Just How Does The Fed Have Trillions of Dollars & the Government Doesn't?

The Wall Street Journal is reporting that in an effort to stabilize the economy The Federal Reserve is saying it will "flood the financial system with an additional $1.2 trillion."

That's TRILLION with a T.

Washington Post Staff Reporter Neil Irwin reports:

"The Federal Reserve yesterday escalated its massive campaign to stabilize the economy, saying it would flood the financial system with an additional $1.2 trillion.

The decision by the Fed to buy government bonds and mortgage-related securities is designed to lower borrowing costs for home mortgages and other types of loans, thereby stimulating economic activity. The central bank, effectively, will print more money to pay for the purchases.

Combined with the billions already deployed by the Fed, the new money dwarfs even the biggest government bailouts of financial companies."

You're not kidding that it dwarfs other bailouts. So, I just have two questions:

• Where is The Federal Reserve getting this money? and,
  

• If The Fed has access to this much money why did Bernanke and Bush state that the world as we know it would come to an end if Congress didn't rush to pass a $700 billion bill to bail out the banks?

I'm the first to admit that I'm no economic guru. I'm just a finance novice who is trying to maintain my household and make sense of the world around me. I really need someone to explain this. But be advised, momma didn't raise no fool.

Here's what I understand so far.

Wikipedia gives this description of the Federal Reserve System:

"The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public (government entity with private components) banking system^[1] that comprises (1) the presidentially appointed Board of Governors of the Federal Reserve System in Washington, D.C.; (2) the Federal Open Market Committee; (3) twelve regional privately-owned Federal Reserve Banks located in major cities throughout the nation acting as fiscal agents for the U.S. Treasury, each with its own nine-member board of directors; (4) numerous other private U.S. member banks, which subscribe to required amounts of non-transferable stock in their regional Federal Reserve Banks; and (5) various advisory councils.

The primary motivation for creating the Federal Reserve System was to address banking panics.^[13] Other purposes are stated in the Federal Reserve Act, such as "to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes."^[14]"

And according to the site FederalReserve.gov this is how the Fed is funded :

"The Federal Reserve's income is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. Other sources of income are the interest on foreign currency investments held by the System; fees received for services provided to depository institutions, such as check clearing, funds transfers, and automated clearinghouse operations; and interest on loans to depository institutions (the rate on which is the so-called discount rate). After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury."

So if the Federal Reserve turns all of its earnings, minus operating expenses, over to the U.S Treasury, how does the Fed now have trillions of dollars to "flood the banking system"?

To recap, The Federal Reserve is a "quasi-public"/private agency that was created to address banking panics and has trillions of dollars at its disposal but couldn't prevent the current economic crisis unless Congress ponied up $700B of TARP money for the banks.

??????

Oh, I do have one last question.

Is it sheer coincidence that the Fed made this announcement while the US public is totally engrossed by the AIG bonus debacle?

Related posts:

The Narcoleptic Public Consciousness of America, 2/09

Get Over the Shock, Stop Them Now, 9/08

Why Americans Want Wall Street and the Banking Industry to Suffer, 9/08

Where Are They Getting The Money?, 03/08

Banks Will Pay Less to Borrow Money While Consumers Pay More, 2/08

Don't Just Get Mad, Ask Questions, 8/07

Other articles:

The Bush Bulldozer Strategy by Danny Schechter, 10/06

Where Are They Getting The Money?

The US national debt now stands in excess of 9.4 trillion dollars.

It has been projected that the final costs of the Iraq & Afghanistan wars will exceed $3 trillion. The Christian Science Monitor recently reported:

"The cost is going up every month," says Linda Bilmes, an expert at Harvard University's Kennedy School of Government. She estimates the short-term, "running cost" has reached $12.5 billion a month. That's up from $4.4 billion a month in 2003. Add in long-term factors, such as the care of veterans and interest on federal debt incurred as a result of the war, and the cost piles up to $25 billion a month nowadays."

Yet, two days ago, The Federal Reserve announced a rescue package for banks and investment houses that would provide approximately $200 billion using at risk home-loan packages as collateral.

Earlier today Reuters reported that "JPMorgan Chase & Co (JPM.N) and the Federal Reserve Bank of New York on Friday agreed to provide emergency financing to Bear Stearns (BSC.N) after the investment bank said its cash position had deteriorated sharply, sending its shares into freefall."

