterprise, nothing in this economic system is really broken. Economics is similar to Natural Selection. If economic systems become outdated, something will rise out of the collapse to take it’s place. He called it supply and demand, that if were left alone it would naturally define itself. What is not in demand, in this instance, is the heavy risk taking that led to this crisis. You can see this in the Libor to Over Night Spread.

So, should we seek to stabilize it and prolong it’s lack of usefulness, by stimulating it like a heart patient who has flatlined, or let it collapse and allow Natural Selection to have it’s day. Personally I believe that America and the World for that matter have the resilient strength to arise from the challenges to be stronger, wiser and better than the past it was created out of.