The President, Nancy Pelosi, Harry Reid and only God knows how many politicians have all said that the Fin Reg bill ends all taxpayer assisted bailouts for Wall Street. Well, the news lately will put that phrase to the test. To think that all of these foreclosures are not an issue was crazy to begin with, but throw in a little foreclosure fraud and overnight you get a $47B putback from BlackRock and the Fed… go figure.
I believe the putback situation we saw yesterday was merely the beginning and there are many more tens, if not hundreds, of billions of dollars to follow. The banking system cannot handle that type of volume, remember in 2008 it was MBS and derivatives of MBS securities that caused our little problem. There is no easy remedy for this problem, regardless of what JPM or BoA says, since we are talking basic contract law here. Now, Congress did try to sneak through a bill that would have solved the industries problem, H.R. 3808 which would make courts accept all sorts of junk affidavits, but Obama ‘pocket’ vetoed the bill. Do not think that bill went away because it can come back and probably will under a new name, but it will fail in the courts, in my opinion, remember Obama said Congress needed to fix some issues with the bill, a telling statement on his opinion.
Not only does he want Congress to merely make some cosmetic changes to it, but Obama also said that this is just a “minor paperwork snafu.” Oh, how I wish that were true, but it is not a minor snafu. I do not support homeowners who took on irresponsible loans, I have long said they should lose their homes, but I dislike actual fraud even more than irresponsible borrowers. Let’s also not forget that these same lenders often did not verify the borrower’s income either which makes this whole problem a bit ironic as lenders cut corners to give the loan and now they cut corners to foreclose on the collateral. There is a remedy to all of this, as written on Zero Hedge previously, which is a borrower accepts a loan modification which clears the title, guess how successful the HAMP will be now.
If Congress doesn’t create a fix, which they should not, banks will lose foreclosure proceedings to those defendants who decide to fight it. I do not believe anyone really knows how big this problem really is and, frankly, I would not trust anyone who attaches a number to it. After all, these will be the same people who said sub-prime loans were a nonissue a few years ago, the missed that one by a mile, obviously, so they will miss this one as well. Not to mention that this issue will once again be a global issue. Who knows how many of these bonds are sitting on the balance sheet of banks all around the world. Hell, we do not even know what outstanding derivatives are still in play with this paper.
To assume that this will pass with no real material issue to the banks is idiotic. The risk is real and the system is still very, very weak. Perhaps now we know why bank reserves are still so high, did they know this might be an issue? Probably as we know banks do not like to fess up to mistakes until, well, the global financial system is about to implode. The credibility of banks and government has probably never been so low in all of history and that is a problem especially if they need help again. I fully believe another bailout will be needed over this and that means the issues of 2008 will return in 2010 with a vengeance.
Remember, in 2008 it was really the CDO’s and CDS’s on tranches of MBS products that were the problem. We all remember senior and junior tranches that were in the headlines, but back then at least you could get the collateral back to try and sell, albeit at a much lower price. Today if these things are still blowing up and you cannot even get the collateral back that would be a total loss for the investor or bank if it got putback to them. See the problem now? It is just not the banks that have this problem, but the GSE’s as well who may be guaranteeing a lot of this junk now. The GSE’s have $5T in outstanding mortgage guarantees and some say that mortgages as far back as the late 1990’s might not have proper chain of title.
The math is enormous and this should scare people to death. Perhaps it will all go away. Perhaps judges will ignore the 200 year precedents of contract law, they did it with the auto makers, so why not now. However, if this doesn’t go away we are definitely in for a rerun of 2008 again on a much larger scale since even the government is reaching the end of their credit line. Maybe QE2 will buy these securities and that is how the problem will disappear, but if nothing is done the entire mortgage market and perhaps some well known banks are done… again, unless all our politicians lied to us.
As I conduct my regular daily readings of various blogs and news sites I cannot help to get a very uneasy feeling brewing out there. The negativity is running very high in the political realm and from those who report on economic events. I keep seeing tag lines like; “expect more social unrest” when people report on things like the Berkley protests, which are disturbingly violent I might add. When I hit my favorite Libertarian blogs the feeling is more uneasy as I keep seeing words like revolution being used.
