The Ben Franklin Report: Leave the Spigot Open

While workers in GM's Janesville, Wisconsin SUV plant are getting a lesson in freemarket economics, Ron Paul is trying to spread the word about an economic malady of a slightly different nature: the ballooning and out of control federal debt that we've been covering here on the Fringe Element. As if the near vertical climb that is growth in the monetary base weren't already enough, the Federal Reserve is going to go ahead and provide unlimited amounts of funding in return for collateral to central banks from around the world. One could say that this is a very selfless act of a benevolent and intelligent Chairman, but more likely, this is an effort to return monetize US Government debt as Dr. Paul points out in the above article. This move by the Federal Reserve will have, perhaps, unintended consequences, as Central Banks return bonds originating in the United States, such as those issued by Fannie Mae and Freddie Mac, to our shores. After all, in a liquidity crisis, why would an institution choose to hold onto assets that are, at best, potentially troublesome?

The rest of the world is also responding to the crisis in ways similar to the United States. After weekend meetings of the IMF and World Bank in Washington, D.C., financial leaders from around the world agreed to initiate a coordinated response, and the markets seem to be enjoying the show. In Japan, the Central Bank is ready to assist any effort negotiated by the IMF, but has so far not announced any support of particular amount of money to domestic banks and financial institutions. In Europe, markets surged amid a flurry of announcements from various national governments laying out plans to guarantee their financial sectors in various degrees, ranging from total guarantees of interbank lending and capital infusions in Germany to bond lending programs in Portugal. In China, the weather is a little less rough, with currency reserves recently surpassing $1.9 trillion in value, the People's Bank's chief Yi Gong, while promising cooperation with the other members of the IMF,  has expressed full confidence that China will weather the financial turmoil. Perhaps not coincidentally, the central government in the same weekend announced plans to double rural disposable income by 2020 to create a domestic consumption base as a way to offset falling exports to the U.S.

While some lament the appearance that Capitalism has become the newest whipping boy in the arena of economic philosophies, Treasurer Henry Paulson took bold steps in ushering in a whole new era of American socialism, essentially seizing portions of the nine largest lending houses in the United States.

Victory for the American People

It hasn't been often in the last 7 plus years of the Bush Administration when one could truly say that the power of people defeated the people of power. When special interests took a back seat to those who really run the country, Mr. and Ms. Average. Since the bailout was originally announced, there have been numerous campaigns to stop it, academic disputes, and even the rarest of the rare, a public battle among the normally tightly disciplined Republican party. But, in the end, those who have to face up to the voters on November 4th realized that voting yes was potentially one of the biggest threats to their political careers, regardless of party. If you look at the list of how people voted in this historic vote, those on the 'yes' side will probably have a rough time of it, if not lose their seats to those who chose not to approve the still horrible re-negotiated version of the bailout proposal. In particular, I'm sure Dennis Kucinich (OH-10th) is feeling a little smug, knowing that he predicted the outcome of the vote.

On a slightly different note, I'm not sure why everyone in the world of pundits is characterizing this rejection of the bailout proposal a failure of governance. In common parlance, bills are said to have failed, but that is almost a bureaucratic term. In real terms, this bailout was an ideological battle between those who are in favor of and those who are against nationalization and similar bailouts in the United States. Moreover, this is not a vacuum of leadership in which the U.S. government is flying down a country road like a  '62 Corsair without a driver., as that has been happening for the last 7 years. 

Of course, in a vacuum, comes the punditry. Perhaps the most offensive piece I've read thus far about the political process that brought about this conclusion comes from Rupert Cornwell from the U.K.'s Independent. My favorite metaphor in the article compares the mechanisms of American democracy to Alice Through the Looking Glass. Putting that aside, though, the author clearly doesn't understand the huge popular backlash against the bailout. Sure, in the U.K. and other parliamentary democracies, the Prime Minister isn't approved by the people at large, but in the U.S. the leaders need to be especially accountable. And to say that the bill died in partisan sniveling is obviously disregarding what was essentially a bipartisan effort to keep the American people from having to shovel out $700 Billion or more on a plan that was only designed to correct the dangerous excesses of the richest segments of society. Perhaps, too, the American people have become wary of those who warn about apocalyptic disaster and offer a solution that meets a certain biased politican agenda. 

