Securitized Bond Market Failures Have Caused Huge Drop in Bank Lending

One of the reasons for less bank lending is the almost non-existent market for securitized bonds. Investors have so many bad loans on their books that they refuse to commit to further risky investments. This means banks are forced to hold this toxic paper on their books and that inhibits them from lending at higher levels. If the Fed had not purchased $1.7 trillion of this toxic junk many banks would currently be in bankruptcy. Thus, there still are trillions in these bad loans on the books of many financial institutions and they cannot be sold and they are clogging up the system, and there is no end in sight for the problem.

At the same time there is no effort to reduce federal debt, because if government does so it will absorb more funds needed for investment and to fund newly occurring debt. This reduces money supply and further crowds out business investment. This is truly being in a box with no way out. The Fed has been accommodating via monetization and will have to continue to do so, but the result of that is inflation and perhaps hyperinflation. As you can see this is a never-ending debt trap, and nothing that has been done is permanently solving the problem. Business understands. They are raising as much money as possible at the lowest rates since the 1930s. They may be flush with cash, but can they employ it. Unemployment at 22-1/8% means less buyers for their products. They cannot expand because the demand isn’t there. They cannot invest because they are unsure of recovery and they continue to lay off to cut their biggest cost, labor, and remain profitable. You could call this a vicious circle.

Government tells us they are going to cut spending. If they do so that will increase unemployment as spending falls and that in turn will slow business and business development. That means less business spending and more lay offs.

As these events unfold the likes of the Council on Foreign Relations and others in and out of government, want to cut Social Security payments in the worst possible environment. Government cannot fund their debt, so under the new medical reform they cut benefits. They are now contemplating an attempt to grab individual retirement plans to pay bills for a bankrupt government. While these efforts go forward Americans are fast loosing all, or almost all, the equity in their homes. This is where most Americans had their savings for the future. Government is so desperate they want to start guaranteed annuities or retirement accounts to be funded by your wages. The real reason for the accounts is that government needs the cash flow to fund operations, because they haven’t been able to get enough investors for sometime to buy their bonds. They may even have a voluntary plan where workers can pledge their retirement, or parts of it, to government guaranteed annuities. This way government can collateralize their debt issuance. Now you can see why it is so important that government manipulate the stock market and show bogus values. A mandatory savings plan is just another scam to fund a bankrupt government. This is money you will not be able to access until retirement if that ever comes, and, of course, if government defaults, which we believe they will, you will get nothing. If the funds were privately managed instead of by government, this would be a bonanza for Wall Street. Is it any wonder so many Americans are lining up to leave the country? Already Blackrock Financial is managing $100 billion in government employee retirement funds. Of course, the managers are members of the C.F.R. In fact under the FSP half the assets are “invested” in non-negotiable US Treasury notes. A scheme similar to that of Social Security and Medicare. The funds from all these three entities have already been spent. In a default, employees probably would lose 90% of their retirement – not only the government part, but also losses, which would occur in a collapsing stock market. This is truly a license to steal by elitists.

The transfer of fiscal control is passing from the individual to the state in a true corporatist, fascist fashion. These are the same kind of programs that were forced upon the citizens of Italy and Germany in the 1930s. Now you can better understand why the Illuminists in NYC, London and Paris brought Hitler and Mussolini to power and helped finance their rise to power. Part of this plan is to transfer taxpayer revenues into elitist hands, giving them more power over the citizenry. Unfortunately, Americans don’t have a clue to what is being done to them. They do not even know what fascism is. These elitists are so brazen that they are trying to convenience the public that America’s problems are the result of their financial foolishness. In fact, Americans need a forced savings plan to return them to solvency, when in fact the savings are needed by government to fund its burgeoning debt. The world is being forced into austerity. Next comes poverty.

