Wednesday, September 25, 2013 – Imagine

by Sinclair Noe
DOW – 61 = 15,273
SPX – 4 = 1692
NAS – 7 = 3761
10 YR YLD – .04 = 2.61%
OIL – .83 = 102.30
GOLD + 10.10 = 1334.10
SILV + .07 = 21,90
The stock markets have gone through a bad patch; five consecutive declines have knocked 400 points off the Dow Industrials; no surprise. According to the Stock Traders Almanac, the week after September options expiration (this week) has consistently been one of the worst of the year. Since 1988, weekly declines average from –0.93% for NASDAQ to –1.49% for Russell 2000 and S&P 500 has only posted gains five times in 25 years. Meanwhile, bonds have enjoyed a nice little rally since the Fed announced “no taper”. We can understand how quantitative easing benefits Treasuries, but the threat of a government shutdown or default benefiting Treasuries? Go figure. I read today that a chief investment strategist at a trading house that will go unnamed is predicting that the S&P 500 may go to 1,900 now that the Federal Reserve has decided to not taper its asset purchasing program. He is correct. It might go to 1,900. Then again, it might not.  It might go to 600. Then again, it might not.
Why should market players be nervous? No worries! We finally got bipartisan cooperation in Congress; after weeks of wrangling and posturing, Senate Democrats and Republicans came together in a near-unanimous vote to shutdown Senator Ted Cruz. The vote shuts down all non-essential function of Senator Cruz; so it is, for all practical purposes, a complete shutdown.
The government shutdown is still in limbo, so we can almost turn our attention to the next bit of dysfunctional fiscal policy which involves running out of money, also known as the debt ceiling. Treasury Secreatary Jack Lew sent a letter to Congress explaining that the government would exhaust its borrowing capacity no later than October 17. The government has been scraping up against the debt ceiling since May, but it has avoided defaulting on any of its obligations by employing emergency measures to manage its cash, such as suspending investments in pension funds for federal workers. In his letter, Lew said the updated estimate reflected fresh information on quarterly tax receipts and the activities of certain large government trust funds.
A new poll questioned Americans about the looming debt ceiling and government shutdown, and the results reveal there is wide division, mainly between different age groups; 67% of Americans over age 44 said they were thinking of buying a new iPhone, however fewer than 25% said they had settled on a specific color; meanwhile, 78% of Americans under age 28 said they had purchased or would purchase the new Grand Theft Auto.
So, for the most part, it’s business as usual.
JPMorgan is reportedly in talks with federal and state officials to settle mortgage securities probes for as much as $11 billion, which is not a hard and set figure. The sum being discussed would include $7 billion of cash and $4 billion of consumer relief. The discussions include the Department of Justice, SEC, the Department of Housing and the New York State attorney general. It was not immediately clear exactly how many sources of potential liability for JPMorgan would be covered by the settlement being discussed.
Meanwhile, Citigroup said it agreed to pay $395 million to Freddie Mac to resolve claims of potential flaws in roughly 3.7 million mortgages it sold to the housing finance company from 2000 to 2012. Citigroup said the settlement also covers potential future claims arising from the loans bought by Freddie Mac, the government sponsored purchaser and guarantor of home loans. The deal follows an agreement by Citigroup in July to pay $968 million to settle similar claims by Fannie Mae.
Meanwhile, Bank of America couldn’t come to a settlement and so, for the first time, a major bank is going to trial over defective mortgage practices leading up to the 2008 financial crisis. Before today, no major bank has had to face a jury; just write a check and move on. Today the US Attorney’s Office in Manhattan, in a civil trial, claimed Bank of America’s Countrywide unit placed profits over quality in a massive fraud, selling shoddy mortgages to Fannie Mae and Freddie Mac, and claiming that the “documents and witnesses will show… the promise of quality was largely a joke.”
