Here is the expanded version of the video O’Keefe mentioned:

Why is it people don’t understand the concept of videotape?? Unlike the introductions to “Mission Impossible,” it does NOT self-destruct after being played just once! So when someone goes on camera to make a claim, they might want to make sure there isn’t a recording somewhere refuting their claims. I’m just sayin’.

You may recall that these videos raised the issues of funding for ACORN and investigations into their practices. Rep. John Conyers decided to, once again, investigate this organization. As a result of this expose, both the House and the Senate voted to cut their funding. Rightly so, I might add.

But not so fast – it is possible that funding will be restored once the FY 2010 Budget is passed, thus cutting ACORN’s funding for TWO months. Clearly, this is something we will have to watch, but that this is even possible is absurd. Apparently, our elected representatives think we’re a bunch of idiots. Let’s make sure they know we aren’t.

Until then, ACORN’s continued fall couldn’t happen to a more deserving group, don’t you think?

Now is when I remind you that not only does Obama have very strong ties to ACORN (he worked on their behalf as a lawyer at one point), and its sister organization, SEIU, and let’s not forget that Obama gave $832,000 to an ACORN affiliate to “get out the vote” during the Election Season. And ACORN, the alleged non-partisan organization, currently under investigation in at least 14 states for voter fraud, the organization that helped create the Fanne Mae/Freddis Mac fiasco, is receiving YOUR tax paying dollars, $53 million to date, and stands to receive $8.5 Billion in Stimulus money.

The aforementioned article? It is this: Former Leftist Activist, Turned FBI Informant, Pulls Back the Curtain On ACORN. Well, you know that caught my eye right away – this guy, Brandon Darby, was a leftie activist, like many of us were, but unlike most of us, worked with the FBI on terrorism. Here is Darby’s story:

I first experienced ACORN in post-Katrina New Orleans. I was part of a relief organization, Common Ground Relief, which had been delivering much needed aid to the 9th Ward, an area that had been hit especially hard by the flood waters and by neglect. Rumors immediately began surfacing, questioning our motives and intentions. I was very confused by these rumors. Who was behind them? How could anyone question the vital work we were doing in the community? We lived and worked in the 9th Ward. We suspended our regular lives and, in many cases, left our families to travel to New Orleans to help those affected by Katrina and poverty. We slept on dirty plywood floors and shared everything we had with the residents. Most of us were white. Was our skin color the issue? I knew from personal experience that the majority of the Black 9th ward residents didn’t care what color our skin was. It took me awhile to get over the hurt I felt at such allegations and to find out where they were coming from.

In the following weeks, I was made aware of the fact that ACORN had reopened its New Orleans office (several months after the storm). Various groups from around the city informed me that Acorn was upset with us because we were in “their” community and had not sought approval from ACORN to operate there. I was told that ACORN said that we were “privileged white people who had come to a Black community as saviors and we refused to work with local Black leadership.”

The more I pondered the matter, the more I realized what was happening. As usual in marginalized and impoverished communities, a small group of radical self-proclaimed leaders was insisting that all local aid and relief came through them—even if they were AWOL for several months. Though the majority of residents either hadn’t heard of ACORN or simply disagreed with their politics- ACORN insisted that they were THE Black leaders. This was upsetting to me. Sure, the local pastor we worked most closely with was Black; but that didn’t matter to ACORN. It was as if Pastor Johnson didn’t count because he didn’t evoke the name of Elijah Mohammed or Malcolm X. It was as if Pastor Johnson didn’t count because he didn’t submit to ACORN’s mandate that ACORN was the sole leadership of Black New Orleanians.

Am I reading this correctly? Only black people can work with black people as far as ACORN is concerned? Dang, I bet all of those organizations and churches who sent so many people and aid to New Orleans didn’t know the rules. I know I didn’t when I sent money, and took my niece and nephew there post-Katrina to spend tourism dollars as requested. I think we all thought we were helping our fellow Americans. This is a bit of a shock, I have to say.

Back to the article:

As then director of Common Ground Relief’s 9th Ward project, I was warned by many that ACORN would ruin me politically if I didn’t submit to their leadership. I believed in what I was doing and how I was doing it. I refused to submit. The political fallout was almost unbearable. I just kept my eyes on meeting the needs of the community. When confronted by adherents to ACORN’s brand of race analysis, I pointed out that ACORN was not there immediately after the storm, so I could not have sought their leadership even if I had wanted to.

Over the following years, that particular style of political attack was prominent in New Orleans. Anytime that ACORN was displeased, the other party was deemed a racist. If the other party disagreed with the label or with ACORN’s agenda- they were met with “of course you feel that way. You are a racist.” Though it is clearly woefully inaccurate and unethical to use such an accusation as a political attack and as a means of shutting down philosophical debate and discourse, some at ACORN didn’t let that stop them. I refused to submit to it. I believed in listening to the majority of the community, who were desperate for our help, and not only to the self-proclaimed leaders. I paid a dear price for it.

This is disturbing on so many levels, not least of which is the people there NEEDED this help. They still do. People who WANT to help, who take time to do this, are then treated shabbily, and labeled racist to boot. Wow. I can only imagine how that felt to Darby after all his work there on behalf of that community.

And where does the FBI fit into all of this? Here’s how:

I returned to Texas after a couple of years adminst the political quagmire of post-Katrina New Orleans. My experience there with various groups was educational and life-changing, though some of these groups concerned me. Eventually I began to see some of them as dangerous and deceitful about their missions. This, along with a growing appreciation of my country helped lead me to work with the FBI’s Joint Terrorism Task Force.

