It’s soooooo old news, isn’t it? I mean, all that stuff about people not being able to pay their mortgages and the rising population of those facing foreclosure, is so old hat now.

What is really important, after all, is the survival of big banks! At least, it would seem that way from the news coverage of the last few days.

Asia stocks drop, says one headline. Britain to unveil major bank rescue package, says another. The U.S. stock market drops for 2nd, 3rd, 4th, 5th………day . Another bank wants to buy another bank. The Feds want to rescue another lending institution…..on and on it goes.

This is the big stuff. This is what the world really is all about.

But notice what is getting lost in the discussions: the homeowner and what will happen to him.

It’s not like they are not linked. We keep being told, in fact, that the world’s credit crunch will only be resolved when the housing market returns to normal, whatever the hell that means?

Really?

Then how is it that pretty much nothing is being done along those lines?

The much rushed socialized bailout to rescue big banks went out of its way to not include any language that would allow bankruptcy courts to change the terms of mortgages, something many experts say is vital to help the housing market recover.

The housing legislation that was passed earlier this year to help distressed homeowners is hardly off the ground, because it has no way to force banks to re-negotiate mortgages. In fact, with the government now waiting to buy these bum loans from the banks, why should they re-negotiate anything with homeowners? And, in point of fact, for the most part, they are not.

Backers of the bailout say that by buying up bad mortgages and mortgage related investments, the government itself will be able to change the terms of mortgages that are on the verge of default.

But anyone who understands anything at all about this crisis knows that a large part of the problem is, most mortgages are no longer owned by the bank that issued them…each mortgage has been divided and divided again and spread across many different investments owned by many different institutions. How can the government do anything with these mortgages when it is all but impossible to find out who exactly owns them?

Further, it is this very uncertainty that is fueling the crisis of confidence that is leading the world down the road to economic ruin.

And yet, I have zero doubt that things will improve…and sooner rather than later. This is NOT the 1930s when the government not only failed to act (before FDR anyway) but felt no need to do anything.

Unlike in the 30s, even the smallest country understands this is a credit-driven world. The system will be fixed to make credit flow again simply because there is no other choice and everyone understands this to be true.

Still, the $700 billion bailout is not the best way to do this. AIG already has reportedly zipped through lots of the taxpayer money pledged only a week or so ago. This will not ease the credit crisis for sure.

Those who say the economy will not recover till the housing market does are correct. But then the game plan needs to be focused directly and clearly on achieving that goal and not on helping one bank buy another.

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Tags: $700 billion, bank crisis, banks, Credit, Economy, housing

Trust, value, respect for one another, confidence, a person’s word plus a laundry list of other descriptives comprise not only our social fabric but our national financial landscape. If it were otherwise, we’d all need to walk around with pistols strapped to our leg.

That is my segué into a nasty trick Wall St pulled on a few million investors. You may be one and not even know it. The investment at the root of the trick goes by the acronym ARPS.

ARPS stands for auction rate preferred shares. I like the sound of auction preferred shares. Don’t you? It has a flair and bon vivonce about it almost unequaled in Wall St fictions.

You should also know these things called ARPS go by the names of other cash and cash alternatives. You should also know these were mainly, and still are, found in money market mutual funds.

History of Cash and Cash Alternatives

Other cash and cash alternatives have been around for a good number of years. At least 20 years by my research. They were simple little instruments that were safe and paid like clock work.

There was little or no risk to an investor’s principal because like the letter A – auction – said, the major players in the game conducted an auction in which they set the interest rates. All above board because it was done with the blessing of the SEC and, mind you, done in the public arena.

I use the verb were in the above paragraph in its strictest sense because this past February Goldman Sachs, Citigroup, Merrill Lynch and every other brokerage house quit bidding. This nasty trick immediately evaporated liquidity. I mention these three houses because they were the ones who created the auctions.

The lack of liquidity means people with money in this fund cannot take their money out. The fund is still carried on the holder’s statement at par (face) value because the underlying Triple A rated bonds are still in the fund’s portfolio and these bonds are still paying interest but the money simply isn’t available to the fund’s owner. In other words, the owner is not getting a dime from their account.

I bet if you are like me, you are incredulous and either can’t, or refuse, to believe what you just read. If you have money in one of these funds, you are nodding up and down and screaming out loud to anyone who can hear not to invest a cent in these boat anchors.

Of course Wall St still charges its fees and expenses just as if nothing has happened. There is a lot of speculation as to why the brokerage houses quit bidding but that doesn’t help the fund’s owners one bit.
The government has stepped to the plate to relieve the fiasco in the CDO and SIV markets but hasn’t done a darned thing to help ARPS owners. There is a lot of speculation as to the why of that non governmental action but that doesn’t help the fund’s owners one bit either.

