Five Stages of Grief

Before looking at the five stages of grief, please consider a medley of tunes that David Lereah, chief economist for the National association of Realtors, was singing on July 25th 2006. It"s quite a collection.

Let"s start with the MarketWatch article Existing home sales fall 1.3% to 6.62 million

The report shows a continued weakening in the housing market, with inventories up sharply while prices are softening.

The inventory of unsold homes rose to a record 3.725 million, a 6.8 month supply at the June sales rate, the highest since July 1997.

The median price has risen 0.9% in the past year to $231,000. It"s the weakest price growth in 10 years.

What tune is Lereah Singing?

"I hope we are hitting bottom," said David Lereah, chief economist for the private real estate trade group, which is predicting sales of about 6.60 million this year.

Sellers should expect lower prices, Lereah said, adding that he wouldn"t be surprised to see single-family home prices fall nationally.

Also on July 25, the National Association of Realtors reported Existing-Home Sales Flattening, Prices Cooling.

David Lereah, NAR�s chief economist, said the housing market is flattening-out. �Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us the market is stabilizing,� he said. �At the same time, sellers have recognized that they need to be more competitive in their pricing given the rise in housing inventories. Home prices are only a little higher than a year ago.�

What tune is it?

I think this snip best expresses the tune of the day.
In fact it represents the tune of the day, day in and day out, 365 days a year.

NAR President Thomas M. Stevens from Vienna, Va., said opportunities have opened for home buyers. �People who were discouraged by the bidding wars that were so common over the last few years are finding more choices now,� said Stevens, senior vice president of NRT Inc. �Relative to the five-year housing boom, this year is a buyer�s market in much of the country with plentiful supply, along with interest rates which remain historically favorable, so it�s a good time to buy a home.�

It"s always a good time to buy a home according to these cheerleaders.

If home prices have "flattened out" after a massive 5 year run, pray tell exactly what value is there in housing? Or have home prices rally fallen more that you want to say? If inventories are high and the top cheerleader is admitting "he wouldn"t be surprised to see single-family home prices fall nationally", why should anyone be rushing into this market?

Home prices are 4-5 standard deviations above wages increases and 4-5 standard deviations above rental prices.

The truth hurts.

You know it is not a good time to buy, I know it is not a good time to buy, they know it is not a good time to buy, and FINALLY the public is starting to realize it is not a good time to buy. A very lengthy correction has only just begun. Yes, it"s a better time to buy than a year ago, but only because prices have fallen more than anyone wants you to believe. That does not make this a good time to buy.

Five Stages of Grief

The Palm Beach Post is talking about the five stages of grief.

Thomas Lawler, a Virginia-based housing consultant, thinks South Florida"s real estate market has entered what the respected "death-and-dying" psychiatrist Elisabeth Kubler-Ross called the first of five stages of grief.

1. "Denial in a previously hot real estate market occurs when a home listed at a high price doesn"t sell quickly, even though just a few months ago houses sold in just a few weeks," Lawler says in his July 19 Lawler Economic & Housing Consulting newsletter. "The home buyer says, "This is weird, but I"m sure it"s just a glitch," and does not alter his or her asking price.
2. "Anger occurs when, after a few months pass, the house still hasn"t sold, and little interest has been shown," he continues.
3. "Bargaining begins as the home buyer starts to offer a few incentives, agrees to more open houses, starts to fix up the house to make it show better, and actually agrees to lower the listing price a bit.
4. "Depression starts to set in when the house has been on the market for about four months or so, and the seller realizes that his or her net worth simply isn"t going to be as high as he or she thought.
5. "Finally, acceptance occurs when the seller realizes that homes prices have fallen; that he or she will not get peak price of what is now six months or more ago; and that if he or she wants to sell the home, the asking price needs to be adjusted downward considerably."

This process takes time, Lawler says, which is why home prices in hot markets that cool fast don"t immediately start falling.

I agree it takes time. Far more time than the four months that Lawler is suggesting it takes for depression to set in. Depression does not set in after 4 months (except perhaps for flippers on the fringes). I think six years is more like it. In Japan it took 18 years. Why can"t it take four, six, or even ten years here? It can and it likely will.

For the most part, we are probably still in the denial phase after 6 months to a year. If each phase lasts six to eight months we are in for a three year collapse. Given that this is basically a national bubble, and the biggest bubble ever, it would seem to me that 5-7 years minimum is more like it. Some people have not even hit the denial stage yet. Those people are still trying to flip, buy foreclosures, or buy the dip.

It"s a long way down from here.
That is in terms of time, price, and emotion.
For most recent real estate gurus it will not be a pretty ride.
Nor will it be a pretty ride for those trying to make a living off of ever decreasing sales.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

AP: Is John Kerry Angling For Secretary Of State?

NANTUCKET, Mass. � The airplane came to a stop, the door opened and out popped Tony Blair. At the bottom of the stairs to greet the former British prime minister on Saturday was Sen. John Kerry, looking every part the diplomat.
Four years after a failed presidential bid and amid a race for a fifth Senate term this fall, Kerry"s moves have prompted some questions:
_Is the Massachusetts Democrat positioning himself to be secretary of state in a potential Barack Obama administration?
_Could a Kerry appointment create not one but two Senate openings in Massachusetts, assuming Sen. Edward Kennedy cannot complete his term after being diagnosed last week with brain cancer?
Kerry aides insist he"s not angling for the job and point to his long involvement in foreign affairs. It started with his famous testimony as a 27-year-old veteran questioning the Vietnam War before the Senate Foreign Relations Committee. It continues today, at age 64, as the No. 3 Democrat on the same panel.
But envisioning him in the post would hardly be a stretch given Obama"s chances at securing the Democratic nomination, a general election shaping up as a "change" campaign and Kerry"s relationship with the Illinois senator.
Kerry would likely face competition from Sen. Joseph R. Biden of Delaware, chairman of the Foreign Relations Committee; Sen. Chris Dodd of Connecticut, a former Peace Corps volunteer who also sits on the panel, and former Senate Majority Leader Tom Daschle of South Dakota, a top Obama adviser.
Over the weekend, Kerry wrote a Washington Post op-ed column chastising President Bush and John McCain, the Republican presidential nominee-in-waiting, for criticizing Obama after he said that, as president, he would be willing to negotiate with U.S. opponents such as Iran.
In recent weeks, the Senate has also passed Kerry-sponsored resolutions seeking humanitarian aid for Burma and Robert Mugabe to step aside as president of Zimbabwe, while Kerry has filed legislation to remove South African President Nelson Mandela from U.S. terrorist watch lists.
The senator invited Blair to this island getaway last weekend so they could discuss the Middle East and climate change.
"John Kerry would love to end his career as secretary of state. It would be a capstone to a life that has always been devoted to public service, but in particular has been focused on foreign affairs," said Jeffrey Berry, a political science professor at Tufts University.

