Wednesday, February 24, 2010

Video: Wall Street is Running a Casino – Les Leopold

(RussiaToday) – Some people believe economic growth no longer means job creation.

U.S. Economy: Confidence Falls to Lowest Since April (Update1)

Feb. 23 (Bloomberg) -- Confidence among U.S. consumers fell in February to the lowest level in 10 months, a sign that concern about job prospects may hold back the spending needed to sustain the recovery.

The Conference Board’s confidence index slumped to 46, below the lowest forecast in a Bloomberg News survey of economists, from 56.5 in January, a report from the New York- based private research group showed today. A separate report showed home prices rose for a seventh month.

Stocks fell and Treasuries gained after the confidence report also showed attitudes about current conditions fell to the lowest level in 27 years and the outlook for wages dimmed. The survey reinforces expectations Federal Reserve Chairman Ben S. Bernanke will repeat the central bank’s pledge to keep interest rates low for “an extended period” in testimony to Congress tomorrow.

“Consumer spending is going to disappoint throughout most of the year,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. The economy “may not be out of the woods.”

Economists forecast the confidence index would decrease to 55 from a previously reported 55.9 January reading, according to the median of 68 projections in the Bloomberg survey. Estimates ranged from 50.9 to 59.

The Standard & Poor’s 500 Index declined 1.2 percent to 1,094.6 at 4:05 p.m. in New York. The 10-year Treasury note rose, pushing down the yield 11 basis points to 3.69 percent.

Stock Prices

Chris Low, chief economist at FTN Financial in New York, said in an e-mail to clients that the larger-than-anticipated decline may have also reflected a drop in stock values. The S&P 500 fell 8 percent to a closing low this month of 1,056.74 on Feb. 8 from a January high of 1,150.23.

The S&P/Case-Shiller home-price index of 20 U.S. cities increased 0.3 percent. Compared with December 2008, prices fell 3.1 percent, the smallest year-over-year decline since May 2007.

“There’s no precedent for such a sharp turnaround in the data that we have going back to 1987,” Robert Shiller, co- founder of the index, said today on a conference call with reporters. He said the eventual end to the Fed’s purchase of mortgage-backed securities and expectations for a higher federal funds rate make it difficult to forecast home prices.

The Conference Board’s measure of present conditions decreased to 19.4, the lowest since February 1983, from 25.2.

Jobs Hard to Get

The share of consumers who said jobs are plentiful fell to 3.6 percent from 4.4 percent, according to the Conference Board. The proportion of people who said jobs are hard to get increased to 47.7 percent from 46.5 percent.

“The vicissitudes of the political situation in Washington cannot be helping,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “There has been a lot of sizzle on job stimulus proposals but no meat is coming out of the sausage factory. Now the focus seems to be moving back to the health-care reform issue.”

The gauge of expectations for the next six months decreased to 63.8, the lowest since July 2009, from 77.3 the prior month.

The proportion of people who expect their incomes to increase over the next six months declined to 9.5 percent from 11 percent. The share expecting more jobs in the next six months fell to 13.4 percent from 15.8 percent.

The report also showed the Middle and South Atlantic were among regions with declines in confidence, which sustained two blizzards this month. Sentiment also waned in areas not affected, such as the Mountain and Pacific regions.

Unemployment Outlook

The unemployment rate is expected to average 9.8 percent this year, according to the median forecast of a Bloomberg survey taken early this month.

An increase in initial jobless claims so far this year signals the labor market isn’t improving, said Ricchiuto. Claims rose to 473,000 in the week ended Feb. 13, compared with 432,000 at the end of 2009, the lowest since July 2008.

Consumer spending will grow 2 percent this year, according to the median estimate of economists surveyed by Bloomberg this month. That would follow last year’s 0.6 percent decline, the worst showing since 1974.

The world’s largest economy will expand 3 percent this year after shrinking 2.4 percent in 2009, according to the median forecast of economists.

Some retailers are turning more optimistic. Lowe’s Cos., the second-largest U.S. home-improvement chain, posted fourth- quarter profit that exceeded analysts’ estimates after better- than-forecast sales signaled a recovery in the housing market.

“While the psychological impact of falling home prices and an uncertain employment picture continue to weigh” on consumers, Americans are “gaining the confidence to take on more discretionary projects.” Robert Niblock, Lowe’s chief executive officer, said in a statement Feb. 22. “The worst of the economic cycle is likely behind us.”

