Tuesday, October 12, 2010

Billions in profits equal millions of dead

The minutes of the September Federal Reserve meeting were released today and it’s being read by traders to mean the Fed will print a bunch of new money and this drove up the markets or rather pre-inflated them. This buying of worthless paper assets with worthless paper money is referred to by the FED as Quantitative Easing. This will be the second round of this and is known as QE2, you know, like the ocean liner, of course some people are re-christening it as the voyage of the Titanic. Start short selling ice.

Now the big discussion is exactly how much money will they print, half a trillion?  Two trillion?  Or will the Fed disappoint the market by not printing as much as they expect? Not enough money means deflation and not inflation, talk of a gold bubble is coming up again. There are people holding a lot of gold on speculation and you don’t need to have very much of any commodity changing hands to drive the price down. All you need is for buyers to think they will hold out until the price bottoms out. The problem is that speculators often need to raise cash for margin calls and such, if too many start selling then the price will drop like a rock.

The so-called foreclosure crisis may have nothing to do with problems in processing actual foreclosures but rather a massive paper fraud. It’s starting to look like a number of the mortgages used to create the trillions in securitized debt obligations don’t even exist. The stories of people being foreclosed on who didn’t have a mortgage or changing the locks on people who aren’t delinquent are hints that the really big scandal is yet to break. How much of the whole business was simply fraud? Securitizing a mortgage pays a small commission, securitizing a non existent mortgage pays 100%. Some 2.7 trillion dollars of this funny paper is still on the bank books with no one having any idea how much of it represents real assets or how much any of it is really worth.

Meanwhile our principle banker, China is feeling its oats with the Red Navy dominating the entire South China Sea. US Defense Secretary Bob Gates just took a trip to Vietnam to try and reassure our allies that we still have their back. (He went to People’s Republic of Vietnam to tell our allies that we will keep the People‘s Republic of China at bay? Strange days indeed.) China’s Defense Minister dropped in for the conference as well and he met with Gates for 30 minutes, that must have been an interesting conversation. China has launched dozens of new destroyers and submarines. It’s now building aircraft carriers as well as ballistic missile bases that can reach out and destroy US aircraft carriers 2000 miles away.

Corn continues to increase in price although we are still far short of the level that produced food riots across the third world in 2008, but the Wall Street speculators are just getting warmed up. The supply is much tighter this time with droughts and flooding nearly worldwide, not that there is any real shortage, just tight enough that Wall Street can jam up the works.

George Bush was still running things in 2008, Obama’s Secretary of Agriculture has come out and said there is no shortage. We’ll have to see if Obama wants to take on Wall Street or let a few million people starve to death as Bush did. You know how a Republican Congress will react if he does intervene, a capitalist system just isn‘t working if nobody is starving. www.prairie2.com

4 comments:

Anonymous said...

Prairie 2 says: "The stories of people being foreclosed on who didn’t have a mortgage or changing the locks on people who aren’t delinquent are hints that the really big scandal is yet to break."

It's not clear what could be a bigger scandal than 1) Americans being thrown out of their homes without justification [the pinnacle of a system of economic terrorism] and 2) the apparent destruction of the system of trust that underlies the entire "miracle" of private property ownership.

We may get further details on how this happened but the meaning is clear at this moment.

John Puma

Federal said...

The biggest scandal will be.. "all these pesky homeowners who are holding up financial institutions from expediting forecloures by demanding the proper paperwork."

I can smell it in the air already. If the "financial institutions" don't get their way to take homes quickly and at will, well then just the whole darn market is going to fall to pieces.

Sound familiar?

Something is peculiar about this situation though. I have a friend who hasn't paid on his property since May, and hasn't had a single letter or phone call from the bank.

He can't be the only one. How many homes can a bank own in a clogged and broken system before things get interesting?

Got my eye on Finacial ETF's. While underperforming other indexes, the markets do not seem too worried that these news stories are gonna poo poo all over our great 2010 market rally.

Anonymous said...

The biggest scandal will be.. "all these pesky homeowners who are holding up financial institutions from expediting forecloures by demanding the proper paperwork."

I can smell it in the air already. If the "financial institutions" don't get their way to take homes quickly and at will, well then just the whole darn market is going to fall to pieces.

Sound familiar?

Something is peculiar about this situation though. I have a friend who hasn't paid on his property since May, and hasn't had a single letter or phone call from the bank.

He can't be the only one. How many homes can a bank own in a clogged and broken system before things get interesting?

Got my eye on Finacial ETF's. While underperforming other indexes, the markets do not seem too worried that these news stories are gonna poo poo all over our great 2010 market rally.

Anonymous said...

I can remember when banks would insist that preferred NOT to foreclose on properties because they " weren't in the property management business."

Could they have been lying?

Could they have changed their strategy? They seem to want desperately to be in the property management business now since safe owners have no reason to sell and none of the banks will make loans for the drastically reduced number of transactions that do occur.

John Puma