In addition, the US Treasury department estimates that beginning in May they will send out approximately $167 billion to approx 130 million US taxpayers as part of an "economic stimulus" package.

Can anyone tell me where all of this money is coming from?

Where does The Federal Reserve get it's money?

Are those taxpayer dollars?

And why if The Fed has $367 billion plus at their disposal the United States has delayed investing in: healthcare, infrastructure, education, medical care and body armor for us troops, etc, etc.?

Earlier today, during a speech to the Economic Club President Bush praised the efforts of the Federal Reserve in trying to stave off a recession. He also did his best to weave in the topics of the Iraq war and telecom immunity.

But I have to ask again, if the US has $367 billion plus at its disposal then why are US service men and women in Iraq & Afghanistan becoming ill from unsafe drinking water supplied by war contractors like Haliburton and KBR.

The following video was posted to YouTube May 25th, 2007

Of course during his speech, President Bush made a point of saying that "The Fed" functions independently of the White House.

Well let's look at that statement.

According to Wikipedia:

The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public (part private, part government) banking system composed of :

(1) the presidentially-appointed Board of Governors of the Federal Reserve System in Washington, D.C.;

(2) the Federal Open Market Committee;

(3) 12 regional Federal Reserve Banks located in major cities throughout the nation acting as fiscal agents for the U.S. Treasury, each with its own nine-member board of directors;

(4) numerous private U.S. member banks, which subscribe to required amounts of non transferable stock in their regional Federal Reserve Banks; and (5) various advisory councils..

So, in essence, "The Fed" is comrprised of presidential appointees in bed with the banks in order to serve the interests of the banks, not the United States and its people.

Is this picture becoming clear?

Related posts:

Blackwater Awarded "Small Business" Government Contracts

US Troops Ill from Unsafe Drinking Water

Remember: Watch For The Signs

A year ago a few of my acquaintances were referring to me as "an economic fear-monger" and a "prophet of economic gloom". This certainly was not my intent.

In fact, my intent was, and is, exactly the opposite. Nothing can be gained by being afraid of what lies ahead. Fear leads to bad decisions. My goal in sharing the dark truth about the economy and other issues is to raise your awareness of what is happening in the world so you can be prepared. Hopefully, this blog, along with those of many others, will be your canary in the coal mine.

Now with that said, take a deep breath and read this.

When the Swiss Say Money's Tight, The Depression's Gone Global

By Michael Fox

Okay, people, if the foreclosure rate, the banks closing perfectly good credit card accounts, or the loss of thousands of jobs a month hasn’t made convinced you, this is Earthshaking. Because, as depressed as the real estate market has been, and as volatile as the stock market has been, bonds have been the conservative investment of choice for large investment fund managers and long-term individual investors. Secretly, who hasn’t aspired to “retire and clip coupons?” (Note to the young’uns: tax-free municipal bonds used to have perforations like a sheet of stamps, and each coupon represented a monthly or quarterly interest payment that was like tax-free cash, thus the expression amongst the wealthy, “clipping coupons”; it has nothing to do with 20¢ off a box of Tide). Now this:

UBS AG won't buy auction-rate securities that fail to attract enough bidders, joining a growing number of dealers stepping back from the $300 billion market, said a person with direct knowledge of the situation. The second-biggest underwriter of the securities, whose rates are reset periodically at auctions, notified its 8,200 U.S. brokers of the decision yesterday, said the person, who declined to be identified because the announcement wasn't publicly disclosed. Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Citigroup Inc. allowed auctions to fail … Bank of America Corp. estimated in a report that 80 percent of all auctions of bonds sold by cities, hospitals and student loan agencies were unsuccessful yesterday. That may mean as much as $20 billion of bonds failed to find buyers, based on the $15 billion to $25 billion of auction-rate bonds scheduled for bidding daily…Auctions are failing as confidence in the creditworthiness of insurers backing the securities wanes, and as loss-plagued banks…[Feb. 14 (Bloomberg)]

Food for Thought:

A good friend of mine offers this word of advice for anyone who is serious about their finances. A good credit score is important if you're planning on borrowing money. But it's more important to think in terms of building net worth. Anything that a bank or third party holds the deed/title to isn't really yours.

What do you own that no one can take away from you?

Related posts:


Watch For The Signs
published October 2007

The Economy Is Based on Borrowing
published April, 2005

Despite More Jobs, US Poverty Rate Rises
published September 2005


The State of the Economy
published February 2006

Everybody Takes Advantage Of An Opportunity, Right!

