The International Forecaster Lies and more lies November 3 2007

Summary: The credit crisis only beginning, SIVs or $400 billion in toxic debt, the rising tide of the sea of liquidity, Will it be Ron Paul or Rudy Giuliani?

Here we are four months into a credit crisis and it is only 5% resolved. We believe this crisis has a long way to go as the interbank system attempts to restore confidence and trust. The traditional buyers of short-term corporate debt, better known as commercial paper, are still on strike and there is no end in sight. Over the past month the attention in the media has been focused on structured investment vehicles, SIVs, which have no visible market and hence no value. By our calculations the major New York banks are holding more than $400 billion of this toxic garbage. As you know our Secretary of the Treasury Mr. Paulson, formally of Goldman Sachs, who we cannot decide whether he is still in Wall Street or doing what he should be for the American people, has been used as the front man to rescue his colleagues, the bankers and investment bankers. Though we are told no government money will be used, this past week Mr. Paulson floated a proposal to reward lenders for not raising interest rates on resetting loans and to reward homeowners who should never had loans in the first place. The banks and the deadbeats get bailed out and the American taxpayer again is allowed to foot the bill. Demand for asset-backed securities, such as SIVs, CDOs and ABSs has evaporated. Those who have been able to find buyers are receiving $0.18 for the worst paper and $0.47 for the best assets. Thus, that $400 billion being held by big banks is worth perhaps $100 billion. Thus, by creating this Master-Liquidity Enhancement Conduit, or M-LEC, which will effectively be a buyer of last resort, using the proceeds of its own debt issues to purchase assets from troubled SIVs. The idea is to flog the $0.47 paper and avoid an avalanche of forced selling. After two weeks this new super toxic fund has gone nowhere. We argue that voluntary co-guarantee schemes like this are doomed to failure because only the weakest institutions want to participate. There now exists an entire market that is deemed too big to fail. If market prices prevail the results will be disastrous for banks, investment banks, hedge funds, brokerage firms, pension funds and thousands of other companies invested in toxic garbage. The Treasury’s participation tells you this situation is far worse than thought. The banks created SIVs to move assets off its books and reduce the banks’ capital requirements. They were leveraging themselves to end run banking regulations. The risks these banks and others have assumed are a major threat to the solvency of these entities. In addition, many of the SIVs are leveraged 10-15 times or more. You might liken the process to a pyramid where you take short-term paper and use it for leverage to purchase long-term paper that pays a better yield. This if you get a spread of 4% and leverage it up 10-15 times you get a high risky return. The stage we are now at is that the commercial paper market is frozen, and the banks cannot attract funds that way to continue their game. That is why the discount rate was lowered ½% and the banks borrowed some $350 billion short term. The problem is the banks nor others cannot borrow 270-day money in the commercial paper market any more and the Fed has to continue to roll the loans to keep these big banks solvent. Heaven forbid the banks may have to take the toxic garbage back on their own books, even if they are not technically required to do so, they probably will have to. These buyers are colleagues and friends. If they do not take them back their reputations go up in smoke. If they take them back they could be on the edge of bankruptcy. The idea for the bank is to resurrect the good paper, take it on the books and sell off the bad paper. This is what they are trying to do with the super fund. Buyers of commercial paper do not want to assume risks for an extra 1% over government paper. It just isn’t worth the risk, especially with all the negative publicity. The SIVs are totally opaque. That means the banks that constructed them will have to dismantle them. Interestingly once dismantled the banking truimperate said they will offer $0.94 plus a 4% note. Even for the good participants that is double their current market value. There is going to be a massive liquidation of assets in the coming year. The big banks with their capitalization will make it but others won’t. The super fund idea is simply to buy time, because inevitably the paper has to be marked to market. The banks want to spread out the losses to keep shareholders happy and to survive. Gains in spending on commercial and public construction projects offset another decline in spending on housing projects in September, as overall construction spending was up by 0.3%. Private nonresidential construction spending climbed by 1.5% while public construction spending rose by 1.9%. Spending on housing projects fell by 1.4%, the 29th straight decline. Housing spending is off 16.4% yoy. We told you that SIVs hold $400 billion in 36 of these vehicles. We are told these positions have been leveraged giving banks about $2 trillion in real exposure. This is an insolvable problem. Many banks have to be in serious trouble. Then there are the money market funds, investment banks and brokerage houses, hedge and pension funds. It doesn’t look good. On Wednesday (10-31-07) the Fed cut the federal fund rates to 4.50%, down ¼%. The vote was 9 to 1. Our intelligence sources tell us a false flag operation is being planned in either Long Beach or Houston. It will be a detonated device. We will see what happens. Lies, lies and more lies: The FOMC, Federal Open Market Committee, in lowering the fed funds rate and the discount rate said they were concerned with the intensification of the housing correction and that in balance it won’t affect inflation. They know inflation is over 11%. They have to bail out Wall Street and the banks and hope they can save the economy by throwing money at it - just more duplicity from this gang of criminals. The MBA mortgage applications index fell 0.7% for the week ended October 26th. The 30-year fixed rate mortgage fell to 6.15% from 6.21%. The refi index was +9.2% versus 4% in the prior week. The Midwest slowed surprisingly in October as the NAPM-Chicago business barometer fell to 49.7 from 54.2 in September. The “experts” forecast 53. That 49.7 is a recession number, and if repeated for 3-months it confirms inflation. Jimmy Rogers said he has increased his year-old short positions in the past six weeks in US investment banks using exchange-traded funds and bets against individual companies he declined to name. William Hill has cut the odds on Ron Paul to becoming president from 66/1 to 12/1, and have him going head to head with Rudy Giuliani for the Republican nomination for President. Another company has Paul at 6/1.

