Obama: Stimulus package prevented another depression

This is so stupid for so many reasons, it just boggles the mind that Obama could ever make such a statement. Unfortunately, there are too many people out there that will actually believe him.

From Raw Story:

On the anniversary of his huge stimulus bill, President Barack Obama admitted Wednesday that millions of Americans had yet to feel the economic recovery, but insisted he had staved off a depression.

Obama also lashed out at Republicans he accused of misrepresenting the aims and achievements of the $862-billion mix of tax cuts and government spending, which he said had saved or created two million jobs.

“One year later, it is largely thanks to the Recovery Act that a second depression is no longer a possibility,” Obama said, at an event marking the anniversary of the day he signed the bill last year in Denver, Colorado.

“We acted because failure to do so would have led to catastrophe.”

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Waterboard JP Morgan and The Mortgage Bankers Assn

From Market-Ticker.org:

How to give an economics writer a coronary:

Recommend something that has been done twice before, and both times led to disaster, including being a major contributor to The Great Depression.

Well guess what: JP Morgan and the other banks are doing exactly that.

Oct. 13 (Bloomberg) — Banks will push the Obama administration to expand its mortgage-modification program to allow interest-only periods on reworked loans, seeking to bring more homeowners into the initiative while recognizing concern that it may only postpone defaults, according to JPMorgan Chase & Co.


Can I remind people of history?

Prior to the depression of the 1920s, there was a mortgage loan product used by many of the American people, known as the interest only loan. Why did this long disappear? And why has it suddenly reappeared? Let’s take a moment to answer each question, and hopefully provide some food for thought.

During the 1920s and into the early 30s, many of the citizenry of this country chose to live above their means. They chose the interest only loan because it allowed them to purchase a larger home for less money. What happened when the stock market crashed and jobs were scarce, and there was no income? Many of these people were left without homes; as they had chosen to simply pay the interest on their mortgage there was no equity built into their homeownership. When no equity builds, and the income ceases, the bank forecloses and residents are forced from their homes.

If our government allows this it will guarantee a GREATER DEPRESSION. Whether it comes now or in a few years, it will happen.  This is the precise same stupidity that led to the 1930s and it will have the exact same outcome this time.

Here’s the problem folks, in one sentence:

The banks are STILL insolvent.

They are sitting on over a trillion of dollars of this paper (about $1.1 trillion to be exact) and several hundred billion is severely impaired or even worthless.  Wells Fargo, just as one example, has (as of its last 10Q) $106 billion of second lines outstanding on balance sheet, and God only knows how much in SPVs (Wells is known to have significant off-sheet exposure “inherited” from Wachovia.)  Let me put this in perspective for everyone.

  • Essentially all of the first mortgage loans written in California and Florida after 2003 are underwater.  Even in parts of the state (such as my area of Florida) that have been “relatively” untouched (compared to, for example, Naples) homes are below 2003 prices.  In “bubble” areas prices have in many cases returned to levels such that anything purchased before 1995 or thereabouts is underwater.  In some parts of SW Florida you can buy a home that sold for $500,000 for $50-75,000, cash, right now.  Those are 1970s and early 1980s prices.  While that is an extreme example the most bubbled areas are the ones with the greatest over-representation of paper from Wells (and ex-Wachovia), JP Morgan/Chase (ex-WaMu) and Bank America (ex-Countrywide.)

  • Many of the homes in these areas, especially in Florida, that have undergone this sort of collapse in price have a literal negative value.  That’s because the former owner has departed and the power was shut off for non-payment; the banks have constructively abandoned these homes.  In Florida if you do this within a reasonably short period of time mold will become established inside the sheetrock.  Once that happens the home must be gutted to the studs or razed, and the cost of doing so exceeds the value of the bare lot.  Then there are the delinquent property taxes, frequently in arrears for two years or more at this point.  Many people have said that “oh there’s a decent recovery” on all this paper.  No, in many cases, there is is in fact no recovery at all, and that’s a fact.

  • In essentially every case a 2nd Line (HELOC or “Silent Second”) behind a first in Florida and California taken out since 2003 is worthless if the primary note goes into foreclosure.  That’s because such a second is a subordinate lien and entitled to nothing until the first is fully satisfied.  But the first can’t be fully satisfied as the home’s value is less than the first line’s balance.  As a consequence these loans are worth zero – literal zero.  Wells may have as much as $25 billion of this worthless paper on balance sheet all on its own and Bank America may have as much as $30-50 billion. (Pinning down the exact amounts is impossible as the companies do not disclose geographic concentration metrics necessary to do so.)  It is not unreasonable to believe that $200 billion in junior lien losses are being hidden – right here and now – which is sufficient to detonate these institutions even without the primary mortgage losses being counted!

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The risk of a double-dip recession is rising

From The Finiancial Times:

By Nouriel Roubini

Published: August 23 2009 18:55 | Last updated: August 23 2009 18:55

T he global economy is starting to bottom out from the worst recession and financial crisis since the Great Depression. In the fourth quarter of 2008 and first quarter of 2009 the rate at which most advanced economies were contracting was similar to the gross domestic product free-fall in the early stage of the Depression. Then, late last year, policymakers who had been behind the curve finally started to use most of the weapons in their arsenal.

That effort worked and the free-fall of economic activity eased. There are three open questions now on the outlook. When will the global recession be over? What will be the shape of the economic recovery? Are there risks of a relapse?

On the first question it looks like the global economy will bottom out in the second half of 2009. In many advanced economies (the US, UK, Spain, Italy and other eurozone members) and some emerging market economies (mostly in Europe) the recession will not be formally over before the end of the year, as green shoots are still mixed with weeds. In some other advanced economies (Australia, Germany, France and Japan) and most emerging markets (China, India, Brazil and other parts of Asia and Latin America) the recovery has already started.

