Do we need the banks in their traditional form anymore?

Ben Bernanke has told “close friends” he may not stand for re-election even if President Obama wins, the New York Times reports.

Bernanke’s term as Federal Reserve chairman ends Jan. 2014. This may be the perfect time to switch to true Cloud Banking.


Some Landmarks to ponder in the era of negative real interest rates:

 On January 2 2011 the 13 week Treasury Yield (3 months)was was 0.12%.

 On July 2 2011 (the announced end of QE 2) this yield was still 0.01%.

 On January 2nd 2012 the 13 week Treasury Yield (3 months)was 0.001%. 

 By September 17th 2012 - the date that QE3 was announced the yield had gone up to 0.09%.

 Today October 23 2012 it stands at 0.10%  - that is an increase in yield of 99 basis points (nearly a full 1%!).

During all this time inflation as reported by "official" Government sources was far in excess of this 1% yield. So the stated goal of preventing deflation is achieved - inflation is definitely with us.

Also: money supply in the USA and Worldwide has exploded exponentially.

         deficits have continued to exceed a trillion dollars in the USA
         
            unemployment remains stubbornly above 8% in the population of       
              people still seeking work in the USA.
             
                real estate is barely budging off the bottom and the number of 

                   "underwater" mortgages has barely stopped declining.

The Fed balance Sheet has also exploded, tripling in size.

The fed achieved its goal of preventing deflation. What has this all done for the US economy and the rest of the world economies?

    the US dollar is worth significantly less than two QE's ago.

    The stock markets are up significantly as is the price of precious metals measured in US dollars. 

Is this the purpose of QE? 

Doesn't look good for QE3 that started a month ago, does it? we are very far from suffering from deflation.

And the US big banks are wildly profitable again....

     Why are you surprised? The shareholders of the Fed are exclusively banks.
The Fed was set up in 1913 to ensure the survival of the banking system. 

The Fed is wildly successful in that primary mission. That is the true purpose of all this QE.

A Government granted monopoly to print money, and manipulate interest rates primarily benefit the Fed's owners. Not the citizens of this country.

It creates money out of thin air and lends it to its member banks (and anyone else deemed qualified to play in this sandpit) and allows these banks to use the bulk of this funding to buy Government issued debt  that pays a significantly higher interest rate back to the banks and voila!!

The banks make a "riskless" positive return! They get healthier and the population languishes in stubborn unemployment, and inflation in a stagnant economy.

Do we need the banks in their traditional form anymore? 

In this electronic age where the chance of getting a loan depends on a mystifying creditworthiness determining algorithm.....

Why not simply apply to a credit rating agency and skip the banks altogether?

Why not have Google or Microsoft or Heaven Forbid, Facebook just set up a server farm and have everyones' earnings deposited into an electronic cloud account? Or dare I say it - have the IRS do this.

Then the individual could choose to lend his excess balance to whomever he/she pleases using the magic creditworthiness algorithm. All funds transfers once approved are made electronically between the accounts in the cloud.

The IRS gets to track everything and remove its share from the repayments as they are made (getting rid of the need for a whole layer of Taxpayer paid pencil pushers).

Ads are sold to cover the cost of the server farms and of course add to the taxable revenues to be collected.

Think of the benefits! 

We will know second by second how much revenue the Government has to squander er spend on "investments". 

Putting the Government on the same system will allow us to watch, second by second, how much the Government actually spends in real time. And to whom the money was transferred.

Instant budget deficit/surplus calculation to be displayed on the famous Debt Clock.

Instant accountability for the expenditures! 

No more crooked politicians, or devious lobbyists or foreign money inflows influencing elections!! No more corruption or tax evasion. Complete transparency for every aspect of your life.

Privacy? Who cares.. you lost that years ago.

I can but dream.





     

  This is a 28min video from Grant Williams of Vulpes Investment management (Singapore hedge fund managers). Grant is the author of the much acclaimed Things that make you go Hmmmmmmm!. The presentation details two bubbles, one about to burst and the other about to inflate enormously.
There is much money to be lost in the bursting by the unwary and conversely a great deal to be made by hitching a ride up with the other.