I was as proud of this new era in my life as I was of my time in New Orleans. I had the privilege of participating in efforts where lives were saved; both in the United States and in Israel. While working undercover with the FBI at the Republican National Convention in Minnesota, I helped to uncover a bomb plot. Two men had made firebombs with a homemade napalm mixture of gasoline and oil. Their initial targets were Republican delegates. These bomb-makers (domestic terrorists) later decided to attack a staging area for the Secret Service and other law-enforcement agencies. Fortunately, they were stopped and arrested.

I was asked, and agreed, to testify against them. As was expected, the more radical elements of the media began to attack both me as an individual and the FBI as a whole. One of the men accused plead guilty; the other hired an expensive defense attorney and concocted a story about the FBI building these bombs to “set up left-wing activists” and stop dissent. But once the facts became clear, the defense changed their story and instead tried to blame the FBI for ”influencing” the terrorists. Thankfully, after one hung jury and many months of intense media attacks against me, the other bomb-maker (domestic terrorist) decided to come clean and admitted to the judge that he had invented the whole story.

What does any of this have to do with ACORN? I wondered the same thing on January 31st of 2009 when I was reading an ACORN blog that is run by Wade Rathke (the man who claims credit for founding ACORN). He devoted an entire page to my work with the FBI. How did he describe the FBI’s effort and success in preventing innocent Americans, local police and federal agents from being burned, maimed and/or possibly killed by firebombs? He wrote that it’s “one thing to disagree, but it’s a whole different thing to rat on folks.” That is what ACORN’s founder had to say about my role in stopping a bomb plot.

I was even more shocked as I continued reading the article. ACORN’s “founder” went on to mention that another self-proclaimed “radical” activist who had worked closely with him was also involved in my story. Her name is Lisa Fithian. I first encountered Ms. Fithian in New Orleans. She came to town after Common Ground Relief had started operations. She assumed a position of prominence and continuously challenged my work and leadership. During the RNC bombing trial, she cooperated with the defense of the bomb plotters and led media attacks on me and the FBI.

Ms. Fithian has been quoted in various mainstream news articles as saying, “Nonviolence is a strategy. Civil disobedience is a tactic,” and “Direct action is a strategy. Throwing rocks is a tactic.” She is also quoted as stating that “When people ask me, ‘What do you do?’ I say, ‘I create crisis’, because crisis is that edge where change is possible.”

ACORN receives tens of millions of dollars from taxpayers to promote their agenda. Free speech is sacred, of course. However, it is clear that ACORN has made a practice of blurring the lines between free speech and tax-payer-funded activism. Fortunately, our federal government is adept at investigating and identifying the misuse of federal funds. It will be interesting in the near future to see how Mr. Rathke and his ACORN associates stand up to the same scrutiny they have focused on our military, the FBI and other governmental groups and agencies.

After the revelations exposed in the O’Keefe/Giles videos, maybe the FBI will get the hint and take a look into ACORN. If they need a reminder, they can go back and look at the testimony of ACORN Whistleblower, Anita Moncrief, who had PLENTY to say about how ACORN operates, and acknowledged the connections between ACORN and Obama. It is a shocking reminder of what the MSM let go by in order to carry water for Obama.

So, maybe it’s not too late? Maybe after all of these recent (and not so recent) revelations SOMEONE in law enforcement will do the right thing and go after ACORN? Make the connections, hold them accountable, and do it now? Heaven knows, there is enough information available, isn’t there?

MARK YOUR CALENDARS!!! Anita Moncrief, the ACORN whistleblower, is going to be on Paulie Abeles, Sins of Omission NQ radio show SEPTEMBER 21st at 9:00 PM (EST)!! WOW!!!! I cannot wait. I’ll be there – hope you will, too!

Bloomberg reports, U.S. Foreclosure Filings Set Third Record-High in Five Months:

Foreclosure filings in the U.S. climbed to a record for the third time in five months in July as falling home prices and the recession left more homeowners unable to keep up payments or refinance.

A total of 360,149 properties received a default or auction notice or were seized last month, according to data seller RealtyTrac Inc. One in 355 households got a filing, the highest monthly rate in RealtyTrac records dating to January 2005, the Irvine, California-based company said in a statement.

“We’re in a deep hole,” Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc., said in an interview. “There is a whole new wave of foreclosures tied to the cyclical dynamics of the economy.”

What is this ongoing foreclosure activity doing to home prices? It’s not good.

The median price of an existing single-family house dropped 15.6 percent to $174,100 in the second quarter, the most in records dating to 1979, the National Association of Realtors said yesterday. Almost one-quarter of U.S. mortgage holders are underwater, property data firm Zillow.com said Aug. 11.

What about the mortgage modification programs which were designed to stem this tide of foreclosures? In speaking with our friends at 12th Street Capital, who have canvassed a number of the large mortgage servicing operations, we have learned that successful mortgage modifications are typically only occurring with mortgages that are delinquent 30 days or less. After that, homeowners are increasingly inclined to ‘walk away’ from homes which are further underwater (mortgage balance exceeds home value). In fact, Bloomberg highlights:

“It has been more profitable to put a home in foreclosure than restructure the loan,” Swonk said. “The only thing that helps is forgiveness of principal, and there is little willingness to do that.”

