We’ve seen this movie so many times already, we can practically recite the ending: The Too Big To Fail banks are once again in the middle of another crisis—another mortgage crisis—that’s breaking like a bad rash. And this new scandal has so many moving parts!
Robo-signings!—Foreclosure mills!—Forged documents!—Attorneys General huffing and puffing!—Too Big To Fail banks tottering!—Foreclosures suspended!—Bond holders freaking out!—Credit default swaps shooting the moon!—Aaaaaahhhh!!!!! Again. As I explained in a long piece discussing the current Mortgage Mess, all of these different issues are all symptoms of the same disease: The Mortgage Backed Securities—America’s Herpes: The gift that just keeps on oozing. - Gonzalo Lira
- Banks Clueless on Foreclosure Mess Severity: Jonathan Weil (Bloomberg)
- New York Fed Faces `Inherent Conflict' in Mortgage Buybacks (Bloomberg) - as we speculated first, the FRBNY gets dragged into this as not pursuing action would be dereliction of fiduciary duties to taxpayers by Maiden Lane
- Geithner suggests major currencies "in alignment": report (Reuters)
- Geithner's Goal: Rebalanced World Economy (WSJ)
- Chinese growth slows to 9.6% (FT)
- On the "cash on the sidelines" BS and on Google's 2.4% effective tax rate (Bloomberg)
- Osborne vows not to backtrack on cuts (FT) as UK unveils dramatic austerity measures (FT)
- Greek, Portugal Bonds Lead Peripherals Lower After Spanish Sale (Bloomberg)
- We See Totally Surreal Markets (Bob Chapman, h/t John)
For some ungodly reason, various so-called sophisticated investors still peg their hopes that gridlock in Congress/Senate will be good for stocks. Of course, never before has gridlock been the primary force preventing a new multi-trillion fiscal stimulus which is ultimately what is needed to provide the economy with a fresh sugar high (of course it won't do anything for the economy in the long run, but we will let you read Krugman for that) and as such the current situation is unlike anything else in history (and is why America's last resort for a short-term bounce continues to be the Fed and its monetary policy). Yet for all the technical pundits, here is a bit of trivia via Art Cashin's letter today, which confirms that in a split Congress regime stocks perform worse than when either party was in control. "The worst stock performance came under a split Congress (up +6.2% per year) regardless of which party was in command of the White House."
Chicago Fed President Evans said that we are in a Keynesian "liquidity trap" which means monetary policy isn't working. As a result the Fed hasn't been able to stimulate the economy because you stupid consumers refuse to spend and are saving money. He thinks they can carry out the Fed's mandate of "full employment and stable prices" by creating inflation. That is, we need to debase the dollar with more fake money and things will be grand.
As if we needed any further confirmation that the Fed is now willing to risk an all out bout of hyperinflation, here it comes courtesy of Chicago Fed's Charles Evans, whose comments that inflation is "acceptable", and welcome, and is the only way to battle the "liquidity trap" the US finds itself in, mirror those of NY Fed's Dudley who earlier confirmed Zero Hedge expectations that $100 billion is too low a QE2 number. Which means that very soon the Fed will buy up every single Treasury in existence. It will also kill the dollar absent Europe continuing on its path from earlier today, and saying the stress test was, in fact, a lie.
- Federal Reserve urged to act on economy (FT)
- Weil: Foreclosure Fiasco’s Trail Leads to Washington (Bloomberg)
- Few Ready For Currency War (JAD)
- ECB's Trichet Rejects Weber's Call to End Bond Purchase Program (Bloomberg)
- Banks Face Mortgage Scrutiny as $49 Billion in Value Vanishes (Bloomberg)
- Homeowners in Limbo - Mortgage Mess Means Delays for Those Facing Foreclosure (WSJ)
- BOE Will Expand Stimulus by 100 Billion Pounds, CEBR Predicts (Bloomberg)
- The Recklessness of Quantitative Easing (Hussman)
- Why a Foreclosure Moratorium Is a Bad Idea (WSJ)
- Fast Yuan Rise Will Be Short-Lived (Reuters)
- Investors Bet Fed Action Will Bring Inflation (FT)
- Hedge Funds Succumbing to Mutual Funds’ Mediocrity (Bloomberg)
- Germany Bows to Call for Political Sway Over Euro Sanctions (Bloomberg)
- Income Inequality: Too Big to Ignore (NYT)
- U.K. Readies Cuts in Defense Outlays (WSJ)
Krugman weighs in on the side of the rule of law in the mortgage crisis
The chart pretty much speaks for itself. Voodoo economics at its best. Speaking of, where's Krugman?
- Foreclosure Freeze May Slow U.S. Homebuyers on Legal Worry (Bloomberg, WSJ)
- Currency Rift With China Exposes Shifting Clout (NYT)
- Obama has the book thrown at him: Moment a missile narrowly misses U.S. President's head (and what's with the naked man?) (Daily Mail)
- No Margin of Safety, No Room for Error (Hussman)
- Greece to be bankrupt longer than expected as IMF to extend loans (Bloomberg) even despite Germany's ongoing protests (Bloomberg)
- Here comes the $100 porterhouse (Bloomberg)
- Currency wars are necessary if all else fails (Telegraph)
- Even $21 Billion Won't Get You a Greek Island Amid Red Tape (Bloomberg)
- Goldman director's wild parties riles co-op board (NYPost)
A couple trillion here, a couple trillion there adds up to real money ...
With today being yet another POMO day, it is only fitting to do the definitive summary of how the Fed's Open Markets Group distorts various asset classes with its liquidity ramps. So all those who doubt thet Fed has an impact on stocks, please look at the chart below. Incidentally, today is the day the Fed will likely overtake Japan as the second largest holder of US Treasurys. Recall that Japanese holdings of US paper were $821 billion as of July. Well, as of September 30, the Fed held $811.7 billion in Treasurys, and in the days following, there were two POMOs: one for $5.2 billion and one for $2.2 billion, bringing its total to $819.1 billion. Which means that if today's POMO operation, which launches imminently, is larger than $2 billion, the Fed will become the second largest holder of US paper in the world. And it won't stop there: China is merely $25 billion away. At a run rate of $10 billion in POMO purchases per week, the Fed will be the largest holder of US Treasuries in the world before the midterm elections.
Unfortunately, this is a perfect summary of our daily financial lives.
Some rather scary predictions out of Paul Farrell today: "It’s inevitable: Wall Street banks control the Federal Reserve system,
it’s their personal piggy bank. They’ve already done so much damage, yet
have more control than ever.Warning: That’s a set-up. They will eventually destroy capitalism,
democracy, and the dollar’s global reserve-currency status. They will
self-destruct before 2035 … maybe as early as 2012 … most likely by
2020. Last week we cheered the Tea Party for starting the countdown to the
Second American Revolution. Our timeline is crucial to understanding the
historic implications of Taleb’s prediction that the Fed is dying, that
it’s only a matter of time before a revolution triggers class warfare
forcing America to dump capitalism, eliminate our corrupt system of
lobbying, come up with a new workable form of government, and create a
new economy without a banking system ruled by Wall Street." And just like in the Hangover, where the guy is funny because he's fat, Farrell is scary cause he is spot on correct.
Another day another falling dollar.
Good thing too or we'd be heading for the toilet this morning.
A round up of views on the currency wars ...