The key to this enforced servitude is the borrowing of money, which enriches the lender, usually private banks, that in the fractional banking system creates money. Historically it is averaged about 9 to 1. Nine dollars are created for every one-dollar on deposit. In fact currently that figure is 40 to 1, as a result of imprudent lending over the past several years. Government also increases money supply by creating deficits and borrowing money to do so. The government borrows and you get to pay the interest and to repay the debt. Currently money is getting more difficult to come by due to the voracious needs of government, which is crowding out other borrowers. The bulk of the money lent by banks has gone into the financial sector leaving very little for individuals and small to medium sized businesses. Government is currently borrowing at very low interest rates. The problem is interest rates are rising. As time goes on the interest on the debt grows more onerous. In this process the privately owned Federal Reserve is buying government debt, usually secretly, so that government can continue to spend more money than it takes in, which is in the form of tax revenues. This is called monetization, because the Fed creates the money it lends out of thin air. The alternative to using the Fed would be to end the Fed and have the Treasury simply create the money. The bankers do not want that because that control of printing of money and credit puts the Fed and banking in control of government. Thus, the Fed is unnecessary. It doesn’t really directly profit from its function; it protects the banks, which own the Fed and allows the Fed to pass inside information to its fellow elitists, who profit from this information in a major way. The Fed and its friends have a license to steal. This is why the Fed should cease to function and their duties taken over by the US Treasury, a job it was mandated to do by our Constitution.

If the Fed is not disbanded it will be part of a move to world control banking that will rob all countries of their sovereignty. Once in place these financial mavens will form a World Government and dictate to the world. This is why Ron Paul’s legislation HR-1207 is so important to the future of America. It will expose what the Fed is really up too. That discovery would lead to the end of the Fed. This November we have a unique opportunity to vote out of office almost all incumbents. That clean slate will give us an opportunity to take back our country. If we are not successful the game is over and Americans will pay a terrible price.

The MBA, Mortgage Bankers Association’s Index of mortgage applications, which includes purchase and refinance loans, fell 9.6%, reaching its lowest level since January 1st. the 4-week moving average fell 6.2%. Subsidized loans by government at least for now are over.

Business inventories are piling up in anticipation of a recovery. They increased 0.5% in February to their highest level in 7 months.

The National Federation of Independent Business Index of Small Business Optimism lost 1.2 points in March, falling to 86.8. The persistence of index readings below 90 is unprecedented. The index has posted 18 consecutive monthly readings below 90. Nine of out 10 index components fell in March. This people are close to the buying public and they are very negative. These are the people who create 70% of our jobs. They are saying the green shoots must become recovery or their lies get exposed.

Just to give you an idea of the power and arrogance of the Fed, this past week saw a gain of $421.8 billion of outstanding loans and leases. The Fed is secret so they do not have to tell us what is going on. Who received the loans and leases and what was the collateral received for such loans? Our suspicion is that Greece is being bailed out by the Fed or institutions in Europe holding Greek debt are being bailed out. This is the sort of thing that has to be stopped. We know the Fed posts their financials, but many things the Fed is involved in are not posted. We still await an execution of an appeal judgment by the Federal District Court regarding who received $112.4 billion in loans directed secretly through AIG and what collateral was received against such loans. The Fed still refuses to respond.

The Fed and the Treasury are well aware that America is bankrupt and the only way it can continue to function is via the Fed’s ability to create endless amounts of money and credit. That is why credit spreads are at records. As of late this year an additional $420 billion in additional interest expense will be added for this year and every other year, plus we are facing another $1.8 trillion deficit. Worse yet, the official projection is for an additional $1 trillion deficit annually for the next ten years. Presently, as a result of policies of the Treasury and the Fed, real inflation is 8%, not the official number of 2.5% to 3%. All these parties, which include Wall Street, have no intention of allowing the reduction of spending and government.

As a result of wanton lending by the Fed into the banking system we are facing, by the end of 2010, an inventory of homes for sale of a 3-year supply, when that number officially, currently is 8.6-months, when normal is 4-months. Housing is still in a bubble. Five to seven million families will lose their homes this year. Even now there is a supply of expensive homes that reaches out five years. Those mortgages containing CDOs, ABSs and MBS held by lenders, the Fed and the FDIC are near worthless. Half the banks in America face insolvency. Of 750,000 mortgage holders under trial modification only about 30,000 have been converted to permanent payment changes. Thee are millions of homeowners who have not made a payment for a year or two ready to come out of the pipeline. The government has been holding prices up three years disregarding the huge distortions they had created in the market. This was done not for the benefit of the homeowners, but to bail out the lenders. They left people in their homes for two years and they paid nothing to stay there. These are mostly people who should have never had a home in the first place. Not only will millions of homeowners be on the street, but lenders books will be flooded with assets worth far less then they are carrying them at. Those homes are about to fall again in value. Instead of cleaning up the books over the last few years management has been busy serving up bonuses for themselves.

