A Word From The Experts

Post-analysis is always very revealing. The lesson learned is that we all need to think for ourselves.

Political “Experts”
“The Federal government will not bail out lenders — because that would only make a recurrence of the problem more likely. And it is not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.” (George W. Bush, Sept 2007)

“These institutions [Fannie and Freddie] are fundamentally sound and strong. There is no reason for the kind of [stock market] reaction we’re getting.” (Christopher Dodd, Chair, Senate Banking Committee, Financial Post, July 12, 2008)

“Misery sells newspapers. Thank God the economy is not as bad as you read in the newspaper every day.” (Phil Gramm 7/10/08)

“I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing.” (Barney Frank regarding Fannie & Freddie, 2005)

“I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.” (Barney Frank regarding Fannie & Freddie, 2007)

Financial “Experts”
"Improvements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities." (Alan Greenspan, October 2004)

“There is a chance that housing prices could fall, but its effect on the economy will be limited.” (Alan Greenspan, 2005)

"The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions .... Derivatives have permitted the unbundling of financial risks." (Alan Greenspan, May 2005)

“I suspect that we are coming to the end of the housing downturn, as applications for new mortgages, the most important series, have flattened out…I think that the worst of this may well be over.” (Alan Greenspan, October 1, 2006)

“The market impact of the U.S. subprime mortgage fallout is largely contained and that the global economy is as strong as it has been in decades.” (Henry Paulson, January 2007)

“All the signs I look at show the housing market is at or near the bottom. The U.S. economy is very healthy and robust.” (Henry Paulson, 4/20/07)

“I’m not interested in bailing out investors, lenders and speculators.” (Henry Paulson, 3/2/08)

“At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” (Ben Bernanke during Congressional Testimony 3/2007)

"We will follow developments in the subprime market closely. However, fundamental factors—including solid growth in incomes and relatively low mortgage rates—should ultimately support the demand for housing, and at this point, the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system." (Ben Bernanke, 6/5/07)

“It is not the responsibility of the Federal Reserve—nor would it be appropriate—to protect lenders and investors from the consequences of their financial decisions.” (Ben Bernanke, 10/15/07)

“Changes in financial markets, including those that are the subject of your conference, have improved the efficiency of financial intermediation and improved our confidence in the ability of markets to absorb stress. In financial systems around the world, the capital positions of banks have improved and capital markets are becoming deeper and playing a larger role in financial intermediation. Financial innovation has improved the capacity to measure and manage risk. Risk is spread more broadly across countries and institutions.” (Timothy Geithner, May 15, 2007)

Investment “Experts”
“The worst is over.” (Warren Buffett, on Bloomberg TV, May 3, 2008)

“Sometimes, we drink the kool-aid.”(Moody’s internal email)

“It could be structured by cows and we would rate it.” (S&P internal email)

“Let’s hope we are all wealthy and retired by the time this house of cards falters.” (S&P internal memo)

“Chairman Bernanke has succeeded; the economy has been positioned on a sustainable track for manageable expansion: A Goldilocks scenario that is neither too hot nor too cold.”(MikeThomson, Financial Post, April 25, 2007)

“And I believe there will be NO FALLOUT whatsoever beyond the funds, despite the innate desire by so many people to rumor and panic the marketplace.” (Jim Cramer regarding Bear Stearns, 6/22/07)

“I am indeed sticking my neck out right here, right now… declaring emphatically that I believe the market will not revisit the panicked lows it hit on July 15, and I think anyone out there who’s waiting for that low to be breached is in for a big disappointment and [they’re] missing a great deal of upside. My bottom call isn’t gutsy. I think it’s just a smart call that all the evidence points toward. Bye, bye bear market. Say hello to the bull and don’t let the door hit you on the way out.” (Jim Cramer, August 4, 2008 – market is down 28% since then)