LINK to YouTube here: 

We apologise for the hiatus in posting. That will be corrected shortly as I publish more pages to this site.
Thank you.
Corecap

U.S. won't devalue its dollar to boost exports, Geithner says

There is no future in the U.S. devaluing its dollar to gain an economic advantage, and the government has no intention of trying slash the dollar's value to boost exports, Treasury Secretary Timothy Geithner said. "It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to [be] competitive," he said. "It is not a viable, feasible strategy, and we will not engage in it." Reuters

That dog wont hunt... talk about trying to close the open barn door...Timmy the horse is gone!! OMG, I am still laughing….

Decline and Fall of the American Empire

Fed Chairman Ben Bernanke said he thought the current high unemployment and low inflation environment would linger into 2011 and as a result there is a "case for further action" on the monetary policy front. Mr. Bernanke said the Fed might expand its holdings of longer-term securities. He also said that the Fed has little experience in judging the economic effects of more asset purchases.

..the dollar will fall lower and probably substantially lower. $1.50 to $1.70 to the euro is on the cards. The Yen, the Swiss Franc and the Pound Sterling and just about all other currencies will try to follow the dollar down. This isn't just a ‘pebble in the pond", but a great big boulder. The ‘ripples will likely start over this weekend. They will hit every market there is.
EACTIONS IN THE GOLD, SILVER AND OIL MARKETS
· A look in the last week at these three markets has shown quick reactions to the falling dollar. All three went up, but both silver and gold went up the amount that the dollar fell. If that were to continue and the dollar to fall say to $1.70 against the euro, then without the gold price being pushed up by demand, the gold price would go up to $1,663.57 from the current $1,370. In the euro the gold price would not rise at all.
· Silver would follow a similar path too. Technically to discount the dollar's fall alone the price would go from $24.3 to $29.51.
· We know that O.P.E.C. members are calling for a $100 oil price to remove the impact of a falling dollar at current levels. With a $1.70: €1 dollar we should be looking much higher here too.
The U.S. Balance of Payments would look great initially [except on the China account]. But internally there would be howls, as inflation took off at a rate of knots. The point made by the Fed that they don't have experience in this area worries us. They might have a tiger by the tail. When Volker shattered 25% inflation in the mid-eighties, there were very different circumstances, such as a healthy economy and undisputed dollar hegemony. The U.S. dominated the gold market - with European cooperation. This time they have none of these and such actions won't work without them!
Possibly the end of the beginning of the decline and fall of the American Empire!
(Click on heading for full story)

Work a lifetime and the Goverment confiscates 90%

"Inflation has now been institutionalized at a fairly constant 5% per year. This has been scientifically determined to be the optimum level for generating the most revenue without causing public alarm. A 5% devaluation applies, not only to the money earned this year, but also to all that is left over from previous years. At the end of the first year, a dollar is worth 95 cents. At the end of the second year, the 95 cents is reduced again by 5%, leaving its worth at 90 cents, and so on. By the time a person has worked 20 years, the government will have confiscated 64% of every dollar he saved over those years. By the time he has worked 45 years, the hidden tax will be 90%. The government will take [in purchasing power] virtually everything a person saves over a lifetime."- G. Edward Griffin

So you have to invest to earn more than an average of 5% a year over you lifetime. Pension funds try for 9% and lately have trimmed that somewhat to maybe 8%. Still pie -in-the sky.
US Treasury bonds pay 3.75% for the privilege of tying your money up for 30 years - a lifetime. All that just to gurantee that the government gets 90% of your earnings. Remember the Feds get tax on the interest they pay you on these bonds!!!

Mortgae Fraud: How it actually works

This is a precise summary of the foreclosure fraud crisis facing this country and the world.

Mr Grayson did not tell you that much of the assignments to mortgage note servicing companies of rights to collect your mortgage payments, and foreclose if you don't are in essence void. This is because ownership of the notes and mortgages was not legally transferred. The transferring companies did not have the ownership rights to transfer!

This is an especially difficult problem for very many securitizations because these instruments required that ownership of the assets in them be legally and properly transferred by a finite, unchangeable date that has long since passed.This cannot be fixed by a later assignment,legal or not. The deadline has passed.

Follow closely now: The vast majority of these securitizations have been sliced and diced into an alphabet soup of derivative securities that were sold world wide. If the underlying collateral - the very mortgages and notes we are talking about - were never legally assigned then these further securitizations and alphabet soup derivatives have been created and sold fraudulently.Imagine the lawsuits waiting to be filed everywhere!

Nobody knows who actually owns what. That will have to be decided by, no doubt lengthy, court cases.