LinkHere

McCain ties may upset abortion foes

By RYAN GRIM 9/5/08 3:53 PM EST
John McCain�s wife has held ownership interests in two Arizona medical buildings that rent space to companies involved in the destruction of human embryos found to have genetic defects � a practice some anti-abortion activists say amounts to the taking of human life.
McCain�s financial disclosure forms show that Cindy McCain has invested more than $65,000 in Estrella Medical Plaza I. Estrella rents space to Arizona Reproductive Medicine Specialists and Sonora Quest Laboratories. Dr. Kimball Pomeroy of ARMS said that if his firm discovers that an embryo was affected by a serious disease, �in most cases, it would be discarded.� A brochure for Sonora Quest says that �if a birth defect is found, your doctor or a genetic counselor will help you make decisions in the best interest of you, your family and your baby.�
McCain�s disclosure forms also show that, until recently, Cindy McCain had at least a $100,000 investment in Princess Medical Center, which rents to Arizona Associates for Reproductive Health. An AARH employee confirmed that the firm discards embryos if its clients ask it do so. John McCain has said that he believes human life begins at conception, and some of his supporters contend that the disposal of embryos involves the destruction of human life. �We oppose testing and diagnosis of abnormalities and disabilities when the purpose is to eliminate those with abnormalities,� said Jessica Rodgers, a spokeswoman for the anti-abortion group National Right to Life.
A senior McCain aide said that Cindy McCain is not involved in deciding who rents space in the two buildings and was unaware that genetic testing and counseling firms were among the tenants.
�I think you�re making too much of a link there,� the aide said. �Cindy�s an investor in a partnership that owns the buildings. She�s a landlord. She has no financial control over the tenants in the building, and certainly she is not aware of who the tenants are. She�s just one part of a partnership that invests in these buildings. She�s not connected to the firms that are in question.�
Linkhere

Deflation Has Gone Global

Deflation properly defined is a net decrease in the money supply and credit, with credit being marked to market. Deflation by that measure went global long ago.

This post however, is in reference to sustained price drops widely (and incorrectly) referred to as deflation.

Japan wholesale prices log fastest drop since 2002

In Japan wholesale prices log fastest drop since 2002.

Japanese wholesale prices fell at their fastest annual pace in nearly seven years last month, official data showed Monday, adding to worries about the renewed threat of deflation.

Corporate goods prices fell by 2.2 percent in March from a year earlier, down for a third straight month, the Bank of Japan reported. It was the steepest year-on-year drop since May 2002 and followed declines of 1.6 percent in February and 0.7 percent in January.

"Companies are in tough competition to cut prices due to weak consumer sentiment," said Hideyuki Araki, economist at the Resona Research Institute. "Consumers are now worried about their jobs or pay cuts. It"s natural that they want cheaper goods," he said.

German wholesale prices see record decline in 22 years

In Germany wholesale prices see record decline in 22 years.

Wholesale prices in Germany dropped 8.0 percent in March compared with the same month last year, the biggest year-on-year decline since January 1987, the German Federal Statistical Office said Wednesday.

Compared to February, however, wholesale prices declined 0.9 percent, said the Wiesbaden-based statistics office.

Crude oil prices have retreated 66 percent from a record 147 U.S. dollars per barrel in July 2008. As a result, solid fuels and petroleum products were 21.4 percent cheaper in March than a year earlier, the statistical office said.

Prices of grain, seeds and feed declined 42.6 percent in the past 12 months.

Statistics show that Germany"s inflation has fallen to its lowest level in almost 10 years, as the global financial crisis has dragged the European Union"s biggest economy into its worst recession since World War II.

European Central Bank (ECB) council member Athanasios Orphanides told local media a day earlier that the risk of deflation may push further monetary easing.

Chinese CPI, PPI Negative

Please consider the following chart of Chinese Inflation.



US CPI In First Year-Over-Year Decline Since 1955

In the US the CPI is in First 12-Month Decline Since 1955.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in March, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The index has decreased 0.4 percent over the last year, the first 12 month decline since August 1955.

On a seasonally adjusted basis, the CPI-U decreased 0.1 percent in March after rising 0.4 percent in February. The decrease was due to a downturn in the energy index, which declined 3.0 percent in March after rising 3.3 percent the previous month. All the energy indexes decreased, particularly the indexes for fuel oil,
natural gas, and motor fuel. The food index declined 0.1 percent for the second straight month to virtually the same level as October 2008. The food at home index declined 0.4 percent, the second straight such decrease, as the index for dairy and related products continued to decline.

US Produce Price Index (PPI) Biggest Drop In 59 Years

Inquiring minds are looking at Producer Price Indexes March 2009.

Finished Goods PPI



Intermediate and Crude Goods PPI



Notes from David Rosenberg at Merrill Lynch

Spare Capacity

"There seems to be a lot of market chatter today about how the dramatic fiscal and monetary stimulus is going to reignite inflation. Let"s get a grip. We have a real unemployment rate of nearly 16% and a capacity utilization rate that looks about to decline to 65%. There is simply too much spare capacity to absorb to be concerned about what the government is going to do except prevent an outright deflationary environment from taking hold."

Deflation in headline to intensify going forward

"Relative to year-ago levels, overall [Consumer] prices fell by 0.4%, for the first dip into deflationary territory since August 1955. Looking ahead, easy energy comparisons versus a year-ago will be a key factor in leading the overall CPI lower in the months ahead. Food prices, eased to 4.4% Y/Y versus a peak of 6.1% Y/Y in October 2008, will also be a factor. By 3Q, we anticipate annual declines of 2.5%. Core prices were unchanged at 1.8% Y/Y in March, though down from the nearby peak of 2.5% in August 2008. By 3Q, the core CPI is also expected to ease toward 1.0%, with depressed demand and more competitive pricing for a broad array of consumer categories as tailwinds.