When you add in the Washington factor where our elected leaders are going to hammer unpopular legislation through, with no compromise, it makes me even more uneasy. There is no doubt that we need to make painful decisions in order to get our fiscal house in order, but that usually means less spending, not more. Unfortunately, our current political leaders do not see it that way and are hammering through more spending, in particular the health care reform bill. Look, I know we need to do something, but not this. Deducting money from Medicare and then adding it back in to other areas is not rational, this bill is not paid for and will make costs rise not fall.
Regardless, people are not happy about unpopular legislation being thrown down their thoughts. The kicker is that people like Nancy Pelosi come out and say that programs like Social Security and Medicare were unpopular when they were enacted. I guess what she means is that politicians know what is best for Americans and we should keep our mouths shut. We all know how right politicians are their track record speaks for itself just look at the stellar decisions they made over the last 10 years. Iraq was a great decision, the prescription drug coverage was fantastic (albeit unpaid for), the PATRIOT Act was a winner, free speech zones were fantastic, how many stimulus bills did we have again – they worked out well, eliminating a paper trail for voting is a sure disaster waiting to happen, and need I go on?
Politicians do not know what is good for Americans, they know what is good for them and getting reelected. Well, they did used to know how to get elected until now. If they pass this next unpopular batch of legislative nightmare on the docket they are in for a rude awakening come November because the people are coming for them. My only hope is that people come for them at the polls and not in any other way. Based on what I have read combined with the recent plane crash in Texas into the IRS building I think we might see more people going out to make a statement. Meaning, some nut job will more than likely blow something up or worse.
Who knows what will happen in the future, but we know that the average person feels left out right now. Wall Street got their massive bonuses and, for them, nothing really changed with the exception of having to play defense in the media. At the end of the day, the average person knows they got nothing over the past 2 years except for a higher future tax bill and, maybe, they got to keep their job, but we know about 20% of Americans were not so lucky as they are either unemployed or underemployed. Wall Street though, they are fine. Washington, well, they are doing OK as well as campaign contributions, from Wall Street, are still coming in and many have received raises. Clearly, there is a double standard and John Edwards was completely right when he said there are 2 Americas.
Discontent is here and that discontent could become a powder keg if not rectified. The unfortunate thing is I do not see how the public can be pacified, especially as this thing we are in deepens as we are now seeing. Things could get ugly and politicians need to figure out that they are representing the people and start acting that way. It is beyond me how they cannot see that Americans view them as being on the wrong path, but, again, that is politics and they will be surprised if they get voted out in November.
We all know that the President has surrounded himself with a vast army of individuals to combat everything from the economic downturn to green jobs. While it is not unusual to have a literal army of people to help with a variety of issues in the Whitehouse it is unusual to have as many Czars as we have and to have so much dependence on an economic team of advisors. However, what if the team of economic advisors is a group of people who are inept, irresponsible and, in general, incompetent?
For many months now we have seen conflicting messages coming from various members of Obama’s economic team, Christine Roemer says that we are not doing that great while Larry Summers says everything is great and a host of other conflicting messages. We have also heard several stories about conflicts between Paul Volcker and many on the team, Volcker, who I am not a huge fan of, seems to be the only voice of reason and the only one who actually solved any real problem in the US while Summers and others created our problems or merely worked on hypothetical illustrations only. However, the most troubling person on this economic team is Paul Krugman who gets the most press I might add.
I realize the Krugman did win the Nobel Peace Prize, but so did a bunch of others who should not have, so who cares. Any person who actively advocates excessive deficits the way this man does must be insane. Not only is he advocating more deficit spending, a doubling of the original stimulus to $1.4T if he had it “his way,” but he also thinks a VAT consumption tax is a dandy idea as well. Most disturbing is this latest interview from Advisor Perspectives I read today were Mr. Krugman said the following:
“There is a pretty good case, at very high incomes, to have something like a tax rate in excess of 50%. We had a 70% tax rate for a good part of the 1960s and 1970s at the top end and survived with that. We had a 50% rate for a good part of the Reagan years, which people forget about. I would be willing to go north of 50% but I don’t know how high.
If you put a super-high rate on income of $5 million, then you are basically hitting only sports stars and Wall Street wheeler-dealers.”
