Jackson Jambalaya

Bernanke finally did it and printed up $300 billion to buy up more treasuries. Such an action is important as the treasury yields could wreck the economy as they set interest rates for numerous industries as well as the rates the government must pay those who are financing our deficit. The Wall Street Journal reported yesterday:
"The Federal Reserve ramped up its effort to revive the economy, declaring it would buy as much as $300 billion of long-term U.S. Treasury securities in the next few months and hundreds of billions of dollars more in mortgage-backed securities.
The Fed had already cut its benchmark interest-rate target to near zero. Unable to go lower, the central bank now is essentially printing money to raise the supply of credit and thus push down the longer-term rates paid by families and companies on mortgages and other key loans. The impact was immediately felt..."

Some such as the chief economist at New York Mellon Bank applauded the move:
"This is a very powerful and aggressive move,” Hoey, chief economist at Bank of New York Mellon Corp., said in an interview with Bloomberg Television. “One of the reasons I’ve been arguing we won’t have a depression is we’ve got a Fed chairman who understands the problem and is going to come with the right diagnosis and the right medicine.” Bloomberg: Rambo Fed buying treasuries

However, the Fed's decision to print money to purchase so many treasuries in an attempt to cap interest rates drew much criticism from financial bloggers. Here are some of the comments from around the web:

Karl Denninger of The Market Ticker penned the headline "Ben inserts gun in his mouth" as he wrote with acid in denouncing the Fed's action:
"We've got over a trillion in trash on our balance sheet now, which we promised would fix the problem but it didn't do jack. That's because nobody in their right mind will borrow money when the economy is in the tank and debt levels are above sustainable maximums. The only borrowers are people who are deadbeats, and that doesn't help. Instead of clearing this out by forcing the bankrupt to take their medicine our "solution" is to attempt to devalue the currency by explicit monetization. We have little choice in this matter because the most-recent TIC data that has been published, along with what hasn't been published (yet) but which we have, shows that foreigners have given us the finger in buying any more of our agency, corporate and sovereign debt. In short, we're screwed - within months - and we know it. .." Kevlar anyone?

and a little more soberly in this analysis:
"Ultimately The Fed winds up owning all of its own government's bonds, having destroyed the private capital market for sovereign debt (just as it has done for other securitized debt by threatening to overpay for those issues!)
The difference is that if this happens for sovereign debt then deficit spending becomes impossible on an instant basis; this would in turn force a nearly 75% contraction of government spending...." Quantitive Easing

Calculated Risk pointed out contrary to expectations, mortgage rates may not fall even though such is part of Bernanke's intent:
"Based on this historical data, the Fed would have to push the Ten Year yield down to around 2.3% for the 30 year conforming mortgage rate to fall to 4.5%.
Currently the Ten Year yield is 2.58%, suggesting a 30 year mortgage rate around 4.7%.
If the Fed buys Ten Year treasuries with the goal of 4.0% mortgage rates, they might have to push Ten Year yields down under 2.0%, maybe close to 1.5.." How far will mortgage rates fall?

Bernanke will have to buy many more treasuries to push the rates that low. Naked Capitalism stated pros and cons in a couple of succint paragraphs:
"it's a gamble. The Fed's purchasing power is not made in a tree by elves. It comes from, essentially, printing more money. If the world's biggest danger is deflation, as Bernanke and a number of economists believe, then this action is wise. The trick to price stability is "reflation" not tight-fisted central banks. If conditions are different, however, it bakes serious inflation in the cake. Thus today's market gyrations, which at the moment have the dollar down, gold and oil up and stocks falling. This is less a fear of raging inflation, than a fear of uncertainty itself, to paraphrase FDR.
But the Fed is out of the conventional tools it has used in post-World War II recessions. Interest rates are virtually zero. So now it's a step into a risky undiscovered country. Among the risks is how our overseas creditors react if they believe this will dilute the value of their dollar-based assets, including Treasuries. Then there's the danger that Bernanke is creating yet another Fed-made bubble, with an even worse crash to follow. If it works, however, it may finally get credit moving. Stay tuned..." Road to Reflation

Option Armageddon was rather curt in its opinion:
"The Fed will be creating money electronically out of thin air to finance these purchases. When you buy a bond, its price rises and its yield drops. Buying another $750 billion of MBS along with $300 billion worth of Treasurys with printed money is a simple trade-off, debasing the currency so we can put a lid on the public’s and home buyer’s cost of debt finance.
This is terrible monetary policy. Keeping interest rates artificially low will encourage credit expansion when what’s needed to actually heal the economy is credit contraction. This sounds counter-intuitive, isn’t more lending what’s needed to “get the economy going?” No, too much credit is what got us into this economic mess in the first place. Asset values of all kinds are still over-inflated relative to their intrinsic value, the value of their discounted cash flows.
Credit is a drug. And the Fed is America’s dealer. We know we need to quit the stuff, but we’ll worry about that tomorrow. What we need right now is another fix in order to get through today. Our dealer, of course, is happy to oblige."
Fed crack anyone?

Finally, leading finance blogger Mish minced no words in calling this policy a failure:
Please note that Bernanke has already failed. "It" (deflation) has arrived. And deflation has arrived in spite of the fact that Bernanke has slashed rates to 0%, instituted numerous lending facilities that have all failed, squandered $trillions in taxpayer money, and has already implemented phase II (or do I mean phases 2 through 20) of his plan, that being the "offer fixed-term loans to banks at low or zero interest, with a wide range of private assets as collateral...
The Fed has become the lender of only resort as opposed to the lender of last resort. Bernanke cannot force banks to lend nor can he force companies to hire or if they do hire the wages that will be paid.Wage destruction continues unabated, and if Bernanke does succeed in driving prices higher, he just might ask himself, how anyone is going to pay the bills..." Bernanke's Grand Experiment

Bernanke's "Grand Experiment" is going to cost us dearly as he tries to manipulate the bond markets. This will force potential buyers (including the Chinese who have already done so) to sit on the sidelines as they will no longer trust the market. As demand dries up, the governmnet will then print more money to keep the yields down, opening up the inflation can of worms. At some point, consumers will face interest rates that have gone up, a weakened dollar, and inflation that threatens our livelihood. Already, the dollar is falling as reflected in the Wall Street Journal about oil today: "Crude-oil prices surged above $50 a barrel Thursday, a day after the Federal Reserve said it will inject billions of dollars into the U.S. economy.
The surprise action sent the dollar plunging against the euro, reviving long-dormant investor interest in using crude-oil futures as a hedge against weakness in the U.S. currency..."

The Fed is playing with matches and unfortunately there are no adults around in case they catch the house on fire.

Bancorpsouth granted Frank and Ellen Melton an extension on their mortgage which was due in full December 5, 2008 on December 17, 2008. The new deed of trust was filed this week in Hinds County.

The mortgage is the first lien on Melton's Jackson home (The more publicized one with Omnibank is a second mortgage in the form of a HELOC*). As reported in an earlier post, Melton's first mortgage was in the form of a five-year balloon note for $250,000. The new deed of trust states another five years was granted to Mr. Melton for $191,883.17 and is due in full on February 5, 2013.