Underlying weakness in core CPI

"Owners� equivalent rent � a category that accounts for 31% of the core CPI) � rose 0.2% M/M, in part due to falling natural gas prices, which have an inverse relationship to rent prices."

OER Grossly Distorts The CPI

"Owners" Equivalent Rent" (OER) is the largest component in the government measure of the Consumer Price Index (CPI).

OER is a process in which the BEA estimates what it would cost if owners were to rent the homes they own from themselves. OER is not a valid pricing barometer.

By ignoring housing prices, CPI massively understated inflation for years. The CPI is massively overstating inflation now.

The following chart shows the effect if one substitutes the Case-Shiller housing index for Owners" Equivalent Rent in the CPI.

Case-Shiller-CPI (CS-CPI) vs. CPI-U



click on chart for sharper image

Please see CS-CPI Negative 5.0% Third Straight Month for details about CS-CPI, a more realistic measure of consumer prices than the widely reported CPI.

Deflation has set in. It is now unmistakable by many measures, not just in the US but globally.

Bernanke"s Deflation Preventing Scorecard

In case you missed it, here is Bernanke"s Deflation Preventing Scorecard.

Bernanke is under the misguided notion that Fed policies in the 30"s caused the Great Depression. Bernanke is wrong. Yes, the Fed (and government) policies in the 30"s made the situation worse, but that was not the cause as Bernanke thinks.

Lessons From History

Students of the Great Depression are investigation lessons from history such as the Smoot Hawley Tariff Act.

The Smoot-Hawley Tariff Act was signed into law on June 17, 1930, and raised U.S. tariffs on over 20,000 imported goods to record levels, and, in the opinion of most economists, worsened the Great Depression. Many countries retaliated, and American exports and imports plunged by more than half. The tariff was replaced by lower bilateral agreements in the mid 1930s.

The cause of the great depression is simple: There was a massive runup in credit, margin, leverage and speculation in the late 1920"s. Does that sound familiar? It should. The Smoot Hawley Tariff Act made the great depression worse but it did not cause it as some believe.

Nor did the Fed"s so-called tight-money policies in the 30"s cause the Great Depression although Fed actions certainly made the situation worse. So did many Roosevelt New Deal policies such as the Illegal Agricultural Adjustment Act, and the illegal confiscation of gold.

Six million piglets and 220,000 pregnant cows were slaughtered in the AAA"s effort to raise livestock prices. Many cotton farmers plowed under a quarter of their crop in accordance with the AAA"s plans.

The tax underwriting the AAA was declared unconstitutional by the Supreme Court in the case United States v. Butler, because, among other stated reasons, it taxed one farmer in order to pay another. Farm leaders supported the Butler decision.

Numerous policy decisions made the Great Depression worse and sadly those policy decisions are frequently cited as the cause.

Close analysis by any careful student of history would conclude the cause of the Great Depression was the massive runup in credit that preceded it, and that horrible policy decisions only made matters worse. And it is axiomatic that the cause of a problem and the solution to the problem cannot be the same. Thus, Bernanke"s and Geithner"s attempts to get banks to lend and consumers to spend cannot possibly be the cure to anything.

The Geithner-Obama-Bernanke policy track trifecta the US is on takes scarce resources (taxpayer dollars) and wastes them on the very banks and lending institutions that exacerbated the problem with foolish lending practices. This extremely poor policy decision is the modern day equivalent of Roosevelt"s illegal Agricultural Adjustment Act. The big difference is the massive size and scale of the plan.

Base Money Supply % Change From A Year Ago



chart courtesy of St. Louis Fed

This expansion of money to bailout banks is not going to cause hyperinflation or even strong inflation for reasons outlined in Fiat World Mathematical Model. However, these foolish actions cannot possibly do anything good for the majority of taxpayers. All it can do is prolong the recession (depression) and increase national debt just as happened with Japan"s deflation fighting efforts.

Nonetheless, in a sense, Geithner"s Plan Can Succeed as long as one understand how success is defined. Success in this case being the bailout of banks, Goldman Sachs, PIMCO, and other financial institutions at the expense of everyone else.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Fraud Probe At Moody"s

On May 20th the Financial Times reported Moody�s error gave top ratings to debt products.

Moody�s awarded incorrect triple-A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models, a Financial Times investigation has discovered.

Internal Moody�s documents seen by the FT show that some senior staff within the credit agency knew early in 2007 that products rated the previous year had received top-notch triple A ratings and that, after a computer coding error was corrected, their ratings should have been up to four notches lower.

On discovering the error early in 2007, Moody�s corrected the coding glitch and instituted methodology changes. One document seen by the FT says �the impact of our code issue after those improvements in the model is then reduced�. The products remained triple A until January this year when, amid general market declines, they were downgraded several notches.

The world�s other major credit agency, Standard and Poor�s, was the first to award triple A status to CPDOs but many investors require ratings from two agencies before they invest so the Moody�s involvement supplied that crucial second rating.

S&P stood by its ratings, saying: �Our model for rating CPDOs was developed independently and, like our other ratings models, was made widely available to the market. We continue to closely monitor the performance of these securities in light of the extreme volatility in CDS prices and may make further adjustments to our assumptions and rating opinions if we think that is appropriate.�

Yves Smith at Naked Capitalism had this cynical comment: "This begs the question that the so-called bug wasn"t a bug at all but a feature, that the model was designed (or tweaked) to produce ratings that conformed with S&P. After all, if an issuer got an AAA from S&P and wanted a second rating from Moody"s, it would kill Moody"s chance of ever rating similar paper for it to issue a markedly lower score."

What Yves is referring to is the practice of "shopping around" debt to whoever is willing to rate it the highest. Back in March, bond insurer MBIA even went so far as to ask Fitch to stop issuing credit ratings on its insurance units. See Amazing Action In Ambac, MBIA for more on Fitch.

Cover Up Probe On Moody"s

Bloomberg is reporting Moody"s Plunges for Second Day After Cover-Up Probe.

Moody"s Corp., owner of the second- largest credit-rating company, fell for a second day after starting a probe into whether executives covered up a computer error that gave top rankings to securities that didn"t deserve them.