On the second issue the debate is between those – most of the economic consensus – who expect a V-shaped recovery with a rapid return to growth and those – like myself – who believe it will be U-shaped, anaemic and below trend for at least a couple of years, after a couple of quarters of rapid growth driven by the restocking of inventories and a recovery of production from near Depression levels.

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IMF sees slow growth, tax hikes soon

Some how, some way, your taxes will go up.

From TheStar.com

OTTAWA–The International Monetary Fund says most countries will need to raise taxes to pay off the trillions of dollars they spent fighting the global recession.

IMF chief economist Olivier Blanchard says in an article to be published today that governments acted properly in ramping up spending to stop the worst slump since World War II.

Soon, he says, nearly all countries will have to raise taxes to pay the recovery bill.

Canada’s Finance Minister Jim Flaherty has rejected the idea he will have to raise taxes to pay off about $47 billion in stimulus spending.

Blanchard, meanwhile, says with the recession virtually over, what is left are deep scars that will take years to heal.

He sees positive growth for most countries in the next few years, but says it will be sluggish.

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What A Jobless Recovery Today Means For Tomorrow?

This is an op-ed piece by the president of the United Steelworkers from Pittsburgh (Leo W. Gerard), former CEO of AT&T Broadband (Leo Hindery), and former Michigan Senator Don Riegle. They basically represent unions, big business, and government, in that order. They believe that we are in a “jobless recovery” and together developed and proposed a three part idea which they felt would create jobs, that they hoped would gain the attention of the Obama administration. However, they now have this to say about the administration’s apparent view of the economy (from The Huffington Post):

It’s almost as if the administration is opting for a rose-colored-glasses PR strategy rather than taking a hard-nose look at actual consumer and employment figures and their trends, and modifying its economic policies accordingly.

It is still very clear to the three of us that the economic stimulus plan will not move the country toward anything approaching full employment and, most important, that the jobless recovery has already started “feeding back” on itself, as evidenced by four key indicators:

First, consumer spending, despite the benefits from millions of $500 stimulus checks and the “cash-for-clunkers” program, remains in a very deep malaise…

Second, the percentage of U.S. homeowners who owe more than their house is worth will nearly double to an almost unbelievable 48% in 2011, from the already numbing level of 26% today…

Third, the continuing trade deficit, which is currently around 2.2% of GDP, subtracts more from the demand for American-made goods and services than the stimulus plan adds…

Fourth, even if one accepts GDP growth as the primary measure of economic vitality, which notably we don’t, the so-called “recovery” of GDP in the second quarter was mostly due to one-time accelerated government spending in general and on transfer payments, and the expected GDP “recoveries” in the third and fourth quarters will be just as questionable…

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Poll: 57% Don’t See Stimulus Working

I’m sure a large portion of that 57% is either out of work, working part-time due to no full-time work being available, working at something they normally wouldn’t do just to have some type of job, or has a significant other who falls into one of the above categories. And the reality is, the stimulus hasn’t worked, and won’t work. Government can’t create wealth, and none of the jobs created or “saved” by the stimulus is anything more than taxpayer subsidized busywork. These jobs are nearly all of relatively short-term duration and the work being performed doesn’t lead to the creation of other jobs. It is now acknowledged that FDR prolonged his Great Depression; I believe ultimately, Obama will do the same with his depression by trying to follow FDR’s failed programs.

From ABC News:

WASHINGTON – Six months after President Obama launched a $787 billion plan to right the nation’s economy, a majority of Americans think the avalanche of new federal aid has cost too much and done too little to end the recession.

A USA TODAY/Gallup Poll found 57% of adults say the stimulus package is having no impact on the economy or making it worse. Even more 60%  doubt that the stimulus plan will help the economy in the years ahead, and only 18% say it has done anything to help improve their personal situation.

That skepticism underscores the challenge Obama faces in trying to convince the public that the stimulus has helped turn the economy around. It also could complicate the administration’s plans to overhaul the nation’s health care system.

“This is a wake-up call for the administration.” says House Minority Whip Eric Cantor, R-Va. “People see the stimulus hasn’t worked, and now you want to lay on over $1 trillion in a health care plan.”

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RBS uber-bear issues fresh alert on global stock markets

I know absolutely nothing about the strategist Bob Janjuah so I know nothing about his track record.  However, on this one, he seems to be following in the tradition of Peter Schiff and others like him. Most of the people that I’ve followed over the past few years have called current events correctly, which makes you want to at least consider their view on future events. Nearly everyone that I keep up with predicts some type of downturn in September/October. This seems to be just one more nail in the recovery coffin. Or maybe it will just lead to a self-fulfilling prophecy.

From The Telegraph:

Britain’s Uber-bear is growling again. After predicting a torrid “relief rally” over the early summer, Bob Janjuah at Royal Bank of Scotland is advising clients to take profits in global equity and commodity markets and prepare for another storm as winter nears.

“We are now in the middle of a parabolic spike up,” he said in his latest confidential note to clients.

“I expect this risk rally to continue into – and maybe through – a large part of August. What happens after that? The next ugly leg of the bear market begins as we get into the July through September ‘tipping zone’, driven by the failure of the data to validate the V (shaped recovery) that is now fully priced into markets.”

The key indicators to watch are business spending on equipment (Capex), incomes, jobs, and profits. Only a “surge higher” in these gauges can justify current asset prices. Results that are merely “less bad” will not suffice.

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