Kevin Connolly from the BBC, in looking at the reasons behind the bailouts defeat in the House of Representatives, expresses a strange sentiment, that after this bill's defeat and the sense of crisis that it engenders will offer a way out for the bailout proposal, that Main Street hasn't suffered yet. Unfortunately, the people of the United States have been suffering, which is the underlying cause for this economic crisis. With the inflationary impact of cheap money, combined with tepid job growth, primarily in the services sector since the recession of 2001, people were forced to choose between living and surviving, which meant that the mortgage had to go unpaid. Thus, in a trickle up fashion, the banks and other financial institutions, who were holders of arcane financial securities into which these poorly written mortgages were conglomerated, began to suffer the counsequences of their poor lending practices. I think Mr. Connolly underestimates the intelligence of Mr. and Ms. Average and their understanding of this situation, as Mr. or Ms. Average are probably already unemployed, underemployed, or facing the prospect of losing their job in the failing economy. 

From the campaign trail in Iowa, Sen. John McCain who, infamously, suspended his campaign to not show up in Washington for negotiations, has called upon Congress to return to the drawing board and to get back to work right away. Sen. Barack Obama, from a rally outside of Denver, called for calm, saying that things in Congress are never smooth, and instead of imploring or demanding that his colleagues work on the proposal to shore up the wealth of the financial sector, he used a baseball metaphor.  

So panic thus gripped the financial markets, and the Dow Jones suffered its worst lost ever in terms of points. But, have no fear for liquidity, because Helicopter Ben Bernanke has come to the rescue, increasing the amount of dollars in the global financial system by a whopping $630 Billion dollars. To show you a frightening graph that indicates inflation, perhaps even hyperinflation, is just around the corner, here is the Adjusted Monetary Base, courtesy of the St. Louis Federal Reserve. The highlight of a series of moves in the banking industry, Citigroup has purchased Wachovia, after the stock lost more than 80% in trading on Monday. 

Ben Franklin Report: Unraveling the Knot

Although this article is long, it gives a thorough look at the fundamental conflict of interest between the credit rating agencies and the financial markets that exploded and is, to say the least, now exposing the U.S. economy to further downside risks. However, this is only one part of the calculations behind Gross Domestic Product.

Private spending and business activity is also fairly important when considering the health of a particular economy. While oil futures are a good indicator of what will happen in a few months, after oil has been refined, with near record low refinery utilization rates, into various chemical products, individual corporations earnings are perhaps a better indicator. Bank of America, the giant in discount consumer financing announced a 77% drop in profit for the first quarter of this year, mostly because of concerns with defaulting mortgages. For some anecdotal evidence, one need do no more than compare this graph of subprime mortgage concentrations, with this article about California's foreboding rising in foreclosure rates. Global shippers UPS and FedEx are usually a good indicator of economic prospects.

However, with the ongoing catastrophe that is the hunger crisis, inflation, rather than the lack of available credit, would seem to be the biggest threat to global economic stability. This inflation is, of course, a natural response to the growth in oil prices, as industrialized economies depend on the supply of crude oil in just about every sector.

The situation is exponentially compounded when the currency that is the basis of all of these transactions is rapidly depreciating in value, as seen in record lows versus the Euro. One must wonder if Ben Bernanke and the rest of the Federal Reserve Board are questioning their monetary policy, as economies that are keeping interest rates up to draw capital are seeing their currencies rise in relative value.

Another factor in this fiduciary fiasco is the echo chamber of ideas. Last summer, CEOs declared the housing crisis near its end, and more recently that the crisis was in its last throes. The point that we can take from these statements is that their companies are more important than reasoned, open discourse about the overall state of the economy. And that it is a losing proposition to trust those who are dependent upon a stock price. As long as there are CDOs and other arcane financial creations that do not have a monetary value, banks will continue to be plagued with problems, which will be further complicated by consumer spending withering away under the burn of inflation and unemployment. Surveying a crystal ball to find the answers to when the U.S.' GDP might become positive again is less than useful.