The greatest surge in foreclosure activity remains in those states which have already experienced enormous problems. The top 5 being Nevada, California, Arizona, Florida, and Utah. That said, our entire economy is intricately linked and these markets (especially California) cover a large percentage of our population.

What are the implications for this ongoing foreclosure activity?

1. Banks will continue to keep credit standards very tight.

2. The new issue securitization markets for these assets will remain virtually non-existent.

3. State tax revenues will remain under pressure as property taxes received continue to decline. As a result, look for continued cuts in services and likely tax increases.

4. Retail sales will not have a meaningful rebound as the consumer wealth effect tied to home values remains under pressure. This morning Wal-Mart reported flat profit on lower sales. Additionally, overall retail sales were just reported to decline .1 (ex-auto sales, retail sales declined .6) versus a projected gain of .8. This is an UGLY number!! As a result, do not look for a big rebound in inventories which would drive GDP.

5. Unless and until banks fully acknowledge the true value of the assets tied to these home mortgages, the financial system is kidding itself (and doing a very good job of it) to think that our economy will have a true robust recovery.

More on these topics later today. Thoughts, comments always welcome.

LD

Is Barack Obama about to move into the rental market and become the largest single landlord in the process?

Hat tip to AK for pointing out this developing story. Reuters reports, Obama Mulls Rental Option for Some Homeowners:

U.S. government officials are weighing a plan that would let borrowers who have fallen behind on their mortgage payments avoid eviction by renting their homes instead, sources familiar with the administration’s thinking said on Tuesday.

First things first, I fully empathize with all those whom are struggling at this time. However, from the standpoint of economics and capitalism, would this program actually serve as an incentive for some homeowners to stop making their mortgage payments? Would it cause other perverse, unintended consequences as well? Would it redefine the American dream?

Under one idea being discussed, delinquent homeowners would surrender ownership of their homes but would continue to live in the property for several years, the sources told Reuters.

Surrender ownership to whom? The bank holding the mortgage? The mortgage servicer? Uncle Sam? How is a rental payment determined? If based on percentage of income, does this program actually serve as a disincentive for individuals to increase income, if only to lose this benefit?

Officials are also considering whether the government should make mortgage payments on behalf of borrowers who cannot keep up with their home loans, tapping an unused portion of a $50 billion housing aid kitty.

That $50 billion housing aid kitty is money still in the TARP. Not that the rule of law means much anymore, but does anyone want to check if we actually need to write new legislation on the disbursement of funds under the TARP for a program such as this? What happens when the $50 billion is exhausted?

As part of this plan, jobless borrowers might receive a housing stipend along with regular unemployment benefits, the sources said.

How much and for how long? Who would oversee the program? Think there is the potential for massive fraud?

A few other questions and comments.

1. The mere fact that this idea is being floated would seem to me to be an admission that the housing market is a long way from bottoming.

2. How would this program impact the principle of property rights? If Uncle Sam is effectively dictating how an owner of a property, be it a bank or otherwise, can utilize that property, does this become precedent for other assets as well?

3. Would Uncle Sam consider establishing incentives for the banks and the homeowners to develop a program such as this through the private market? A tax incentive of some sort for the bank? Do we care to try to embrace free market principles?

4. Do we even try to determine the long term impact of this program on our economy in general and housing in particular?

Little doubt this type of program would be a sharp turn left on our economic landscape.

LD

The stereotype of who goes bankrupt is hardly complimentary. The image comes to mind of irresponsible people spending more than they know they have on whatever strikes their fancy, and then look for easy outs when the shit hits the fan. But, you probably know the correct answer to the question posed in the title. Yet, did you know how startling it really is?

Researchers at Harvard and Ohio University have just issued the results of a survey to assess the frequency of bankruptcies due to medical expenses. Here are some highlights:

Nearly two-thirds of all bankruptcies have a medical cause (e.g., spiraling medical and drug bills, lost income from being ill or caring for ailing family members, forced mortgaging of homes to pay medical bills that then go into foreclosure).

Three quarters of medical debtors had health insurance, although there were coverage gaps.

The share of bankruptcies attributable to medical problems rose by 50% between 2001 and 2007. And because the survey data were collected before the recent sharp downswing in our economy, there is plenty of reason to believe that medical bankruptcies will increase at the same time that the financial burden of health care is escalating.

This last month alone more than 20,000 families filed for bankruptcy every week. 2009 will bring an expected 1.4 million bankruptcies. In total, an estimated 3.8 million Americans will be caught up in families filing for personal bankruptcy this year.

Clearly, for the health of our nation, health insurance reform must be a priority. As Dr. David Himmelstein, the senior author of the report and an advocate for single payer health care, called private insurance “a defective product, akin to an umbrella that melts in the rain.” He added, “Our findings are frightening. Unless you’re Warren Buffett, your family is just one serious illness away from bankruptcy.”

Health insurance is like an umbrella that melts in the rain…A very frightening thought indeed.

(h/t to Dr. K for sending me the story.)

I thank Susan and Andy for tipping me off to remarks made earlier today in which Sheila Bair Says “Too Big to Fail” Strategy for Financial Institutions Must End. The administration and other political pundits are trying to make the case that the Federal Reserve should serve as the systemic risk regulator. In my opinion, Sheila Bair should occupy that role. There is a major political battle developing over this turf. Make no mistake that how this battle plays out will have deep and longstanding implications for our financial system as a whole and for individual consumers.

