Archive for December 2008

Ron Paul: Where’s The Bailout Money Going?

December 23, 2008

“We shouldn’t even be in the business of propping up and bailout out everybody.” – Ron Paul

Exactly so, sir.

The Road to Hyperinflation

December 23, 2008

welcome_to_zimbabweThe interim will feel like deflation, but that will only last until the day it doesn’t. We aren’t likely to see a re-emergence of bubble inflation any time soon but when the mass printing of dollars by the Federal Reserve causes people to doubt the usefulness of paper currency to store their purchasing power, look out. The poor may be hungry, but the rich will find the whole world scrambling to allocate their freshly created paper bills to assets perceived as safe. Right now, that’s treasuries, but eventually that bubble will burst and all that cash will look for another home. With manufacturers bankrupt and commodity producers unable to finance exploration due to falling prices, the supply of goods will be extremely tight at precisely the moment the supply of dollars will be at its height.

Picture a giant tower of cash leaning over a few pieces of cheese being fought over by mice. We could go straight from a deflation-like environment to hyper-inflation with very little notice. And if that occurs, don’t pretend for a moment raising interest rates or selling bonds at higher yields will stop it. Hyperinflation is as much psychological as monetary.

Nobody knows how long it will take for people to lose confidence in paper currency, or what event will do the trick, but the unholy alliance of Keynes’ ghost, money-printer Bernanke and big-spender Obama may make it inevitable.

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As I’ve said before, I am sure that Ben Bernanke thinks he can control the situation and head off hyperinflation before it takes root. I just don’t have any faith in Helicopter Ben “I and others were mistaken early on in saying that the subprime crisis would be contained,”  Bernanke.

Bailout Money Goes Missing

December 23, 2008

distressWithout Representation, Without Accountability

After receiving billions in aid from U.S. taxpayers, the nation’s largest banks say they can’t track exactly how they’re spending the money or they simply refuse to discuss it.

“We’ve lent some of it. We’ve not lent some of it. We’ve not given any accounting of, ‘Here’s how we’re doing it,'” said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. “We have not disclosed that to the public. We’re declining to.”

The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what’s the plan for the rest?

None of the banks provided specific answers.

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And you know what? They don’t have to provide answers. When the TARP bailout plan was passed it included “transparency and accountability” for the “troubled assets”  Treasury would purchase. But Treasury didn’t purchase any “troubled assests”.

Treasury Secretary Henry Paulson changed the plan suddenly and instead started handing out billions to banks that were not all that troubled, asking them to start lending it out to consumers and businesses. So much for accountability. Angry yet?


The Next Big Thing: Commercial Loan Defaults

December 23, 2008

A Bloomberg article yesterday claimed commercial loan defaults may triple as rental incomes decline. The source article seems to have gone missing, but here is an excerpt:

Dec. 22 (Bloomberg) — U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession, according to research by New York-based real estate analysts at Reis Inc.

Lenders that used optimistic rent estimates to grant mortgages beginning in 2005 stand to lose as much as $23.1 billion, or 7.02 percent, of total unpaid balances if landlords lose 5 percent of net operating income, according to Reis. Analysts examined data on 22,890 properties that together may account for unpaid loans of about $329 billion in 2009, said Victor Calanog, director of research.

Banks are at risk as office vacancies are forecast to rise to 15.6 percent next year from an estimated 14.6 percent at the end of 2008. Lenders who sold commercial mortgage-backed securities to pension funds, investment banks and foreign governments have been hit by more than $1 trillion in losses and asset writedowns connected to bad residential loans.

Bloomberg also reported yesterday that the looming crisis in commercial loans had a big impact on MetLife and Prudential stocks:

Dec. 22 (Bloomberg) —  Metlife Inc. and Prudential Financial Inc., the largest U.S. life insurers, declined in New York trading on concern that losses on commercial mortgages will surge as the recession deepens.  Continues…

So, not to be last to arrive at the great D.C. bailout party, The Wall Street Journal reports that some of the nation’s biggest property developers are already getting in line for their handout.

With a record amount of commercial real-estate debt coming due, some of the country’s biggest property developers have become the latest to go hat-in-hand to the government for assistance.

They’re warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years — with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.

Continue reading…

Will the developers and real estate industry get a bailout? What a silly question.

Top All-Time Donors 1989-2008 Summary

  1. AT&T Inc $40,624,392 
  2. American Fedn of State, County & Municipal Employees $40,430,870 
  3. National Assn of Realtors $34,487,078 
  4. Goldman Sachs $30,350,777 
  5. American Assn for Justice $29,920,189    

Ron Paul: Government and Fraud

December 23, 2008

Government and Fraud

Billions of dollars were recently lost in the collapse of Bernie Madoff’s self-described Ponzi scheme, in which too-good-to-be-true returns on investments were not really returns at all, but the funds of defrauded new investors.  The pyramid scheme collapsed dramatically when too many clients called in their accounts, and not enough new victims could be found to support these withdrawals.  Bernie Madoff was running a blatant fraud operation.  Fraud is already illegal, and he will be facing criminal consequences, which is as it should be, and should act as an appropriate deterrent to potential future criminals.  But it seems every time someone breaks the law, politicians and pundits decide we need more laws, even though lack of laws was not the problem. 

The government itself runs a fraud much bigger than Madoff’s.  Our Social Security system is the very definition of a Ponzi, or pyramid scheme.  If the government truly had an interest in protecting people’s savings, they would allow people to opt out of Social Security altogether.  We would cut wasteful spending, such as our overseas empire, to honor current obligations to seniors, and eventually phase the program out.  Instead, as with Enron and Sarbanes Oxley, I expect new, unrelated legislation to be proposed that further damages freedom in the name of protecting us, amidst loud proclamations that they have made the world safe.

Merely passing a law does not fix any problems, just as throwing paper at a recession does not stop it.  How can a government so complicit in mandatory public fraud effectively pre-empt private fraud?   I see no reason to believe that any new law, or regulatory agency will solve anything.  But I do see liberty slipping away every time Congress decides to “do something”.  We already have an oversight agency, the SEC, which did a poor job overseeing and preventing this, but does a great job hamstringing honest, productive businesses and driving them overseas. 

Total trust in government solutions only creates moral hazard, and amplifies risky behavior.  Trust in government got us here.  We trusted government to eliminate risk, but it just made risk more creative and dangerous.  We trusted the Federal Reserve, a supra-governmental cabal of private banks, to know better than the free market what interest rates should be, and how to stabilize the business cycle, but like a spinning top that loses its balance, it has instead spun the business cycle and the economy wildly out of control. 

No governmental activity can negate market forces or nullify the cardinal rule of caveat emptor.  Government can however, use our fears against us and promise unrealistic outcomes as a means to consolidate power and erode our liberties.  Liberty comes with risk.  This is a fact of life.  But life without liberty is not much of a life at all.

The only way the American people will get through these difficult times is through our own resilience and ingenuity.  At best, the government is irrelevant in finding prosperity again.  At worst, government can present a massive obstacle for the economy to overcome.   If we do not wise up and rein government back in to its Constitutional limitations, bloated government could be a cumbersome unnecessary weight the economy will continually have to support to stay afloat. 

Source: Representative Ron Paul, Texas Straight Talk

40 Inspirational Speeches in 2 Minutes

December 23, 2008

More Peter Schiff Videos

December 23, 2008

12/16/2008 Part 1/4 Peter Schiff On Kudlow & Co: Target Rate To Record Low

Part 2
Part 3
Part 4

12/16/2008 Glenn Beck Radio Show: “The Most Socialist Time Of The Year”