The more you try to understand the current home foreclosure and subprime mortgage crisis, the more it becomes clear that there are very few innocents. And, while there is more than a little blame that can be spread around, casting blame certainly won't help.

At the heart of these woes is the combination of the mores of consumerism and greed with an economic system based on credit and debt.

We have become a society that:

• buys depreciable things on credit;
• that we don't need;
• just because they're on "sale";
• and an ad told us that we had to have it in order to feel good;
• so we can place them on a shelf;

and tell our neighbors that we have one too.

And our leading economists tell us that this is a good thing because it keeps the economy going.

No problem there.


excerpt from

Auctioneers Bring Down Hammer on America's Broken Dreams
by Andrew Clark in Los Angeles for The Guardian

Homebuyers in California are bargain hunting after a year that saw 250,000 foreclosures

This article appeared in the Guardian on Tuesday February 12 2008 on p25 of the Financial section. It was last updated at 00:09 on February 12 2008.

Bellowing a quick-fire patter of garbled numbers, the auctioneer brings down his hammer - bang! A pianist lets rip with a jaunty snippet of easy-listening music on an electric keyboard, then another Californian home goes on the block.

In the ballroom of a tourist hotel outside the gates of Los Angeles' Disneyland resort, some 250 bank-owned properties were sold this weekend in rapid succession. The deals are noisy, no-nonsense and decisive - each takes barely three minutes.

This is the bargain basement of America's sub-prime mortgage crisis. The houses and flats offloaded by specialist auctioneer Hudson & Marshall are all properties
repossessed by lenders from people unable to keep up the payments on homeloans.

"Folks, take advantage of this opportunity - it won't be here for long," urges the auctioneer, gesturing at a picture of a two-bedroom bungalow which quickly fetches $147,500. "If it sells today, tomorrow's too late!"

California is at the very heart of America's property slump. The California Association of Realtors reported that home sales dropped by a third last year and the average house price was down by 16.5%.

Lenders filed for foreclosure on 249,513 properties in the state during 2007 and almost one in 50 households was subject to repossession proceedings according to data
specialist RealtyTrac.

The banks have no desire to hang onto thousands of houses. Initially, they place these recession-hit homes onto the books of estate agents. But in a depressed market, many of them fail to sell - so they are offloaded in mass auctions to fetch whatever price they can get.

"We're coming into areas that are very stagnant," says Dave Webb, joint head of Dallas-based Hudson & Marshall, who travels around America conducting sales for the big banks. "The houses are boarded up. People are vandalising them and that hurts the values of the communities. So we're coming in and we're getting these properties off the books and there's a lot of people that benefit."

More than 400 people turned up for Saturday's session, leaving standing room only. Auction staff in crisp white shirts patrolled every corner of the room, finding bids and communicating to the rostrum with shouts and complex hand signals.

Clued-up professional property investors scoured the listings in search of bargains to refurbish, then sell at a profit. But many of those present are simply looking for a cheap new home - families are here in force, handing out crayons to their children and refuelling on take-out pizzas during the marathon sale.

"My brother and I are looking for a duplex [maisonette] to move into," says Ricardo Lopez, an insurance adjuster. "We saw one in Silver Lake listed for $415,000 but we'd love to get one for less than that."

For as little as $200,000, bidders were able to snap up three-bedroom homes. Many of those on the block were in the so-called "inland empire"- the canyons, creeks and arid semi-desert to the east of downtown Los Angeles where the city's suburbs have crawled in search of space.

This inland sprawl was, until recently, booming. Blue-collar workers came here in
search of modest first homes, while middle-class families sought affordable
larger properties away from the city's costly beaches and skyscrapers.

John Husing, an economist based in southern California, says 80,000
people were moving east annually in the first half of the decade. Property
prices were rising by 8% annually in the Inland Empire and jobs were growing at
3.5% until, quite suddenly, the economy shuddered to a halt.

In part, he blames property speculators for the seizure. One popular book, published in
2006, was Flipping Houses for Dummies. Aimed at the "mom and pop investor", it
teaches how to make a quick buck by snapping up homes in a rising market, then
selling them almost immediately at a profit.

Lenders compounded the crisis, says Husing, by making ridiculous offers. He cites a copy of a 2006 advertisement which offered: "Buy a house - we'll give you a Maserati!"