Perception and Reality

When people think of the bankruptcy and foreclosure process, a couple of thoughts generally go through their mind. It is usually one of the following

  • Too bad for that guy
  • Bum
  • There, but for the Grace of God, go I.

Everyone knows this crisis is the cause of a great deal of economic hardship. Everyone knows the debt under which we all slave is destroying families and wealth. But here is what you don’t know. There are some fundamentals at play here which have devastating consequences for those who are not in trouble and hope for those who are. In order to cover both of these, it requires a bit of understanding of what happened to precipitate this mortgage crisis. What follows is a very simple explanation of a very complicated situation.

The banks, in their infinite pursuit of fractions of pennies of profit, sliced and diced the mortgage you took out on your home into tranches and sold pieces of these tranches into Structured Investment Vehicles (SIV’s). It got so bad, the designers of the SIV’s would order up mortgages as if they were patrons in a restaurant ordering off of a menu and the storefront mortgage brokers would deliver them up as if they were the cooks in the back. The banks would order so many mortgages at this % rate with this amount of money down, so many mortgages that were interest only of certain value, even mortgages which were 10/20 years old and they would package these Collateralized Debt Obligations (CDO’s) into “investment grade vehicles” and sell them to qualified investors such as Mutual Funds, Pension Funds, Offshore Banks, Sovereign Wealth Funds and wealthy individuals. Each owned a “piece” of the SIV’s but not the underlying assets. They were essentially black boxes into which money from the servicing banks poured in and once the magic of the black box went whiz bang, the money came out to the fractional owner. No one looked inside the black box, no one can look inside the black box and everything was fine until money from the mortgages stopped flowing. That was when disaster struck.

So what does this mean to the person being foreclosed upon? Well, it means there is a way to fight back. The only person who can foreclose on a mortgage is the person who holds the mortgage and the deed of trust. The problem is, because of the ways the SIV’s are structured, no one knows who actually owns what. Who can stand in front of the court and foreclose? The answer, ultimately, is no one and indeed, this strategy is being used all across the country to stop the foreclosure process dead in its track. The homeowner who is in trouble, or foresees they might get into trouble has hope.

So what does this mean to the homeowner who is not in trouble? How does it affect him? Well, if no one person owns the underlying mortgage, who can deliver clear title once the mortgage obligation is completed? And that is also beginning to appear to be …. no one.

Think about that a moment.

No one can deliver clear title to your home once you have completed your mortgage obligation. Who are you making your mortgage payment to? A bank, or some other mortgage servicing entity. Once they skim off their fee for servicing the loan, making sure you get your tax statements, making sure your insurance and property taxes are paid, they send the money to … the SIV. But the nature of the SIV is such that the vehicle itself doesn’t own the underlying asset which means someone inside the SIV must own it but … who? And if that is the case, who delivers clear title? There are beginning to pop up anecdotal reports of exactly this happening. People pay off their mortgage and a year later, they still don’t have clear title. When they call the servicing agency, they get the tap dance.

Do you see the problem here? No one knows who owns what. No one is in a position to foreclose. No one is in a position to deliver clear title once the mortgage is paid. It is totally messed up. Wall Street took careful aim … and shot themselves in the foot.

And it gets much worse. There are too many nuances to this story to cover here. I will do that in following newsletters. The point you need to take away is that if you are in foreclosure, or believe you might be in foreclosure soon, don’t play the game the banks want you to play of loan modification. That is a game to suck more money out of you while the foreclosure process begins its inexorable grind to completion. I mean, really. If you are having a hard time making a $1500 mortgage, will a modification to $1400 make a difference for you? And if you fight and struggle to make it, you just bleed a wee bit more until the stone wheels of the process grind you to a pulp. It’s a fool’s game. Stop playing it and start saving your money to hire an attorney who can help you navigate your way out of this mess.

And for those of you who aren’t there just yet but can perhaps see it coming. What do you do? There are steps you can take in advance of the process which will allow you to take an offensive position. You can file a form with your loan servicing company along with a set of interrogatories demanding to know who actually holds your mortgage and seeking confirmation the correct person is getting your payment. You demand to know they will indeed be able to deliver clear title once the obligation is complete. When the servicing bank ignores you, stop sending them your payment and instead send it to an interest bearing account. You can then either wait until they foreclose or you can be proactive and sue. When you have your day in court, stand up and say, ‘your honor, I have all the back payments sitting right here just waiting for them to confirm to me these things but when I asked nicely, they told me to go pound sand.’