Additionally, trillions of dollars, yen, francs, zloty, euro and on of liability hangs over the heads of the financial institutions who solicited these mortgages in the first place, or who bought them and fraudulently repackaged and resold them!!!!

Yep, the major players in this cesspool are our very own US banking giants: Citi Bank; Wells Fargo; Bank of America and of course the investment banks that aided and abetted the securitizations and sold them on: Goldman, Merril Lynch, Lehmann, etc etc

Too big to fail?? They are too big to survive.

Think about this too: you, the law abiding homeowner have been making your payments on time, to a servicer who does not have the legal right to collect them from you because that right to assign did not legally belong to the institution who said it had legal ownership if your note - it clearly did not.
So you have been making payments to a servicer who has a disputed authority to collect them, and has been sending them on (less its fees, of course) to entities that did not have proper legal ownership of the notes.
What happens if someone else comes along and sues you for non-payment under the note you signed that they now allege they legally own? Mr Grayson tells you this has already happened in Florida!!

All you will be left with is crippling legal expense to prove that you are the victim of fraud.

The Florida courts and many of the other foreclosure courts have only very recently been grudgingly coming to terms with this. Remember, judges are elected, are usually lawyers or politicians, who are presiding over proceedings in which their fellow legal practitioners are presumed to be ethical. They dispense justice in these courts, or do they? They are swamped, have not got the time to read documents, dispose of cases in 90 seconds in the interest of clearing the docket. All on the say so of lawyers for document mills representations!!

Click on the Heading for a link to an absolutely scary summary of organized crime at work with our Government Blessing.

The unsaid consequence of all of this is that banks and other owners of affected mortgages have a bunch of unenforceable contracts that they show as assets. These will have to be "marked to market" - and reserved for on balance sheets or written off.

Whichever path they go down, the destination is the same - banks are bankrupt. That means that the value of their assets (including all the money we the taxpayers gave them) is arguably less than their liabilities. They should be dealt with through the bankruptcy courts: sell their assets for what can be recovered and pay off as much of the liabilities as the proceeds allow.

Then of course we the people must find a way to keep the promise of the American Dream enshrined in the tax code: homeownership - a safe and secure roof over your head - is an entitlement written in the tax code for decades. It is a legally sanctioned "entitlement".

There is a way to do this and solve the problem once and for all. I have laid it out in detail in several previous posts. They are in the archives. I will re-post them, updated,for convenience of readers.

Many U.S. households are reducing debt by defaulting

News that U.S. households are spending less and saving more, ultimately reducing their debt, might appear to be an uplifting scenario. In reality, many of those households are defaulting on their debt, not tightening their belts. Capital Economics Group reported that almost half of a $77 billion decline in total household debt during the second quarter was because of bank charge-offs of credit card debt, residential mortgages and other consumer loans.
click on heading for full story

QE2 in round trillions

As commenbted on by Ambrose Evans-Pritchard in The Telegraph September 20th.(Ambrose Evans-Pritchard has covered world politics and economics for 25 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London)

"Here is a back-of-an-envelope guess by David Greenlaw at Morgan Stanley on what the Fed can expect from a second blitz of bond purchases, or `Shock & Awe’ as he calls it.
If Ben Bernanke does a further $2 trillion (on top of the $1.7 trillion already in the bag) the yield on 10-year US Treasuries will drop 50 basis points to around 2.2pc.
GDP growth will be 0.3pc higher than otherwise in 2011 and 0.4pc higher in 2012.
The unemployment rate will be 0.3pc lower in 2011 and 0.5pc lower in 2012 — (in other words drop from 9.6pc to 9.1pc, ceteris paribus).
That looks like trivial returns for a collosal adventure into the unknown, with risks of dollar flight and mounting Chinese suspicions that the US intends to default on its external debts by debasement."

Amen

click heading for link to full story

Federal Reserve

News Alert
from The Wall Street Journal


The Federal Reserve hinted it is becoming uneasy about the outlook for the U.S. economy in 2011, but deferred taking any new steps to boost the recovery amidst intense internal debate about what to do next.