Now, I am not sure if many people remember the 1970’s or not, but it was not exactly the era of prosperity that America is known for and is the direct result of over taxation and spending from the 1950’s and 60’s. He also does describe “super-high” incomes, but does not describe high incomes so that is open to interpretation and my guess that would be those earning more than $200K a year. However, if you add in his VAT, higher state income taxes, higher property taxes, higher sales taxes, now higher federal income taxes and all the other higher fees we have to pay this is a different ballgame than the 1960’s-70’s.
To frame and claim “we survived” the 1970’s is not exactly what most American’s want to hear, especially if they lived through it. I know that Obama’s base was not alive during that period of time, but it was not pretty and is a time most people would not care to repeat. I know retro is cool, but disco was terrible, bell bottoms are not cool and inflation really does stink. I know we are going to have to face higher taxes, that is inevitable, but how much and who is going to have to pay?
What we do know will happen is this, when taxes go up, on the wealthy, they will earn less money. This has been proven time and again through treasury tax receipts. Why does this happen? Because there is a cross over point where it is more advantageous for a wealthy person to earn less, not work as hard, and bring home the same or more money because they are paying less in taxes, it is a fact. When this happens the government will then be forced to raise taxes on more people causing marginal rates to go up across the board. Now, the poor have nothing to worry about, but the middle class does. The middle class always gets stuck with the bill, it is just the way it is.
Krugman must have lost his mind, which is all I can possibly think has happened. He is just set on mortgaging the future of the US on more stimulus and raising taxes, a system we know does not work long-term. I know we cannot lower taxes, that is impossible given our fiscal issues, we could create employment tax credits that are worthwhile to hire employees, i.e. an ongoing tax credit instead of the onetime credit often proposed or something to that effect. The best way to collect tax revenue is to close loopholes and reduce tax deductions for wealthier Americans, end of story and much better than a tax hike. An even better solution would be to simply stop the senseless spending, but that will never happen.
I guess what I am saying is that most Americans pay enough in taxes already. Just look at what the average American already pays in taxes, it is insane. Between state and federal income taxes you lose a ton of your income, never mind FICA and Social Security taxes. There is also the AMT, hopefully you are not subject to this one, but if you are it is really unforgiving. Sales taxes which you pay on just about everything you buy, think about that one for a minute and how much you pay just for groceries. Utilities tax, including your cell phone. Property taxes, which you do get a income tax deduction for, but you still pay it. If you own a car, registration fees, there is about a $.40 on every gallon of gas you buy. The list just goes on and on, but Krugman, oh, he wants you to pay way more.
So, my suggestion is that Krugman, Matt Damon, the Baldwin’s, Nancy Pelosi, Barney Frank and every other nut job that wants heavy social programs should voluntarily issue a cashier’s check for 70% of their income to the treasury every year. That is until their higher taxes are passed into law, then they do not have to worry about it. Just like you should not have to pay for your neighbor’s home that they bought and could not afford, we should not be forced to pay for these peoples wacky ideas and social programs that they cannot afford. Oh, if they do not want to write the check out to the treasury, they can send it to me, my name is CASH.
Who are you kidding? There is no way Pelosi could possibly prove that figure to be accurate and she knows it. Just a few months ago the claim was that the stimulus saved some 150K jobs and a report that was out a few days ago showed some 30K jobs. Not only that, but the claims that only a fraction of the money was spent has been the Democrats excuse for months now given the rising unemployment numbers.
As I stated earlier, if the stimulus was working we would not have seen 53K in government jobs cut last month. What that shows is states are taking stimulus money and using it to shore up their floundering budgets that are failing. In NY alone tax receipts are down some 36% or so which is crippling to the government, they haven’t figured out that higher taxes means people will spend less, go to Indian reservations, out of state or simply move to lower penalty states. Simply put, there is no way to tell if the stimulus is working or not, but if it were working I would think it is a failure given the massive weekly unemployment claims, that’s just my opinion of course.
There are several laughable claims she makes in the video below, such as the unpopularity of TARP will likely not affect the Democrats in 2010, highly unlikely in my opinion. Also, unless we have substantial job growth in the near future then the Democrats are in really big trouble in 2010, not that Republicans are any better, but at least we will have balance in government again. Of course, there was talk about health care and the myth about deficit neutral spending for it, with a public option, which is impossible, and tax stimulus for businesses to spur hiring.