But here is the one thing I cannot stress enough. Before you do anything other than meet your obligations, consult with a qualified attorney. I am not a lawyer and hence, anything I offer up here is worth everything you pay for it. Nothing. This is very complicated securities law. I have only offered the view from 50,000 feet. You need someone who is intimately familiar not just with the process, but also the underlying law and underlying details of these very complicated SIV’s. I researched the country on this, and found only one person who is up to speed on this. Because Guild rules will not allow me to tell you right out who to contact, if you want to know, I am limited to asking you to go to and enter a comment in any story you may find there specifically asking me for this very capable attorney’s contact information. If you ask for it, I will be happy to give it to you. I cannot and will not offer it up otherwise.

One final word. To anyone who takes the attitude that the best foreclosure defense is to pay your mortgage, I say two things. First, you may not like the rules, but this strategy is playing by the rules. But more importantly I ask, at what point do you say enough? The rape of the taxpayer is complete and ongoing. If you partake, if you play this game, if you buy into the perception of reality “they” want you to see, you are partaking in your own demise. At what point do you say enough? At what point do you say, “ No more, here is where I take my stand?” I submit it is your patriotic duty to stand up now and help rid the country of this parasitic beast who sucks the very life blood out of all of us. See the reality, do not live by the perception.

What Crisis is Being Solved?

According to calculations by Robert Barro, Harvard University economist, the stimulus package harmed the economy. Mr. Barro, concluded in the WSJ:

… viewed over five years, the fiscal stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. This is a bad deal.

The fiscal stimulus package of 2009 was a mistake. It follows that an additional stimulus package in 2010 would be another mistake.

When in a hole, government, like everyone else, should stop digging. Apparently stopping is not a viable option.

Since the 1960s, government has claimed the ability to manage the economy. Some economists were bold enough to state that the business cycle had been tamed. Keynesian economics was the key that opened the door to full employment, low inflation and general economic bliss. With these tools, we were told, prosperity was assured.

It is unclear whether our leaders believed their own propaganda. The media did, or at least became willing accomplices. Newspapers report in a manner that supports the myth of government controlling the economy. Statements along the following lines are not uncommon: Clinton “gave” us a good economy, Bush “gave” us a bad one and Obama inherited Bush’s mess.

The reality is that government cannot give us anything without first taking it. They can make things worse with bad policies, but they cannot create wealth or growth. These come from the hard work and production of the private sector. Period.

After many years of claiming responsibility for the good times, government is faced with both an economic and a political crisis. If they were responsible for the good, then certainly they must be responsible for the bad. The false myth, helpful in the good times, has become a liability now. One can imagine a conversation at the highest levels of government going along the following lines:

Politician: “We have to do something to remedy this economic downturn.”

Economist: “Actually, sir, there is nothing that we can do. Attempts to intervene will make matters worse. The best solution is benign neglect. Any attempt to stimulate a recovery will be counterproductive.”

Politician: “I know that! You convinced me last week. But we have to do something!”

Economist: “Doing ‘something’ will make the economy worse.”

Politician: “We convinced the rabble that we control the economy. They believe we can solve the problem, so design a stimulus for me. The bigger it is, the better.”

Economist: “But it will harm the recovery.”

Politician: “They don’t know that. Better to give them what they want, harmful or not. It will help me. I will look compassionate and involved. They will never know.”

The American Economy: The Wealthy Make The Mistakes But The Hard Working Middle Class Pays The Price

This is how the U.S. economy works much of the time - the wealthy make most of the big economic mistakes but the hard working middle class ends up paying for them. This time around is no exception. The financial crisis of the past several years was caused by Wall Street, but they got bailed out and relatively few of them lost their jobs. However, even though middle class and working class Americans were not the ones who made the mess, they are paying for it dearly. This is especially true when it comes to unemployment. While it is true that jobs are being lost on every level of American society, the reality is that unemployment is hitting Americans on the lowest end of the income scale the hardest.

Just check out the chart below. The ten percent of Americans that have the lowest household incomes have an unemployment rate of over 30 percent, while the ten percent of Americans that have the highest household incomes have an unemployment rate just about 3 percent....

Does this seem right to you?

After all, we were promised that we needed to bail out Wall Street so that they could help "Main Street".

But that didn't happen, did it?