"Folks didn't get it. The public just said 'I don't get this' and they stopped. What I call that is a buyers' strike," he says. "It was almost overnight that it stopped."

Horror stories abound about predatory lending in California, the home state of America's biggest mortgage firm, Countrywide Financial, which is under investigation by federal prosecutors.

Sub-prime lenders typically signed up clients using a "teaser rate" for the first couple of years with low repayments. They assured customers that, given the property boom, their homes would appreciate in value by as much as $100,000 annually - so by the time the "teaser" rate expired, it would be easy to refinance.

Checks on documentation were often minimal. The Hispanic community was particularly badly hit. Upwardly mobile immigrants, keen to buy homes of their own, were given loans far beyond their means. The Wall Street Journal recently found a Brazilian babysitter who was approved for a $495,000 loan and a housekeeper, married to a taxi driver, who secured a $713,000 sub-prime mortgage.

Legislators have responded by proposing laws forcing lenders to warn of rate rises at least four months in advance, using plain English. "The Wild West excesses of the mortgage frenzy of the last few years have resulted in shattered dreams and severely damaged the state and national economy," says Ted Lieu, a Democrat who chairs the banking committee in California's assembly.

In Washington, the joint economic committee of Congress has estimated that 2m homes across America will be repossessed in the sub-prime crisis, eliminating $71bn of housing wealth, including $23.6bn in California.

excerpt from:
Mortgage Crisis Spreads Past Subprime Loans
By VIKAS BAJAJ and LOUISE STORY

The credit crisis is no longer just a subprime mortgage problem.

As home prices fall and banks tighten lending standards, people with good, or prime,
credit histories are falling behind on their payments for home loans, auto loans and credit cards at a quickening pace, according to industry data and economists.

The rise in prime delinquencies, while less severe than the one in the subprime market, nonetheless poses a threat to the battered housing market and weakening economy, which some specialists say is in a recession or headed for one.

Until recently, people with good credit, who tend to pay their bills on time and manage their finances well, were viewed as a bulwark against the economic strains posed by rising defaults among borrowers with blemished, or subprime, credit.

“This collapse in housing value is sucking in all borrowers,” said Mark Zandi, chief economist at Moody’s Economy.com.

Like subprime mortgages, many prime loans made in recent years allowed borrowers to pay less initially and face higher adjustable payments a few years later. As long as home prices were rising, these borrowers could refinance their loans or sell their properties to pay off their mortgages. But now, with prices falling and lenders clamping down, homeowners with solid credit are starting to come under the same financial stress as those with subprime credit.

“Subprime was a symptom of the problem,” said James F. Keegan, a bond portfolio manager at American Century Investments, a mutual fund company. “The problem was we had a debt or credit bubble.”

The bursting of that bubble has led to steep losses across the financial industry. American International Group said on Monday that auditors found it may have understated losses on complex financial instruments linked to mortgages and corporate loans.

The running turmoil is also stirring fears that some hedge funds may run into trouble. At the end of September, nearly 4 percent of prime mortgages were past due or in foreclosure, according to the Mortgage Bankers Association.

That was the highest rate since the group started tracking prime and subprime mortgages separately in 1998. The delinquency and foreclosure rate for all mortgages, 7.3 percent, is higher than at any time since the group started tracking that data in 1979, largely as a result of the surge in subprime lending during the last few years.

An example of the spreading credit crisis is seen in Don Doyle, a computer engineer at Lockheed Martin who makes a six-figure income and had a stellar credit score in 2004, when he refinanced his home in Northern California to take cash out to pay for his daughter’s college tuition.

Mr. Doyle, 52, is now worried that he will have to file for bankruptcy, because he cannot afford to make the higher variable payments on his mortgage, and he cannot sell his home for more than his $740,000 mortgage.

“The whole plan was to get out” before his rate reset, he said. “Now I am caught. I
can’t sell my house. I’m having a hard time refinancing. I’ve avoided bankruptcy
for months trying to pull this out of my savings.”

excerpt from:
What Would Happen if Non-Profit Housing Associations
Were Able to Originate Mortgage Loans.

POSTED: Monday, January 14, 2008
FROM BLOG: Seattle's Rain City Real Estate Guide - We cover the real estate, mortgage, legal, technology and neighborhood scene in Seattle!