Frankly, the board of directors and CEO of Bancorpsouth must be taken to task by their shareholders. Melton has had TWO foreclosure notices in the last two years. One was filed with Omnibank and redeemed by Melton. The second was a house in Smith County, Texas that WAS foreclosed on AND sold. There is no way in hell any other borrower with a mortgage due in full would get a complete rollover of his loan in today's climate. Can one picture a VP going to his board at a bank in today's environment asking to give in effect another $200,000 to someone who has been foreclosed upon several times? One should ask the CEO how his bank could give so much money to someone who is such a poor credit risk.

Keep in mind Omnibank has filed suit against Dr. Melton, claiming the Melton's did not carry flood insurance on the home. The Omnibank second mortgage is due in full in April, regardless of the outcome of the lawsuit.

Copy of new Deed of Trust

Note: In my earlier post I estimated the principal owed at $189,397.13. The new deed of trust states it is $191,883.17. Without knowing the interest rate I estimated the principal within $2,400 of its actual amount. Is The Kingfish good or what?

Earlier Post

Apparently Stuart M. Irby filed for divorce against Karen Irby September 16, 2008. A copy of the divorce was emailed to me and was subsequently verified. There is no answer in the file, no return of service of process; the complaint is the only document in the file. The petition is expired and no longer valid as Mrs. Irby was not served within 120 days after its filing.

Copy of divorce filing

This post was made for two reasons only and they both have to do with the Clarion-Ledger. On the newspaper's website, there have been many unsupported allegations made and I've made a serious attempt on my posts to knock some of them down and inject some sanity. The second reason (and main reason) is because reporter Gary Pettus penned a spin job to say the least. The story was very insulting to the families of the deceased and provided a narrative of a happy family that ignored basic facts such as this divorce filing and Mr. Irby's arrest for domestic violence in 2007 (It was a BS arrest from what I understand. The point is, the arrest was at odds with the reporter's spin.). If Pettus hadn't written his story the way he did, this post probably is not made.

Pray for the families of the deceased and for Stuart M. Irby as he is in a tough fight right now. Earlier Post

Over at the Jackson Free Press, Ladd tries to smear the Clarion-Ledger on open records of all things, a subject on which she has always been rather quiet:

"Is The Clarion-Ledger Intentionally Misleading on Open-Records Law?
Or, is it woeful ignorance of the law? Either way, the corporate newspaper isn't making government transparency any better as Sunshine Week opens to publish articles such as this one today by Chris Joyner that misreads, intentionally or not, both the letter and intent of Freedom of Information laws.
Joyner states:Under state law, officials are allowed 14 working days to respond to a request to see government documents. Jackson officials routinely let all of that time expire before responding.Wrong.
Under state law, government employees are supposed to make government documents available *on request* and within 24 hours. As is the case in many states, the 14-day clause is there to use only when a government agency does not have immediate access to the documents—such as if if it old and is stored off site or such. THEN they have two weeks max to respond to the law..."

Ladd then publishes the section of the statute in question and then returns to her attempt to discuss public records statutes in an intelligent manner:
"Responsible government officials instruct employees to product information immediately (unless there is a damn good excuse), and real journalism outlets would never routinely state that the government officials "are allowed 14 days" when that is supposed to be the absolute maximum when retrieving the information is actually a hardship.
But The Clarion-Ledger has stated this for years now, and is making it worse for everyone by doing so, and allowing the governments here to be less transparent than they should be. I explained this to Chris Joyner in an interview (which he eventually quoted out of context in his paper; sigh) years back when The Ledger was fighting with the city over public records, and had their attorneys trying to make a deal that would essentially be binding on the rest of us. The deal was to allow the 14 days.
This is against the very spirit of open records and sunshine laws, and it is very disingenuous for the Ledger to act all high and mighty on the subject when they themselves are making it worse by not standing up and fighting for immediate access to information that we all own. It's wrong.
All that said, the law should be tweaked to make this as clear as possible, and not lead sneaky public officials or naive reporters to believe that "officials are allowed 14 working days," but the Ledger's work in this arena is going to make that harder to happen because government will point back to their reporting.
Once again, the Ledger shows that it has no idea how to serve the community that supports it financially. Very sad."

What is sad Ms. Ladd is you don't know what the hell you are talking about because you didn't bother to read the law. The law does state that an answer has to be provided within 24 hours. HOWEVER, there is ANOTHER section to the law, which you even included in your smear but clearly didn't bother to read. Here is the law itself (and I'm highlighting the important clauses):
"§ 25-61-5. Public access to records; denials
(1) Except as otherwise provided by sections 25-61-9 and 25-61-11, all public records are hereby declared to be public property, and any person shall have the right to inspect, copy or mechanically reproduce or obtain a reproduction of any public record of a public body in accordance with reasonable written procedures adopted by the public body concerning the cost, time, place and method of access, and public notice of the procedures shall be given by the public body, or, in the event that a public body has not adopted such written procedures, the right to inspect, copy or mechanically reproduce or obtain a reproduction of a public record of the public body shall be provided within one (1) working day after a written request for a public record is made. No public body shall adopt procedures which will authorize the public body to produce or deny production of a public record later than fourteen (14) working days from the date of request for the production of such record." Ladd's poison pen at work

Since Ms. Ladd didn't finish law school and didn't learn how to read a statute, allow me to put this in plain English for you. If a government body in Mississippi does NOT adopt written procedures, then it has to respond to the request within one day. However, the law also says that the government can also adopt WRITTEN PROCEDURES stating a time period that can range up to 14 business days to respond to a public records request.

Ah, "written procedures". Before you started insulting Mr. Joyner, did you bother to actually read some written procedures, Ms. Ladd? If I was a cub reporter who didn't have a Masters of Journalism from Columbia as you do, I would have done so just to see exactly what they are. Since I'm a nice guy, however, and want to contribute to your education in a meaningful way, I'll help you out and post here some procedures from local governments:

Jackson:
"A response to your request will be provided within fourteen (14) working days of your written request." Jackson Public Records Written Procedures

Brandon:
ARTICLE I. IN GENERAL
Sec. 2-1. Reproduction of public records.
(a) Upon receipt of written request to inspect, copy or mechanically reproduce or obtain any public record which identifies with reasonable particularity the specific record sought, the recipient of such request shall provide such record to the party requesting same, if not exempt under the provisions of the "Mississippi Public Records Act of 1983" (MCA 1972, § 25-61-1 et seq.)....
(b) Upon receipt of a request as provided in subsection (a) of this section, the recipient shall promptly notify the person making the request of the actual cost of searching, reviewing, duplicating, and/or mailing copies of such record, as well as the time and place when such record shall be produced. The person requesting such record shall pay to the city such actual cost in cash or certified funds in advance. Upon timely receipt of payment, such records shall be produced within 14 working days from the date of the request for production of such record..."

Thus in accordance with the statute, several local governments have promulgated written procedures and stated they will take up to 14 working days to answer the written request. As I have personally dealt with several jurisdictions on public records requests, I can state most of them follow the 14 day rule, which is rather frustrating as there is truly no reason for such a delay other than to ignore the public. If Ms. Ladd had learned from experience as I and others have, she would know when such procedures state "within 14 days" they mean 14 days. If Ladd quit surfing google, Nexis, and the Clarion-Ledger so much, she might have learned what the law actually said and how it was applied in the real world.