My vote goes to Ms. Bair and the FDIC, “for doing it correctly” to this point. The U.S. Systemic Risk Watchdog Not Panacea highlights the developing battle between the FDIC and the Fed. Both of these entities have a lot on their plate already, but I believe the FDIC is better positioned to handle this role. Bair and team are laser focused on banking institutions, while the Fed is more broadly focused on the economy, money supply, and the markets.

In recent discussions with a number of colleagues, the topic of the dramatically changing landscape in the world of banking keeps coming up. For many individuals, banks and banking operations can generate a fair amount of anxiety. In the process of praising Ms. Bair, I would like to use that as an opportunity to personalize the world of banking highlighted at the FDIC website.

This site addresses Deposit Insurance, Consumer Protection, Industry Analysis, Asset Sales, Regulations and Examinations, and News and Events. The world of banking does not need to be overwhelming. The opportunities to properly manage your finances, find solid investment opportunities, and navigate the economic landscape are a mere point and click away. Anything you do not understand, bring it right back to Sense on Cents!!

LD

At the core of most, if not all, of our economic problems lies housing. I do not need to replay the tape of low rates, shoddy underwriting, and Wall Street securitizations that all played a dramatic role in creating a bubble the likes of which we have never seen and hopefully never will again. All that said, housing is an enormous market with a wide array of factors impacting it. How does one track it? Are we supposed to rely on our local brokers telling us things feel better? Should we ask contractors if they are bidding on jobs? Dare we rely on our local or national media outlets to provide their expertise and pandering? If we did, housing may have bottomed 14 different times in the last 10 months. In all seriousness, how can we track housing? Welcome to Sense on Cents.

There are two indexes that have developed over the last few years and are enormously respected by market participants. One index, the S&P/Case-Shiller Home Price Indexes, is released on a monthly basis. This index tracks a variety of regions in the country but not every region. Still, all things considered, this index is widely watched as a reliable indicator of health in housing. The index is typically released toward the end of each month. The most recently released report was on February 24th, A Look at Case-Shiller Numbers, by Metro Area. In this report, all indications are that housing has yet to see any support.

Aside from the Case-Shiller Index, there is another index that tracks trends in housing and allows investors to reflect their opinions. This index, the ABX (Asset Backed Index), was created a few years ago by Wall Street to track trends in housing. Clearly given the emphasis on Obama’s housing, plans put forth by Secretary Geithner would have put some optimism in this index, right? Well, we are all aware of the enthusiasm put forth in Obama’s plan to support housing; however, no plan is a panacea and every plan has unintended consequences. Despite the best intentions in Washington, the market sees no bottom in housing.

The ABX is not traded on an exchange and thus easily tracked. Enter my friends at 12th Street Capital who shared with me a few days ago that the “ABX went out at its ALL TIME LOWs yesterday. The real money sellers continue to push it lower in conjunction with the stock market and other credit markets and clearly the street has no interest in supporting the current levels, hence unless you have some real money buyers come into the
market you could expect to see continued softening.”

There you have it. Both indexes that track housing are at all-time lows. Thus, while the stock market had a nice bounce the other day, before we get overly ebullient about the potential for stocks, we want to see if we are seeing any sort of support in these two indexes. For my money, these will be the first two indicators showing a turn in our economy and giving me confidence to invest in stocks.

LD

Oddly enough, the ABX market did not participate in the rally on Tuesday. In 2008 I would have said that the next day rally in ABX would almost be a certainty, however with continued uncertainty regarding government intervention on mortgages and MBS, it seems most longs are carefully picking their spot in the MBS market.

Part 1
In this clip, Geithner wears both the political and policy hats. While promoting the Obama agenda initially (housing, education, healthcare, energy), he then turns toward the specifics of unlocking the consumer credit securitization markets via the TALF (Term Asset Backed Securities Loan Facility). This facility attempts to restart the securitization market and model which I wrote was broken back on November 12th (The Wall Street Model Is Broken…and Won’t Soon be Fixed). That market provides approximately 40% of the financing to a wide array of consumer finance markets. Geithner attempts to portray a measure of confidence and aggressiveness. The market has currently responded with a vote of no confidence.

Part 2
Geithner addresses further specifics about the TALF and the public/private partnership that would be connected to the effort. The specifics of this public/private partnership are not addressed but, in essence, the government would provide financing (loans) for private entities to purchase asset-backed securities currently clogging bank balance sheets. Geithner does not provide specifics on the terms of the loans and MORE IMPORTANTLY does not address the fact that the government will likely share in the losses on these securities going forward. I believe many private investors are salivating at the potential for this program. Our Economic All Star John Mauldin commented that this partnership is the equivalent of government money coming in the front door and going to hedge funds out the back door. Mauldin proposes a suspension of the “mark to market” accounting rule that forces banks to mark these securities to depressed levels in the presence of no buyers.

Geithner defends his aborted initial delivery on his grand plan as “mismanaged expectations.” He also inaccurately describes mortgage rates as being close to 5%. The “mortgage mirage,” in which many people can not get a mortgage, has 30 year conventional mortgage rates closer to 5.5% and Jumbo rates in the 7% range, but virtually inaccessible.

Part 3
Geithner is forceful in this clip in stating that the government will stand behind the 20 largest banking institutions. These banks represent approximately 70% of the banking industry and – without using the phrase – Geithner is saying they’re “too big to fail.” He defends the capital injected as ultimately being in the best interests of the economy and taxpayers. He rails on the mismanagement and gross compensation practices at many of these institutions. He appreciates the anger and outrage of responsible people who are sufferring from the damage caused by those who have been irresponsible. All good.