A Crisis Meeting

G7 finance ministers and Central Bankers are scheduled to meet in Washington, D.C. through this weekend to hammer out solutions to the numerous crises facing the world economy. Here's a handy list of items that might be on their agenda.

• General Electric reported losses across almost every sector of operations for the first quarter of the year, and revised revenue for the year downward. The normally stalwart stock is perhaps the strongest indicator yet that the global recession is reaching into every part of the economy.
  
• Bear Sterns has delayed releasing its first quarter results due to the disruptions caused by the merger with JP Morgan. As they are expecting negative results, one can understand their disinterest in transparent financial accounting, but its losses will probably be indicative of the weakest parts of the financial markets.
  
• Head of Germany's Bundesbank, Axel Weber, is concerned about inflation in the Eurozone, and doesn't see any room for interest rate hikes. One can imagine the back and forth between European and American banking officials over the difference in interest rates and other monetary policies.
• According to the IMF, inflation is also expected to tap down growth in emerging nations in Asia. With consumer confidence in the United States slumping, to put it mildly, in the facing of rising import costs, growth in Asia will come to be the growth engine for the world economy.
• The food crisis throughout the developing world, while the most important of the various crises to be discussed, is unlikely going to be at the top of the agenda as finance ministers through the developed world are beginning to see the limitations of their capital.
  
• As mentioned before, the position of Ben Bernanke is likely to come under heavy scrutiny among his colleagues, as the Fed Chairman continues to stand by the notion that banks and other perhaps insolvent financial institutions should be allowed to continue operating, and although the 'originate-to-distribute' system of loans failed at almost every level and started the current credit crisis, the system could be fixed and return to being useful in the future.
• Oil prices, while retreating from their record high of $112 a barrel set earlier this week, are continue to weigh on the economy. However, the larger economic impact is felt by record high gas prices in the United States, edging closer and closer to $4 as the Summer driving season approaches.
  

Ben Franklin Report: Quick Shots Across the Bow

Today will see Round 2 of top economic officials versus Congress! To the finish! For the first time yesterday Fed Chairman Ben Bernanke mentioned the dreaded "R" word, and it isn't radical or racism.

In the Wall Street Journal today, Andy Lapierre gives a thorough look at the ongoing credit crisis and the Fed's responsibility in causing asset bubbles, malinvestment, and labor dislocation through the "Greenspan put."

The President of the New York Federal Reserve, Timothy Geithner is still worried about the state of capital markets, and has a plan to fix the regulatory overhang created by the Federal Reserve's new lending options. In an election year, the Fed has a steep hill to climb in justifying putting so many billions of tax payer dollars at risk. His testimony, though really boring to read, has a couple of gems firmly lodged into it. Like this:

The sudden discovery by Bear’s derivatives counterparties that important financial positions they had put in place to protect themselves from financial risk were no longer operative would have triggered substantial further dislocation in markets. This would have precipitated a rush by Bear’s counterparties to liquidate the collateral they held against those positions and to attempt to replicate those positions in already very fragile markets.

In short, we judged that a sudden, disorderly failure of Bear would have brought with it unpredictable but severe consequences for the functioning of the broader financial system and the broader economy, with lower equity prices, further downward pressure on home values, and less access to credit for companies and households.

In a sign that the credit crisis is spreading beyond the mortgage market where it first reared its ugly head, Americans are falling behind on every single type of loan.

And, for good measure, here are some anecdotal accounts of the muni bond problems. Public projects are being forced to sell bonds due to tighter and tighter budgets, but being handled on the other end by higher financing costs. Of course, in some cases, these are projects that will save money for the taxpayer.

Ben Franklin Report: Sober Up

This morning Ben Bernanke tried on a new role, that of a voice of reason to the financial markets. In testimony before Congress, Bernanke warned that the economy is still probably headed into a recession and that the American economy probably won't see growth until 2009. In pointing out the potential problem areas, the Fed Chairman rattled off a list of the biggest sections of the credit market. To be fair, his calculations account for a wide degree of volatility in the markets and an inability to forecast the future amidst this turmoil.