Train Wreck of the Week

The mortgage crisis grossly underestimated, the bankrupting of America, the softening of the economy, the corruption and scams for rebuilding Iraq, Yahoo! turns over identities to Chinese government, Blackwater mercenaries now have an air force

Link to this article | Printer Friendly Version The underside of the home mortgage market is not very well known, so the size of threat is being grossly underestimated. It is a sprawling, varied enterprise that no one regulator oversees, making it impossible to know how many mortgages or lenders not insured by the government are in trouble. No public records are available to show who holds the trillions of dollars worth of mortgages that have been turned into CDOs and flogged worldwide. Last fall there were 90,000 non-bank lenders. There could be only half that now. These are state licensed lenders who have made 70% of annual mortgages. You hear about Countrywide and Indymac, but not of the others. We know federally regulated lenders past due loans were 10.6% last quarter at $6.4 billion. What lurks below the surface we do not know, but we do know it is not good. The Census Bureau reports that median household come rose 0.7% last year, its second annual increase in a row to $48,201. There may have been a five year recovery, but not for the average Americans. The median household income last year was still $1,000 less than in 2000. In 2006, 36.5 million Americans were living in poverty, five million more than six years ago, when the poverty level fell to 11.3%. If you figure in an average inflation rate of 8% for five years you find the average American’s purchasing power has been deeply depleted. Our Comptroller General tells us the truth but our elected officials do not want to hear that they are bankrupting America. Our media makes mention of what David Walker has to say and then you hear nothing else about the matter. In fact, most of the media doesn’t report what he has to say. The media is rigged, politicians do not care, business interests want the truth to disappear and the public is generally in denial. America has become an empire and with that mantel has come declining moral values, corruption and a political system that refuses to function in behalf of the American people. Our military has to fight wars based on lies for profit, and is over extended in foreign lands. We wallow in fiscal and monetary irresponsibility by our government. We have more problems than Rome did before the barbarians broke down the gates. We certainly haven’t learned from history because we know so little of history. In addition we think of only tomorrow, not much further. If America doesn’t wake up and use the brains God has given them we’ll not only be broke but we will be a second-class nation. Mortgage application volume fell 4% for the week ended August 24th. Refi volume fell 4.2%. Mortgages have gone increasingly delinquent and into default in recent months. ARMs accounted for 15% of all mortgage applications during the week, down from 18.6% during the prior week, and 26.8% yoy. The 30-year fixed as reported by the MBA fell to 6.41% from 6.49%. It should be noted that 142 major lenders have gone bankrupt this year with only several being bought out. Softening conditions and volatility in financial markets and a softening economy assisted by a collapsing housing and credit market has pushed the consumer confidence index down to 105.0 in August from a revised 111.9 in July. This is the lowest level since 9/05 after Katrina. One after another the men and women who have stepped forward to report corruption in the massive effort to rebuild Iraq have been vilified, fired and demoted. For daring to report illegal arms sales, a Navy veteran says he was imprisoned by the American military in a security compound outside Baghdad and subjected to harsh interrogation methods. They did the total number on him. He told the FBI that the company he worked for, Shield Security Co. was a Wal-Mart for guns and it was all illegal and everyone knew it. The corruption in Iraq is staggering. Hundreds of projects will never be finished, including repairs to the country’s oil pipelines and electricity system. $30 billion was allocated for Iraq by Congress and $8.8 billion has been stolen. People who expose these crooks are destroyed. They cannot get jobs, they lose their families; they lose everything. You are dealing with entrenched fascists who give no quarter and specialize in revenge that extends to murder. It is heartbreaking and goes beyond corruption. It is a culture of evil. The government doesn’t care because so many people at the top are in on the corruption. There is no question that our government has forfeited its right to exist. One of our great corporate citizens Yahoo is fighting efforts to hold it accountable for the imprisonment and alleged torture of two Chinese citizens after Yahoo turned their identities over to the Chinese Communist government. The husband and wife are serving ten years in jail for advocating Democratic reforms. The Bush-Cheney neocons have taken private enterprise way beyond what is reasonable, desirable and safe. They have turned over national security functions to those not adequately trained, not accountable to the public or law or on the political radar. They have created their own private legions of mercenaries, intelligence analysts, security guards, etc. These mercenaries are answerable only to those who pay them. As a former part of our nation’s counterintelligence apparatus we are enraged that this is going on. This is the Praetorian Guard and the Legions of ancient Roman Caesars and Hitler’s Brownshirts. Someone has to tell us how it is that mercenary company Blackwater can buy combat aircraft? It is incredible that our government allows mercenaries to have their own private Air Force. The D.I.A. is paying $1 billion for private companies to conduct core intelligence that we were paid $300 a month to do. Sorry if I missed any copyright information, but I could not create a link to this article - V