When addressing the need for global regulatory changes as well as domestic regulatory changes, I suggest Secretary Geithner listen to former Australian Prime Minister and Treasurer Paul Keating who undressed him this past weekend. Keating opines that the IMF and World Bank will see a massive shift in power to the surplus economies of the East from the debtor economies of the West. Here at home, when Geithner talks about focused accountability, let’s see if he and the Obama administration effect the necessary changes in the corrosive influence of lobbyists as well as addressing the incompetence displayed at the SEC and FINRA.

Part 4
Geithner attempts to make the case that investors, both foreign and domestic, will continue to invest in our country and our U.S. government debt if they have confidence. The administration has the obligation to maintain that confidence. The first step in maintaining the confidence is displayed in the budget proposed by President Obama. Geithner puts his political hat back on in promoting the Obama agenda as being economically sound, laced with fiscal discipline, and promoting their moral obligation.

Investors are less sure about Geithner’s feelings and have voiced their indecision by exiting the markets since this budget was proposed.

Geithner further addresses the necessity for individuals, corporations, and governments to live within their means. Investors have roundly responded that they believe this administration and Congress are doing anything but living within their means given the undisciplined spending in the Stimulus plan, the budget, and the Omnibus Bill.

Geithner uses the lessons of the ’90s as justification for raising taxes going forward. He prefaces his remarks that taxes will only be raised “when the economy recovers.” Charlie Rose appropriately challeneges him on the overly optimistic economic assumptions utilized in the budget. I would ask why the base case GDP in the Bank Stress Test of 2% growth in 2010 is not the same level of GDP used in Obama’s budget. The budget assumes 3.2% !!

Part 5
In this clip, Geithner is largely wearing his political hat. He defends the Administration’s vetting process as he staffs Treasury. He further pushes the Obama agenda. In regards to criticism he has experienced, he responds that it is purely part of the job.

On the auto front, he dodges the question of bankruptcy.

Charlie Rose then questions him on what he has learned so far in his role as Treasury Secretary. Geithner responds that many may not know that he spent a large part of his career at Treasury serving under Robert Rubin and Larry Summers. He holds them in very high regard and seems to promote that respect for them is universal. He does not address that Rubin was at the core of the lack of regulatory oversight that we have had for the last decade, as well as being the prime architect of the massive systemic risk that Citibank has developed.

When asked if he could see the problems developing that now envelop our economy, Geithner ducks in stating that most people missed it.

Part 6
Geithner remarks that both capitalism and our financial system have already changed and will continue to change as the necessary regulatory systems are put in place.

Geithner further adds that he is confident America will respond to this crisis because it is not a question of ability but a question of will. He believes this Administration possesses the will to make every necessary move to restore our economy.

In my personal opinion, it is also most definitely about ability as well. Do we have the measure of integrity and quality in our elected officials? Chuck Hagel, Leon Panetta and others have railed on the corrupt system of lobbying, campaign contributions, and persistent fundraising that has polluted our country and the process of government. While the Obama Administration has spoken about addressing parts of these issues, their actions and policy proposals to date indicate otherwise.

I found the Geithner interview to be interesting, while not exactly enlightening.

He is both politician and policy maven. To this point, the markets have graded him as decidedly mediocre. Although, to be fair, Washington as a whole is graded no better.

LD

Video provided by CheneyWatch.org for NoQuarterUsa.net YouTube channel

I thoroughly respect Sheila Bair. Our Head of the FDIC has been an honest broker each and every time I have heard her speak. I looked forward to her interview with Paul Gigot of The Wall Street Journal.

Ms. Bair addresses the finer points of the Obama Foreclosure Mitigation Plan which is targeted at helping 9 million homeowners stay in their homes. Specifically she touches on:

1. how this program will not reward bad behavior;
2. how it can be viewed as helping people who have managed their finances appropriately;
3. expectations of redefaults given her experience with the failed institution Indymac.

As I initially mentioned, I believe Sheila Bair is an honest broker in an impossible position. Her seeming lack of enthusiasm does not strike me as not believing in the benefits of this program, but rather a subtle acceptance that this program can only go so far. Additionally, this type of program will have plenty of unintended consequences. Will people who are currently paying their mortgages on schedule start to become delinquent on their mortgages in order to gain the benefits of this program?

I think Ms. Bair will make the best of a bad situation. That said, no program will be totally effective. I am fully supportive of programs that will assist Americans, but don’t be fooled to think that we will get 100% return on all dollars spent.

Let’s go to the video . . .

Charles Krauthammer is someone for whom I have developed a grudging respect, thanks in no small part to my friend, SusanUnPC at No Quarter, who encouraged me to read him (until SusanUnPC told me, I didn’t know that Krauthammer is a psychiatrist who is paralyzed as a result of a diving accident. Clearly, he has not let that stop him one bit.). What I have discovered is that he is a very deliberate thinker. I may not always agree with what he says, but I can’t disagree with how he reaches his conclusions, if you know what I mean. And it is Mr. Krauthammer’s article, The Great Non Sequitur, The Sleight of Hand Behind Obama’s Agenda(h/t to LisaB for this article), with which I want to begin. Again, it is the economy that he is addressing, and Obama’s response to it:

Forget the pork. Forget the waste. Forget the 8,570 earmarks in a bill supported by a president who poses as the scourge of earmarks. Forget the “2 trillion dollars in savings” that “we have already identified,” $1.6 trillion of which President Obama’s budget director later admits is the “savings” of not continuing the surge in Iraq until 2019 — 11 years after George Bush ended it, and eight years after even Bush would have had us out of Iraq completely.