Treasury Secretary Henry Paulson, while in his sixth visit to China to address outstanding economic issues between two largest economies in the world, took a step back from policy brinkmanship and indicated flexibility in using government money in addressing the crisis in the housing market. However, he revealed his true feelings on the matter in his disregard of those homeowners who are now suffering the phenomena "negative equity" in their homes. It remains to be seen whether this change of heart is a result of recognizing the benefits of government intervention in the marketplace or the windfall benefits the financial industry will receive in the event of any government intervention.

In perhaps some strange sort of April Fool's joke, the markets reacted exuberantly to UBS and Deutsche Bank writing down a combined $19 billion dollars and will seek to elicit almost as much capital investment. And the good news doesn't end there. The Commerce Department announced factory orders decreased 1.3% in February. When one considers the recent rise in unemployment, these numbers can be expected to go down further with a shrinking labor force. The IMF is predicting a significant downturn in the global economy, to understate the conclusion. Cleveland-based National City bank appears to be headed down the road to failure in the wake of the ongoing financial crisis. If they're hoping for a turnaround in the greater Cleveland area to cleanse their balance sheets to make a takeover more appealing, they can probably sooner expect a deux ex machina to show up at their headquarters in the form of a flying pig. The crux and source of the entire problem, the financial industry, is facing a slowdown for the entire year of 2008, in case that wasn't obvious.

In other news, it would appear that homeowner relief has gotten a rider of tax breaks for home builders. The only good side to this is that the provision probably won't cost the government much, as it will be shrinking revenue from a shrinking sector.

Ben Franklin Report: Questions, Questions Everywhere

Unfortunately, due to the arcane nature of economic measurements and a desire on the part of the elite to remain elite, there is an entire market around attempting to provide answers to clients and predict near- and long-term economic phenomena. So, in an effort to help you from wanting to go spend money on overpriced financial services, here are some questions you may be asking, and some answers.

• How much will this crisis cost the economy in the long term? According to JP Morgan Chase, the overall costs could be as much as $1.2 trillion.
  
• How is the crisis being felt in other markets? Europe's economy is resilient against the contagion, thanks to the rising Euro and sound monetary policy of keeping interest rates stable, which, in turn, draws available capital into the Eurozone. Head of the European Central Bank President, Jean-Claude Trichet remains skeptical if the worst has yet to come. Canada's CIBC still is working through at least $25 billion in exposure to monoline insurers.
  
• Is there more unwinding yet to happen in bad loans? The simplest way to answer this would be to say, "Yes." However, as details are still emerging about the prevalence of home equity loans, or other liens placed on homes in addition to the traditional first lien, mortgages, there is still a lot of red ink to be spilled.
  
• Is the stock market going to be a viable investment anytime soon? Perhaps, but not for the next few years. In the cyclical nature of business, the stock market traditionally sours for a decade after a decade of strong trading. So if this trend continues, the market will probably not begin to make lasting gains until approximately 2012.
  
• With increasingly visible protests against financial corporations receiving bailouts from the Federal Government, are there any other potential targets of popular discontent? As all politics are local, one need look no farther than the financing of your local Wal-Mart. Does your local community allow 'tax increment financing?'
• The employment outlook is souring, but was there any good news in the latest batch of GDP data? Not really, almost every number on the page is down in comparison to the quarter before, with a very precipitous drop in government spending. Also of note, exports are declining at the same time as imports are decreasing, which is a reflection of real consumer spending. Also of note, the value of real residential fixed investments, that of houses and such, fell by 25.2%.
• With all of the concerns about moral hazard, is there really a bad way to intervene in the marketplace? Yes, there is. For instance, pushing Fannie and Freddie into buying bad loans and then holding more capital in reserve against this new volume of bad loans. Businesses and executives that made bad decisions need to face the consequences of their decisions. The government has enough work to do to get its own house in order. I'm not alone in thinking that with this bailout will come a spiraling dollar.
  

Fed Chairman uses Telepathy to Drive Stock Rally

Yesterday during a presentation before the New York Port Authority, Ben Bernanke demonstrated his telepathic and psycho-economic skills to cause the stock market to rally briefly. It is unclear whether he used his powers of econotelepathy to manipulate the minds of JP Morgan execs to get them to pay a higher price for Bear Stearns, or if he caused traders in the black pits of Wall Street to interpret the offering favorably. Or if he simply moved the markets directly with his voodoo economics. When asked why the initial rally did not continue and keep the gains throughout the day, Bernanke replied with exhaustion, "I couldn't hold it."