“The stock market is cheap on a price-earnings basis, profits are fabulous, both here and abroad, stocks are a lovely place to be. I have no idea what the S&P will be ten days from now, but I am confident it will be a lot higher ten years from now, and for most Americans, that's what we need to think about. The subprime and private equity and hedge fund dogs may bark, but the stock market caravan moves on.” (Ben Stein, August 13, 2007 – market down 40% since then)

“The losses in the stock market since the highs of October 2007 are about 14 percent. This predicts — very roughly — a fall in corporate profits of roughly 14 percent. Yet there has never been a decline of quite that size for even one year in the postwar United States, and never more than two years of declining profits before they regained their previous peak.” (Ben Stein, January 27, 2008)

Corporate “Experts”
“We finished the year positioned better than ever to capitalize on the array of opportunities still emerging around the world as a result of what we believe are fundamental and long-term changes in how the global economy and capital markets are developing.” (Stanley O’Neal, former CEO of Merrill Lynch, January 2007)

"We deliberately raised more capital than we lost last year ... we believe that will allow us to not have to go back to the equity market in the foreseeable future." (John Thain, another former CEO of Merrill Lynch, April 8, 2008)

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” (Charles Prince, former CEO of Citigroup, July 2007)

But as I do reflect on it, and I do a lot, that nobody saw this coming. S&P and Moody's didn't see it coming, but they simply just downgrade bonds, they don't take hits. Bear Stearns certainly didn't see it coming. Merrill Lynch didn't see it coming. Nobody saw this coming. (Angelo Mozilo, former CEO of Countrywide Financial, July 2007 after he sold $138 million of stock)

I’m confident our company is in the right businesses for the long term and that our strategy of being in high growth businesses and markets, our laser focus on customer service, our expense discipline, and our commitment to strong credit risk management, will create value for our shareholders in the future. (KenThompson, former CEO of Wachovia, October 2007)

Source: James Quinn
Read the entire article at:
http://www.financialsense.com/editorials/quinn/2008/1209.html

30 reasons for Great Depression #2 by 2011

My favorite cyclist shared this one with me. Remember, it's a collaborative effort!

By Paul B. Farrell, MarketWatch
Last update: 7:19 p.m. EST Nov. 17, 2008
30 'leading edge' indicators of the coming Great Depression 2

Every day there is more breaking news, proof Wall Street's greed is already back to "business as usual" and in denial, grabbing more and more from the new "Bailouts-R-Us" bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas -- anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble.

Scan these 30 "leading indicators." Each problem has one or more possible solutions, but lacks unified political support. Time's running out. We're already at the edge. Add up the trillions in debt: Any collective solution will only compound our problems, because the cumulative debt will overwhelm us, make matters worse:

1. America's credit rating may soon be downgraded below AAA
   
2. Fed refusal to disclose $2 trillion loans, now the new "shadow banking system"
3. Congress has no oversight of $700 billion, and Paulson's Wall Street Trojan Horse
4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets
5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this year
6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers
7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money
8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states
9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt
10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps
11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up
12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns
13. Fed also plans to provide billions to $3.6 trillion money-market fund industry
14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars
15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion
16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs
17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown
18. Big three automakers near bankruptcy; unions, workers, retirees will suffer
19. Corporate bond market, both junk and top-rated, slumps more than 25%
20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall
21. Unemployment heading toward 8% plus; more 1930's photos of soup lines
22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists
23. China's sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai
24. Despite global recession, U.S. trade deficit continues, now at $650 billion
25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities
26. Now 46 million uninsured as medical, drug costs explode
27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt
28. Outgoing leaders handicapping new administration with huge liabilities
29. The "antitaxes" message is a new bubble, a new version of the American dream offering a free lunch, no sacrifices, exposing us to more false promises

Will the next meltdown, the third of the 21st Century, trigger a second Great Depression? Or will the 2007-08 crisis simply morph into a painful extension of today's mess to 2011 and beyond, with no new bull market, no economic recovery as our new president hopes?

