krogias

Over the last several days, the Fed has trotted out multiple spokesmen to suggest there might not be another round of trash credit creation (quantitative easing). The Dallas Fed's Fisher came out on Tuesday and suggested the program should not be extended when it ends in June and that things may already have gone too far. Lockhart of Atlanta stated "it's a high bar" in response to questions about QE3. Minneapolis' Korcherlakota stated the economy would have to "worsen materially" to extend the bond market manipulation. Finally, Plosser of the Philadelphia Fed recommended not merely stopping or even reversing the bond buying but also raising interest rates. The central bank should set a pace for selling its mortgage and Treasury holdings in conjunction with raising interest rates, Plosser said today in a speech in New York. He suggested selling $125 billion for every 0.25 percentage-point rise in the benchmark rate to almost eliminate $1.5 trillion in...

Obviously there is a pretty bad discrepancy between those numbers in this morning's edition of blowing sunshine up your skirt from the Ministry of Truth. current employment report Given the size of the country, it SHOULD take 600k jobs to move the rate that much so obviously there's a problem here. How did this happen? Dig a bit deeper and you'll see that they simply defined 504k out of the labor force from December to January and rounding did the rest. Wave a wand and define those people out of existence. If they don't exist, they can't be unemployed now can they? If you look at the chart, you'll see that they did the same thing in December from November. In that case only 260k unemployed people disappeared from the statistics. There is a clear and systemic effort to deceive the public about the state of the economy and it's getting worse. latest household data But there's is an even bigger deception in the numbers that helps to reveal the systemic frau...

Milton Friedman once said that "Nothing is so permanent as a temporary government program." The central banks, as rogue private bodies exercising governmental powers a proving that axiom true yet again. The Federal Reserve claimed yesterday that we are in a recovery but none of their emergency programs can be rolled back. ... the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. Meanwhile, over in Europe, there is growing recognition that the bailouts have failed and that the money isn't going to be paid back. Instead of actually admitting anything of the sort, the ECB is now talking about effectively making the loans permanent. Sure, they SAY it's going to be a 30 year loan instea...

Here at Financial Jenga we have hoped, even prayed for the law to be enforced for the last couple of years. Yet the fraud has raged unchecked and if anything grown worse. Banks have mass filed false affidavits to fraudulently seize houses through the foreclosure process and then said " oopps , we made a technical paperwork error" when caught. At first they got away with it. They HAVE seized houses through this procedure when there was no mortgage and no lien at all. The Fed has gone and done things far beyond the scope of authority given to it by Congress - like using our money to prop up the investment banks and the stock fraud they are running. They are given the power to buy exactly two thing - bonds carrying the full guarantee of the US government and short-term loans for planting of crops. Buying junk bonds containing mortgages violates both the letter and the spirit of their charter. Buying stocks is so far beyond their legal powers that someone should be in prison and...

Today's topic is Shadow Inventory - the foreclosed or soon to be foreclosed properties that banks are stuck with and which are not listed for sale. As a result, they are not found in any formal listing of housing inventory when existing home sales are reported. This has been a problem for a long time, as we mentioned many months ago in Household De-formation . The media's silence on this issue has been almost total. Probably because any reasonable discussion of the topic would severely undermine the illusion of stability they are trying to project. This weekend, the Wall Street Journal took a stab at estimating the damage. Their conclusion is that it would take 107 MONTHS to clear the shadow inventory at current sales rates. Obviously not a number that the bankers and their apologists in government and media are anxious to publicize. Over the summer, banks appeared to be making some headway. The government’s mortgage-modification program helped some people get current on thei...

Recent news on the housing front confirms what we have been saying about that market since the inception of Financial Jenga . In sum, there is no real stabilization much less recovery, the costs of attempting to maintain the illusion continue to rise rapidly and any cessation of government interference and manipulation results in rapid breakdown of the fake "market" which was created by those policies. In the first instance, we now see the failure of HAMP as redefault rates among those "helped" by the program soar. An absolute majority of the government-sponsored loan modifications have now re-defaulted but they did give utterly baseless hope to debtors, thus trapping them into making continuing payments on a hopeless mortgage. The ongoing cost to prop up Fannie Mae and Freddie Mac continues to rise. Last week the NY Times reported that the cost of those bailouts has now reached $148 billion and will likely total $389 billion. Bloomberg cites a "reasonable ...

This morning, the Bureau of Labor Statistics release triggered news report to put up a huge headline: 431,000 Jobs Added in May That sound impressive on the surface but the reality is much less than it seems. When you dig down into the numbers you can see just just how little really is there. First, the Census Bureau hired 411,000 temporary workers who were counted as part of the 431,000. The BLS claims 41,000 private-sector jobs were created, with the discrepancy likely coming from net layoffs at state and local levels of government. Let's drill down a bit farther and take a look at the Birth-Death model that we have written about before. When we look there, note that the "model" has added 215,000 private-sector jobs for May. By backing out this estimate , we can conclude that the actual survey measured a net loss of 174,000 jobs in the real economy. We can also dissect the Unemployment Rate in the same fashion. This statistic is based on the Household Survey, w...

Over the last two weeks we have seen a series of indications that some of the key elements supporting manipulation of market pricing mechanisms are beginning to tremble. We have seen equity prices rise despite the lack of any significant increase in profits. We have seen commodity prices spike without much increase in real demand. In our opinion the key institutions behind this mess are the major Wall Street (TARP) banks, government agencies and the Fed. They have all played a major role in creating credit inflation, with subsequent asset bubbles and debasement of our currency. But understand this: if you 'look through' each of those institutions you will find the US government backstopping each and every one of them. Each of those has come under increasing attack and as the supports have begun to shake, the fraudulent pricing they have promoted has also begun to unwind. As politics has supported bubble dynamics, so it can destroy them - live by the sword, die by the swo...