Ben Franklin Report: Caturday Reading

With Ben Bernanke's newfound affinity for nimble and flexible policy, the comparison to a cat almost seems natural. However, in an effort to help you better channel your inner cat here is some reading and food for thought.

First, usaspending.gov is a really awesome website for policy addicts out there with some dynamic ways of looking at the way that the U.S. Government spends its money, with much potential for fun and blogging. For instance, in 2007, the Federal government spent less on traditional state spending than in previous years. This continues, despite record federal deficits. As one would expect the crumbling value of the dollar is being reflected in exponentially increasing federal spending. Unfortunately, for us, the War in Iraq and the Global War on Terror are contributing, if not causing, this problem.

Here is a handy slide show from the GAO about how the government is spending its money. The numbers are pretty terrifying, especially considering that these numbers don't reflect the quicksilver economic reality that we are currently faced with, aka the increased transportation costs of gas prices going up by 25% on average. Remember when it was serious when gas reached $2 a gallon? Not to mention the fuel inefficient vehicles the military relies on aren't going to see less use in the near future. Unlike the GAO, we here at the Fringe Element feel that more constructive advice is necessary, if for nothing more than general principle. My recommendation would be to move towards an asset-based financial system, perhaps similar to Islamic banking practices, in an effort to provide some stability to the dollar to try to halt its historical slide to worthless.

Ben Franklin Report: a Perfect Storm

As always, the world keeps spinning, and people will keep being people. So, by way of briefing, here are a few developments, like how a Recession is inevitable. Bush is optimistic.

Ben Franklins are increasingly worthless, compared to most foreign exchanges. The Dollar has gone below 100 yen for the first time in more than a decade, and keeps hitting new highs against our poor greenback. Inflation, though, reportedly didn't go up by very much in February, perhaps signifying a leveling out of prices, in the wake of consumer prices not properly reported in the Consumer Price Index. Any hope that inflation will be ameliorated by flattening or perhaps falling consumer demand is probably, at best, naive with oil on its march up to $125 a barrel. Fannie Mae and Freddie Mac may have been thrown a lifeline by Fed chief Ben Bernanke, but should he have? Is it enough? $200 Billion is a lot of money to be financed by Treasuries, yet not very much compared to the size of the mortgage market. Speaking of which, is going into dire straits as the crisis is beginning to move into the more traditional branch of mortgages, those whom enjoy good credit histories. In truth, the Fed has now set a course to assume all risk to the global financial system from the mortgage crisis.

Treasury Secretary Henry Paulson has announced new financial guidelines that are already market practice, which mostly center around risk assessment and the documentation required to receive a mortgage. Any notion of adjusting accounting requirements to allow banks to free up capital on their balance sheets, however, seems extremely misguided.

Fanning the entropy further, a pair of large financial institutions have collapsed in the wake of the problems in the financial sector. Bear Sterns, just after appointing a new head of East Asian operations, found its liquidity destroyed almost overnight. Thankfully for them, JP Morgan is riding in to the rescue. The Carlyle Group may come to the rescue of its stepchild, not-really subsidiary Carlyle Capital Corporation, as its assets have been seized. In a branding effort, David Rubenstein, Carlyle co-founder, wants to make sure that investors break even. This effort, like almost all of the efforts of the Fed and Treasury, are aimed at helping large banks and financial institutions recover their capital outlays lost as a result of inordinate risk assumption.

Must Watch Video: Tent Cities in LA.

A Testimonial that generically represents the leading edge of the crisis.

Ben Franklin Report: Reality Sets In

For those uninterested observers, the price of a barrel of crude briefly touched a record of $105.97, which is above the record set during the 1979 oil crisis, adjusted for inflation. As for monetary data, several growth engines are looking at double digit money supply growth, with the corresponding increase in inflation, namely, Saudi Arabia, South Korea, and China. In the United States, figures from the end of February also pointed to growth in inflation in March and beyond.