Moody"s extended its two-day drop to as much as 24 percent after lawmakers and prosecutors stepped up scrutiny of the company"s credit-rating unit. Connecticut Attorney General Richard Blumenthal said yesterday he is investigating New York- based Moody"s for potential fraud in connection with a possible ``cover-up"" of inaccurate ratings. U.S. Senator Charles Schumer urged regulators to examine the matter and fine the company if it delayed disclosing the mistake to investors.

The calls escalate criticism of the ratings company, which has been under siege since July, when top-rated debt began tumbling as defaults on subprime mortgages soared to records. The company yesterday said it is conducting "a thorough review" of whether a computer glitch caused it to assign Aaa rankings to about $4 billion of European securities that later fell in value.

Buffett also joined the commentary, urging Moody"s to fire employees if the investigation finds they did "things they shouldn"t have done."

"This is the smoking gun for how these rating agencies operate," said Martin Weiss, chairman of the Weiss Group Inc., a research firm, in Jupiter, Florida. "It"s a warning signal not only regarding the rating agencies but regarding the accuracy and fairness of credit ratings in general."

Blumenthal said his office was aware of possible errors before they were reported this week by the FT.

"We have been aware of allegations that, in effect, there was a cover-up of these ratings inaccuracies and defects in the models applied to these complex structured securities," Blumenthal, who is conducting a broad investigation into ratings companies, said in an interview yesterday. "The question is whether the defects were purposeful" and whether Moody"s subsequently sought to hide the errors, he said.

"Shirking Responsibility"

Schumer, a New York Democrat, said in a letter to SEC Chairman Christopher Cox yesterday that the "revelations" are "indicative of a culture of shirking responsibility that must end."

California Treasurer Bill Lockyer called for more regulation, saying that Moody"s kept its ratings artificially high by covering up its mistake.

"It"s time to reexamine the rating agencies" freedom from any meaningful regulation," said Lockyer"s spokesman Tom Dresslar. "They like to say that all they do is offer opinions. It"s kind of like a judge saying all he does is offer opinions. These guys wield vast control over our capital markets and our entire economy."

Missing The Boat

Schumer, Cox, Dresslar, Lockyer, etc are all missing the boat. The problem is emphatically NOT lack of regulation. The problem is misguided regulation by the SEC that created government sponsorship of Moody"s, Fitch, and the S&P. The solution is to strip Moody"s, Fitch, and the S&P of their clearly unwarranted government sponsorship.

I have been talking about these problems for years. If you have not yet done so, please read Time To Break Up The Credit Rating Cartel.

The potential for fraud, conflict of interest, ratings shopping, and other problems all came about because a SEC ruling created a monopoly for the big 3 rating agencies. Further compounding the problem, that SEC sponsorship turned upside down the model of who had to pay to receive a debt rating.

Previously debt buyers would go to the ratings companies to know what they were buying. The new model was issuers of debt had to pay to get it rated or they couldn"t sell it. Of course this led to shopping around to see who would give the debt the highest rating.

Government sponsorship of the big 3 created this mess. If Moody"s, Fitch, and the S&P were paid on the accuracy of their ratings instead of by monopoly mandate, they would quickly sink into oblivion because of the clear incompetence they have displayed.

No one can possibly trust any rating from any of these companies. It is a farce that MBIA and Ambac carry AAA ratings. It is a farce that tons of stuff rated AAA by these companies ever carried those ratings.

We do not need more regulation to fix this mess, we need to eliminate the regulation that created this mess and return to a model whereby rating agencies are sought out because of the accuracy of their rating instead of by government mandate.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Unable to Borrow

Reuters is reporting American Home Mortgage unable to borrow.

American Home Mortgage Investment Corp., (AHM) a mortgage lender, said that it is unable to borrow under its bank lines and is looking at ways to raise money, including "the orderly liquidation of its assets."

The company said it has retained Milestone Advisors and Lazard to help it evaluate its strategic options.

MarketWatch is reporting American Home Mortgage Working To Resolve Liquidity Issues.

American Home Mortgage Investment Corp. (AHM) said Tuesday it is trying to resolve liquidity issues, which it said arose from disruptions in the secondary mortgage market. The Melville, N.Y., mortgage real-estate investment trust said Tuesday that lenders have initiated margin calls in response to the declining collateral value of certain loans and securities in its portfolio. American Home Mortgage has received and paid significant margin calls in the last three weeks and has substantial unpaid margin calls pending, the company said. The company said that, at present, it can"t borrow on its credit facilities and couldn"t fund its lending obligations Monday of about $300 million. It doesn"t anticipate being able to fund about $450 million to $500 million Tuesday

Q: What happens when you are unable to borrow and can"t fund margin calls and other obligations?
A: Something like this (except divided by 10) ...



AHM is currently sitting at a $1.10 (but changing rapidly now) having hit a low of $1.06, down 90% (overnight) from already depressed levels.

Obviously another chapter in the Liquidity Crunch at American Home is being written today. Eventually someone will buy them out at pennies on the dollar but the final chapter will no doubt be massive numbers of lawsuits.

No Poole Party

Earlier today Fed member Poole said Fed won"t ride to rescue of upset markets.

Financial markets understand that the Federal Reserve will not respond quickly to a typical financial market upset such as last week"s sharp stock sell off, said St. Louis Fed President William Poole on Tuesday. Poole said the best policy for the Fed in cases of market turmoil is to be cautious and try to understand the reasons for the volatility. The Fed should only act "in due time" if evidence accumulates that the market upsets threaten to cause price stability or low unemployment, or when financial-market developments threaten market processes themselves, Poole said. "If the market believes that the Fed is always primed to adjust policy, then market participants will spend more time trying to second guess the Fed than trying to understand what is happening to business and household behavior," Poole said in a speech prepared for delivery at the University of Missouri.

There is no such thing as "In Due Time". The Fed should not attempt to bail out the market place, ever, period. It is the repeated intervention over the years (otherwise known as the "Greenspan Put") that puts an unnatural bid on the market and promotes speculative behavior.

The foreclosures and the housing related blowups we see now are a direct result of the last party. The Fed managed to bailout lenders in the wake of a dotcom bust by slashing rates to 1%. What"s next? I suggest the biggest party has already been thrown. There is no conceivable bailout coming that is going to create jobs and encourage reckless spending like housing did. It"s the end of the line.

