Thursday, February 18, 2010

Fed raises "emergency" bank rate

The Federal Reserve did something we haven’t seen in a long time; they raised the “emergency” loan rate by a quarter point to .75%. They said this will have no impact on consumer interest rates but Treasury Bonds are already moving up and this does affect mortgage rates. Their explanation for doing so seems a bit lame as they are claiming it is only intended to encourage banks to use conventional capital sources instead of taking “emergency” loans from the Fed. Is there an emergency or not? More importantly they are making their “overnight” loans to banks just overnight instead of 30 days as they have been since August 2007 (a year before the crash).

The Fed is definitely cooling the credit market but the question is why? Unemployment is up again and by Fed policy this means no inflation even though wholesale price inflation is heating up. China has been restricting their banks’ lending. You also have the unfolding scandal in Europe that could leave Wall Street banks open for billions in liability as well as criminal charges.

The other shoe to drop according to the Congressional Oversight Panel ( is quote “Commercial real estate (CRE) loans made over the last decade - including retail properties, office space, industrial facilities, hotels and apartments - totaling $1.4 trillion will require refinancing in 2011 through 2014. Nearly half are at present "underwater," meaning the borrower owes more on the loan than the underlying property is worth.” end quote.

These loans are made for only five years or eight years and must be refinanced. This is the sort of thing that produces an economic death spiral as otherwise successful businesses are forced to sell in dead market and it creates its own “weather” like a forest fire then the whole area is destroyed.
This is what is driving the weekly bank seizures and the pace is going to really pick up speed as business that aren‘t underwater are dragged under by the failure of companies they do business with.

This of course will drive service sector job losses and there are fewer factory jobs as out sourcing continues. The failed businesses won’t be paying local taxes or collecting sales tax further contributing to the 900,000 local government jobs that will be lost when the stimulus money runs out. We need a real jobs bill but more importantly we need our factory jobs back. It’s already to the point where that will be extremely painful even if China is very gracious to their client state (that’s us).

Wednesday, February 17, 2010

Business is Good at the Temple

More is coming out about the involvement of Goldman Sachs and other Wall Street banks in the Greek tragedy currently unfolding. The fear in Europe is that they have been engaging in the same sort of bad bond hanky panky in multiple countries. In order to hide the extent of Greece’s indebtedness from EU regulators they went all the way back to biblical times and dusted off the practice of “money changing“. By issuing bonds denominated in Yen and USD and then converting back to Euros at what they euphemistically referred to as an “historical” rate they generated a billion USD in “profit” for the Greek government and a several hundred million in commission for themselves.

Goldman alone has taken home 725 million Euros in the last ten years by managing bond sales for Greece. How much that is in USD depends on the “historical” value of the Euro. The US corporate media off starts all of its brief coverage of this scandal with the disclaimer that the US banks didn’t cause the crisis but helped cover it up. Causing investors to lose 15 billion USD so that you can make a billion for yourself isn’t a major crime like stealing a loaf of Psomi (psoh-MEE, a cheap bread that was popular for people to live on during frugal times in Greece). The Greek people disagree however, there has been one bank bombed so far.

The reason Greece might “default” on its debt is that much of this debt was from a practice that was pushed heavily in the US during the reign of the Bush Crime Family. They sold public infrastructure to private companies at bargain prices (sales handled by Wall Street) and lost the subsequent revenue putting them increasingly into debt and the public was burdened with heavy tolls and fees as they waited for the flat earth prosperity they were promised.

In the old days a money changer that cheated the public had his portable table smashed. A certain long haired, sandal wearing liberal reformer has been immortalized in a widely circulated book for doing just that. The word bankrupt literally means to “break the board”. Today the “board” or bank is above the law and bankrupt is what happens to the rest of us. Cheap bread is the future but don’t get caught stealing any just because you’re starving.