This weekend we would like to take a look back at the economic contraction that the talking heads would have you believe is already over. Of course there is no way that it true. The extreme deficit spending we referred to in Federal Funhouse could result in a short euphoria before the creditors pull the plug - just like maxing out your credit cards before declaring bankruptcy. But the real economy is in horrible shape and nowhere is this more apparent than in the labor market. Today's critical data comes from the Bureau of Labor Statistics (BLS). Their unemployment data released Friday was loudly trumpeted as good news when all it really said is we're bleeding to death a little slower. Others have commented on and analyzed this data so we'd like to take a longer view of things - examining the size of the pool of blood on the ground as it were. We're going to use the BLS monthly data for the last two years. Note that at the end of 2007, the potential labor pool (civil...

An update by Karl Denninger at Market Ticker today got the old synapses firing. Denninger points out that pension plans are in trouble and cites a Wall Street Journal article strongly suggesting accounting fraud in public pension plans. The WSJ says: Based on their preferred accounting methods -- which discount future liabilities based on high but uncertain returns projected for investments -- these plans are underfunded nationally by around $310 billion. The numbers are worse using market valuation methods (the methods private-sector plans must use), which discount benefit liabilities at lower interest rates to reflect the chance that the expected returns won't be realized. Last year we warned about the same phenomenon in private sector pensions in Some Key Questions and The Limits of Optimism . In every case the culprit was the same - overly optimistic assumptions about investment returns allowed a financially deficient structure to be sold to key constituencies as safe and sou...

We note with some amusement all of the talk about cash "on the sidelines" as if it's ready to pour into the stock market at the drop of a hat and take us to new highs. Nobody wants to admit that this is the cash that doesn't really exist. That fact was recognized by the market last year and earlier this year but has been obscured by a massive campaign of deception, propaganda and guarantees from Washington and Wall Street. Because the current mutant economic system depends on citizens digging themselves ever deeper into debt slavery, anything which causes them to save instead of borrow and spend is seen as the enemy and this includes the truth. Much of the "cash" is in banks and money market mutual funds, both of which invest in debt that has become extremely dubious. The truth is that none of the "assets" (loans) that are backing the "cash" have gotten better and most have gotten significantly worse over the last 3-4 months. Credit card ...

Two critical events in the last 24 hours: 1) AIG reports an enormous loss This is very important since insurance is the largest financial sub-sector which does not have access to the Fed's discount window, which has been used to conceal the losses or the various swap programs designed maintain the fraud that some banks are not insolvent. Given that, an honest report from AIG gives us some insight into what the REAL situation looks like in the financial industry and it's not pretty. With the strains imposed on the Fed's balance sheet by their past actions there is essentially zero chance that the insurance industry as a whole will get access. Yesterday's selloff was triggered by an SEC announcement that greater disclosure would be required in the balance sheets of investment banks. Financials dropped hard. Essentially anything that interferes with the ability of the banks to commit fraud is going to tank the sector since fraud is the only thing between some of them and b...

Guys, there was a huge change of tone over the last two weeks and especially this week. The denial that has ruled Wall Street for so long is beginning to show major cracks. We're finally seeing grudging admissions that this is a much bigger problem than they were willing to admit. What used to be just a "subprime" crisis is now a "mortgage" crisis. The terrible reports from major retailers like Pennys, Macys, Kohls and the spectrum of apparel shops along with restaurants like Starbucks, PF Chang, Chipotle, Brinker and Panera are causing the Street to question the "resilient consumer" thesis. They should since it is based on the ability of the consumer to dig themselves into an every deeper hole of debt. But McDonalds and Target did well and Walmart OK. What does it tell you when spending is switching from department stores to discounters and from premium or sit down restaurants to the golden arches? We don't hear the word "contained...

The race to the bottom in financial responsibility reached a new milestone today. The Reserve Bank of Australia - their equivalent to the Fed agreed to take asset-backed debt paper as collateral for repo loans to commercial banks. The Wall Street Journal reports this morning: Banks that may be forced to assume assets from the conduits that have financing coming due could themselves face shortages of capital. To head off such a problem, Australia's central bank, the Reserve Bank of Australia, has relaxed rules on collateral it will accept for short-term funding. This would enable banks to take more time to evaluate which portions of the asset-backed commercial-paper market are most affected by ailing subprime mortgages. In doing so the Australians went beyond the Federal Reserve, which doesn't accept such paper as collateral in repo operations but did recently clarify it was willing to accept a wide variety of such paper for its lesser-used, and costlier, "discount wind...

We are beginning to see severe impairment of credit functions - the fruits of massive and long standing frauds that have recently come to light. By now, many of you are familiar with the 'mark to model' fraud, where the imaginary prices generated by a computer model are preferred over the actual prices which are being paid by actual people - especially when using the former allows firms to report gains rather than the losses they have suffered in reality. With some 'investment grade' paper trading at huge discounts to par, the rating services have a lot of explaining to do. The fee structures for structured finance create serious conflicts of interest . "S&P, Moody's and Fitch have made more money from evaluating structured finance--which includes CDOs and asset-backed securities--than from rating anything else, including corporate and municipal bonds, according to their financial reports. The companies charge as much as three times more to rate CDOs than...