The following blog post is from an independent writer and is not connected with Reuters News. The opinions and views expressed herein are those of the author and are not endorsed by Reuters.com.

The growth of non-profit associations within the real estate sector can be traced to 1977 and the Community Reinvestment Act (CRA). At that time, banks began giving money to the non-profit housing sector in order to meet their CRA requirements.

Non-profit housing agencies perform many services for the community. First time homebuyer seminars, and then later, mortgage default counseling, preforeclosure workout assistance, help negotiating short sales, all for free or for a nominal cost.

Non-profits set up special training programs for loan originators and loan officers who want to be on the “approved” list to receive consumer referrals for their government sponsored loan programs such as state bond financing loans. These loans have traditionally been considered a win-win for states as the funds are earmarked for specific neighborhoods in need of owner-occupied homeowners, as well as homeowners whose debt to income ratio might be too high for a prime loan. But what about people who live outside of the designated census tracts?

In September of 2007, Washington State Governor Gregoire commissioned a task force to report back to her with their recommendations on how to thwart any subprime meltdown from affecting the voters homebuyers and homeowners, also known as voters and campaign contributors, in Washington State. Here is how the representation on
the task force shaped up, including alternates.

Bankers: 6
Non-Profits: 11
Government Divisions: 2
Industry Trade Groups: 2
Realtors: 2
Mortgage Brokers: 1

The Task Force has completed their work, just in time for the next state legislative session. Looking at the way the voting would be split, I bet you’ll never guess what they’re recommending. If you guessed more money for the non-profit associations, you are smarter than most people originating loans in the U.S. during the calendar year
2006 based on a random sampling of comments from Moe’s insightful blog article
to which I owe a hat tip. Moe writes about the rise in power of NACA, the
Neighborhood Assistance Corporation of America, and how they created a mortgage
origination division following the successful predatory lending settlement between NACA and Fleet Funding, which provided NACA with 8.5 billion dollars to
start their direct-to-consumer mortgage lending operations

Related articles:

• Value of homes rigged, lawsuit says
  A lawsuit filed by two couples claims that Los Angeles builder KB Home and a unit of lender Countrywide Financial Corp. pumped up appraisals in their Sacramento-area development to sell homes at higher prices.
• Subpoena Deepens Countrywide's Woes
  Florida joined several other states, including California and Illinois, that have begun investigating Countrywide to determine whether the company's lending practices contributed to or were responsible for the rising wave of problem mortgages in the state..

Related posts:

When The Middle Class Can No Longer Cope

Do What's In Your Best Interest Not Theirs

Stocks Fall After Bush Announces Plan

The Future of "Money"

If you live in the US or the UK and watch television at all you've probably seen the VISA ads promoting the use of check cards instead of money. The ads imply that anyone who still uses currency for purchases is out-dated and a broken cog in the machinery of the economy.

In short, stop using your national currency and swear allegiance to the banking system that bestows the gift of plastic. Mull that over as you read the following article which was published almost a year ago.


Cashless Society by 2012, says Visa Chief
By Tim Webb

Sunday, 11 March 2007

Paying for goods with notes and coins could be consigned to history within five years, according to the chief executive of Visa Europe.

Peter Ayliffe said that, by 2012, using credit and debit cards should be cheaper and more convenient than cash.

Some retailers could soon start surcharging customers if they choose to buy products with cash, because of the greater cost of processing these payments, he warned.

Visa Europe briefed the British Retail Consortium last month on new "contactless" cards that can be waved in front of a scanner to make small payments.

However, the consortium dismissed this vision and claimed that card processing fees, which regulators are investigating, are still too high.

One member of the consurtium said that the estimated "interchange" fee charged to retailers amounts to some 4p for each transaction.

Nick Mourant, treasurer at Tesco, said: "There is a duopoly between Mastercard and Visa in the UK. Their setting of fees is anti-competitive."

The banking industry is moving us towards a world where there are no dollars, pounds, euros, yens, rupees, rubles, etc. and only the international currency of plastic.

And when the plastic cards are too large and inconvenient ........

Banks Will Pay Less to Borrow Money While Consumers Will Pay More.

This really should not come as a surprise to anyone but sadly I'm sure that it will shock many consumers.

The cold hard truth is that when the Federal Reserve cut interest rates it did so in order to help the banking industry and their investors. The Fed's interest rate cuts will make it easier for banks to borrow money from, you've got it, other banks. This helps keep the banks solvent and their foreign investors happy.

