David Glenn Cox -- World News Trust
Feb. 15, 2011 -- Something strange is going on around here, the type of thing that make you ask yourself, “what's up?”
The quitting virus is moving through Washington and Wall Street. When these folks begin to voluntarily give up wealth, power and privilege, you can bet your bones that there is some bad juju just over the horizon. I had this same feeling back in 2005 when Congress suddenly got it into their heads that they needed to reform America's bankruptcy laws as soon as possible.
Or in 2004 when George W. Bush had bragged of the “ownership society.” Yes, thanks to his programs more American's than ever before owned their own homes. He was proud of that and took credit for it, as something that he had done his own self. This was a duck the shoe moment, three years later the narrative had become greedy Americans who took out loans they knew they could never pay back. Sweet innocent, naïve, bankers and mortgage brokers who were taken in by these greedy American home-scamming con artists.
The other day over on Wall Street, our nations capital, Wells Fargo & Co. Chief Financial Officer Howard I. Atkins resigned for personal reasons, taking an unpaid leave of absence. Wells Fargo had reported record income for last year of $12.4 billion. It was Atkins who had helped to engineer the takeover of the crippled Wachovia bank in 2008. Banks too big to fail buying up banks not to big to fail. Much like Steinbeck wrote about in “The Grapes of Wrath” of small farmers pushed off the land by the large farmers until all that was left were huge corporations.
Atkins said he resigned for personal reasons, which is even further confounded by his up coming retirement. He's nearly 60. Isn't that the age when most working people retire? He'd planned to retire in August when his benefits kick in after ten years of service. After a long and successful career of a decade Atkins will retire with a severance package of $22 million dollars. This will help to tide him over until his Social Security benefits kick in. Insiders are puzzled as to why Atkins would leave so suddenly and under such mysterious reasons.
Bloomberg: “This is rather sudden and it raises the question of why?” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. Elson owns Wells Fargo shares. “You don’t just leave and take an unpaid leave of absence. CFOs don’t usually depart in this manner.”
It must be a virus. Federal Reserve Governor Kevin Warsh also turned in his notice to America's banker-in-chief Ben Bernanke. Warsh was the youngest Fed Governor ever appointed, is just 40 years old, and now leaves that position. It is a position like Pope or a head football coach, you either get promoted or fired, but you don't quit. Warsh is reported to disagree with Boss Bernanke on his quantitative easing program.
It is one of those strange ironies that if you took all the economists in the world and laid them end to end they wouldn't reach a conclusion. Quantitative easing was used by the Federal Reserve in 2008 when the Bush administration claimed that our economy was near collapse. It involves expanding the money supply. Normally the central bank would lower interest rates to stimulate the economy, but since the rates were all ready at zero that wouldn't work. In the years before the financial crisis the Federal Reserve had bought between $700 billion-$800 billion worth of treasury bonds.
The government can only print as many dollars as it has customers to buy its treasury notes. Bernanke buying treasury notes signals to the government to start the printing presses. This purchase was made before the crisis. Once the crisis began, the Federal Reserve bought $600 billion in mortgage backed securities at face value. It allowed the “too big to fail” banks to peddle their bad paper onto someone else's books.
Quantitative easing also gives the banks an opportunity to look good. With billions of extra dollars available at virtually zero percent interest, the banks can sit on their own reserves because there is always plenty of money free for the asking.
Remember, this was done to prevent an economic collapse and end-of-the-world scenario. By June of 2010, the Federal Reserve had purchased $2.1 trillion in mortgage-backed securities and treasury notes. Now guess who will be asked to pay for this largesse? That's right, you will. They bought up bad debt and refinanced the banks with free money and left a debt to the American public of $22,000 per million dollars borrowed. Your cost is roughly $462 billion! That's not the debt itself, of course, that's just the difference between what the bank was charged to borrow versus the true market cost.