Forget all of this. This is run-of-the-mill budget trickery. True, Obama’s tricks come festooned with strings of zeros tacked onto the end. But that’s a matter of scale, not principle.

All presidents do that. But few undertake the kind of brazen deception at the heart of Obama’s radically transformative economic plan, a rhetorical sleight of hand so smoothly offered that few noticed.

The logic of Obama’s address to Congress went like this:

“Our economy did not fall into decline overnight,” he averred. Indeed, it all began before the housing crisis. What did we do wrong? We are paying for past sins in three principal areas: energy, health care and education — importing too much oil and not finding new sources of energy (as in the Arctic National Wildlife Refuge and the Outer Continental Shelf?), not reforming health care, and tolerating too many bad schools.

The “day of reckoning” has arrived. And because “it is only by understanding how we arrived at this moment that we’ll be able to lift ourselves out of this predicament,” Obama has come to redeem us with his far-seeing program of universal, heavily nationalized health care; a cap-and-trade tax on energy; and a major federalization of education with universal access to college as the goal.

Amazing. As an explanation of our current economic difficulties, this is total fantasy. As a cure for rapidly growing joblessness, a massive destruction of wealth, a deepening worldwide recession, this is perhaps the greatest non sequitur ever foisted upon the American people.

Well, that’s ONE way of putting it! A non sequitur. Nicely put. He continues:

At the very center of our economic near-depression is a credit bubble, a housing collapse and a systemic failure of the banking industry. One can come up with a host of causes: Fannie Mae and Freddie Mac pushed by Washington (and greed) into improvident loans, corrupted bond-ratings agencies, insufficient regulation of new and exotic debt instruments, the easy money policy of Alan Greenspan’s Fed, irresponsible bankers pushing (and then unloading in packaged loan instruments) highly dubious mortgages, greedy house-flippers, deceitful home buyers.

The list is long. But the list of causes of the collapse of the financial system does not include the absence of universal health care, let alone of computerized medical records. Nor the absence of an industry-killing cap-and-trade carbon levy. Nor the lack of college graduates. Indeed, one could perversely make the case that, if anything, the proliferation of overeducated, Gucci-wearing, smart-ass MBAs inventing ever more sophisticated and opaque mathematical models and debt instruments helped get us into this credit catastrophe.

I can’t argue much with him there. And thank heavens SOMEONE is bringing up Fannie Mae and Freddie Mac. Both played a HUGE part in our current fiscal crisis, ye tfor reasons I don’t understand, these two institutions are rarely mentioned in the conversation these days.

Krauthammer continues:

And yet with our financial house on fire, Obama makes clear both in his speech and his budget that the essence of his presidency will be the transformation of health care, education and energy. Four months after winning the election, six weeks after his swearing-in, Obama has yet to unveil a plan to deal with the banking crisis.

What’s going on? “You never want a serious crisis to go to waste,” said chief of staff Rahm Emanuel. “This crisis provides the opportunity for us to do things that you could not do before.”

Things. Now we know what they are. The markets’ recent precipitous decline is a reaction not just to the absence of any plausible bank rescue plan, but also to the suspicion that Obama sees the continuing financial crisis as usefully creating the psychological conditions — the sense of crisis bordering on fear-itself panic — for enacting his “Big Bang” agenda to federalize and/or socialize health care, education and energy, the commanding heights of post-industrial society.

I guess that’s some of that Chicago-style politics we’ve heard about – not wanting a “serious crisis to go to waste.” That is just so offensive in so many ways, my head is spinning. Apparently, so was Krauthammer’s:

Clever politics, but intellectually dishonest to the core. Health, education and energy — worthy and weighty as they may be — are not the cause of our financial collapse. And they are not the cure. The fraudulent claim that they are both cause and cure is the rhetorical device by which an ambitious president intends to enact the most radical agenda of social transformation seen in our lifetime. (letters@charleskrauthammer.com )

Paul Krugman also takes as his jumping off point Obama’s address to Congress in this article,
The Big Dither (h/t to American Girl for this). You just have to love that title, don’t you? Anyway, Krugman doesn’t seem all that impressed with how Obama is handling things given his rhetoric:

Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”

Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

That sounds about right, doesn’t it? Just keep plying the same piece of crap, and give it another name! Yep – same plan, different day, same result:

Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away.

Thus, in a recent interview Tim Geithner, the Treasury secretary, tried to make a distinction between the “basic inherent economic value” of troubled assets and the “artificially depressed value” that those assets command right now. In recent transactions, even AAA-rated mortgage-backed securities have sold for less than 40 cents on the dollar, but Mr. Geithner seems to think they’re worth much, much more.

And the government’s job, he declared, is to “provide the financing to help get those markets working,” pushing the price of toxic waste up to where it ought to be.

What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions. Earlier this week, Ben Bernanke, the Federal Reserve chairman, was asked about the problem of “zombies” — financial institutions that are effectively bankrupt but are being kept alive by government aid. “I don’t know of any large zombie institutions in the U.S. financial system,” he declared, and went on to specifically deny that A.I.G. — A.I.G.! — is a zombie.