For less abstract data, one can look at the inflation figures from the European Union. Resisting calls to lower rates to help encourage consumer spending, the ECB and Bank of England have, for the most part, resisted cutting rates for fear of even greater inflation, deciding again today that no rate cut was necessary. Once again, I ask, does Ben Bernanke have doubts late at night about the course of monetary policy here in the U.S.? This move, on the part of the Europeans, will help serve to mitigate some of the effects of the financial crisis, by drawing capital to accounts where said capital can earn more interest.

American employment figures superficially appear stable, with whatever signs of growth that one might be able to pull from them. Better data will be available next week to see if the economy can keep itself sputtering along based on job creation, but this seems like a losing proposition, to say the least, especially with the rising tide of foreclosures.

On the retail side of things, shoppers are definitely out looking for bargains, reflected by strong sales at Wal-Mart and weaker sales at the higher priced Gap and J.C. Penney. In Europe, big box retailer Carrefour is also reporting lower earnings, after having its profit margins mostly wiped out by logistical costs during the second half of last year. While the company expects to see return to strong profitability in the near term, their plan of lowering logistical costs may not achieve fruition with the price of oil not likely to fall in the near to medium term.

In the stock markets, the credit crunch is beginning to be seen in failed margin calls, and perhaps the beginning of a margin spiral. Thornburg Mortgage Co. and the Carlyle Capital Corp. both reported failed margin calls, sending both scrambling for cash. Which, as the spiral metaphor implies, will send stock prices further downward, and other companies scrambling to find enough cash to cover accelerated margin calls from banks.

The bet that companies are wagering their financial futures on, namely that the US Treasury will ensure that agency mortgage securities, such as those issued by Fannie Mae and Freddie Mac, are going to go sour, and have been called "absolutely not true" by a Treasury spokeswoman. The markets are reacting, but in a more direct way, the spread between these securities and U.S. Treasuries is growing, which is a sure sign that investors are having second thoughts about the long-term viability of the GSE twins.

Troubled bond insurer Ambac has announced that it is expected to raise $1.5 billion in capital to keep its business operations going and avoid a rate cut by Moody's. Interestingly, banking institutions do not appear interested in offering Ambac any capital, which may be a sign that the worst is yet to come in municipal bonds. Unfortunately for Ambac, the company is going to require more than this to keep afloat.

As always, theories as to how and why abound. Some, such as Rich Karlgaarld, favor a supply side solution, with a lower tax burden on business. As he argues,

"What's the effect of supply-side tax cuts? As Steve Forbes likes to say, when you reduce the tax burden on a thing, you tend to get more of that thing. Reduce taxes on production and you get more production. More production means that more goods and services must compete for your dollars. That's how prices go down, not up. This is not hard to figure out! It is simple supply and demand. If you want prices to go down, increase supply. Incentivize the suppliers."

Unfortunately, this is meaningless if those who provide demand aren't capable of demanding anything out of the economy. With the dollar losing evermore value, the individual consumer is going to be hard-pressed to find any margin for consumption amidst higher costs for staples, such as energy and food. Oh, and not believing in the evidence of something does not mean that there is no evidence of that something.

On the other side, the Mogambo Guru finds the best way to read the Total Fed Credit, completely drunk. Grumbling about fiat money supply, the fractional reserve system, and the direction of monetary policy in the U.S., the Guru decries those who say Gold is the panacea for the ills of the dollar. Gold, by the by, is already above its previous record high and is pushing towards $1000 a troy ounce.

Ben Franklin Report: Warning Signs

Parroting the same policy as many previous Treasury Secretaries before him, Sec. Henry Paulson has come in favor of a 'strong dollar.' Of much more interest, though, is his sound byte saying that the government will not step in to intervene in the market on behalf of investors who made poor decisions and took on way too much of the worst kind of risk. Federal Reserve Chairman Ben Bernanke, in some of the most constructive testimony of his tenure thus far, indicated without words that the U.S. economy is probably already in a recession, that there will be bank failures in the near future, and yet he does not anticipate stagflation in the near-term.