Fed officials signaled at the end of their one-day policy meeting they are uncomfortable with the recent very low levels of inflation and said they expect the economy's recovery from a deep recession to be modest in the near term. This indicates that more bond purchases to stimulate growth could soon take place.

http://online.wsj.com/article/SB10001424052748704129204575506002119786026.html?mod=djemalertNEWS

The Wall Street Journal, a quote regarding the Basel III developments:

"Officials want banks to have large stockpiles of capital so that they will be able to continue lending even if the economy worsens." Is this really the intent of the Basel Committee? To the degree the outlook for an economy worsens, borrowing/lending will increasingly contract as investment is based on forward-looking conditions and lending is based on counter-party risk. If the market hasn't already taught us this lesson, then it's because the market was not able to fully operate with an obstacle course of bad bailout practices.
(click on heading tfor link)

Subprime 2.0 Is Coming Soon to a Suburb Near You: Edward Pinto

Commentary by Edward Pinto
(Edward Pinto, a mortgage-finance consultant, was executive vice president and chief credit officer at Fannie Mae from 1987 to 1989. The opinions expressed are his own.)

Sept. 8 (Bloomberg) -- On the second anniversary of the bailouts of Fannie Mae and Freddie Mac, it’s now obvious that weak lending standards, serving the political interest of affordable housing for all, were the main reason for the nation’s mortgage meltdown.
But the government just can’t permit lending to anyone and everyone; it must insist on prudent judgment about who will repay and who will default. Not only will borrowers who lack a down payment, steady income, employment and a good credit history probably get into trouble -- surprise! -- but too much irresponsible lending also creates artificial demand for houses, driving prices into the stratosphere and, as we have just experienced, puts all homeowners at risk.
The same mistake occurred in 1929, when any investor could buy stocks on margin with as little as 10 percent down. Small wonder that after the crash the U.S. government instituted a margin requirement of 50 percent down.
Congress should apply the same principle to housing purchases, increasing the amount a buyer must put down and other safeguards to assure prudent lending. Congress refuses to do this. Why? Giving citizens cheap, easy housing is a great way to win votes, no matter what horrific repercussions ensue.

Who’s Following Whom?

Consider the prevailing narrative that holds a greed-driven private sector responsible for the 2008 financial crisis. A secondary narrative points to a greed-driven Fannie Mae and Freddie Mac abandoning their credit standards in an effort to follow the lead of Wall Street.
If these explanations fail to convince, a third blames a combination of deregulation and insufficient regulation, again driven by greed, as rulemakers were asleep at their posts.
What is missing is the central role played by an affordable housing policy built upon the misguided concept of loosened underwriting -- a policy created by Congress and implemented for
15 years by the Department of Housing and Urban Development and banking regulators.
From 1993 onward, regulators worked with weakened lending policies as mandated by Congress. These policies systematically dismantled a housing-finance system based on the common sense principles of adequate down payments, good credit, and an ability to handle the mortgage debt.

No Money Down

Substituted was a scam of liberalized lending standards that turned out to be no standards at all. In 1990, one in 200 home-purchase loans (all government insured) had a down payment of less than or equal to 3 percent. By 2003, one in seven home buyers had such a low down payment, and by 2006 about one in three put no money down.
These policies led millions of Americans to buy homes with little or no money down, impaired credit and insufficient income. As a result, our economy has been brought down and the taxpayers have had to foot the bill for bailout after bailout.
Congress and U.S. President Barack Obama’s administration refuse to learn the lesson that is painfully aware to American taxpayers, and they have made it clear that they have no intention of fixing broken underwriting.
Let’s start with the latest pieces of evidence. The Dodd- Frank Bill, signed in July 2010 by the president, omitted both an adequate down payment and a good credit history from the list of criteria indicating a lower risk of default as regulators sought to define a qualified residential mortgage.

‘Prudent Underwriting’

This was no oversight. Republican Senator Robert Corker and others proposed an amendment that would have added both a minimum down-payment requirement and consideration of credit history along with the establishment by regulators of a “prudent underwriting” standard. This amendment was defeated.
In early September 2010, Fannie and Freddie’s regulator, the Federal Housing Finance Agency, following requirements set out in 2008 by Congress, finalized affordable housing mandates that are likely to prove more risky than those that led to Fannie and Freddie’s taxpayer bailout. As required by Congress, these new goals almost exclusively relate to very low- and low- income borrowers. Meeting these goals will necessitate a return to dangerous minimal down-payment lending, along with other imprudent lending standards.
Of course, FHFA Director Edward DeMarco notes that Fannie and Freddie aren’t to undertake risky lending to meet these goals. As has already been noted, Congress doesn’t consider low down payments and poor credit as indicative of risky lending.
How convenient.