This is the same A.I.G. that, unable to honor its promises to pay off other financial institutions when bonds default, has already received $150 billion in aid and just got a commitment for $30 billion more.

Doesn’t that just BURN YOU UP??? That AIG is getting even MORE money? HOW is this going to help, especially since they seem not to have changed their behavior one whit. Krugman continued:

The truth is that the Bernanke-Geithner plan — the plan the administration keeps floating, in slightly different versions — isn’t going to fly.

Take the plan’s latest incarnation: a proposal to make low-interest loans to private investors willing to buy up troubled assets. This would certainly drive up the price of toxic waste because it would offer a heads-you-win, tails-we-lose proposition. As described, the plan would let investors profit if asset prices went up but just walk away if prices fell substantially.

But would it be enough to make the banking system healthy? No.

Think of it this way: by using taxpayer funds to subsidize the prices of toxic waste, the administration would shower benefits on everyone who made the mistake of buying the stuff. Some of those benefits would trickle down to where they’re needed, shoring up the balance sheets of key financial institutions. But most of the benefit would go to people who don’t need or deserve to be rescued.

And this means that the government would have to lay out trillions of dollars to bring the financial system back to health, which would, in turn, both ensure a fierce public outcry and add to already serious concerns about the deficit. (Yes, even strong advocates of fiscal stimulus like yours truly worry about red ink.) Realistically, it’s just not going to happen.

Oh, dear. Well, that’s not very encouraging, is it? No, not really, and Krugman doesn’t think so, either:

So why has this zombie idea — it keeps being killed, but it keeps coming back — taken such a powerful grip? The answer, I fear, is that officials still aren’t willing to face the facts. They don’t want to face up to the dire state of major financial institutions because it’s very hard to rescue an essentially insolvent bank without, at least temporarily, taking it over. And temporary nationalization is still, apparently, considered unthinkable.

But this refusal to face the facts means, in practice, an absence of action. And I share the president’s fears: inaction could result in an economy that sputters along, not for months or years, but for a decade or more.

That’s been the problem all along, isn’t it? The inability, or unwillingness, to face facts, from our officials AND the electorate, who have demonstrated that very characteristic for far too long. Heck, that’s how we ended up with Obama in the first place – the blind acceptance of his words with nary a glance at his deeds, the unwillingness to look at the FACTS about Obama, who he is, what his record is or is not, his connections to unsavory characters, his Chicago-politician history and style, his lack of policy, his blatant theft of ideas…

And the latter is the big problem now. Because he got over during his campaign by taking Clinton’s ideas, often whole cloth, he has NO idea how to implement them, or how to adjust them, or what is necessary for them to be successful. We are bearing the brunt of this Cheater in Chief, who hasn’t the foggiest how to adequately address the economic climate in which we find ourselves, through loss of jobs, homes, and retirement funds. A man who has gotten where he is not by his own hard work, but the King making of others. This man who provides the non sequitur, the Zombie plan, is not going to fix this disastrous economy. Inaction is not the answer, but WHAT the action is is crucial.

I can only hope that people of this stature, the Krugmans and Krauthammers among us, continue to speak out. Hopefully, prayerfully, their words will get through, and maybe, just maybe, we can get ourselves out of this “thing,” as Emmanuel said, not for political gain, but for the sake of the country.

Sheila Bair is proactively managing expectations for all concerned, those being politicians, regulators, bankers, and consumers. In fact, if she did not highlight the current state of the FDIC reserve fund and expectations for future declines, she would not be fulfilling her obligations.

The FDIC is funded by making assessments on all the banks throughout the country. With those assessments assuredly headed much higher, bank earnings will be dramatically impacted this year. In fact, analysts believe that many banks’ earnings will decline by anywhere from 50% to 100%!! The smaller community banks are enraged by the prospects of higher assessments given that many if not most of these banks managed their businesses with appropriate risk controls.

Read the rest ->

While taxpayers do not directly fund the FDIC, the fees incurred by member banks will be passed along to consumers in the form of increased charges on every transaction. If you feel like you are getting “nickeled and dimed” to death it is due to these increased FDIC assessments.

In light of this situation, what is one to do? First and foremost, make sure you do not have any deposits over the FDIC insured deposit limit of $250k at any one institution. The FDIC website has a wealth of information including an online estimator to assist you in calculating your FDIC insurance coverage. Additionally, proactively manage your finances so you can minimize your banking needs. I continue to encourage people to shop around for your banking needs, as well as for insurance and all other financial needs. Credit unions remain a great alternative to many traditional banks.

LD

Let’s review my specific projections from the January 2009 Recap:

For those who track the markets, there is a 75-80% correlation in the annual moves in equity markets with the performance in January. Without parsing words, this performance in January portends a very challenging year for our equity markets. All eyes and ears remain focused on Washington for a comprehensive financial rescue package (Bank Transition, insurance for other assets, aid to stem foreclosures, et al). Trade the range for now with a very wide band. Buy the S&P as it approaches 750 and sell it as it moves above 900. Otherwise….be patient!!

In the bond space, I did believe and continue to believe that despite the Fed and Treasury promoting the concept of quantitative easing (using the Fed’s balance sheet to buy Treasury, agency, and mortgage related assets), these rates will work their way higher simply due to the MASSIVE financing needs of our government and global governments.

The corporate bond space, led by high yield bonds, had very solid returns this month. As we mentioned, we thought these sectors had already priced in the economic turmoil to a much greater extent than the stock markets. High yield bonds were up almost 10% on the month. I would not add to that sector after that performance.