What is funny is how quiet Ladd has been on opening public records over the years. The only time I can remember her making it a serious cause was when Melton refused to release crime statistics (funny how since Mac took over JPD the JFP became rather silent on crime figures). It's no secret she does not like the Mississippi Press Association as they have refused to allow her publication to join as a regular member. As the MPA has made easing public records laws a mission of sorts, Ladd has been very quiet on this subject as it's obvious she's in a snit because she can't play in their sandbox, even though such changes will benefit her. The Clarion-Ledger has made it a point to fight for changing Mississippi public records laws, which are among the weakest in the country and a complete disgrace.

It is sad seeing someone debase a highly-respected degree in such a manner by smearing another reporter (I must admit, Mr. Joyner is a sloppy reporter and makes more than his share of mistakes.) while making a fool of herself to anyone who is familiar with the law. If she wants to be treated as a real journalist, perhaps she should start acting like one instead of merely claiming to be one.

"While administration officials insisted Tuesday that neither Obama nor Geithner learned of the impending bonus payments until last week, the problem wasn't new. AIG's plans to pay hundreds of millions of dollars were publicized last fall, when Congress started asking questions about expensive junkets the company had sponsored. A November SEC filing by the company details more than $469 million in "retention payments" to keep prized employees.....
Around the same time, outside lawyers hired by the Federal Reserve started reviewing the bonuses as part of a broader look at retention and compensation plans, according to government officials who spoke on condition of anonymity. The outside attorneys examined the possibility of making changes to the company plans - scaling them back, delaying them or rescinding them. They ultimately concluded that even if AIG's bonuses were withheld, the company would probably be sued successfully by its employees and be forced to pay them, the officials said.....
Around the same time, Congress and Obama's team were passing up an opportunity to put in place strict laws to revoke bonuses from recipients of the $700 billion Wall Street bailout. In February, the Senate voted to add such a proposal to the economic recovery bill that cleared Congress, but in final closed-door talks on the measure, that provision was dropped in favor of limits that affect only future payments..."

Remember, the Republicans were not allowed in the conference committee and no one had a chance to read the bill before it was passed.

Once again The Kingfish was right. Dr. Doom now says the same thing about Treasury bonds The Kingfish said a few weeks ago.

"The Federal Reserve has no option but to start buying Treasurys as the government's needs for financing are huge, but the government bond market is a disaster in the making, Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, told CNBC....
The yield on the 30-year Treasurys touched a low of 2.51 percent last year in December but now it is back up at 3.77 percent, he said.
"Yields have already backed up pretty substantially and I tell you, I think the US government bond market is a disaster waiting to happen for the simple reason that the requirements of the government to cover its fiscal deficit will be very, very high," Faber said.
"The Federal Reserve will have to buy Treasurys, otherwise yields will go up substantially," he said, adding that as their reserves were dwindling, foreign investors were likely to scale down their purchases.
But there will be a time when the Federal Reserve will have to increase interest rates to fight inflation, and it will be reluctant to do so because the cost of servicing government debt will rise substantially.
"So we'll go into high inflation rates one day," Faber said.
The stock market is likely to continue its bounce at least for a while, but the outlook is bleak, he added.
"I think we may still have a rally (in the S&P) until about the end of April and probably then a total collapse in the second half of the year sometimes, when it becomes clear that the economy is a total disaster," Faber said." Dr. Doom's Gloom

Past quotes by me on this site:
"what will happen when trillions in Treasuries are dumped on the market while demand from China and Japan decrease as they deal with their own recessions? Supply and demand don't change in a recession and the price for treasuries will eventually drop, sending interest rates higher. What is Obama going to do when he gets his way and 18 months from now interest rates are at least ten percent? More deficit spending financed by treasuries becoming more worthless?"

"See the dilemma the Fed is in? One one side it is trying to keep interest rates low so as to stimulate private borrowing. On the other side it is printing more money because of poorly-thought out stimulus plans (keep in mind the Fed created over two TRILLION dollars in new money last year). It will be difficult if not almost impossible for the Fed to do both as investors will demand higher yields for Treasuries as they become worth less due to more spending (thank you Bush, Paulson, Bernanke, and Obama). If something doesn't change, a train wreck is coming"

"For those of you who didn't get that or happen to be journalists, here is the plain-English version: the only way Obama can finance his increased spending is to issue more treasuries. The problem is, as they become worth less money because there are many more of them, the markets are going to quit buying them unless their yields increase (The relationship of bonds to yields is as the price of the bond falls, the yield or interest rate on them increases.) This will in turn force mortgage rates to increase as the interest rate on a mortgage is dependent on the 10-year treasury bond. Credit cards and other forms of lending will see their corresponding interest rates increase as well, further contracting consumer demand and thus damaging the economy some more."

This has nothing to do with partisan politics or blaming Bush or Obama as yield curves don't belong to political parties. Think getting some extra money for Medicaid is worth it when you are paying 12% on a house note? What do you think it will do to the economy when interest rates have shot up and kill demand? Think there is a liquidity problem now? Just wait until they get to 10%. What are you going to do when the government needs to raise interest rates to fight inflation but can't because Obama financed these deficits with short-term treasury bonds that are much higher? Such a scenario will be very expensive if it occurs. Its the sort of disaster that bankrupts governments overnight.

Ponder this on the tree of woe.

The same Chris Dodd who was on Angelo's payroll. The same Chris Dodd who today calls for taxing these bonuses. By the way, Kingfish is the one who read the original bailout back in September and warned you these comp plans were protected (the AIG bailout was not part of that legislation). Guess who were the top two recipients of AIG's campaign donations? Dodd and Obama. They both recieved over $100,000 each. Nice work if you can get it

While markets collapse and 401k plans disappear, one must wonder why the financial press failed to warn us about Wall Street's house of cards. Commercials blared how well they understood the markets, how they looked out for your money, and gave you the information you needed to make the right decisions. As the markets and economy implode, they still merrily chirp away on tv as if nothing ever happened with no accountability for their sloppy reporting as the last few years.

The old video (Its a classic on Youtube) of Peter Schiff is Cassandra-like in nature as his predictions of doom and gloom for the markets are ridiculed by the gurus and stock babes who didn't want to hear anything that might upset the applecart. The same stock babes and gurus who forgot everything and learned nothing from the subprime mortgage implosion and the bursting of the tech bubble in the late 1990's. The business media missed it then as they acted as cheerleaders instead of journalists. Sound familiar? Who can forget Herera and Haines gushing over the "new economy" as tech stocks suddenly sold for hundreds of dollars every day on the Squawk Box? So busy were they marveling over this "new economy" they forgot to ask some old questions such as how these internet companies were going to turn a profit. Its sooooo much easier to cover a first downs and yards per rush, oops, I meant stock price, than it is to read a balance sheet or income statement that at times CNBC became ESPN. The Nasdaq crash, blindsided them as they never seemed to think that they might actually be witnesseing the creation of a bubble.