Today Poole says "No Party ... yet". What the Fed doesn"t know is that few will be willing to put on those party hats when they next attempt to pass them out. Banks wont lend to poor credit risks and good credit risks will have no reason to borrow in a world awash in overcapacity. Cheap labor enhances the problem and will make it impossible for many consumers to pay back debts.

The party is over but a massive hangover is just starting.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

CNBC: Warren Buffett Keeps Chugging With Daily Burlington Northern Buys

Topics:Railroads | Warren Buffett

Companies:Burlington Northern Santa Fe Corp | Berkshire Hathaway Inc.

Warren Buffett"s daily Burlington buys continue.

Berkshire Hathaway has bought Burlington Northern Santa Fe shares on 11 of the 12 trading days through last Tuesday, January 22.

Berkshire may have bought even more yesterday or today but there is sometimes a lag of one to two days between a purchase and its disclosure.

According to a filing with the SEC tonight, Berkshire picked up 10,300 shares on Tuesday, its smallest daily purchase in the recent series.

The price, $75.51, is also the lowest it has paid. Berkshire owns 18.2 percent of the freight railroad"s outstanding shares.

Berkshire Hathaway"s Burlington Northern Buys This Month

Date	Shares Acquired	Price/Share	Total Price
Monday, January 7	29,600	$76.55	$2,265,880
Tuesday, January 8	240,000	$77.89	$18,693,600
Wednesday, January 9	435,700	$77.12	$33,601,184
Thursday, January 10	46,100	$77.78	$3,585,658
Monday, January 14	141,400	$78.18	$11,054,652
Tuesday, January 15	807,400	$77.69	$62,726,906
Wednesday, January 16	44,200	$76.55	$3,383,510
Thursday, January 17	205,800	$77.83	$16,017,414
Friday, January 18	996,100	$76.97	$76,669,817
Tuesday, January 22	10,300	$75.51	$777,753
TOTAL	2,956,600		$228,776,374

Current prices:

Burlington Northern [BNI 86.59 1.54 (+1.81%) ]

Berkshire Hathaway [US;BRK.A 111700.0 1300.00 (+1.18%) ]

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Australia Reacts to President Elect Obama

SYDNEY AUSTRALIA

He thanked his wife Michelle, "the love of my life", and promised his children a new puppy would be joining them at the White House. / Reuters

MICHELLE Obama calls herself the new mum-in-chief but admirers say she"s a 21st Century Jackie Kennedy who will bring glamour back to the White House. Pound puppy to top dog More

Running mates ... Barack and Michelle Obama wave to their supporters along with vice president-elect Joe Biden and his wife Jill / AFP

On Valentine"s Day, Please Hug A Koala

It"s Valentine"s Day. Please try and forget about the stock market, jobs, home prices, and any other bad news that is on your mind. Instead, please consider how a Koala love story wins hearts after deadly Aussie fires.

A love story between two badly burned koalas rescued from Australia"s deadliest bushfires has provided some heart-warming relief after days of devastation and the loss of over 180 lives.

Left: A koala named Sam is given a drink of water by Country Fire Authority volunteer fire fighter Dave Tree after he rescued her following deadly fires that swept through the area of Mirboo North, about 120km (75 miles) southeast of Melbourne, February 8, 2009.

The story of Sam and her new boyfriend Bob emerged after volunteer firefighter Dave Tree used a mobile phone to film the rescue of the bewildered female found cowering in a burned out forest at Mirboo North, 150 km (90 miles) southeast of Melbourne.

Photos and a video of Tree, 44, approaching Sam while talking gently to her, and feeding her water from a plastic bottle as she put her burned claw in his cold, wet hand quickly hit video sharing website YouTube www.youtube.com/watch?v=-XSPx7S4jr4, making her an Internet sensation.

Tree, who has been a volunteer firefighter for 26 years, said it was extremely rare to get so close to a koala so he asked his colleague Brayden Groen, 20, to film him.

"You can [see] how she stops and moves forward and looks at me. It was like a look saying "I can"t run, I"m weak and sore, put me out of my misery,"" Tree told Reuters. "I yelled out for some water and I sat down with her and tipped the water up. It was in my hand and she reached for the bottle then put her right claw into my left hand which was cold so it must have given her some pain relief and she just left it there. It was just amazing."

Right: A koala named Bob (top), rescued from last week"s deadly bushfires, puts his paw around new friend and fellow fire survivor Sam as she recovers from her burns at a wildlife centre near Melbourne February 11, 2009. A love story about two koalas rescued from Australia"s deadliest bushfires has provided a glimmer of hope after days of devastation and the loss of more than 180 lives.

Colleen Wood from the Southern Ash Wildlife Shelter that is caring for Sam and Bob said both koalas were doing well.

She said Sam had suffered second degree burns to her paws and would take seven to eight months to recover while Bob had three burned paws with third degree burns and should be well enough to return to the bush in about four months.

"They keep putting their arms around each other and giving each other hugs. They really have made friends and it is quite beautiful to see after all this." said Wood.

"Sam is probably aged between two to four going by her teeth and Bob is about four so they have a muchness with each other."

Here is a set of Six Pictures of Koalas Sam and Bob

Video Link: Sam The Koala Video

If you cannot find a Koala to hug this Valentine"s day, please give a hug to someone you love.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Tulip Mania and Social Security Reform

What do Tulip Manias, Social Security, and the Stock Market all have in common? Enquiring minds just might wish to consider this fairy tale comparison.

When tulip prices started to rise in the 1630s, many Dutch burgomasters (the local mayors) started to invest in tulip bulbs. In the autumn of 1636, demand for tulips sagged as German princes ravaged by the Swedes in the Battle of Wittstock, began digging up their bulbs and selling them. The sudden glut caused prices to fall, and Dutch burgomasters began losing money. Rather than take their lumps, these politically connected investors tried to change the market rules on tulips. Ultimately, the burgomasters succeeded in ironing out a deal whereby the obligation to purchase bulbs at a fixed price would be suddenly converted into an opportunity to do so. In other words, they transformed tulip-bulb futures contracts into tulip-bulb options. The action was ratified by the Dutch legislature. On Feb. 24, 1637, the Dutch florists "announced that all futures contracts written since November 30, 1636 and up until the opening of the spring season, were to be interpreted as option contracts". In the worst-case scenario, investors would lose 3 percent of the price of the contract. In the best case, prices would rise above the strike price, and they could make an instant profit while assuming the minimal 3 percent risk. As a direct result of these sudden �rule changes�, people assumed there was little to no risk in buying tulip options, and the market exploded. By February 1637, the price of tulips had risen 20 times.