Instead, it appears that previously bailed out corporations are going back to their old ways of paying out ridiculous bonuses.

For example, the CEO of General Motors is in line to get a $9 million pay package.

What in the world?

A company that was so flat broke that it would have likely collapsed without U.S. government intervention is handing out 9 million bucks to the CEO?

Something is very, very wrong.

And the truth is that working class Americans are getting pissed off.

For example, one Ohio man actually decided to bulldoze his own home rather than let the bank take it in foreclosure proceedings.

Now that is an incredibly destructive and vindictive act, but it just shows how angry some people are getting.

Many working class and middle class Americans feel powerless as the politicians and the wealthy recklessly destroy the U.S. economy.

Just consider the following chart. The U.S. government has massively increased spending at a time when revenues are decreasing sharply. Does this look like a "recovery" to you?....

The truth is that the U.S. national debt is wildly out of control. In 2010, the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined.

In fact, it is anticipated that the U.S. national debt will climb to an unprecedented 200 percent of GDP by 2038 without a fundamental change in course.

Is this kind of reckless financial mismanagement going to cause an economic collapse?

Of course.

And Americans are starting to wake up and realize this.

In a recent ABC News poll, 87 percent of Americans said that they are concerned about the U.S. national debt.

In a new CNN/Opinion Research Corp. survey, 86 percent of Americans believe that the U.S. system of government is broken.

And it is broken.

So is it still possible to repair it?

Feel free to leave a comment with your opinion....

List of Troubled Banks at 16-Year Peak

After weathering the nation’s worst run of bank failures in two decades, the Federal Deposit Insurance Corporation announced Tuesday it has added 450 institutions to its list of challenged lenders in 2009. The number of so-called problem banks rose to 702 at the end of 2009, compared to 252 a year earlier. Both the number of troubled institutions and their total assets are at the highest level since 1993, putting huge strain on the government-administered insurance fund that protects customer deposits. With banks failing in growing numbers, the F.D.I.C. said its insurance fund ended 2009 with a deficit of $21 billion. That position was nearly $38 billion weaker than a year earlier. The bulk of that decline reflected funds the F.D.I.C. is setting aside to cope with future losses. The FDIC’s report suggested many of the nation’s 8,100 lenders broke even during 2009 but that many remain in fragile condition.

America Just Declared The Recovery Over So You'd Better Get Ready For The Double Dip

Today's bleak consumer confidence number is undoubtedly bad news for the economy. The bigger than expected drop suggests that consumers have lost confidence in the recovery, which will drive down home prices and consumer spending.

Consumer confidence is typically our "first look" at the state of the economy. While most government aggregated data come out with a two-month lag, or more, consumer confidence hits with just a one month lag. Studies have shown that consumer confidence is a good predictor of consumer spending numbers. Basically, people surveyed seem to be good at accurately reading their own economic situation, and those surveyed accurately reflect the broader economy. When consumer confidence drops to such deep unexpected levels--today's were the worst in 27 years--then it is a flashing red-light about the economy.

There wasn't anything good about today's numbers. Every part of the survey was awful. On jobs, the optimistic folks who say jobs are plentiful fell to 3.6 percent from 4.4 percent. The pessimistic people who said jobs are hard to get increased to 47.7 percent from 46.5 percent. The gauge of expectations for the next six-months fell to 63.8, from 77.3 the prior month. The share of people who believe their incomes will increase over the next six months fell to 9.5 from 11 percent. The share of those expecting more jobs fell to 12.4 percent from 15.8 percent.

The message: the economy sucks.

The recovery we were supposed to have.
You'll read a lot about how the consumer confidence numbers are a lagging indicator. Indeed, they are a lagging indicator when measured against the stock market. The real time data conveyed by the stock market is often a better indicator than any survey or government data. But that doesn't mean you shouldn't pay attention to the consumer confidence number, especially since stocks have declined for most of this year.

Let's be clear here. The story-book recovery was dependent on a recovery of the consumer and a decline in the saving rate. If consumers lost some of their apprehension about future income prospects and future employment, they might begin to spend more on both retail goods and to purchase homes again. Anticipating this return of the consumer, businesses would increase capital spending and inventory.

We got half of that equation. Business spending on new equipment and software reversed course from the sharp drop recorded during the recession. Exports began to grow, as well. The inventory swing--from liquidation of early 2009 to inventory accumulation at the end of the year--automatically boosted GDP.