The dollar inched lower versus the Japanese yen. I believe the dollar will continue to weaken versus the yen, as well as the Canadian dollar. The U.S. dollar dramatically outperformed the Euro and the British pound. The economic situation in Europe is just as bad, if not worse, than in U.S. In fact, a number of European countries are being seriosuly challenged to raise funds. Sovereign credit risks (the risk that a government defaults) have risen considerably.

In the world of commodities, gold outperformed due to the global government credit risk, the threat of longer term inflation, and weakness in currencies. Oil remains very volatile but ended the month down 2.5%. Metals remain weak with anemic demand.

Add it all up and what is one to do? In my estimation, an investor is being paid to WAIT before making any major capital commitments. For those who are significantly underweighted stocks, a dollar cost averaging (add a fixed dollar amount on a regular basis versus one lump sum at one point in time) approach is always recommended. I am not going out on a limb to say that we will retest the lows (down another 7-9%) seen on November 20th.

Well, we have retested those November 20th lows and on the last two days of the month took them out by 2-3%. We are now down anywhere from 12-19% across the board for most stock indices on a year to date basis.

In a normal market environment, if stocks gave ground by 2-4%, one would expect government bonds to rally in a “flight to quality” move. The fact that equities are down 11% for the month and government rates have moved HIGHER is a clear indication that the overwhelming supply of government bonds to finance our deficit will continue to be a major issue going forward. The market absorbed well more than $150 billion in government supply (bills to 30 year bonds) this month. In the face of that, it is no surprise that rates moved higher. The question for investors is where does one go.

The enormous government supply along with the weakness in stocks did put a dent in the credit sensitive sectors of the bond market this month. The “crowding out” effect (government financing needs crowd out the availability of capital to flow to private enterprise) will continue to be a major problem.

In very volatile trading, the U.S. dollar did improve primarily versus the Japanese yen while only marginally versus the Euro (although it is significantly stronger vs the Euro on a year to date basis). As I mentioned to a reader, the yen seems to have weakned as many hedge funds have finished unwinding trades in which they had borrowed the yen. I missed this call and thus I was clearly wrong that the dollar would still weaken vs the yen.

Gold is up solidly on the year but actually had gotten higher than $1,000/oz during the month. I do not invest in gold simply due to a highly speculative contingent that plays in this commodity. I think many funds and managers have purchased this commodity as a safe haven move but are willing to sell those positions out for short term profits.

The BIG question is where do we go from here. Should I buy stocks here? Should I sell? Should I hold? Obviously, those are questions that can only be answered based on one’s personal situation. All I can offer is my assessment of the markets, the economy, Washington, Wall Street and hope it helps you navigate your own financial and economic landscape.

While the markets have retraced back to those November 20th lows and even moved lower by 2-3%, I still can not make a case for buying the market. Why? Very simply because overall market valuations do NOT clearly and distinctly display themselves as cheap. You may ask how is it that markets that are now down 50+% are not cheap. Remember that stock prices are a measure of forward earnings and the multiple paid for those earnings. A fair multiple is typically between 12-18% but in bear markets that multiple can get decidedly cheaper than 12. Let’s take a multiple of 15 times. At yesterday’s close of 735, that equates to an earnings projection on the S&P 500 of $49/share. That is overly optimistic and hopeful and thus the risk remains too high relative to the reward.

I always traded and invested based on the premise that “hope is a lousy hedge” meaning that one needs to fully review the risks prior to investing and not “close your eyes, buy in because it is down a lot, and HOPE it works.” I do think we are approaching a stage where the market may still move lower but then start more of a sideways price action. Why? Very simply because the volumes are declining on a lot of exchanges which indicate the selling pressure is abating. That said, I think investors are in NO rush to buy.

I actually have somewhat greater concerns about bonds than stocks. Why? I think a lot of investors have rushed into the bond market, that supply of bonds will increase not only in the government space but also the municipal space as towns, cities and states deal with their budgetary problems. Corporate bonds were very cheap relative to stocks coming into the year but have dramatically outperformed in the first two months. Given that a lot of investors in the corporate bond space are newer investors (looking for a place to park money), I think bonds across all sectors may start to weaken from here.

The U.S. dollar is benefitting from a flight to quality move given the major political and social issues elsewhere in the world. Additionally, as the U.S. government has shown it will not allow major banks to fail (although the banks’ shareholders can and will be diluted), a lot of money has flowed into the dollar. I think the Canadian dollar and Australian currency are fundamentally stronger than the U.S. dollar at this point.

In regard to Washington and its impact on the economy and markets, it strikes me that the Obama administration is hellbent on implementing as much of its social program and liberal agenda as quickly as possible. The markets are sending a very clear signal that his agenda is not pro-growth, investor friendly, or fiscally sound. He’s the President and the electorate sent the Republicans home, so we need to let our democratic process work. That said, the markets do not and will not stand idly by “HOPING” things work out.

I do firmly believe we will work our way through these economic challenges, but it will be a longer and harder road than most market analysts and political pundits would promote. Maintaining hope is a critically important part of our country and our moral fiber. I am ALWAYS hopeful, but I am not blindly hopeful. That would be called willful neglect.

Check out the piece, Buy and Hope Investing, written by John Mauldin, one of our Economic All-Stars (see left sidebar at Sense on Cents).

One thing I truly hope is that you find Sense on Cents helps you to navigate the economic landscape and that you will share the site with your friends.

LD