Kind makes all those economizing efforts by the President come into focus, doesn't it? But big Ben stopped when he saw the economic recovery was on the horizon. Ben and Barack skipped merrily arm-in-arm through old Washington town singing joyously of the economic recovery. Ben even bemoans the sad fact that there is no recovery in the job market for working people. Strangely, with the economy in full recovery mode Bernanke says that we need $600 billion more in quantitative easing.
It does seems strange that if we needed this economic chemotherapy to keep our economy from dying in 2008 that the doctor would prescribe it again after he now claims that the patient is almost well. Kevin Warsh is quitting over it, and folks are quitting all over town.
“Nor will I retire from politics. After my family and faith, my desire to advance conservative principles is the animating force in my life (even ahead of NASCAR). To those who say, ‘You can’t stop now, there is so much to do and we’re on the cusp of taking control of the Senate,’ I simply note that there will always be unfinished business in advancing the cause of freedom.” --Republican Senator John Kyl
Democratic Senator Chris Dodd stepped down last month, Dodd was a member of the Senate Banking committee and Kyl was on the Senate finance committee. Democratic Senator Byron Dorgan also announced his retirement in January saying, "Although I still have a passion for public service and enjoy my work in the Senate, I have other interests and I have other things I would like to pursue outside of public life."
On July 1 last year the Dow Jones average was at 9,773. It, closed Monday at 12,268, a market increase of nearly 2,500 points based on what? Based on what, other than free money? In January of 2000 there were more than 1.5 million new home starts in the United States. Last January there were 588,000.
“For instance, the January Blue Chip forecast (an average of many forecasters) calls for new housing starts to jump to 680,000 in 2011 from 588,000 in 2010, a 15.7 percent leap (not too shabby). This same group expects a further 31 percent increase in 2012 (definitely not shabby).” --U.S. Commerce Department
Feb. 10 (Bloomberg) -- “Home prices fell in almost half of U.S. cities in the fourth quarter as the number of foreclosures rose to a record, hurting the confidence of buyers. The median price of a single-family home dropped from a year earlier in 71 of 152 metropolitan areas tracked by the National Association of Realtors, the group said in a report today. Prices in Cumberland, Maryland, tumbled 20 percent, the biggest decline, followed by a 14 percent drop in Kankakee, Illinois. The median price nationwide rose 0.2 percent to $170,600, as cities including New York and Boston posted gains.
"Mounting foreclosures are depressing home values and discouraging buyers who don’t want to make a deal if they believe prices have further to fall. The S&P/Case-Shiller index of home values in 20 cities fell 1.6 percent in November from a year earlier, the biggest 12-month decrease since December 2009, data released last month showed.”
Home prices have declined longer and gone lower as a percentage than in the last Great Depression.
“The flow of homes into foreclosure remains extremely high,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “The housing market is in very poor shape.”
Guess who is holding all of that bad paper? The number of homes in foreclosure rose in December to a record 2.2 million. In a Jan. 26 statement, the Federal Reserve described the U.S. real estate market as “depressed.” These mortgage-backed securities that Mr. Bernanke bought depend on stable market prices and foreclosure rates.
Over the next few years $1.4 trillion in commercial Real Estate loans will come due. Currently, half are under water. Occupancy rates for office space are running at 18 percent. Rents have declined 40 percent for office space and 33 percent for retail space. Unlike home mortgages, commercial Real Estate loans are for a set period of three to 10 years. After that initial period the entire loan balance becomes due. Under normal circumstances the developer would simply apply for a new loan, but what banker in their right mind wants to refinance a commercial Real Estate loan?
The stock market is defying gravity, the banks are denying reality, the Federal Government is just in denial. The Federal Reserve is bailing out the banks as fast as they can, trying to keep the game going just a little bit longer. Critical mass is coming, and those in the know are going -- getting out of Dodge while the getting's good.
You can see it and hear it in their smiles and happy talk, “Well, I gotta go now,” they say, as they sidle towards the door. Before the next elections, the ax will fall. Welcome to Phase 2!