The idea was that this would create positive feedback loop, with more production necessitating the hiring of new workers, adding to household income. Consumers would respond to increased household income with higher spending. That's pretty much the textbook end of a recession.

The expectation that we would have a textbook end to the recession informed many of the expectations that were blown away by today's drop in consumer confidence. We've have a historical record of 31 previous recessions in the United States, most of which indicate that the end of the inventory cycle boosts production and therefore employment and incomes. More importantly, the workers who kept their jobs become more confident about their future job and income prospects and begin to spend a larger fraction of their incomes. Deferred spending during a recession usually creates pent-up demand by consumers and businesses that then boosts spending once the recession ends.

The recovery we actually got.
But this cycle seems to be different. Workers who have kept their jobs are not gaining confidence. Boosted production seems to be being built on the backs of the current workers, driving up worker productivity, instead of increasing incomes or employment. The apprehension about future income prospects and employment is growing, not diminishing.

This could have some dire consequences. The inventory build was premised on the idea of the recovering consumer. Since that premise is wrong, businesses will find they have made a mistake. Inventory will have to be discounted and or scrapped. New equipment will remain under-utilized, and some of the new hires will have to be let go. In other words, the half of the recovery equation we got will simply have to be liquidated or put in cold-storage because of the half we didn't get.

How did we screw up the recovery? Why did businesses get this so wrong that we're headed back for the double dip instead of slowly climbing out of the recession?

What went wrong?
The answer will sound familiar to anyone acquainted with the work of Ludwig Von Mises or Friedrich Hayek. Cheap money created an illusion of wealth that businessmen interpreted as pent up demand. They invest money in inventory and equipment on the assumption that the consumer would recovery. And there assumption was based on very good evidence from past recoveries and the notion that loose monetary policy inevitably spurs a recovery.

Why was it different this time? The problem this time is that we're in what the Keynesians would call a "liquidity trap." Consumers, having been savaged by the housing bubble and its consequences, continue to be fearful of the future. Government regulation is making consumer spending more difficult by increasing capitalization requirement for banks and squeezing consumer access to credit. Huge debt overhangs from the boom still have many people trying to pay down debts instead of engaging in new spending. To put it briefly, the supply of funds to fuel economic growth is still very low because cautious Americans do not have faith in the recovery.

Economic planners will describe the situation as an "excess liquidity preference" and recommend more government spending to push the economy toward higher employment. Unfortunately, unless we're really lucky, much of this government spending will likely be long-term destructive because it will direct funds in the wrong directions because it isn't subject to market discipline. In any case, the current political atmosphere seems particularly unwelcoming to additional deficit spending. So we'd better hunker down and get ourselves adjusted to an economy with a higher than historical liquidity preference.

Wall Street doled out $20 billion in bonuses in 2009

The New York state comptroller says Wall Street bonuses rose 17 percent to more than $20 billion in 2009, the year after taxpayers bailed out the financial sector.

Thomas DiNapoli says total compensation at the largest securities firms grew beyond that figure. He says profits could surpass what he calls an unprecedented $55 billion last year.

The Democrat says that's nearly three times Wall Street's record increase. The rate of growth was boosted in part by the record losses in 2008 of nearly $43 billion.

DiNapoli reviews tax collections each year. He bases his annual projection of Wall Street bonuses on income and other taxes paid in New York City.

DiNapoli says the bonuses help state revenues tremendously, but are a "bitter pill" to most taxpayers nationwide.

Plans to Hide Commercial Real Estate Losses Won’t Avert a Double-Dip Downturn

Sooner or later, mounting losses on commercial real estate could crash through the market's 2009 optimism and send the economy and stocks into a double-dip downturn.

The major problem is that lawmakers and regulators are setting up investors into believing that commercial real estate (CRE) losses are being effectively addressed. The truth is that escalating losses are being hidden as part of a campaign of optimism in a desperate gamble that a robustly reviving economy will save the day.

To protect yourself from another investment beating, here's what you need to know.

Accounting Gimmickry

Two weeks ago, a bipartisan group of 79 members from the U.S. House of Representatives sent a letter to U.S. Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke. The lawmakers want the public to know that they are concerned that the "commercial-real-estate industry has the potential to infect our economy and slow a recovery," according to Rep. Paul E. Kanjorski, D-Pa.

Kanjorski, the chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises (GSEs) - which includes the likes of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) - says it's the administration's responsibility to make sure that happens.

