Even if the economy were growing at a faster pace, it wouldn't come close to offsetting the interest payments on our ever-expanding debt. If you want to know why the Status Quo is unsustainable, just look at interest and debt.
Back in the years just before the previous housing bubble burst (not to be confused with the current, even more acute one), one person did the math on subprime, realized that the housing - and credit bubble - collapse was imminent, and warned anyone who cared to listen - almost nobody did. That man was Kyle Bass, and because he had the guts to put the money where his mouth was, he made a lot of money. Fast forward to 2014 when subprime is all the rage again and the subprime bubble is bigger than ever: it may comes as a surprise to some that in 2013, subprime debt was one of the best performing fixed income instruments, returning a whopping 17% in a year when most other debt instruments generated negative returns. And this time, while Kyle Bass is busy - collecting nickels (each costing a dime) perhaps - it is someone else who has stepped into Bass' Cassandra shoes: that someone is Jeff Gundlach. “These properties are rotting away,”
As we first reported one week ago, the first shadow default in Chinese history, the "Credit Equals Gold #1 Collective Trust Product" issued by China Credit Trust Co. Ltd. (CCT) due to mature Jan 31st with $492 million outstanding, appears ready to go down in the record books. In turn, virtually every sellside desk has issued notes and papers advising what this event would mean ("don't panic, here's a towel", and "all shall be well"), and is holding conference calls with clients to put their mind at ease in the increasingly likely scenario that there is indeed a historic "first" default for a country in which such events have previously been prohibited. So with under 10 days to go, for anyone who is still confused about the role of trusts in China's financial system, a default's significance, the underlying causes, the implications for the broad economy, and what the possible outcomes of the CCT product default are, here is Goldman's Q&A on a potential Chinese trust default.
The following 8 key dynamics (from government over-reach and economic stagnation to civil discontent and beyond) will play out over the next two to three years...
Fraudclosure Fail | ROMAN PINO vs THE BANK OF NEW YORK – Florida Supreme Court: We Can't Stop the FraudSubmitted by 4closureFraud on 02/07/2013 23:17 -0400
There are no ramifications if you get caught defrauding the court. Just take a voluntary dismissal and start over. We now have a court system, an entire judicial system, that supports fraud...
We have not been shy about exposing the massive (and unsustainable) bubble of credit being blown into the economy via Student Loans from the government. We have not been afraid to note the dramatic rise in delinquencies among these loans - and the implications for the government. However, as Bloomberg reports, it appears the impact of this exuberance has come back to bite the colleges themselves. In what can only be described as a vendor-financing model, the so-called Perkins loans (for students with extraordinary financial hardships) have seen defaults surging more than 20%. The vicious circle, though, has begun as the ponzi of using these revolving loan funds to 'fund' the next round of students is collapsing thanks to the rise in delinquencies. Schools such as Yale, Penn, and George Washington are becoming very aggressive at going after delinquent student borrowers. While financially hard-up graduates complain of no jobs, the schools are not impressed: "You could take a job at Subway or wherever to pay the bills ... It seems like basic responsibility to me," but perhaps that is the point - avoiding responsibility is seemingly rewarded in the new normal.
Couldn't happen to a nicer crony capitalist's favorite stock:
- U.S. FILES CIVIL MORTGAGE FRAUD SUIT AGAINST WELLS FARGO
- U.S. CLAIMS WELLS FARGO FALSELY CERTIFIED FHA LOANS
- GOVERNMENT SEEKS DAMAGES AND PENALTIES FOR RECKLESS LOANS
- FHA FORCED TO PAY `HUNDREDS OF MILLIONS' FOR DEFAULTED LOANS
Well, Charlie: "Suck it in" (even more than just the recent epic collapse of BYD of course). As for Wells, sorry Warren, but just like gold, you can't really fondle that stock certificate, held by DTCC in proxy, either.
Few have been as steadfast in their correct call that the US economy sugar high of the first quarter was nothing but a liquidity-driven, hot weather-facilitated uptick in the economy, which has now ended with a thud, as seen by the recent epic collapse in all high-frequency economic indicators, which have not translated into a market crash simply because the market is absolutely convinced that the worse things get, the more likely the Fed is to come in with another round of nominal value dilution. Perhaps: it is unclear if the Fed will risk a spike in inflation in Q2 especially since as one of the respondents in today's Chicago PMI warned very prudently that Chinese inflation is about to hit America in the next 60 days. That said, here are some of today's must read observations on where we stand currently, on why 1937-38 may be the next imminent calendar period deja vu, and most importantly, the fact that Rosie now too has realized that the next credit bubble is student debt as we have been warning since last summer.
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