The lawsuit is brought under the Financial Institutions Reform, Recovery, and Enforcement Act. The law, passed in the wake of the 1980s savings-and-loan scandals, covers fraud affecting federally insured financial institutions. The Justice Department estimates Fannie and Freddie has a gross loss of $848 million on the Countrywide HSSL loans, though their net loss on loans it says were materially defective was $131 million.
The Justice Department says the loans were pushed out through a Countrywide program called the “High Speed Swim Lane” – also called “HSSL” or “Hustle” – that began in 2007 and effectively eliminated loan quality checkpoints by removing underwriters from the review process and paid employees based on the volume and speed of the loans they pumped out.
And as BofA goes to court, new allegations from the National Fair housing Alliance claiming Bank of America continues to neglect foreclosed homes it owns in predominately minority neighborhoods even though it is under investigation for discriminatory practices. The complaint asserts that Bank of America has failed to adjust practices that are the subject of an ongoing HUD review. The nonprofit homeowner advocacy group examined 116 bank-owned properties in Memphis, Denver, Atlanta and a handful of other cities over the past year. Bank-owned homes in black and Hispanic neighborhoods were roughly twice as likely as those in white neighborhoods to show visible evidence of neglect and decay, such as broken windows and overgrown lawns
And remember back when all those bad mortgages were pooled together and then blew up and nearly resulted in a global financial meltdown, only averted by hundreds of billions of dollars of taxpayer funded bailouts? And remember there was an insurance company involved? AIG. Maybe you got angry about AIG paying huge bonuses just months after it nearly brought down the financial system and took a $182 billion bailout. Did that make you angry? Well, if it did, then you’re exactly the same as a racist lynch mob in the Deep South in the Civil Rights era, according to AIG CEO Robert Benmosche.
Benmosche told the Murdoch Street Journal that the outcry over AIG’s bonuses “was intended to stir public anger, to get everybody out there with their pitch forks and their hangman nooses, and all that — sort of like what we did in the Deep South [decades ago]. And I think it was just as bad and just as wrong.”
“It is a shame we put them through that,” he added, referring to those poor employees who got huge bonuses. Sure, I think it’s obvious how receiving big bonus checks is almost exactly like hundreds of years of slavery and lynchings…, well almost.
Benmosche did not talk about the potential outrage of paying huge bonuses to to employees who did such a great job that the losses nearly destroyed a huge insurance company, creating a cascading collapse of ultra-risky derivatives that nearly destroyed the entire financial system, and civilization as we know it. Sure, you can see how that kind of quality work requires a bonus. So, to sum up: Not allowing financial alchemists who had “probably lived beyond their means” to carry on in the style to which they had become accustomed is exactly the same as lynching African-Americans in the Deep South.
Do you ever take a moment to contemplate what the economy might be like if we didn’t have the banksters skimming their cut off everything? Imagine the abundance and prosperity.
The average American family pays $6,000 a year in subsidies to big business. That’s over and above our payments to the big companies for energy and food and housing and health care and all our tech devices. It’s $6,000 that no family would have to pay if we truly lived in a competitive but well-regulated free-market economy.The $6,000 figure is an average, which means that low-income families are paying less. But it also means that families (households) making over $72,000 are paying more than $6,000 to the corporations. The U.S. federal government spends $100 billion a year on corporate welfare. That’s an average of $870 for each one of America’s 115 million families. This includes “cash payments to farmers and research funds to high-tech companies, as well as indirect subsidies, such as funding for overseas promotion of specific U.S. products and industries…It does not include tax preferences or trade restrictions.”
New research the “U.S. Government Essentially Gives The Banks 3 Cents Of Every Tax Dollar.” It’s calculated a nearly 1 percent benefit to banks when they borrow, through bonds and customer deposits and other liabilities. This amounts to a taxpayer subsidy of $83 billion, or about $722 from every American family.
The wealthiest five banks (JPMorgan, Bank of America, Citigroup, Wells Fargo and Goldman Sachs) account for three-quarters of the total subsidy, and without the taxpayer subsidy, those banks would not make a profit. In other words, “the profits they report are essentially transfers from taxpayers to their shareholders.”

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