"The Treasury and Federal Reserve now must take needed and urgent action to stave off a potentially devastating wave of commercial real estate foreclosures and bank losses," Kanjorski said.

So in keeping with how effectively overseen and transparent our capital markets, insurance industry and GSE institutions are, the lawmakers want more accounting gimmickry to be made available to banks that hold commercial-real-estate assets. The lawmakers are concerned that banks may be forced by some regulators to write down the value of performing loans, even when payments are current. And these elected officials want more latitude for banks to manipulate recently issued CRE loan-modification guidelines.

Just what recently issued CRE loan modification guidelines are we referring to?

When is a Bad Loan Not a Bad Loan?

The tooth fairy commeth. On Oct. 30, bank, thrift and credit-union regulators very quietly gave lenders flexibility in how they classify distressed commercial mortgages. Banks can now slice distressed loans into performing and non-performing loans, and institutions will magically be able to reduce the total reserves set aside for non-performing loans.

For example, let's assume that a developer borrowed to build a shopping mall, but only one tenant leased space in the finished project. Cash flow from the project would be insufficient to service the loan, meaning the lending bank would have to set aside reserves against the total loan. Under the new guidelines, however, the mall loan actually could be carved into two loans - a performing loan representing the rented space, and a non-performing loan that represents the empty space.

Theoretically, with fewer reserves having to be set aside, bank balance sheets would look better, leaving lenders with more cash available for loans. But the reality might be very different. Granted, this accounting hocus-pocus might well stave off some bank failures. But with the overhang of non-performing loans still on their books, will those banks really be eager to lend out their precious cash?

That's not the only concern, either. The fact that lawmakers don't want to force banks to write down "performing loans" should be a cause for concern among investors. It's like the riddle: If an airplane crashes exactly on the border of two states, where do you bury the survivors? Hint ... you don't bury survivors. And, you don't have to write down performing loans - unless, of course, they're not really "performing."

What's really happening with performing loans is a game called "extend and pretend." When most banks make commercial loans they include an "interest reserve." The reserve amount is part of the total loan, and it is there so that banks can pay themselves their interest until the project generates enough cash flow to start paying interest and principal.

The unvarnished truth is that innumerable commercial loans are in distress right now because projects aren't being finished. And if they are , tenants aren't leasing. So rather than write down the loans, banks are extending the terms of the debt with more interest reserves included so they can continue to classify the loans as "performing."

Hiding behind the extend-and-pretend game is the dark reality that property values have declined at an alarming rate - racing ahead of the rate at which banks are writing down these loans.

Nor is that the only concern. Because interest reserves do not repay any of the loan principal, there is no amortization on these debts. In other words, banks are extending loans that they would never make now, because borrowers are already grossly upside-down.

A Real Race Against Time

Lawmakers and regulators are desperately hoping that a strong economic rebound will stimulate job growth, consumption and demand for the commercial real estate that banks continue to hold.

But let's be real: There isn't enough time on any clock to ever win that race.

Why do I say that? Because, in order for the United States to rebound to a full-employment rate of at least 5%, the nation's economy would have to create 200,000 jobs per month - for seven years.

Although all the big banks hold significant amounts of underperforming-commercial-real-estate loans, this exposure as a percentage of total-balance-sheet assets averages only 10% to 20%. And these banks have other income streams, such as proprietary-trading revenue, investment-banking fees, and credit-card fees and charges to bolster their bottom lines.

Regional and local community banks have as much as 80% of their balance sheets tied up in commercial real estate, and very few other sources of significant fee income to offset CRE losses.

It's not the too-big-to-fail banks that are lending to consumers; they're too busy catering to huge corporations, enslaving the credit card borrowers they pressed into servitude with low teaser rates, and pandering to lawmakers to preserve their monopolies and their outrageous executive compensation packages.

It's the regional and community banks that lend to individuals and small businesses that are sinking fast under the weight of CRE. How are they going to be the credit providers to consumers and the backers of the small businesses we are counting on to create jobs for the country's 18 million unemployed?

Lawmakers and regulators expect to buy time for the economy to grow in order to drive up commercial-real-estate prices and save the banks that are threatened. But their rescue vehicle of choice is the banking sector that is foundering because of the growing gale of commercial-real-estate losses. So please forgive me if I label these Washington insiders as grossly incompetent, self-serving and deluded.