Something tells me that a $3,000 tax credit for hiring new employees will not bring in a lot of new jobs. Especially not meaningful good paying jobs, may be some minimum wage jobs, but not your $200K VP of Marketing jobs. Essentially I believe this video confirms a second stimulus, but not for you or I just for businesses. That may be fine if it jobs, but so far e have spent close to $1T and not too many jobs have been created, so my hopes are not very high. However, they will definitely extend the homebuyer tax credit.
Is extending the homebuyer tax credit a good idea? No, it is not. It is very expensive for the tax payer and many of these loans are FHA loans which require only 3.5% down and they allow you to use the tax credit for the down payment, basically more no money down mortgages. The FHA is rumored to be in need of a $54B bailout in the near future, a claim they have denied, but let’s face it GSE’s of any sort have a terrible history of being honest with anyone. The new tax credit will be available to everyone which will allow an already over indebted America to lever up again, so have at it and let it be known that your government shall not deny you the house of your dreams!
Seriously, this is ridiculous, the market needs to work itself out so let it do its thing. The longer you pump artificial demand into it the longer the pain will be for true price discovery. In other words Nancy, you are creating more pain than is necessary, but keep listening to those Keynesian economists who have been wrong for how many decades now? Never fear, they are from the government and they are here to help…
I am an honest to God political neutral as I voted for Bush in 2000 and Kerry in 2004 which makes me probably one of the worst voters in the history of the world, but I voted my conscience and for what I believed was right. As it turned out, they are all crooks and the one thing I learned is we need balance in government, no matter who occupies the Whitehouse. When that balance is out of whack, like we saw when the Republicans had absolute rule and like we see now with Democrats with absolute rule things get ugly, real fast.
Most of all, corruption runs amuck and there is no accountability to anyone. Just look at Senator Dodd, he was guilty as sin and my 5 year old could tell he knew he was getting favors on his mortgages from Countrywide, but not the ethics committee who let him off Scott Free. Now we see the same thing with Representative Rangel who is clearly guilty as sin as well, yet he is still the chairman of the Ways and Means Committee, possibly the most powerful committee in all of Washington and the committee that writes tax laws.
Just so you are keeping score at home, we have Timmy Geithner who is Treasury Secretary who “forgot” to pay his taxes, Sen. Dodd who gets sweetheart mortgage deals, campaign contributions from AIG (then let’s them keep their bonuses which he included in the stimulus bill), takes money from Fannie and Freddie while leaving them largely unregulated and so on only to collapse later on. Now we have Rep. Rangel who has spent eons in Congress only to make a small fortune for himself including property in Dominican Republic and some fancy apartment dealings in NYC.
Either these people are the dumbest people in the world, which should scare you because they are leading our country, or they are simply lying to you (more than likely the case) which means they should resign for the good of the public, which would never happen. Either way, how could these people get reelected? What is wrong with people? If this “happened” to you or I and we used the same lame excuse as I forgot or whatever we would be bed mates with Bubba in a heat beat, but not these guys. Nope, there is definitely a two tiered system in place because not only are these guys not in prison, but they still have jobs.
Not only that, but when a vote comes to the floor to remove Rep. Rangel as Chairman of the Ways and Means Committee while the investigation is completed the Jackasses, I mean, the Democrats knock defeat the vote. So much for transparency in politics and fighting for the American people and all that other BS Obama fed us during the campaign. We sure as hell know that Pelosi doesn’t care about us, she is trying to impose a VAT, value added tax, to pay for health care, yeah, ever been to Europe? VAT’s are horrible regressive taxes that stifle growth and punish everyone, especially the poor, equally. You don’t even need to go to Europe to see it in action, just go to Canada.
Anyhow, this is just unbelievable to think that these crooks are able to stay in their jobs as if nothing is wrong when they are under investigation. It’s like someone being accused of murder being released by a judge and allowed to have his gun back because it is the only fair thing to do as the investigation is not complete yet, even though the ballistics test already matched. We know their all guilty, but if you are part of the political class, no problem. Enough is enough already, vote them out and for the love of God let’s get some balance back into government (any party will do!).
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