The result of the foregoing will be 2,800 banks going under. As we told you before the FDIC won’t be able to handle the depositor’s financial demands. The TARP Oversight Committee says it has been stonewalled by the Fed. As a result only the banks and the Fed know what is really going on. How will banks raise money to offset lending losses? Will government allow them to stay in business in a bankrupt state and merge them? Of course they’ll continue to function, but FDIC insurance will end. The toxic assets will still be there for what is left of the solvent middle class to pay for.

The Natural Bureau of Economic Research says the recession is not over. We believe that the consumer’s lack of income and the absence of credit growth needed for a recovery is absent. Inflation is 8% and wages are falling at a 3% level.

The jobless numbers are again worsening and without major stimulus they will get worse. The raw unadjusted numbers total 514,742 and increase of 99,730 week-on-week. Extended claims jumped 261,817 to 5,555,301. These are the people on the 2-1/2 year jobless payroll.

The Commercial Paper market fell for the 5th week in a row off $15.4 billion to $1.074 trillion. Asset backed paper rose by $200 million after falling by $7.2 billion the prior week.

The NAHB/Wells Fargo Housing Market Index rose 4 points to 19. What can they be thinking of?

RealtyTrac says foreclosures rose 7% y-o-y in the first quarter. Foreclosures were 367 in March, up 19% m-o-m. The highest rates were in Nevada, Arizona and Florida. By totals, California, Florida and Arizona led the pack. 

Goldman Sachs director Rajat Gupta may have given inside information about Goldman to Galleon Group hedge fund founder Raj Rajaratnam says prosecutors.

Consumer confidence figures from ABC News showed the weekly consumer confidence index fell to minus 47 from minus 43. Worse yet, 8% of those polled rated the national economy as excellent or good while 92% rated it good or even poor, 25% said it was a good time to buy while 75% said it isn’t.

The University of Michigan Confidence Index fell from 73.6 in March to the first of two April fixings of 69.5. The experts predicted 75. The gauge of current economic conditions fell to 80.7, the lowest since December. March was 82.4. Consumer expectations fell to 62.3, the lowest since March 2000, and well below March’s 67.9. One-year inflation expectations rose to 2.9% from 2.7% in March.

The Securities and Exchange Commission on Friday charged Goldman Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product related to subprime mortgages.

The SEC alleged in a lawsuit that Goldman (GS 161.60, -22.67, -12.30%) structured and marketed a collateralized debt obligation that hinged on the performance of subprime residential mortgage-backed securities. However, it failed to disclose the role that a major hedge fund, Paulson & Co., played in the portfolio selection process as well as the fact that the hedge fund had taken a short position against the CDO.

“Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party,” said Robert Khuzami, director of the division of enforcement, in a statement.The mortgage chief of the United States’ second largest bank was mobbed by angry borrowers on Tuesday after he invited customers to speak to him if they feared foreclosure of their homes.

The JPMorgan Chase & Co executive was at a congressional hearing in Washington when a lawmaker asked him who mortgage borrowers could turn to if they felt his bank’s employees were not helping them hold onto their homes.

“Come to me,” said David Lowman, chief executive for JPMorgan Chase & Co’s home mortgage business in response to the question from Massachusetts Democrat Barney Frank.

Minutes later, around 50 borrowers burst from the audience and presented Lowman with a 6-page document alleging his bank reneged on a pledge to help struggling homeowners.

The activist who organized the protest said Lowman did not want to talk and left the hearing.