A network reporting financial news is one thing, a network advertising every hour "In Cramer We Trust" and "Fast Money" (Or is it Easy Money, Mo Money, or My Money, they all run together after awhile.) is something entirely different. If CNBC and others are going to go down that road, then they better not write checks their asses can't cash when the you-know-what hits the fan. Its rather insulting for a Cramer to claim as he did last week "No one could have seen this coming" or "This was a once in a lifetime event" when hard-nosed research would have provided them with the real story. Anyone who read the balance sheets, actually learned what was taking place on Wall Street, and just asked simple yet critical questions could have figured out something wasn't right.

A mere blogger like me warned nearly 18 months ago Fannie and Freddie had ticking time bombs on their balance sheets. Schiff warned on any show that would give him a microphone what was coming down the river. Karl Denninger, a trader, predicted with deadly accuracy in 2006 everything that has taken place in the economy for the last two years. When he dared to point out on Donnie Deutsch the emperor had no clothes, Cramer went ballistic and could not believe someone would dare challenge the CNBC media octapus as it was more important to CNBC and others to promote their insider-friendly agenda.
While they BS'ed on Power Lunch with a CEO, the Mish's and Schiff's were actually sitting down and reading balance sheets, studying charts, asking questions, and knocking on the wood panel on the wall, listening for the hollow sound (Sorry, I just read All the King's Men and have been looking for a chance to work that passage into a post.).

None of these reporters questioned the SEC's 2004 decision removing leverage limits on investment banks and other institutions in 2004. They just reported "The SEC voted today to remove leverage limits, a move supporters say will allow them to make more efficient use of capital." They never asked "Is this a good idea" or "won't this leave our financial system heavily exposed if the investment banks over-leverage themselves?" or "What will the effect be if they go under?" No one asked questions when Fannie Mae was busted for fraud. They didn't see anything wrong with investments leveraging themselves at 30:1 ratios. When OFHEO reported in 2006 Fannie was making too many risky loans, CNBC and Bloomberg yawned. However, Cramer and Kudlow had a good food fight that day that got high ratings.

Even today, despite the fact housing crisis is one of the biggest problems today, the business networks still do not have any reporters with mortgage or real estate experience. Staurt Varney wails how the the government has done everything it can and its not fair consumers aren't responding while I'm reading a post on Naked Capitalism reporting in detail why consumers are spooked and why the economy is contracting. The money honeys ask if every uptick in the Dow means we have reached the bottom when no one ever knows whether a bottom has been reached until several months after it has been reached. They also report that this bottom should behave like other market bottoms when the conditions that created this crisis are much different than past crashes. Few of them ask what effect Obama's deficit spending will have on the bond markets. The Money Honeys argue we need housing prices to stop falling while Glenn Beck accurately points out with his chart housing prices have a natural level, keeping them from reaching that price level will only mean more pain for the economy, and they still have to fall some more before they reach their natural levels. That would require actual research from the "experts" so naturally they don't discuss this little aspect of housing prices.

Perhaps its not the fault of the reporters for missing these stories as a qiuck review of their online profiles reveals something not really discussed in the media: most of the reporters on the business news channels are not really qualified to cover the markets and the economy. Most of the reporters are journalists. Many of them have won awards for their reporting and are considered by there peers in journalism to be top-notch reporters.

The problem is they are reporters and few have any background in finance or economics. At CNBC, 13 of the 23 anchors and reporters have NO business or finance experience. Two more have very light backgrounds in such fields: the Money Honey has a minor in economics and another one spent one year fresh out of college at Goldman Sachs (glorified gopher.). While several have very respectable journalism resumes, only 8 of the 23 have any finance or economic backgrounds of any substance (See below for names and histories). At Fox Business News where 11 of 24 had any business backgrounds of substance. There is nothing wrong with hiring reporters with no finance experience to work at CNBC, Bloomberg, or FBN. However, there is something wrong with a network touting itself as the expert on the markets and investing when a large portion of its anchors and reporters don't have any expertise in these fields.

The business networks need to decide what they want to be: true business news channels reporting on what makes the markets tick or an insider's club occasionally giving us a glimpse into their world. They have had it both ways for years and still seem surprised we would expect them to behave any differently. Was anyone nauseated as I was while listening to Cramer as he was gutted by Stewart on The Daily Show: "I trusted these guys." "He hired me. I trusted him." "I've known him for twenty years." "Our real sin was to believe it (the market) would keep going up."

Does anyone think Cramer is this naive or that he really thought the market would always go up? Cramer is no dummy and didn't make millions managing hedge funds by just believing what CEO's told him. Cramer probably saw CNBC as a way to make money and a name for himself so he decided to play the game while touting himself as a financial John the Baptist shouting the truth from Wall Street wilderness. Instead, Cramer treated as us fools for years then claimed he "trusted" these guys when he got caught by Stewart. Yet we should put our trust in Cramer.

Unfortunately we now live in a society that rewards failure and ignores accountability. The financial news networks play their games: abdicating their roles as our watchdogs of the business community while schmoozing with the people who caused our economy to melt down. There is still no investigative reporting, no calls for indictments or prosecutions, no serious analysis, just a gee whiz, its a shame we got here, how do we get out of this mess. The financial press is a complete disgrace but then again, so are many other things these days.

Note:

CNBC
Reporters with journalism-only backgrounds:
Sue Herera, Julia Boorstin, Mark Haines, Scott Cohn, Margaret Brennan, David Faber, Charles Gasparino, Bill Griffeth, Mike Hegedus, Mike Huckman, Dennis Kneale, Steve Liesman, Tyler Mathison, Christine Tan, Hampton Pearson, Becky Quick, Scott Wapner, Dianna Olick, Jane Wells, Brian Schactman,

Reporters with finance, business, or economics backgrounds:
Philipi Lebeau: Van Kampen, LeBeau held a Series 6 license.
Melissa Lee: consultant at Mercer Management Consulting. Her cases focused on the banking and credit card sectors
Joe Kernan: Ten year career as a stockbroker. Merrill Lynch, Vice-President at both EF Hutton and Smith Barney. Focusing on small-to-medium-sized corporations, Kernan managed corporate cash accounts and qualified retirement plans in addition to key employees’ personal assets
Rebecca Jarvis: an investment banker with Banc of America Securities. Analyzed and advised $6 billion in mergers and acquisitions, equity and debt transactions. Prior to that, she executed interest rate trades on Citigroup's foreign exchange desk in London.
Melissa Francis: B.A. in Eonomics from Harvard University. Executive editor of the Harvard College Economist Magazine
Erin Burnett: Began her career at Goldman, Sachs & Co. as an investment banking analyst- focused on mergers and acquisitions and corporate finance. (Gopher)
Michelle Caruso-Cabrera: bachelor's degree in economics from Wellesley College.
Ross Westgate: 6 years in London, trained as a stockbroker, working with private clients
Trish Regan: began her career working for Goldman, Sachs & Co. and D.E. Shaw & Co.
Bob Pisani: taught real estate at Wharton
Mary Thompson: worked at Fidelity Investments in Boston for four years where she held a variety of sales positions
Santelli: A veteran trader and financial executive, Santelli has provided live reports on the markets in print and on local and national radio and television. He joined CNBC from the Institutional Financial Futures and Options at Sanwa Futures, L.L.C. There, he was a vice president handling institutional trading and hedge accounts for a variety of futures related products.
Prior to that, Santelli worked as vice president of Institutional Futures and Options at Rand Financial Services, Inc., served as managing director at the Derivative Products Group of Geldermann, Inc., and was Vice President in charge of Interest Rate Futures and Options at the Chicago Board of Trade for Drexel, Burnham, Lambert. Santelli began his career in 1979 as a trader and order filler at the Chicago Mercantile Exchange in a variety of markets including gold, lumber, CD's, T-bills, foreign currencies and livestock. Santelli has been a member of both the Chicago Mercantile Exchange and the Chicago Board of Trade.