The demand for rare tulips increased so much that regular marts for their sale were established on the Stock Exchange of Amsterdam, in Rotterdam, Harlaem, Leyden, Alkmar, Hoorn, and other towns. Symptoms of gambling became obviously apparent. The stock-jobbers, ever on the alert for a new speculation, dealt largely in tulips, making use of all the means they so well knew how to employ to cause fluctuations in prices. At first, as in all these gambling mania, confidence was high and everybody gained. The tulip-jobbers speculated in the rise and fall of the tulip stocks, and made large profits by buying when prices fell, and selling out when they rose. Many individuals grew suddenly rich.

At last, however, the more prudent began to see that this folly could not last for ever. Rich people no longer bought the flowers to keep them in their gardens, but to sell them again at cent per cent profit. It was seen that somebody must lose fearfully in the end. As this conviction spread, prices fell, and never rose again. Confidence was destroyed, and a universal panic seized upon the dealers. Substantial merchants were reduced almost to beggary, and many a representative of a noble line saw the fortunes of his house ruined beyond redemption. After the crash was rolling, people demanded the government "do something." Initially, the government offered to buy the options at 10% of face value. But as prices plunged even lower, the government could not afford to follow through.

Fast forward to 2005.

The US government, weary of war with Iraq and facing increasing military expenditures as well as rising pension obligations and Social Security promises that can not be met, desperately needs a way to support a potentially sinking tulip bulb market (otherwise known as the US stock market). The head US burgomaster (otherwise known as President Bush) has his own "rule changes" in mind (otherwise known as Social Security reform). It seems all we have to do to bail out Social Security and other pension obligations is to pass a law requiring the common people to purchase tulip bulbs (stocks) with a portion of their income from each and every pay check. Even though many think the "tulip fund" will be solvent for another 14-40 years, the head burgomaster has decided that "rule changes" are his top priority.

Supposedly tulip bulbs purchased today will be harvested when individuals retire and those bulbs will provide a source of retirement income. It just so happens that a side benefit of this mandatory infusion of cash into the tulip markets is a means for the wealthy burgomasters in general (otherwise known as CEOs and stock option holders) to sell their bulbs before they rot. The proposed rule changes will also guarantee fees for the tulip bulb dealers (otherwise known as brokerage houses and insurance companies selling tulip annuities). These fees are an expression of gratitude for the massive contributions paid by the bulb dealers to the head burgomaster in his bid to get re-elected. Bulb dealers were ecstatic when their candidate won, and immediately the price of bulbs shot up nation wide. All that remains now is for the Dutch Legislature, excuse me I mean US Congress, (see how confusing this gets?) to ratify the proposed rule changes.

In 1982 the common people were told that social security taxes would be raised to guarantee solvency of the "tulip fund" (otherwise known as the "Social Security Trust Fund"). Now 20 years later, the common people are told there is no money left in the "tulip fund", that it was all spent, and that we need "rule changes" to guarantee the future solvency of the fund. These changes supposedly will revitalize our under-funded tulip fund.

Will these rule changes be any more successful than what ultimately transpired in 1637?

Enquiring minds want to know!
Unfortunately, our fairy tale must end here.
It will take many years before we know for sure but the up front cost to find out is a mere 1-2 Trillion US$ right now.

Credits and Thanks:
Portions of the above article are excerpts and/or paraphrased sections of Bulb Bubble Trouble, and Tulipomania Memoirs of Extraordinary Popular Delusions and the Madness of Crowds.

Thanks to my friend John Mozdzen for initially coming up with the idea for this article.

Mish

Runaway Trains Gather Momentum

The runaway train of bad economic news continues. On another track, a runaway train of bad ideas as to how to deal with the economic crisis is also picking up steam. Here are a sampling of headlines to consider from the US and around the world.

U.S. Property Owners Lost $3.3 Trillion in Home Value Last Year

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth as the economy went into recession, Zillow.com said.

The median estimated home price declined 11.6 percent in 2008 to $192,119 and homeowners lost $1.4 trillion in value in the fourth quarter alone, the Seattle-based real estate data service said in a report today.

�It�s like a runaway train gaining momentum,� Stan Humphries, Zillow�s vice president of data and analytics, said in an interview. �It�s difficult to say when we�ll see a bottom to the housing market.�

The U.S. economy shrank the most in the fourth quarter since 1982, contracting at a 3.8 percent annual pace, the Commerce Department said on Jan. 30. Record foreclosures have pushed down prices as unemployment rose. More than 2.3 million properties got a default or auction notice or were seized by lenders last year, according to RealtyTrac Inc., a seller of data on defaults.

About $6.1 trillion of value has been lost since the housing market peaked in the second quarter of 2006 and last year�s decline was almost triple the $1.3 trillion lost in 2007, Zillow said.

Car sales: From bad to worse

Even as credit starts to flow to potential car buyers, sales could fall to a 26-year low due to a sharp drop in purchases by car rental companies.

Consumers may have had an easier time getting car loans last month, but don"t look for that to fuel a rebound in battered auto sales when automakers report their January sales Tuesday.

Forecasts of a modest pickup in sales to consumers are being more than offset by a sharp plunge in purchases by rental car companies, which in a typical year can buy close to 3 million vehicles a year.

China Puts Joblessness for Migrants at 20 Million

The government offered a telling indicator Monday of the slowdown in China�s once-galloping economy, announcing that more than one in seven rural migrant workers had been laid off or was unable to find work, twice as many as estimated just five weeks ago.

The new statistics followed a hint on Sunday by Prime Minister Wen Jiabao that the government might have to expand a recently announced $585 billion stimulus plan to deal �pre-emptively� with growing economic problems.

About 20 million of the total estimated 130 million migrant workers, whose cheap labor underpins China�s manufacturing sector, have been forced to return to rural areas because of a lack of work, according to a survey conducted by the Agriculture Ministry that was cited at a briefing.

In late December, employment officials estimated that at least 10 million migrant workers had lost their jobs in the third quarter of 2008 as waves of factories and businesses shut their doors.