I think there is something rotten at the U.S. Treasury. Just an opinion but if one looks at the man at its helm one sees deep Wall St roots probably still being watered by the good ole boys sitting in the leather chairs in the board room.

Joe Citizen is denied access to his funds but the creators, promoters and hucksters behind CDOs get a nice bailout. By the way, did anyone notice not only the Merrill-BoA “merger” but the $85 billion dollar bailout this last week… not to mention the MASSIVE $700 million bailout?

Tags: bank crisis, banking, cash

How is this for a blunt statement: If you are one of those who believes this subprime real estate debacle is going to turn around anytime soon, you are wrong! I’m not saying you are probably wrong. I’m not saying you may be wrong. I’m not even saying that more than likely you are wrong. I am saying…you are wrong! This is NOT going to get better soon and here is why:

What we are witnessesing is so far beyond a real estate/mortgage issue that it isn’t funny…and no one is laughing anyway.

This is about a lack of confidence in our financial institutions that have let us down; in our regulators who failed to regulate; in our politicial system that failed to act; in our collective greed which apparently knows no limit; in ourselves for being stupid enough to actually believe there is such a thing as a free lunch when, in reality, there isn’t even such a thing as a free cookie.

And now, we are all paying for it and will be for some time to come.

Look at the evidence and stop being dumb

I know I am sounding harsh. But, let’s face it folks, we’ve been pretty much living with our heads in the sand and the sand’s value is declining each year.

When one compares pending home sales to February of 2007, according to a real estate trade group, sales are down 21.4 percent. Let me repeat this number so it sinks in–21.4 percent–written out that would look something like this: twenty one point four percent.

One measure of the public’s economic optimism—generated by Investor’s Business Daily and TechnoMetrica Market Intelligence–shows a drop from 42.4 percent in March to 39.2 percent this month.

Retail Sales Weak

Because Easter came early this year, or at least that is the excuse, retail sales are hurting.

J.C. Penney Co says earnings for its first quarter could miss forecasts by as much as 38 percent, reports Reuters.

Wall Street is bracing for Thursday when other major stores are expected to report their Easter non-sales figures.

WaMu To Ax 3,000 jobs!

Seatle based Washington Mutual is (was??) the largest savings and loans bank in the United States. This week, it had to go begging for a $7 billion capital injection from a private equity firm and others because the mortgage crisis is expected to amount to a $1.1 billion quarterly loss for the thrift which will eliminate 3,000 jobs and shut down its 186 home loan offices.

Just since January, more than a dozen commercial and investment banks had to get cash bailouts after write downs of more than $200 billion mostly because of the housing and credit crisis.

Not since the Great Depression

What happened with Bear Stearns was the closest we have come to a run on the bank since the Great Depression…The 1929 market crash, contrary to what many believe, did not cause the depression–a run on banks over a protracted period of time did.

As we find ourselves in the middle of what has to be the world’s longest political campaign, there are those who foolishly believe that John McCain or Hillary Clinton or Barack Obama or Mickey Mouse will turn the world’s economy around.

Grow up people. Better still, take a course in American history. Or, economics. Or, both.

F.D.R did NOT get the U.S. out of the Great Depression–World War Two did. Wars force government to spend and print and spend and print money to keep them going. This causes inflation, to be sure, but, in the short run, wars actually help the economy. World War Two did, the Korean War did, the Vietnam War did and the Iraq war is doing!

I know, you’re saying, wait a minute! The Iraq war! Helping the economy?? It is sucking billions of dollars away from other causes.

Well, the problem with that thinking is, it is not the way the real world–or the Obama world–works. In fact, there has never been any evidence..not one ounce..that wars actually drain money from social programs or anything else for that matter. In other words, if we didn’t have the Iraq war, all that money being spent on it would not all of a sudden be freed up for education and housing and health care and whatever. It just wouldn’t exist!

The biggest dirty little secret

There are many reasons why the Iraq war is now in its fifth year…and one of them is, it is producing plenty of jobs in the so-called military-industrial-complex and enriching companies that are basically in the business of war and war support. Without the Iraq war, our economy would not be better, it would be worse! And, that is the dirty little secret that Washington understands and most people do not.

When will the economy turn around?

All this brings me back to where we began. The current subprime, mortgage, housing, credit, banking crisis is not going to end anytime soon. Some experts say maybe a year or two, some say maybe longer.

Will some people benefit from this? Of course. Some people will have the money to buy up those foreclosed houses at cheap prices and they will make the nightly news and we will read stories about how this is proof that people can take the bull by the horns. But, you know what? That is just bull. The reason why these people make the news in the first place is because their stories are unusual…they are not the norm.

If you don’t realize that, then you are probably one of those people who actually think a “Tall” at Starbucks is large, when it really is what used to be called—–small.

Tags: bank crisis, clinton, depression, Economy, federal reserve, housing, iraq, mccain, obama, recession, subprime, war