Fox Business News Channel:
Reporters with journalism-only backgrounds:
David Asman, Cheryl Casone, Adam Shapiro, Dagen McDowell, Jenna Lee, Nicole Petallides, Rebecca Diamond, Rich Edsen, Liz Clayman, Neal Cavuto, Connell McShane, Jeff Flock, Robert Gray, Elizabeth McDonald

Reporters with finance, business, or economics backgrounds:
Ashley Webster: Six years in London, banking sector for Bank of Montreal and Lloyds Bank
Eric Bolling: independent trader based out of the New York Mercantile Exchange. He specialized in trading a variety of commodities such as crude oil, gold and agricultural commodities. He served on the NYMEX’s Board of Directors for five years, and subsequently acted as a strategic advisor there.
Louise Pennell: Bachelor of Business degree
Peter Barnes: Wharton MBA
Shibani Joshi : MBA from Harvard Business School, completed the investment banking analyst program at Morgan Stanley, bachelor's degree in finance & accounting at the University of Oklahoma.
Tom Sullivan: He also has more than a decade of experience in financial services, serving as a founding partner of The Sullivan Group, an investment management firm that is now part of the Premier Client Group of Wachovia Securities. Sullivan holds degrees in business and accounting. He attended Seattle University, the University of Washington, and the Stanford University Graduate School of Business Executive Program
Stuart Varney: Graduated from London School of Economics.
Alexis Glick: Executive Director at Morgan Stanley, headed the New York Stock Exchange Floor Operations. A member of the New York Stock Exchange since 2002, she was the first and youngest woman to manage such an operation for a bulge bracket firm, and served as one of its top producers on the Listed Equity Trading Desk. She began her career as an analyst at Goldman Sachs in the equities division.
Brian Sullivan: Sullivan traded chemical commodities for Mitsubishi International
Cody Willard: Principal of an investment management company. Regular featured economist and stock picker on CNBC's ''Kudlow & Company." Willard earned a bachelor's degree in economics at the University of New Mexico.
Sandra Smith: Director of Institutional Sales and Trading at Terra Nova Institutional, handled investment management and hedge fund accounts. trader at Hermitage Capital.
Tracy Byrnes (Fox): Byrnes began her career at Ernst & Young LLP as a senior accountant. A graduate of Lehigh University with a B.A. in Economics and English She received her Master of Business Administration Degree in Accounting from Rutgers University Graduate School of Management.

My prediction when the bailout passed:

"Kingfish said...
Actually stocks dropped 200 points or so from the pre-voting price for the day, where it was the highest. When they started voting, it dropped like a rock.
My prediction? In 6 months we are back here again.
October 3, 2008 4:43 PM "

Found a little study that will cause the Krugonauts to gnash their teeth as it takes issue with the assertion by Krugman, the Obama administration, and Keynesians that more government spending will stimulate the economy. Such advocates argue that for every dollar spent by government, GDP increases 1.5 times. A new study, New Keynesian versus Old Keynesian Government Spending Multipliers by Drs. Cogan, Cwik, Taylor, and Wieland*, concludes the opposite is true and that such spending puts a drag on the economy.

From the abstract:
"Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. ..... Government spending multipliers in an alternative empirically-estimated and widely-cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small with GDP and employment effects only one-sixth as large and with private sector employment impacts likely to be even smaller."

The remaining quotes are from the study itself. The study cites on flaw in the models that posit a multiplier of 1.5:
"(Such models) assume that the Federal Reserve pegs the interest rate—the
federal funds rate—at the current level of zero for as long as their simulations run. Given their assumption that the spending increase is permanent, this means forever..." (Does anyone think interest levels will stay at zero?)

However, the study then states such a model will cause.........hyperinflation:
"With the Fed holding the nominal interest rate constant at the current value near zero, and thus below inflation, the lower real rate would cause inflation to rise and accelerate without limit. Thus the combination of a permanent increase in government spending and the Fed setting the interest rate at zero would lead to hyperinflation..."

The study also argues that in addition to hyperinflation, the economy will contract more and more as so-called stimulus spending increases:
"The Smets-Wouters model predicts that the increase in GDP by the end of 2009 is
smaller than the increase in government expenditures itself; that is, the multiplier is less than one. Thus, the model predicts that government “stimulus” quickly produces a permanent contraction in private sector investment and/or consumption. Note that the magnitude of the contraction grows over time. By the end of 2012, for each dollar of “stimulus”, the flow of goods and services produced by the private sector falls by sixty cents...."

Read the rest of the study (its only 21 pages, double-spaced): http://www.volkerwieland.com/docs/CCTW%20Mar%202.pdf

*"John F. Cogan is the Leonard and Shirley Ely Senior Fellow at the Hoover Institution and a professor in the Public Policy Program at Stanford University. John B. Taylor is the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution Mary and Robert Raymond Professor of Economics at Stanford University. Tobias Cwik is a doctoral candidate in economics at Goethe University Frankfurt. Volker Wieland is Professor for Monetary Theory and Policy at Goethe University of Frankfurt and Willem Duisenberg Research Fellow at the European Central Bank."

Uh-oh, Jeff Ayres at the Clarion-Ledger is trying to write about the housing market again. If you want to see a really poorly-written article, read his story. Shouldn't come as a surprise as he recently wrote a story about the so-called decline in local housing values while admitting he actually did not use any sales data.

Mr. Ayres also fails to ask one basic question in his story: how much sense can it make for the government to fund all of these housing initiatives when the foreclosure rate for FHA no-money down programs is TRIPLE the rate for FHA mortgages where the borrower is required to make a down payment?

These programs are not a good idea as what caused this entire housing crisis was giving loans to people who had no business getting a mortgage. The numbers don't lie: a down payment, decent credit, stable job with decent income, and the judgement to not bite off more than one can chew in terms of a housing payment mean a much lower default rate. Unfortunately for the readers, Mr. Ayres did not ask if throwing more money at riskier borrowers would only make the problem worse.

I'm starting to think this guy is qualified for CNBC.

Earlier Post on Ayres' sloppy reporting

From Marketwatch:
"The hard work is paying off. As Forbes.com recently noted, "It has taken a decade but Newsmax is now a news powerhouse and a must-read on the conservative media circuit."
Last year, Newsmax racked up total revenue of $24 million, up from 2007's $19 million -- an impressive outcome during an industry-wide recession.
Based in West Palm Beach, Fla., Newsmax shrewdly targets its news to a broad base of Republicans. Ruddy, 44, is a devout Republican, yet he excoriated George W. Bush's failures and the spend-happy Republican Congress. His Newsmax holdings, which include a magazine and newsletters, have strived to stay true to the ideals of Ronald Reagan, the most beloved Republican of his time. But he doesn't mind praising the Democrats, either......" Marketwatch Story

A grave disturbance in the force felt I for the last few days and now made clear things are. NMC has left FOLO and opened up a new blog: Nmisscommentor.com. His new blog can be found at http://www.nmisscommentor.com where he will pen his legal commentary, culinary thoughts, and musings about the blues. Enjoy.