“He ran. He ran like a dog with its tail between his legs,” said Bruce Marks of the Neighborhood Assistance Corporation of America (NACA), which helps homeowners avoid foreclosure. “He was scared to death because he doesn’t really want to talk to homeowners.”

The incident is symptomatic of frustrations among U.S. homeowners as defaults and foreclosure filings dominate the housing sector more than three years after the property bubble began to deflate.

NACA organizes events where borrowers try to get loan modifications with lenders. The group says JPMorgan signed up to the NACA program but dropped out in December.

A JPMorgan spokesman declined to comment on the complaint.

(Reporting by Corbett Daly, additional reporting by Al Yoon; writing by Andrew Hay)

Utah Attorney General Mark Shurtleff and six other states filed a brief in federal court in Montana on Monday, arguing that the federal government has no constitutional authority to regulate firearms manufactured and sold within their borders.

The friend-of-the-court brief seeks to bolster arguments made by the Montana Shooting Sports Association (MSSA) that legislation passed in that state exempts Montana-made guns from federal taxation, registration, licensing, marking or record-keeping requirements.

Utah adopted similar legislation last session. Tennessee, Arizona, Idaho, South Dakota and Wyoming have done so as well, asserting it as an exercise of their authority under the 10th Amendment to the U.S. Constitution.

The brief asks that court to recognize that “the 10th Amendment is not an empty promise to the states, but a vital guarantor of rights retained by the states, including the right to regulate purely intrastate activities.”

Alabama, Idaho, South Carolina, South Dakota, West Virginia and Wyoming joined in the Utah brief.

The U.S. Justice Department has asked the Montana court to dismiss the lawsuit filed by MSSA, arguing that the federal government has the authority to regulate gun sales under the Commerce Clause of the Constitution.

The cost of living in the U.S. rose in March, while prices excluding food and energy were unexpectedly unchanged, indicating tame inflation is accompanying the economic recovery.

The 0.1 percent gain in the consumer price index was in line with expectations and followed no change in February, the Labor Department reported today in Washington. Excluding food and fuel, the so-called core rate held steady after rising 0.1 percent in February, reflecting cheaper rents and clothing.

Lehman Brothers Holdings Inc. may have grounds to sue Goldman Sachs Group Inc. and Barclays Plc after they demanded $1.2 billion in additional margin to assume trading positions auctioned by a Chicago exchange, bankruptcy examiner Anton Valukas said.

Goldman Sachs was the high bidder for Lehman’s equity derivatives at options and futures exchange CME Group Inc., and took $445 million of those assets at a private auction in September 2008, according to previously censored details of Valukas’s March 11 report. Barclays was the high bidder for Lehman’s energy derivatives and took $707 million in assets from CME.

DRW Trading was the highest bidder for Lehman’s foreign exchange, agricultural and interest-rate derivatives, Valukas said. The transfer of $2 billion in Lehman deposits for its proprietary trades at the CME cost the defunct investment bank $1.2 billion, Valukas said, adding that CME also may be sued.

“The examiner concludes that an argument can be made that the transfers at issue were fraudulent transfers,” Valukas said in the report, released in its unredacted form yesterday. Under bankruptcy law, Lehman may be able to undo the auction, he said.

Part of Valukas’s job was to explore Lehman’s grounds for suing companies that contributed to, or benefitted unfairly from, the demise of the investment bank and its affiliates including the brokerage Lehman Brothers Inc., and to say which kinds of lawsuits are most likely to succeed and what the possible defenses are.

Yahoo is heading for a legal battle with the US government over the monitoring of email accounts.

The company is involved in a federal court case in which the government is demanding access to email archives which include messages that the account owner has already read.

Yahoo argues that the messages fall under the protection of the US Stored Communications Act, which requires law enforcement groups to obtain a search warrant before accessing electronic data archives.

The government contends that the data should not fall under protections because the messages have already been read.

The case could have significant ramifications for the industry in terms of government access to private electronic data, and Yahoo has received backing from several organisations.

A coalition ranging from traditional advocacy groups the Electronic Frontier Foundation (EFF) and the Center for Democracy in Technology, to Yahoo’s long-time rival Google, is lobbying the court to uphold Yahoo’s right to protect the data.