Return to Subprime

The Federal Housing Administration, in its actuarial study released late last year, projected that it will return to an average FICO credit score of 635 by 2013. This signals the FHA’s intention to return to subprime lending. Once again, Dodd-Frank supports this policy change.
The FHA, the Veterans Affairs Department and the Agriculture Department’s grip on the home-purchase market increases month by month. They now guarantee more than half of all home-purchase loans. However, skin in the game isn’t a requirement. For example, the FHA’s average down payment is just
4 percent. Even this meager amount disappears after adjusting for seller concessions and financed insurance premiums.
On Christmas Eve in 2009, the Treasury Department announced new terms to the bailouts of Fannie and Freddie. Starting on Jan. 1, 2013, the terms of the bailout agreement provide for a continuing obligation to provide about $274 billion in capital to Fannie and Freddie. This amount is in addition to the unlimited sums that are available between now and Dec. 31, 2012.
As a result, one or both of these entities can now continue indefinitely as zombie institutions under conservatorship.
As a society, we have to go back to at least 20 percent down, with limited exceptions. Credit histories need to be solid. Documentation has to be iron-clad. Lender capital levels need to be raised.
Here’s my proposal to bring Congress’s penchant for imprudent lending to a quick end: All congressional pension assets should be invested in funds backed solely by the high- risk loans mandated by federal housing legislation. I have a feeling that things would change fast.

Underwater mortgages are the real problem in housing

It doesn't make sense for the U.S. to spend money to prop up the housing market by giving buyers incentives, but that doesn't mean sitting back and letting prices crash would "magically" bring the housing market back to life, as some have suggested, according to The Economist. At the core of the problem are homeowners with underwater mortgages who can't afford to sell at prices buyers are willing to pay. "Driving those prices lower won't change that fact," the magazine notes.

Finally, recognition of the root of the housing problem!

Quotable Mark Twain

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. – Mark Twain

Harrisburg, Penn., will skip a municipal bond payment

Harrisburg, the capital of Pennsylvania, is planning to default on a $3.29 million payment for municipal bonds in two weeks. The incident would be the secondlargest
municipal bond default in 2010. Harrisburg's bond insurer is expected to cover the payment, but the situation is expected to fuel investor concern about the municipal bond market.

Analysis: There's nothing to celebrate in U.S. home-price data

Markets have overlooked a crucial fact in their joy for the latest S&P/Case-Shiller U.S. National Home Price Index, which shows a 4.4% increase for the second quarter, according to The Economist. Because of the way the index is calculated, nearly all transactions that went into the data were concluded before a homebuyers' tax credit expired. The housing market has suffered serious deterioration since, and that is likely to show up in future home-price data, the magazine notes.
The Economist

Milton Friedman on spending

Quotable
“ I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, "How do you hold down government spending?" Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.”
Milton Friedman

New-home sales are nearly nonexistent in many U.S. cities

Statistics on new-home sales in the U.S. are as troublesome as those for existing homes, according to The Economist. Last month, 25,000 new homes were sold, a 90% drop from nearly 120,000 in July 2005. "When one takes into account that sales aren't
spread evenly around the country -- most are taking place in tighter markets xperiencing job growth -- it becomes clear that in some metropolitan areas housing markets have all but shut down," the magazine notes.
The Economist (click on headig for a link)

Fewer recently modified mortgages are falling into foreclosure

LIES, Damn Lies and Statistics

Recent mortgage modifications in the U.S. are more successful at keeping borrowers from losing their homes in foreclosure than those completed earlier in the housing crisis, according to a report by the State Foreclosure Prevention Working Group. Homeowners who obtained a mortgage modification in 2009 were nearly 50% less likely to fall 60 days behind on their payments compared with those whose mortgages were modified in 2008, according to the report. Google

Exactly opposite of almost everything I have read. Curious.

Billions spent on housing tax breaks accomplish little, experts say

The U.S. government spent $230 billion last year to support homeownership but accomplished almost nothing beyond putting money into the pocket of the rich, experts told a conference on housing policy. The rate of homeownership in the U.S.
is about the same as in Canada and less than that of Australia, Britain, Ireland and Spain, which all offer little in the way of homeownership tax breaks. The Urban Institute said tax incentives for U.S. mortgage holders are worth $5,459 a year to people making more than $250,000 but only $91 a year to those earning less than $40,000. USA TODAY
No one working on FNM/FRE is even paying attention to this it seems (click on heading to read the full article)