Came across this while reading the Faye Peterson quotes at the JFP:

Former Hinds County District Attorney Faye Peterson announced a week ago she is running for Mayor of Jackson. Madame DeLadd had the following to say about Ms. Peterson:

"Well, you have to say one thing for Peterson: She is one tough woman. I've never quite seen the level of venom hoisted on anyone as she has gotten from political opponents (and sexist pigs) and she simply lets it roll off and keeps going.
One thing I dread, though: The bare mention of her name brings out some of the most base, abhorrent sexism from some people in this town, and at least one of them is a woman. Fortunately, we now have a "moderation" system in place for when those types show up.
Sadly, for years, Melton has pushed these kinds of memes about her, and many people parrot them without even knowing where they came from. posted by ladd on 03/07/09 at 08:41 AM"

Well, Ladd, I'll take up your challenge. Some of us don't like Ms. Peterson not because she is a woman or black but because we don't like specific actions she took while District Attorney. You want us to name a specific case and not just repeat so-called myths or generalizations? You got it. Faye Peterson intentionally tanked a case involving a gunman on a school campus. The son (and convicted drug felon) of a JSU Department head took a gun to the University and shot another student by the bookstore. The shooter just happened to be the nephew of Credell Calhoun and enjoyed the open support of many local black politicians. How did Faye throw the case you ask? Simple:
1. Did not call the victim before the grand jury.
2. Did not call the arresting officer and main witness before the grand jury.
3. Did not charge Mack with possession of a gun on a school campus. There is no self-defense defense for this claim.

When lightly questioned about it by Ladd on her radio show, Ms. Peterson said she didn't call these witnesses because she thought it was a good case of self-defense. Doesn't matter as the law on such gun possession is pretty clear. Then there is the case of the Heather Spencer case where the family was not notified of Robbie Bell's indictment for three weeks and learned about it by reading the newspaper. I've been told by them how little contact they had from Faye Peterson's office and how badly they were treated by them.

So the next time Ladd brazenly dares anyone to show specific cases where Ms. Peterson did a bad job, throw these at her. Just remember when it comes to a case like Melton/Mac are facing with the Irby case right now, Ms. Peterson has already shown her true colors and they are yellow. Its not about her sex or race but what her character was when it counted.

Note: Just found another case. There was a serial rapist sentenced to 15 years in jail this week. The victim first went to Faye Peterson's office four years ago. Nothing happened until Smith assumed office.

Earlier posts:
http://kingfish1935.blogspot.com/2007/05/when-it-comes-to-criminal-justice.html
http://kingfish1935.blogspot.com/2007/08/dont-forget-tuesday-hinds-county-da-did.html

So FDIC didn't collect premiums for TEN YEARS?????

"The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.
Graphic Deposit Insurance Fund Balance
The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts...." Boston Globe story

Wonderful.

The American Thinker makes several good points in discussing the Democrats' attempts to smear Rush Limbaugh:
"This leaves Republicans at a psychological disadvantage. The public, as evidenced by their most popular television shows and rock concerts, has a taste for idols. Blindly following a leader is easier and more comfortable than thinking for oneself....."

and this money quote from 1984:
"Obama's purpose should have been obvious. For the past eight years, the Democrats have made intense and persistent use of the Two Minute Hate technique that George Orwell described in Nineteen Eighty-Four:
The Hate had started. As usual, the face of Emmanuel Goldstein, the Enemy of the People, had flashed on to the screen...The programmes of the Two Minutes Hate varied from day to day, but there were none in which Goldstein was not the principal figure...Goldstein was delivering his usual venomous attack upon the doctrines of the Party--an attack so exaggerated and perverse that a child should have been able to see through it, and yet just plausible enough to fill one with an alarmed feeling... Before the Hate had proceeded for thirty seconds, uncontrollable exclamations of rage were breaking out from half the people in the room ...In its second minute, the Hate rose to a frenzy. People were leaping up and down in their places and shouting at the tops of their voices in an effort to drown the maddening bleating voice that came from the screen ...The Hate rose to its climax. The voice of Goldstein had become an actual sheep's bleat, and for an instant the face changed into that of a sheep..."
http://www.americanthinker.com/2009/03/rush_limbaugh_and_the_two_minu.html

No surprise here as Bush on domestic policies governed like a Democrat yet all that mattered was putting some hate on Bush. Funny how the media fails to point out Obama is continuing many of Bush's policies that those suffering from BDS hated.

"Wmartin, I think you're smart enough to know that the stock market was going to fall no matter who came into office in January. The economy was in tatters, you know. There are no quick fixes, and the stock market is going to have to go through a huge makeover before anything gets better. But this sounds like a topic to discuss on one of several economic threads going now. posted by ladd on 03/09/09 at 02:25 PM"

"I assume you mean on the WSJ editorial page? No surprise there. (It does have WALL STREET in its name, you know.) As far as talking heads, who cares?
All you have to do is use your common sense on this one. With all the bad news coming in in recent months about the economy, and the credit crunch, etc., the stock market is going to continue to fall for a while. Doing nothing is not going to change that, either
Any fool knew this would be the case regardless of the measures the government takes to try to reverse the disaster. Had McCain been here, Dems would have been blaming him for the same thing. posted by ladd on 03/09/09 at 02:39 PM"

"As for the Wall Street Journal, CNBC, etc., where were their editorial writers back when this mess began? NPR had a good story on the business media this morning, and how they were licking the butts (my phrase) of the CEOs just a year ago. posted by ladd on 03/09/09 at 03:09 PM"

She should stick to social justice and civil rights because it's pretty clear when it comes to the markets she is a complete idiot. That's right, I said it. Funny how every credible business writer including guys who got things completely right like Denninger and Mish take an opposite view. Who are you going to believe? A tax cheat like Ladd or the prophets who have been right so far?

For the record, it takes a President 1 year to 18 months before he can have a substantial impact on the economy, as it takes a while for him to get legislation passed, appointments confirmed, and policies drafted and implemented. However, he can have a MUCH quicker impact on the markets. The markets ARE a tracking poll of sorts, and they are the kind of poll you don't want to do badly in, as these voters are informed and are in the business of crunching the numbers to see how a president's policies will effect the economy. Now if what Obama does with all of his deficit spending drives up bond yields, that WILL wreck the economy further and much faster than is normal for a President's impact, as the economy can't handle substantially higher interest rates right now.