Consumers, well, we're still on our own.

excerpt from:

What rate cuts? Use of plastic gets pricier
by David Lazarus

Borrowing money has become cheaper for banks after a series of aggressive rate cuts by the Federal Reserve. So why are many people's credit cards growing more expensive? Hundreds of thousands of Capital One and Bank of America cardholders have been notified in recent months that their interest rates are going up -- in some cases to as much as 28% -- even though they haven't been missing payments.

Cardholders are being told they can "opt out" from the higher rates by paying off their balances and taking their business elsewhere. But that's not really an option for people who may not have thousands of dollars in spare cash sitting in a drawer.

If anything, people's credit card rates should be heading south following repeated cuts in interest rates at the federal level. So far this year, the federal funds rate has been reduced by 1.25 percentage points and now stands at 3%. Further cuts are expected as the economy slides toward recession.

The Fed funds rate is an overnight lending that banks charge to each other. It influences the interest consumers pay for credit cards, home equity lines and car loans.

David Robertson, publisher of an influential credit card trade publication called the Nilson Report, said a number of factors determine rates for plastic, not least the greater risk of delinquencies these days resulting from the credit crunch.

But he said it seems clear that leading banks, having suffered billions of dollars in losses from the mortgage meltdown, are casting about for new sources of revenue.

"They need to raise rates because they can't raise fees anymore," Robertson said. "It's politically untenable."

Politics also seems to be behind a subtle shift in language that's appeared in the terms and conditions of several top card issuers. Increasingly, lawmakers have been taking a skeptical view of banks' long-standing insistence that they can raise people's rates at any time for any reason.

Citibank announced last year that it would no longer make this claim. Instead, the bank now says people's rates may rise because of "general market conditions."

Similarly, Capital One introduced language last year asserting that cardholders' rates could go up "if market conditions change."


Related posts:


Before You Spend That Refund Check

Fed Still Trying to Treat Knife Wounds With Bandaids

Banking Giants Reporting A Drop in Profits

The Men Behind The Curtain No Longer Hide Their Deeds

They no longer believe that they have to. They believe that they can't be touched.

"The world is governed by very different personages from what is imagined by those who are not behind the scenes" -- Benjamin Disraeli , 1844

Some days the truth just smacks you in the face.


excerpt from:
Hedge fund employs Greenspan as adviser
By Stephen Foley in New York
Published: 16 January 2008

The hedge fund that has profited most from the bursting of the US housing bubble has hired the man widely blamed for inflating it in the first place: former Federal Reserve chairman Alan Greenspan.

Paulson & Co, the New York-based hedge-fund manager whose bets against the US mortgage market earned it $15bn (£7.6bn) last year, said yesterday that Mr Greenspan will become an adviser on economic issues and monetary policy.

It is the third major advisory role taken by Mr Greenspan since his retirement two years ago. He already works for Deutsche Bank and the bond investment house Pimco, but this latest position is his most eye-catching, considering Mr Greenspan has been blamed for sowing the seeds of the current credit crisis by keeping interest rates too low for too long in the early years of the decade. Inflated house prices in many parts of the US are now coming down sharply and mortgage defaults are rising, sending shockwaves through the financial markets where mortgage derivatives are traded.

It was bets against mortgage derivatives that pushed Paulson & Co funds up last year and netted its founder, John Paulson, a personal pay-day of between $3bn and $4bn. His funds are continuing to place bearish bets on other areas of the financial markets, most notably corporate debt, in the expectation of a US recession this year. Mr Greenspan, too, now believes a recession is likely.

"Anticipating the direction of the economy, and assessing the potential for and severity of a US recession, are fundamental in formulating investment strategy," Mr Paulson said. "Mr Greenspan's [experience]... gives him a unique perspective from which to help our team."

excerpt from:
U.S. Offers Saudis 'Smart' Arms Technology

As Bush visits the kingdom, his administration formally unveils the planned sale, which Congress has the authority to block.

By James Gerstenzang, Los Angeles Times Staff Writer
January 15, 2008

RIYADH, SAUDI ARABIA -- President Bush began two days of talks with Saudi leaders Monday as his administration sent formal notice to Congress of a controversial U.S. sale of "smart bomb" technology to this desert kingdom.