The Only Way to Win

If we continue to chart this course, we're headed right for a double-dip downturn in the economy and in the stock market.

But there is a way out.

First, break up all the too-big-to-fail banks into "bad banks" by saddling them with all the bad bank loans. Don't worry: It won't take long for those institutions to discover how to make money from these non-performing loans.

Let these "new" institutions keep their proprietary trading desks so they can steal money from the big corporations and investment banking clients they front-run.

Cap all compensation for the top 25% of earners at those banks. And make these top-tier executives stay and work at their new employer for seven years, which is the same amount of time it takes to discharge a bankruptcy. That's only fair since bankruptcy is where these institutions force credit-card borrowers after ripping them off with hidden, retroactive fees and usurious interest rates. Phase out all taxpayer backing over the same seven years. Limit each bank's leverage and require them to add equity capital on a pre-set ratio relative to balance-sheet risk.

Spin off all big-bank credit-card operations into four regionally based trusts and make them operate as not-for-profit entities. Cap interest rates at some nationally set level above the prime rate, and make credit limits a function of income, assets and credit history. While we're at it, only charge merchants and credit-card users 50 cents each per any transaction.

Make community banks "good banks" by spreading the big banks performing loans across their balance sheets so banking is more "localized" and community-centric. Limit the size they can grow to - period. If there's additional business to be had in a particular locale, let another bank open up and help drive down the cost of services.

Create a compensation arrangement for bankers that rewards them generously for creating jobs, improving standards of living in their communities and running their banks profitably relative to standardized risk metrics.

As far as big loans and securitizing and selling asset-backed pools, make the banks syndicate and spread risks between themselves, all of them. They'll actually become experts in risk management as opposed to paying lip service to schemes like Value at Risk.

I'd like to say that I'm kidding, and that everything will work out just fine if we do nothing. But the reality is that only a comprehensive overhaul of banking regulations will save the U.S. economy and stock market from significant pain. Hiding behind accounting gimmickry is just another tarp being thrown over our problems by same special interests that got us into this mess in the first place.

Recession Tightens Grip on State Tax Revenues

The recession can now claim another troublesome record: state tax collections shrank at the end of 2009 for a fifth consecutive quarter, the longest period of continuing state revenue declines since at least the Great Depression, according to a new report.

Over all, state tax collections fell to $134.5 billion in the last quarter of 2009, a 4.1 percent drop from the $140.2 billion collected during the same period a year earlier, according to the report, which will be released Tuesday by the Nelson A. Rockefeller Institute of Government.

While the drop in tax collections was less severe than earlier in the year — the record for the steepest drop was set last spring when tax collections fell by 16.6 percent compared with the same period in 2008 — the continuing declines are putting even more stress on states.

The revenue decline comes despite the tax increases imposed by many states since the recession began. With less tax money coming into state treasuries and expenses for programs like Medicaid continuing to mount, many states will probably be forced to consider further tax increases, spending cuts and layoffs — actions that some economists warn could put a drag on the nation’s fragile economic recovery.

The Rockefeller Institute report, which was written by Lucy Dadayan, a senior policy analyst, warns, “State tax revenue will continue to be insufficient to support current spending commitments, and more spending cuts and tax increases are most likely on the way for many states.”

Oklahoma reported the largest revenue drop in the quarter, a 26.9 percent decline compared with the same period the previous year, followed by Arizona, which reported a 17.1 percent drop. Seven states reported growth in revenues, but the report notes that the gains “were often driven by legislated tax increases rather than growth in the economy and tax base.”

The report predicts that more states will begin seeing revenue growth soon, particularly in sales tax collections as retail sales rebound, but warns that state tax revenue will likely remain below its pre-recession peak “for quite some time.”

Many states are hoping that the federal government will provide them with more aid this year, now that much of the state aid included in the stimulus package has been spent. The National Governors Association, which continued its meeting in Washington on Monday, has warned that the fiscal year beginning in July will be “the most difficult to date.”

Some states have already tapped so-called rainy day funds, and others have turned to a variety of one-time gimmicks to balance their budgets. Now, many states find themselves in the budgetary equivalent of looking for loose change under the sofa cushions. Some governors are even counting on more federal aid in their proposed budgets for next year, even though it is far from certain that the money will be approved.

Others warn that doing so would be imprudent. “It would be irresponsible,” Gov. Haley Barbour of Mississippi, a Republican, said in a recent interview. “It’s irresponsible to count money that hasn’t even passed Congress.”

