Tweet
great blog post here that makes a lot of sense to me
http://market-ticker.denninger.net/2...lty-check.html
some excerpts
http://market-ticker.denninger.net/2...lty-check.html
some excerpts
Many Americans, under pressure with their REAL income, started taking this "wealth" out of their house and spending it. They refinanced into risky mortgage products or took HELOCs to "consolidate your credit card debt." Of course they didn't cut up the plastic at the same time, but rather kept repeating this cycle. We were told that house prices never go down.
That fraud is simple - You don't own something if you can never pay off the debt. If your consumption is financed by continued withdrawal of appreciation, you will never have a clean deed to your property!
That fraud is simple - You don't own something if you can never pay off the debt. If your consumption is financed by continued withdrawal of appreciation, you will never have a clean deed to your property!
What's worse is that we've allowed pervasive fraud to permeate Financial Firms who are now using the very same vehicles that ultimately sunk ENRON!
This has made an absolute mockery out of Sarbanes-Oxley, not to mention just good common sense. If a firm wants to either lend more money than regulatory capital permits or simply lie about the liabilities they carry and/or insure all they have to do is create a "SIV" or "Conduit" and PRESTO - it totally disappears off their balance sheet! The problem, of course, is that the liability is not really gone, and if it "comes back" really bad things happen.
This has made an absolute mockery out of Sarbanes-Oxley, not to mention just good common sense. If a firm wants to either lend more money than regulatory capital permits or simply lie about the liabilities they carry and/or insure all they have to do is create a "SIV" or "Conduit" and PRESTO - it totally disappears off their balance sheet! The problem, of course, is that the liability is not really gone, and if it "comes back" really bad things happen.
Approximately half of all our Treasury Debt is held by foreigners. As they take haircuts on the principal value of those investments of up to 50% from today's levels - remember, they've already lost 20% in the last three years - they will demand much higher interest rates to buy any MORE debt or roll over what they have now. Since our government continues to insist on raising the debt ceiling and spending more and more money, the real cost of money in the form of interest rates will rise precipitously, no matter what the Fed does. This is already happening in the bond market and it will get much worse. Since the Fed cut rates the 10 year interest rate has actually RISEN. Foreign holdings of our debt have decreased. That is the real cost of money and its going the wrong way. All of this is due to the intentional act of Ben Bernanke in bailing out the Investment Banks who had made bad bets - acts which he "protected" when he cut Fed Funds and issued the 23A "exemption" letters to SIX large banks.