The specter of millions more unemployed clearly has the Chinese government worried. The government has not released annual figures on social unrest � what it terms �mass incidents� � for several years, but foreign news reports suggest growing protests as unemployment spreads.

Any ideas that China is about to start another commodities boom, that China will decouple, or even that the RMB is hugely undervalued vs. the US dollar now seem far-fetched.

Billions in Stimulus Are Proposed for Australia

Australia announced another major stimulus plan and its central bank delivered a deep cut in interest rates on Tuesday as the country sought to prop up growth.

The government said it would spend $42 billion Australian dollars, or $26.5 billion, on infrastructure, schools, housing and payments for low-income earners. Last year, Australia announced several measures as the economic slowdown in the United States and Europe began to spread around the world and engulf the economies of the Asia-Pacific region.

�The weight of the global recession is now bearing down on the Australian economy,� Wayne Swan, Australia�s treasurer, said in a statement. �In the midst of this global recession it would be irresponsible not to act swiftly and decisively to support jobs.�

The only responsible action government can take is to cut taxes, stop wasting money, and otherwise getting out of the way so that the private sector can function properly.

Australia Cuts Key Interest Rate to 45-Year-Low 3.25%

Australia�s central bank cut its benchmark interest rate to the lowest level in 45 years and the government announced it will spend a further A$42 billion ($27 billion) to ward off a recession.

Governor Glenn Stevens lowered the overnight cash rate target to 3.25 percent in Sydney today, saving borrowers with an average A$250,000 home loan more than A$120 a month. Treasurer Wayne Swan said the government will spend A$12.7 billion in handouts to families and A$28.8 billion on infrastructure, sending the budget into its first deficit since 2001-2002.

Rent-Hungry Los Angeles Landlords Hide Tenants With Pepsi Signs

Andy Safir says he paid a premium for a view of the Santa Monica Mountains and Los Angeles skyline when he leased space for his economic consulting firm.

He was surprised one morning to find the office in shadows even though the sun was shining. While he traveled abroad, the side of the building had been draped with a giant Statue of Liberty in protest against a city sign moratorium on just that kind of display.

So-called supergraphics, huge posters made of vinyl and mesh, can bring in $20,000 a month or more, said Paul Fisher, a lawyer in Newport Beach, California, who represents advertising firms and landlords in disputes with the city of Los Angeles.

That�s drawing landlords hungry for revenue, as vacancy rates rise for Los Angeles office buildings. Ads for Tropicana orange juice, Pepsi-Cola, Club Med and other products cover as much as 10 stories of building faces, including windows.

Tenants complain that the signs block their natural light, while other opponents say the banners clutter an urban landscape already filled with commercial messages. The city opposes some signs for safety reasons, and the fire department ordered removal of about 20, City Councilman Jack Weiss said at a news conference last week.

If I was a renter in one of those buildings I would vote with my feet.

California delays $3.5B in payments

Running short of cash, California has started delaying $3.5 billion in payments to taxpayers, contractors, counties and social service agencies.

With the governor and state lawmakers locking horns on resolving California"s budget crunch, the controller Monday halted checks covering these obligations so the state could continue funding its school system and making its debt payments.

The delay will inflict more pain on the already sorry condition of the Golden State, which is facing a $40 billion budget gap. People won"t have tax refund money to spend, businesses won"t get paid for their services and agencies won"t have funds to help the needy until the budget situation is addressed.

Nearly $2 billion in personal state income tax refunds are being held up, according to state estimates. Last year, some two million Californians received refunds in February.

"People are going to be hurt starting today," said Garin Casaleggio, a spokesman for Controller John Chiang.

People have been hurting badly for years thanks to the policies of the Bush administration, the Fed, Congress, and coming soon Geithner, who is slated to become the worst treasury secretary ever. That is quite an achievement.

BOJ may buy $111.5 billion in shares held by banks

Japanese stocks ended lower Tuesday, in volatile trading highlighted by a midday announcement that the Bank of Japan will resume buying shares held by financial institutions, with plans to spend up to 1 trillion yen ($111.5 billion) through April 2010.

The Nikkei rose as much as 2.7% after the announcement, but retreated later in the afternoon to close 0.6% lower at 7,825.51. The BoJ did not say when it would begin buying shares. It plans to halt the buying by the end of April 2010 and dispose of all shares it acquires by autumn 2017.

The last time the central bank had run a similar share purchase, it spent 202 billion yen purchasing shares from financial institutions during the 22 months ended in September 2004. At the time, the central bank had pledged to buy as much as 3 trillion yen of shares.

The BoJ began disposing of its holdings in October 2007 but suspended the program during the market slump last autumn. The central bank held 1.273 trillion yen of shares as of September 2008, it said in the statement.

The BOJ never managed to unload the shares it bought the last time it tried this ridiculous maneuver. Buying shares to prop up prices can never work.

Macy"s cuts 7,000 jobs, slashes dividend

Macy"s Inc said on Monday it would slash about 7,000 jobs and cut its quarterly dividend as it forecast earnings for fiscal 2009 that fell far below Wall Street expectations, sending its shares down 4 percent.

The department store operator said it took the steps to counter what it expects will be a very tough retail market this year, and that it would plan conservatively despite efforts by the U.S. government to build an economic stimulus package.

Macy"s expects these initiatives, which also include integrating its divisions into one unit, to reduce its previously planned expenses by about $400 million per year starting in 2010, and $250 million in part of 2009.

"We just believe that this is a time when nothing should be considered a sacred cow," Chief Executive Terry Lundgren said in a conference call following the announcement.

The job cuts announced on Monday are about 4 percent of the company"s workforce and should mostly be completed by May 1, Lundgren said. Macy"s also cut its quarterly dividend to 5 cents a share from 13.25 cents.

Macy"s is way late in cutting that dividend. Furthermore, it ought to slash the dividend to no more than 1 cent. It is going to need that cash and raising money in this environment will not be easy.

20,000 NEC employees to be let go

As losses continue to mount at NEC, news has reached us that the company will embark on plans to start massive layoffs in an effort to slash the red ink. Like many other Japanese companies, NEC is expecting to struggle unless the industry rebounds sooner than expected.

The company plans to start laying off employees company-wide. Currently the exact numbers are not set in stone, but the number of workers to be slashed are projected to be as high as 20,000 when it is all said and done. The company says that the layoffs will be split evenly between full time and part time workers.