The visit here with Saudi King Abdullah is one of the most diplomatically challenging stops of the president's six-nation passage across the Middle East. Bush is pressing the Saudis to support both peacemaking efforts between the Israelis and Palestinians and U.S. moves to limit Iran's influence in the region.

Bush said early today that he would bring up the subject of high oil prices in his meeting with Abdullah.

"Oil prices are very high, which is tough on our economy," he told a group of Saudi entrepreneurs during a meeting at the U.S. Embassy.

The arms technology is part of a broad program announced in July that eventually could transfer an estimated $20 billion worth of military hardware to six Persian Gulf nations. The effort, along with arms sales to Israel and Egypt, is intended in part to help U.S. allies offset Iran's military power and political clout in the region.

The most controversial element of the sales is the offer to the Saudis of Joint Direct Attack Munitions, technology that allows standard weapons to be converted into precision-guided bombs. The deal envisions the transfer to Saudi forces of 900 upgrade kits worth about $120 million.

Don't Mind The Men Behind The Curtain -- Zeitgeist The Movie, Part III

post title corrected 1/16/08 12:25pm ESt
At 3am it's important to proofread :-)

We're A Long Way From Bedford Falls

- Understanding Today's Mortgage Market

OK, so you're hearing about the so-called sub-prime mortgage crisis and you feel sorry for those people but this won't effect you.. right? Not necessarily.



As Frank Capra taught us the banking and housing industries are closely linked. But could Capra have ever imagined what's happening in today's mortgage market.

December 7, 2007 -- Andrew Jakabovics of the Center for American Progress tells CNN that the Bush Adminstration's plan to freeze interest rates on some adjustable mortgage holders does too little, too late for too few people and won't help the people who need it most.

So you're still wondering how this will effect you. Haven't there always been sub-prime (high-risk) mortgages.

In the following clip PBS McNeil-Lehrer Newshour, Economics Correspondent, Paul Solman (with a little help from George Bailey), provides a clear and easily understandable explanation of the new mechanics of "securitized mortgage debt", and what can go wrong in a down market.

And now you're asking didn't anyone see this coming?

In the following video Andy Plesser of BeetTV interviewed Professor John Vogel of the Tuck School of Business at Dartmouth. Professor Vogel gives his take on the root and implications of the sub-prime crisis. This should make the picture crystal clear.

Let's review.

Over the past 4-5 years, high-risk consumers were offered sub-prime (variable rate loans) in an inflated housing market by mortgage lenders who sold those mortgages to hedge funds and foreign investors. So a high risk consumer whose credit may have merited a $100,000 mortgage was given a $250,000 mortgage to buy a home that may have realistically be worth $175,000 instead of $250,000.

During that same time period the banking industry lobbied the Congress to change the bankruptcy laws, making it harder for persons who were over their head in debt to get relief.

And now consumers' mortgages are adjusting to a higher rate and home values are declining. So a consumer may be facing foreclosure on a $250,000 loan on a home that can only sold for $175,000 by the hedge fund, pension fund, bank or foreign investor that now holds the mortgage.

So to sum things up --

In today's America, Bedford Falls has become Potterville. And there aren't many bells ringing on Wall Street.

Do What's In YOUR Best Interest Not Theirs

As journalist Kathy Marquardt reports in the following article "the devil is in the details" of the Bush plan for addressing the subprime home mortgage crisis.

If you are a homeowner in need of assistance it is important to remember that the goal of mortgage lenders is to cut their losses not necessarily to help you. After all, if they really had your best interest at heart they would have never sold you that the subprime, variable rate mortgage. Just look at who is excluded from this plan --

• people who have been over 60 days late and
• people who had more than 3% equity in their home at the time of the mortgage ( a category than impacts many senior citizens) .

So much for helping those who really need help help the most. In other words, if you recently refinanced your home with a lender who promised to lower your monthly payments by talking you into a variable rate mortgage, this will not help you.

It is critical that before you agree to any new deals or sign any new contracts that you get as many facts as you can, weigh your options, then make a decision that will be in your best interest in the long run.



6 Things to Know About Bush's Plan

By Katy Marquardt

Sat Dec 8, 11:45 AM ET

The devil is in the details of President Bush's plan to curb the nation's escalating home foreclosures by freezing for five years the introductory "teaser" interest rates on many subprime loans. Borrowers who qualify--Bush estimates that up to 1.2 million might be eligible--will also have the option of refinancing into a new mortgage or switching to a loan insured by the Federal Housing Administration.