Perhaps some of the first 29 problems may be solved separately, but collectively, after building on a failed ideology, they spell disaster. So listen closely to "leading indicator" No. 30:
At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan's Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America's problems will take years and will burn trillions.
He sees "nothing but large increases in the deficit ... I think it would be worse than the depression. ... Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." It'll get worse because "the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government."

For the entire article:

http://www.marketwatch.com/news/story/Well-Great-Depression-2-2011/story.aspx?guid=%7BB28B49B5%2DEFD1%2D4941%2DB57E%2DA2BA1545BA09%7D

The Grass Is Always Greener On The Other Teet

My wife and daughter have been fostering cats and kittens from the animal shelter lately and I've had the opportunity to observe these precious little creatures. One of the funniest things to spectate is when the mama lays down and the kittens bombard her in search of a teet full of milk. They look like kamikazi pilots diving over one another in search of their meal. While there are enough teets for each and every kitten, it's hilarious to watch one abort his/her teet and leep over their siblings to fight for one that is already taken. Then the one that gets pushed off has to aggressively seek a new teet. In the end, they all get fed, but during the process, each one at some point decides he has to search for a teet that might be better.

While on the subject of milking the system, I wasn't shocked yesterday when Hank Paulson announced a major shift in his bailout plan. He stated "the facts have changed". Really? What facts and how can the financial system change that fast in four weeks? The reality is, they are perplexed on how to catch the "falling arrow". Now the auto industry is searching for it's teet. How many teets do the Feds have? At some point, mama's going to say, I'm all out of milk! Then what?

I thought that it would be informative to pass along the list of banks that have announced participation in the Treasury program:

FIRST ROUND
Citgroup $25 billion
Wells Fargo $25 billion
JPMorgan Chase $25 billion
Bank of America $15 billion
Merrill Lynch $10 billion
Goldman Sachs $10 billion
Morgan Stanley $10 billion
Bank of New York $3.0 billion
State Street $2.0 billion
TOTAL $125 billion

SECOND ROUND
PNC $7.7 billion
Capital One $3.6 billion
SunTrust $3.5 billion
Regions Financial $3.5 billion
Fifth Third $3.4 billion
Key $2.5 billion
Comerica $2.25 billion
Northern Trust $1.5 billion
Huntington $1.4 billion
First Horizon $866 million
City National $395 million
Valley National $330 million
Washington Federal $230 million
First Niagara $186 million
TOTAL $31.36 billion

An Educational Conversation With Warren and Charlie

This interview between Charlie Rose and Warren Buffet is very informative and educational. It was conducted on 10/1/08.
http://www.charlierose.com/shows/2008/10/01/1/an-exclusive-conversation-with-warren-buffett

Sleep Easy, Those in Charge Know What They're Doing

"No one knows what to do. We are in new territory here. This is a different game. We're not here playing soccer, basketball or football, this is a new game and we're going to have to figure out how to do it." Senate Majority Leader Harry Reid
What?????

“This action does entail risk.” George W. Bush
I feel better now

Jan-2008: Democratic Rep. Marcy Kaptur of Ohio launched into a lengthy question to Ben Bernanke during the Fed chairman’s House testimony about community banks, securitization of home loans and investment banks’ role in the crisis, ending with this point: “Seeing as how you were the former CEO Of Goldman Sachs…”She was quickly stopped by Mr. Bernanke and the laughter in the room. “I’ve got the wrong firm?” she asked, before being corrected that she was thinking of Treasury Secretary Henry Paulson. “Oh, OK. Where were you, sir?” Said Mr. Bernanke: “I was the CEO of the Princeton Economics Department.”
She’s one that will be casting another vote on Thursday.

“Economics is something I don’t really understand.” John McCain
Yikes!!!!

“This all started with the subprime mortgage crisis.” Barack Obama
Wrong!

It started in 1982 with Reagan/Voelker and the Fed’s credit machine. This is a 26 year issue, not a 2 year issue. The system and problem is much greater than the mortgage market.