In other pressures on the U.S. Dollar, OPEC has agreed to not lift output, which has pushed crude oil to a new record close, even further exasperating the oil standard. Pricing barrels of oil in euros is undoubtedly just around the corner. Expect to see oil ministers from the various OPEC countries begin speaking about it openly before their next production meeting.

As municipal bond markets continued to deteriorate, forcing yields up on long-term bonds, the city of Vallejo becomes the largest city in California to look bankruptcy square in the eye. This probably is the beginning of the trend, rather than the end of it, especially as houses will continue to have their values reappraised downward.

As an interesting aside, Fannie Mae paid $200K to lobby those who decide upon its workings. FNM's $2.1 billion loss on the year announced yesterday could put pressure on the ability of the mortgage giant to tap into credit pools, as Moody's announced that Fannie Mae's B+ rating is under review.

If you're wondering tomorrow morning why your wallet feels lighter, it's because it probably is. As of publishing the dollar was at a new record low against the Euro, weaker than the Canadian Dollar, and near a 4-year low with the Yen.

Ben Franklin Report: Lists Abound

Because businessmen love lists, here is a list of some of the important stories surrounding the ongoing financial crisis.

• 12 Steps to keep Ben Bernanke awake at night.
  
• As inflation looks more and more probable, the price of oil jumps to a new record high of $100.10, and, of course, the markets react.
• With U.S. Treasuries already near historic lows, analysts are seeing a market at near capacity as the government is forced to sell off billions more in deficit spending. While central banks with large inventories of treasuries and such securities should be the most nervous, every American citizen should probably share their concern.
• The Fed's new Term Auction Facility, created to help inject liquidity into the banking system has been extensively used, to the tune of $50 billion. The only problem is that the collateral behind these short-term, one month loans is collateral that wouldn't be accepted by other parties.
• The credit crunch is threatening to bury Boston's "Big Dig."
• Credit default swaps, according to the Office of the Comptroller of the Currency, now measure more than the amount of U.S. Treasuries outstanding.
• Credit Suisse's CDO headache
  

Ben Franklin Report: Time to Testify

Eliot Spitzer, the Governor of New York, yesterday weighed in on the ongoing financial crisis, with the unique perspective of one who was attempting to halt predatory lending practices before they were allowed to become the problems that we are seeing unfold today. The obscure bureaucracy, the Office of the Comptroller of the Currency (wiki), appears to have played a key administrative role in allowing this crisis to involve much more capital than would have otherwise been possible. As black has become white and white black, the Bush Administration has seemingly turned a bureaucracy dedicated to providing a degree of confidence in our banking system and protecting consumers, has become a tool for financial profiteering. Comptroller Dugan has this to say in response to the Governor's allegations, essentially pointing the finger of blame back at the states and arguing that the worst abuses came from institutions that do not fall under the purview of the OCC. Is this, perhaps, the next scandal to emerge from the Bush Administration?

In other news, Freddie Mac has announced plans to ease the financial liability of of its private mortgate partners. At issue is the liabilities said partners are burdened with incidental to the protection afforded by the mortgage agency. In tandem with this, the stimulus proudly signed by Bush into law the day before yesterday, increases the maximum value of a mortgage that the twins Freddie Mac and Fannie Mae may take onto their books, up to a maximum of $729,750. These two actions, in different ways, accomplish the same financial objective: to shield the private investors from the risk that they themselves took on by means of regulated governmental entities, which will inevitably mean that the taxpayer or, more likely, the purchasers of U.S. Treasuries will be stuck with the consequences of the ballooning crisis. Of particular note to the Presidential Election, some of the markets that would fall into the category to receive the largest margin of protection are in New York and California.

MBIA, Inc. executive said in Congressional testimony that they are in a position to withstand the financial crisis and no new regulation is required. The other contender for who rejected Warren Buffet's offer, FGIC Corp. announced intentions to be split up into two separate corporations, one for municipal bond insurance and another for the subprime mortgage liabilities, to cope with a new rating from Moody's at below investment grade.