Lenders had already been working out deals with strapped subprime borrowers, but only a small number of homeowners have been able to renegotiate their loans. Bush's plan aims to speed up these deals by laying out criteria to help lenders determine who is eligible for help. "We hope that these guidelines will be adopted as reasonable and customary standard practice across the entire servicing industry," said Treasury Secretary Henry Paulson, who helped broker the deal with other regulators and mortgage lenders.

Here are six things you should know about the plan:

It will benefit only a small group of subprime borrowers.

To qualify, borrowers must have taken out an adjustable-rate mortgage between Jan. 1, 2005, and July 31, 2007. Those mortgages are scheduled to reset between Jan. 1, 2008, and July 31, 2010. The rate freeze applies only to those who are keeping up with payments but can't afford the higher interest rate due when their adjustable-rate mortgage resets. Lenders will determine who qualifies by evaluating a set of criteria, which includes credit scores, income, and payment history.

The plan excludes:

people who have been more than 60 days behind on their payments over the past year

and those with more than 3 percent equity in their home at the time the loan was made.

Anyone who purchased a property as a real-estate investment is also ineligible for assistance.

Borrowers must ask for help.

Aid is available only for those who ask for it, Bush said. The administration set up a hotline to help people determine their eligibility (888-995-HOPE). Borrowers should also contact their lender or a nonprofit credit counseling agency, says Darla Keegan, housing supervisor for Novadebt, a national nonprofit housing and credit counseling agency. "It's surprising, but many homeowners never try to initiate communication with their lender when they're falling into trouble--even when they're delinquent or going into foreclosure," Keegan says

.

The plan is not a "silver bullet."

Paulson acknowledged that the effort is not a quick fix. "We face a difficult problem for which there is no perfect solution," he said. It's important to keep in mind that the plan won't solve the housing market's woes, says Ron Greenspan of FTI Consulting. "It will make a difference to people in this small subset, but as far as the market at large, it's not even going to move the needle on the number of foreclosures." In the third quarter, the percentage of borrowers late with their payments rose to the highest level since 1986, according to the Mortgage Bankers Association. The delinquency rate for all mortgages rose to 5.59 percent during the quarter, up from 5.12 percent in the second quarter.

Questions remain about how it will work.

Many hailed the plan as a step in the right direction, although critics have questioned how it will actually work. "This is likely to be logistically difficult, if not impossible to manage in any meaningful scale," says David Resler, chief economist at Nomura Securities. Critics also suggested that modifying loans may only help extend the crisis. "Freezing interest rates may [delay] the pain a bit, but the defaults are still going to come and property values are still going to continue to decline," says Dean Barber of Barber Financial Group.

This is an industry-led deal, not a government bailout.

Both Bush and Paulson emphasized that the plan involves no government money and is entirely voluntary. "This is a private-sector initiative to deal with the volume of resets," Paulson said at a press conference Thursday. "You get approximately the same result as if you did it on a case-by-case basis." The administration has proposed allowing state and local governments to issue tax-exempt bonds to fund refinance programs for struggling subprime borrowers.

The plan will become a hot political issue.

This is a bold step for an administration that has, until recently, insisted that the task of refinancing mortgage loans should be handled on a case-by-case basis. "There are obviously significant limitations on what they're willing to do, but I don't think we would have gotten this plan out of the administration that came into office in 2001," says Ellen Seidman, former director of both the Office of Thrift Supervision and the Federal Deposit Insurance Corp., who now heads a project at the New America Foundation.

As the presidential election nears, the health of the economy?--and how candidates will deal with the mortgage crisis--is gaining political importance. Some Democratic candidates argued that the plan doesn't go far enough and proposed their own plans. Hillary Clinton, for example, proposed an across-the-board rate freeze and a moratorium on foreclosures. John Edwards said he would freeze interest rates for seven years.

On Another Note:

UBS to Sell Stakes After $10 Billion in Writedowns

Dec. 10 (Bloomberg) -- UBS AG will write down U.S. subprime mortgage investments by $10 billion, the biggest such loss by a European bank, and replenish capital by selling stakes to investors in Singapore and the Middle East.

Europe's largest bank by assets plans to raise 13 billion Swiss francs ($11.5 billion) from Government of Singapore Investment Corp. and an unidentified Middle Eastern investor by selling them bonds that will convert into shares, Chairman Marcel Ospel said on a conference call with reporters today.

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