By the way, where was the WSJ editorial page during all this mess? Let me see, they were writing editorials for over ten years calling for the government to crack down on Fannie Mae and Freddie Mac even after Angelo was accosting Paul Gigot at parties, they broke the story about Angelo paying off Dodd and others, spoke against bailing out the banks and blowing hundreds of trillions of dollars on such schemes, published Anna Schwartze's criticism of Bernanke and the Fed, and warned against the government causing too much damage. The only area where they blew it was on the 2004 SEC decision to remove leverage limits. But hey, that would require actually reading the WSJ instead of writing Faye Peterson's press releases. They argued against the Detroit bailouts. They published criticisms by Jerome York and others predicting Detroit's collapse several years ago. They've made mistakes but have been much more accurate than the Mad Man and the Money Honey.

Wait a second, she did it again. Here is another gem:
"Right, "Obamanomics" is a really ignorant phrase at this stage of the game.
What we call it is a crisis.
As for the Wall Street Journal, CNBC, etc., where were their editorial writers back when this mess began? NPR had a good story on the business media this morning, and how they were licking the butts (my phrase) of the CEOs just a year ago. posted by ladd on 03/09/09 at 03:09 PM"

Guess Obama's people are ignorant as Laura D'Andrea Tyson wrote this column in yesterday's Wall Street Journal:
"In Defense of Obamanomics By LAURA D'ANDREA TYSON.....
Ms. Tyson is a professor of business and public policy at the Haas School of Business, University of California, Berkeley. She served as chair of the Council of Economic Advisers and as the National Economic Adviser under President Clinton. She is a member of President Obama's Economic Recovery Advisory Board." Obama's people discussing "Obamanomics"

The column was published the night before Ladd made her comments. Nice to know Ladd considers Obama's economic advisors to be ignorant.

I think we all know who is ignorant. And it's not Obama, Tyson, or this blogger.

Today at 3:30 CST for one hour. Karl Denninger will be taking calls. Check out The Ticker Forum. Friends of mine have made money reading it for the last two years.

She makes some good points about something to do with, um, uh, something.

I'm going to write about it but not today.

Think the housing industry can't implode any further? Guess again. Now FHA defaults are skyrocketing. The Washington Post published a very good story today on this problem. Buckle your seat belts:

"This decade's housing boom rendered the agency irrelevant. Americans raced to aggressive lenders, seduced by easy credit and loans with no upfront costs. But the subprime mortgage market has crashed and borrowers are flocking back to the FHA, which has become the only option for those who lack hefty down payments or stellar credit. The agency's historic role in backing mortgages is more crucial now than at any time since its founding.
With the surge in new loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency's overall growth in new loans, according to a Washington Post analysis of federal data.....
Once again, thousands of borrowers are getting loans they do not stand a chance of repaying. Only now, unlike in the subprime meltdown, Congress would have to bail out the lenders if the FHA cannot make good on guarantees from its existing reserves. And those once-robust reserves are showing signs of stress, raising the possibility that taxpayers may have to pick up the tab for the first time since the agency was established in 1934.....
The agency's share of the mortgage market is up from 2 percent three years ago to nearly a third of the mortgages now made, its highest level in at least two decades, according to Inside Mortgage Finance, an industry trade publication. The FHA does not lend money directly. It provides mortgage insurance for borrowers working with FHA-approved lenders and uses the premiums to cover its losses. If the premiums are not enough, taxpayers could be on the hook.
At the same time, Congress has substantially increased the amount a homeowner can borrow on an FHA loan in pricey areas, thrusting the agency into markets it was previously shut out of, such as California, where plunging home prices have made people more vulnerable to foreclosure. (Kingfish note: It was increased to $721,000 in such "high-cost" areas. In Mississippi was nearly doubled to $271,000.) Moreover, lawmakers last year put the FHA in charge of a program created to address the roots of the financial crisis by helping delinquent borrowers refinance into new mortgages.
On top of all these strains, the agency now faces this swell of loans that default almost immediately. ...." FHA Defaults climbing

This should come as no surprise and is scary for several reasons. FHA requires a 3% down payment (unless you are getting funds from down payment assistance programs such as the bond money program operated by Mississippi Home Corporation.). The FHA rates for the last few years have been low, usually below 7%. The income and assets are verified, these are not "liar" loans. Despite these guidelines that should make FHA mortgages much safer than subprime, Alt-A, and Fannie Mae no-down payment loans that have exploded the housing industry, the defaults are STILL rising to very dangerous levels.

This problem does not exist because of the economy going south as there is no reason a borrower on such a mortgage should default on the first payment. Within a day or so of the mortgage's funding, the lender contacts the employer on the phone usually to verify employment just for this reason (its a standard industry practice.). The lender reviews pay stubs, tax returns, W-2's, and bank statements. There are only a handful of reasons FHA is imploding. Fraud is being committed by the lender or borrower. Sloppy underwriting practices. FHA's cashout refinances (Until recently, a borrower could get a cash-out refinance through FHA for 95% loan to value, a recipe for disaster as the default rates on such mortgages are very high.). FHA has no minimum credit score requirement (Most of the lenders have imposed their own, however.). FHA accepts "alternative" credit if a borrower has no credit history in the form of utility payments, rent payments, etc. The appraisal guidelines are not as strict as they are for Fannie and Freddie. The mortgage insurance rates are lower.

However, the pressure to use FHA programs has been great the last few years as many mortgage companies who only originated subprime mortgagees and were facing extinction obtained FHA licenses so they could pursue subprime borrowers as FHA had easier underwriting requirements compared to Fannie Mae and Freddie Mac. Some subprime lenders entered the FHA market just to stay afloat even though they lacked any FHA expertise.

One such lender was GMFS in Baton Rouge. The owners once operated United Companies and UC Lending, former subprime lenders that collapsed in a similar implosion of the subprime mortgage market in the 1990s. Undeterred, they opened another subprime mortgage lender a few years later, GMFS LLC. As subprime lending withered, GMFS received approval from HUD to become an FHA lender, thus allowing it to escape the collapse of the subprime mortgage industry. Unfortunately, GMFS's track record on the performance of its FHA loans dovetails with the assertions made in the Washington Post story about new FHA lenders contributing to the FHA implosion.

A quick review of HUD's website reveals GMFS has a "compare ratio" (How lenders compare nationally to other lenders on defaults.) of over 200%. In plain English that means GMFS has a default rate double the rate for the average lender. In comparison, Trustmark, a long-established local FHA lender (Both companies fund loans for mortgage brokers) has a rate that is a quarter of the national average. GMFS's numbers are even worse as 96 of 832 FHA mortgages went into default (90 days or more late) in the last two years (Over 11% according to HUD's Early Warning System). Trustmark was much lower: only 10 of 736 FHA mortgages went into default for the same time period, a default rate of 1.36% (See earlier post: How do local lenders compare on FHA.), demonstrating while FHA became a safe haven for subprime lenders and borrowers, it became a whirlpool of further financial destruction for taxpayers.

Subprime crashed. Mortgage lending not supported by the government is non-existent. Fannie Mae and Freddie Mac have turned into financial money pits with no end in sight. Now we are looking at another time bomb about to go off at HUD while we are wasting our money bailing out Citi, AIG, and every one else with a hand out for some dough. The whole mess is blowing up in the faces of the politicians who don't have a clue what they are facing nor what to do. Even now, some congressmen seek to pass a law making the now-banned FHA down payment assistance programs legal once more (see note below) even though the default rates are triple those for borrowers required to make a down payment. Strap yourselves in boys and girls, the roller coaster is about to give you some more thrills and excitement as the madness continues.