“This court must protect the user’s privacy in these emails by requiring the government to seek and obtain a search warrant based on probable cause,” the groups said in a court filing.

The EFF argued that the government is attempting to find a workaround to constitutional protections that have long limited law enforcement’s ability to conduct search and seizure.

“Just as your postal letters and packages are private even though the carrier could open them, so your email and other information is protected even if it is stored on a third party’s server,” said EFF civil liberties director Jennifer Granick.

A few months after moving into the White House, President Obama promised to reduce the large deficit in 2010 and continue reducing it further in 2011. This promise was broken, and the deficit in 2010 is expected to be approximately $200 billion more than in 2009. This creates political danger for Democrats, as the party in power is reluctant to acknowledge its stewardship of worsening budget problems with midterm elections coming in November. As a result, congressional Democrats are shying away from a vote on this year’s budget resolution, causing chaos to the federal budgeting process.

Avoiding a budget resolution would be unprecedented. Since the Budget Act was passed in 1974, the resolutions have served as a blueprint for Congress to identify priorities and set parameters on budget proposals, which help ensure that spending doesn’t go even further out of control. In the absence of a resolution, congressional committees operate without any stipulated limits, which encourages freewheeling spending.

The passage of Obamacare gave Americans a lesson on one of the more obscure Senate rules: reconciliation, whereby differences in House and Senate versions of bills are reconciled. Without passing a budget resolution, Congress is not allowed to use reconciliation rules to cut the deficit if the House and Senate adopt different budgets. Without reconciliation rules, the filibuster can be used to stop the budget after the conference committee has ironed out differences in bills from the two chambers.

Not everyone in the current majority party is satisfied with how House Democrats are handling the budget. On Tuesday, Senate Budget Committee Chairman Kent Conrad, North Dakota Democrat, said, “I think it is very important to have a budget blueprint to outline priorities where the country is going to spend its money, how we’re going to bring the deficit down.”

House Majority Leader Steny H. Hoyer, Maryland Democrat, justifies not passing a budget resolution. He claims Democratic inaction is the fault of “deep debt” caused by the George W. Bush administration. This business of blaming President Bush for today’s deficit crisis doesn’t work 15 months into the Obama presidency. Mr. Obama’s $862 billion stimulus package and more than $400 billion supplemental spending bill had more than a little to do with the 2009 budget deficit of $1.4 trillion. Mr. Obama’s planned 2010 budget deficit is expected to surpass this record and hit $1.6 trillion. By comparison, all of Mr. Bush’s deficits from 2002 to 2008 – giving him no credit for the 2001 surplus – produced a combined deficit of $2.1 trillion.

The November elections are seven long months away. The skyrocketing deficit cannot be hidden under a barrel that long. But out of desperation to spare themselves embarrassment at the polls, Democrats are avoiding a vote on the budget resolution to stall bad news. Although politically expedient, this lack of leadership will make deficits larger in the future.

Jobless claims missed consensus for the second week in a row, coming it at 484,000, 44k worse than expected, 24k worse than the week before, and the worst since February 20. Of course, the B (L) S has to provide a narrative for why the economy is not performing as expected by the propagandorium: and this week’s explanation is hilarious. A Labor Department economist said Thursday that this latest rise can also be pegged to lag effects from the spring holidays including Easter and Cesar Chavez Day, which is celebrated in worker-heavy California, and blamed the increase on technical factors and not on rising layoffs. This is now the second week that Easter has gotten blamed for deteriorating economic data. Easter was also blamed for the delay in Greek bonds a few weeks ago (those particular investors now wish they had just slept in through the day they were getting their allocated share). As for initial claims, the four-week moving average, which aims to smooth volatility in the data to help paint a better picture of the underlying trend, also rose for the week ended April 10.  The Labor Department said the four-week moving average went up by 7,500 to 457,750 from the previous week’s unrevised average of 450,250. Continuing claims also increased by 73,000 to 4,639,000 from the preceding week’s revised level of 4,566,000. And while Extended Benefits declined by 99,716, Emergency claims increased by 261,817 to 5.855 million.