Swine flu still hasn't peaked, southern hemisphere bracing for another wave

LONDON — The World Health Organization says the swine flu pandemic still has not peaked.

The agency's emergency committee met Tuesday and suggested it was "premature" to recommend downgrading the global flu outbreak. Swine flu cases have dropped dramatically in recent weeks in Western countries, but the virus has only recently hit Africa. The southern hemisphere is also bracing for another wave of illness in the next few months.

Swine flu mostly causes mild symptoms and most people don't need treatment to get better. WHO's expert committee recommended another meeting be held in a few weeks to monitor the situation.

Sterling plunges after Bank of England warns UK might have to print MORE money

The value of Sterling plunged this afternoon after Bank of England chief Mervyn King told told MPs that Britain may have to print more money to boost the country's fragile economic recovery.

Mr King sent the Pound into a fresh slump against the U.S. dollar after he admitted the Bank might extend its £200billion quantitative easing programme.

In a gloomy update to MPs on the Treasury Committee, he warned that expectations for the British economy remain 'to the downside'.

And he again stressed the need for the Government to give a 'detailed explanation' about how it will slash the £178billion deficit in public finances.

Bank of England governor Mervyn King

Downbeat: Bank of England governor Mervyn King giving evidence to the Treasury Select Committee today

'You certainly can’t eliminate the deficit in one year,' he told the Treasury select committee.

'There has to be a programme announced that will start and continue right through the lifetime of the next parliament.'

The pound fell broadly following the meeting, with the euro moving to a 12-day high of 0.8824 pence and sterling dropping a cent against the dollar to $1.5421.

Sterling has fallen more than 10 cents against the U.S. dollar since mid January.

Mr King's warning, in his last inflation report meeting before a general election, puts more pressure on Alistair Darling ahead of a Budget statement expected next month.

And it marks more grim economic news for Gordon Brown, who was hoping to cite Britain's recovery from recession in Labour's election campaign.

The Prime Minister is being bombarded with dire economic figures, which are fuelling fears Britain could tumble back into recession.


Surging inflation in the British economy could force the Bank of England's Monetary Policy Committee to keep interest rates at close to zero for the foreseeable future

Today, new data showed mortgage lending has slumped to an eight-year low in another indication that the recovery is going to be tortuously slow.

Lending reached just £8.02billion in January after the stamp duty holiday came to an end, the lowest since March 2001, according to the British Bankers' Association.

Growing concern about the economy's return to health could prompt Mr Brown to call an election before April 23, the day new figures could show the UK is back in the red.

Mr King insisted today that Britain is 'very different' from debt-laden Greece and is still unlikely to lose its AAA credit rating.

But he said ratings agencies were right to keep a close eye on it because of the 'very large fiscal deficit' and, in a jibe at the Government, the lack of a plan to tackle it.

Any measures would take time to have an impact, he conceded, but he insisted clear measures to rebalance public finances had to be outlined soon.

Mr King warned that world demand remained 'fragile' and that the recovery on the eurozone 'appeared to have stalled' and was 'sluggish', in turn affecting UK exports.

'The crisis has left us facing many serious challenges. Among them are how to reform the international financial system, how to reduce our largest peace-time fiscal deficit, and how to restructure our banking and financial system to prevent another, more serious, crisis in future,' he told MPs.

Although the crisis began in the financial sector, it was not the non-financial sectors of society 'where most of the costs are falling', he said, in a hint at huge profits in the City.

Banks were concentrating on rebuilding their balance sheets and lending was in decline, he said.

He admitted this is 'not a position we are comfortable with' but said there is 'quite a way to go' before it is resolved.

Mr King suggested quantitative easing could be restarted if a double-dip recession looked on the cards, although this risks pushing up inflation.

Inflation already rose to 3.5 per cent in January and is due to stay high for a few months before slipping back below the Bank of England's 2 per cent target.

Analyst Howard Archer, of IHS Global Insight, said today's testimony suggests interest rates will stay at record lows throughout this year.

Mark Bolsom, head of the UK Trading Desk, added: 'King continues to support the depreciation of the pound in the hope it will boost exports.

'Perhaps he’s being intentionally doveish in this speech because he wants to weaken the pound further. Certainly, he will be only too aware the affect his reference to quantitative easing will have.'

Controlled Geithner press conference shuts out Infowars, censors real questions

Click this link ......