Earlier posts: Fannie and Freddie's Ticking Time Bomb

Note: For years down payment assistance programs were offered. Ameridream, Nehemiah, and others offered the following deal: If an FHA borrower had no money for a down payment, these programs would have the seller raise his sales price by 3.5% or so. The overage would go to these companies which then would cover the necessary down payment while holding back a fee. These were controversial for two reasons: It is argued they are artificially inflating the price of the home and the whole scheme is a shell game. The default rate is triple as stated earlier. Congress banned these programs recently yet some are seeking to reinstate them. Here is a link to an online campaign to stop their reinstatement: Stop FHA Subprime Campaign

Finance/business websites I read more than a couple of times a week in case you are looking to beef up your reading list. ;-) :

Mish
The Market Ticker and the related Ticker Forum
Naked Capitalism
Calculated Risk
Baton Rouge Business Report
Housing Wire
Mortgage Implode-O-Meter
and, don't laugh, Money Talk board on Tigerdroppings.com

PS: Here is your definition for the day: Bezzle: "First come the losses and the stupidities committed by bankers working for their own self-interest. Then come the rogue traders, unable to ‘fess up on market bets gone wrong. The last to arrive is the bezzle.That was John Kenneth Galbraith’s word for the outright frauds - the “inventory of undiscovered embezzlement” - that are built up when markets are good. These can be kept hidden for as long as the lies hold up, Breakingviews notes."

The Market Ticker argues GE is under attack:
This insanity is caused by the CDS feedback loop; here's how it works.
I buy a CDS on GE (a few weeks ago) for a couple hundred basis points ($200,000 per $10 million)
The SELLER of that CDS protects against possibly having to pay by shorting whatever he can against that short credit position. This means he buys PUTs, he shorts the common, he does whatever he needs to in order to lay off that risk. He does this because if GE goes bankrupt their stock would presumably go to zero; therefore, if he has a potential $10 million exposure on the CDS he will short $10 million face value of the common stock, or buy enough PUTs to pay him $10 million if the stock goes to zero.
The PUT writer (assuming he buys PUTs), being a market-maker, will in turn short the common to lay off the risk as well.
This hammers the stock price which then reflects into the pricing models for the CDS, driving them higher.
This cycle repeats; unfortunately credit rating models include market cap as one of their inputs, which causes a credit downgrade (eventually.)
That in turn adds more pressure.
This cycle is repeated until the company is destroyed.
Why is this not a problem with options and straight short sales?
Because with both straight short sales and PUT purchases the short side is required to post margin every night, and if the price goes the wrong way they get an immediate margin call and are required to buy that position back at a loss. That in turn puts pressure UPWARDS on share price and arrests the slide.
As such the people selling short (whether stock or listed options) do not dare short in unlimited amounts, because if they get caught on the wrong side of a squeeze they are dead.
The enforcement of risk against the people betting on a bankruptcy through regulated instruments puts a natural limit on their activity and prevents an unwarranted "death spiral".
But in the CDS world there is no mark-to-market margin supervision, because there is no central counterparty supervising exposure and demanding it.
As a consequence it is only the counterparty and the written document that can demand collateral posting and usually that is either on an infrequent schedule (monthly, quarterly, annually or on an "event") or in some cases not at all provided the writer maintains some specific credit rating criteria themselves!
Without nightly margin supervision on CDS short positions these vehicles have turned into the means to launch monstrous focused attacks on specific companies; the buyer has limited risk and virtually unlimited reward.
This is exactly like me buying fire insurance on your house, and in addition I can name the amount of insurance I want to buy, even exceeding the house's value!
How nervous will you get if I buy $10 million in "fire insurance" against your $100,000 bungalow and then start stacking up gasoline cans in my driveway?
As a direct and proximate cause of this ability to distort the market it becomes possible to create self-fulfilling prophecies almost on demand, with the people doing it profiting handsomely - at the expense of American workers and otherwise-sound companies.
This form of exploitation of the market must stop.
As I have repeatedly noted "The Bezzle" will be removed from our financial system one way or another. The problem with what we're doing now - refusing to address this issue - means that we will see companies dismantled one-by-one using this "tool" until huge parts of our corporate structure are laid waste, whether they deserve it or not.
Had CDS been "common" during the 2000-03 tech wreck Cisco and many other sound firms (Amazon anyone?) would not now exist as a public company as they would have been driven to zero by this very same vehicle.
President Obama: You can stop this with the stroke of a pen. Issue an executive order today that says:
"Naked", that is, CDS that are not insuring an actual bond, which are not traded on a public exchange with nightly margin supervision, are uncollectable as contrary to the public interest.
ALL CDS, covering a bond or not, are uncollectable six months hence unless they are traded on a public exchange with nightly margin supervision.
This will force all CDS onto a public exchange and stop OTC dealing in these instruments. It will stop dead the writing of these instruments without the capital behind them to pay. It will stop the speculative attacks right now, resolve most of the AIG issue immediately, and within six months put a stop to all abuse of the CDS marketplace."
Read the rest of the Ticker

Karl will be on Kim Wade's radio show Tuesday at 5:10 CST.

Meet Republican State Senator Joey Fillingane. He was one of four senators who voted to kill voter ID. He recently voted to kill a bill that would have opened up public records to Mississippians. Even though he is from the Hattiesburg area, he authored a bill last year that would have established a "green zone" in downtown jackson, doubling criminal penalties for all crime in downtown while not allowing for any parole. Translation: If you were raped or robbed in Northeast Jackson, you wouldn't get the same justice if you had suffered the same fate in downtown Jackson.

For all of these votes, the state senator has earned his merit badge from Tool Academy because when it comes down to it Senator Fillingane, you're just a tool.

Note: What should the Senator's name be while at Tool Academy?

Congratulations to Gino's for winning the "Favorite Restaurant in Jackson" poll this week. Gino's, a slice of Italian heaven. Arancine for an appetizer. Lawrence Bread. Chicken Agrigento or any of the other dishes (Best lasagna I've ever had). Cappucine flavored with Nocello. no wine list but a wine book. An owner who is an 80 year-old woman from Sicily, not even five feet tall, and still runs the kitchen. Its on Bennington in Baton Rouge. Here are the poll results:

Basils 24 (15%), Walkers 19 (12%), Ticos 12 (7%), Keifers & Pizza Shack 10 (6%), Bravo! & Nicks 9 (5%), Little Tokyo 6 (3%), AJ's Seafood & Grill, Jerusalem Cafe, Olga's, Shapleys, &
Char 4 (2%), Amerigo's, Pig Out, Juleps, Sal & Mookies, & Kathryn's 3 (1%), Parker House, Elies, Panasia, & Brent's Drugs 2 (1%), Nagoya, Fanin Mart, Two Sisters, Bonsai, China Bell, Ichibans, Sal and Phils, Peaches, Ginos, Rochez, Hickory Pit, & Steamroom Grill 1 (0%)

While it is true Basils got the most votes, this is my poll and my site so therefore I am declaring Gino's the winner. Congratulations to the Marino family.