On the legal front, the SEC is looking at revising financial transparency in response to more than three dozen investigations underway by the agency. The FBI is investigating a total of 16 corporations for fraud in relation to the financial crisis. I'm sure that this type of indeterminate liability will weigh heavily on the minds of investors who are desperately needed to provide all-important capital. The latest figure, produced by an analyst at UBS, forecasts the potential loss resulting from the ongoing financial crisis at $203 billion, which is likely to go up as other sectors of the credit market and municipalities become less safe investment choices.

This news, of course, makes Ben Bernanke's assurances of adequate insurance from risk sound like a flight of fancy. In light of Bernanke's precarious position, one must look to figures that measure confidence in U.S. monetary policy, like foreign exchange rates (Updated Dollar-Euro Exchange Rates). Considering the fall in the dollar in response to the Fed Chairman's comments, it would appear that the investment community does not share his opinions on the long-term outlook for the greenback. Considering his acknowledged position as the foremost authority in central banking, one might ask if Ben Bernanke is second guessing the Fed's dovish rate policy with the European Central Bank taking a more hawkish policy, keeping interest rates above 4%.

Below, is Bernanke's testimony yesterday, a song inspired by the Fed Chairman, and hot video from Reuters. Enjoy!

Feeling Sub-Prime?

The thing I want to point out here, that hasnt been mentioned except as denials that it is a consern, is that when the subprime mortgage market is allowed to push off its horrid investments on Fannie May and Freddie Mac this amounts to welfare. This is fucking corporate welfare. These are opportunistic people who took advantage of poor optimistic people who only wanted in on Bush's "ownership society." These subprime lenders were only conserned with making a buck and they all knew they were making a bad investment, which is why they hid these in larger investment packages and passed them off like hot fucking potatoes. Now that the investment has turned out to be a bad one they want to pass the burden of cleaning up the mess on to you and me, the fucking tax payers, and they want to leave the Joe and Jane Doe holding the bag. The poor people that got suckered into these predatory loans are still going to loose their home, while the fucking asshole real estate "flippers" got rich off of over inflated house values.

The big point again is that you and I are going to have to pay for the bad investments of some selfish dickheads. This whole thing strikes me as hypocritical bullshit. the people that wer making these investments are the kind of assholes that bitch and moan about the cost of social services and demand we privatize everything, but as soon as trouble looks their way and they go crying to the government for help. Every aspect of this makes me sick.

This whole thing is made worse because its tied up with the falling dollar, droping consumer confidance, falling manufacturing, inflation, falling wages, increasing unemployment, vastly increasing deficet.

That Sucking Noise

Apparently, the confluence of record oil prices, a financial fallout in our primary sector for economic growth for the past decade or so, and creeping inflation is too much for the U.S. Economy to bear. The main indicator of the turbulence, the poor dollar has in the past day tumbled to a new record low against the Euro, as well as for the most part falling back to pre-Clinton exchange rates against other world currencies, notably the Canadian dollar. The Chairman of the Federal Reserve, Ben Bernake, one of the masterminds behind this rapid currency devaluation, has signaled that he expect the economy to slow for the rest of the year, and regain momentum in the beginning of 2008. What might be slightly worrisome is that he mentioned that they have not even calculated for even the possibility of a recession. The European Central Bank, for their part, are worried about the potential impact of cheap American exports on the world market, with Bush's new best friend Nicholas Sarkozy going so far as to mention the phrase "trade war." All of this makes me wish that the Fed still published statistics about the growth of money supply.

Oil, on the other hand, is not nearly as interesting, it only hit an amazing high just over $96 per barrel, as opposed to actually eclipsing the $100 price range. Between the price of oil being up 42% since August and "I think the market is due for a correction," I would say that we need to start car pooling more, or perhaps look into public transportation.

In other news, the primary builder for expensive homes in the U.S., Toll Brothers announced that their sales are going into tailspin, bringing up the question of whether the leg that is consumer spending is wobbling... Hopefully, it's only wobbling.

The New York Stock Exchange and most other world indices were pushed down today by poor results in the tech sector.

By far the most worrying aspect of all of this is the mention by Cheng Siwei, Vice Chairman of the Standing Committee of the National People's Congress and the other mastermind, that the American dollar is losing its status as a world currency.

I hope the managers at brokerages are telling their people to lay off the coke.