With over 150,000 employees worldwide, the cuts at NEC come at a time for the company when the Japanese tech sector has been hard hit in the wake of the current financial crisis. It is currently unknown if the company plans to discontinue any of its product lines in light of the current announcement.

20,000 jobs is a lot of jobs. There is no decoupling for Japan.

L.A. Times at the Abyss

"It was a really, really depressing thing," says the L.A. Times reporter. "If you weren"t depressed before you came in, you were walking out."

The staffer, who spoke to the L.A. Weekly on condition of anonymity, was describing the scene in the Times" newsroom last Friday, when Times editor Russ Stanton personally announced a few changes - 20 minutes after outlining them in an email soon posted by L.A. Observed. Things like the folding of the paper"s California section into Section A in March, and the loss of 300 jobs - 70 of which would come from the very room in which the assembled reporters were gathered.

The only silver lining Stanton offered his audience was that he was trying to ensure that the California-section reporters would be the least hard hit when the layoffs come in the next few weeks. Besides editorial, the biggest hits are expected on the business side, where advertising-sales staff members fear their jobs are about to be contracted out. And, because the folding of California means one less print run, the move will also hit the pressmen and designers.

I am saddened to see this. The LA Times provided many good stories for the blogging world. I wish the best of luck to everyone affected.

Citigroup to Use $36.5 Billion of Funds for Expanding Lending

Citigroup Inc. plans to use $36.5 billion to lend to consumers and companies and to fund U.S. mortgage loans after receiving $45 billion as part of the government�s bailout of the banking industry last year.

The New York-based bank will use $25.7 billion for mortgage lending, $2.5 billion for consumer loans, $1 billion for student loans, $5.8 billion for credit card lending, and $1.5 billion for corporate loans, according to a report to be issued today by Citigroup and which was obtained by Bloomberg News.

Citigroup and other banks that received funds from the U.S. Troubled Asset Relief Program have been criticized by politicians including Representative Barney Frank for not using the money for making loans. President Barack Obama will require banks to boost lending to consumers and companies in return for taxpayer aid from the $700 billion bailout fund, in a departure from Bush administration policy, a key lawmaker said yesterday.

�The government, on behalf of the American taxpayer, has invested in Citigroup,� Chief Executive Officer Vikram Pandit said in the report. �We have an obligation to repay in ways that go well beyond the $3.41 billion Citigroup will pay the government each year in dividends associated with its TARP investment, and a separate loss sharing agreement.�

The Treasury has distributed more than $194 billion through its program of purchasing stakes in U.S. banks. It has also mounted rescues of Citigroup and Bank of America Corp., insuring a total of more than $400 billion of illiquid assets on their balance sheets.

The US taxpayer has guaranteed hundreds of billions of dollars of Citigroup debt and Pandit comes across as bragging about paying a lousy $3.41 billion in dividends back to the government, all of which really came from the taxpayers in the first place.

In essence Citigroup is taking a bag of peanuts from the taxpayers and bragging about returning the shells.

FDIC seeks to triple Treasury Dept borrowing power

The Federal Deposit Insurance Corp is seeking to more than triple its credit line with the U.S. Treasury Department to $100 billion, a move to give it more financial power to handle U.S. bank failures, the agency said on Monday.

Frank said the FDIC"s desire to increase its borrowing power is a safeguard to ensure the agency can quickly pay out insured deposits when a bank fails and the FDIC is named as a receiver.

"They have no immediate need for it, but they just want to make sure they"re not constrained in the decision by a lack of the insurance fund," Frank told reporters after meeting Treasury Secretary Timothy Geithner on Monday. "They don"t want to say, "We have to keep this bank open longer than it should because we don"t have enough money.""

Translation: The FDIC is in deep *@&&, and has an immediate need for taxpayer money.

The deflation train continues to gather steam. Unfortunately Geithner, Frank, Bernanke, and Obama (along with numerous counterparts worldwide) are on a runaway train of their own, taking countermeasures guaranteed to make a very bad situation, much worse.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

60 Minutes Legitimizes Walking Away

There was a nice expose on CBS 60 Minutes this weekend called House Of Cards. I seldom watch TV but happened to catch it.

Steve Kroft reports on how the U.S. sub-prime mortgage meltdown, in which risky loans drove a housing boom that went bust, is now roiling capital markets worldwide.



Click here to play video.

Steve Kroft: "It sounds complicated but it"s really very simple. Banks lent hundreds of billions of dollars to homebuyers that can"t pay them back. Wall Street took the risky debt, dressed it up as fancy securities and sold them round the world as safe investments. If it sounds a little bit like a shell game or a ponzi scheme, in some ways it was".

...

"Matt and Stephanie Valdez say they knew exactly what they were doing when they bought this small two bedroom house for $355,000."



....They cannot refinance because the value of the house fell below the existing mortgage. They say they can afford the higher payments but see no point in making them.

Matt: The value of the house keeps going down and the payments keep going up. Where"s the logic in that?

Stephanie: Why make a $3200 a month payment on a 1200 square foot home? It makes no sense.

Steve Kroft: But that"s what you agreed to do when you bought the house.

Stephanie: Fine if the value was going up. The value is going down.

Steve Kroft: You are saying essentially you are going to stop making payments.

Stephanie: The only advice we"ve gotten so far is to walk away.

60 Minutes Legitimizes Walking Away

What 60 minutes described was a Beautiful Model For Fraud. That model is now imploding as all fraudulent schemes eventually do. And for those on the fence, 60 Minutes may just have legitimized it walking away.

The LA Times is writing A tipping point? "Foreclose me ... I"ll save money"

A homeowner who can"t sell his house tells the L.A.Times, "Foreclose me. ... I"ll live in the house for free for 12 months, and I"ll save my money and I"ll move on."

Banks and lenders fear this kind of thinking -- that walking away from a house could be the smart economic move -- appears to be on the rise. Wachovia, in a conference call yesterday, warned investors that increasing numbers of homeowners are walking away from their homes by choice: "... people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they"ve lost equity, value in their properties..."

Intentional Foreclosure: The New Trend

CBS13 is talking about the New Trend in Sacramento: "Intentional Foreclosure".

This is how it works. Bob paid $420,000 for his home. Then he notices the house across the street, with more upgrades, and is selling for $315,000.

So Bob, who has pretty good credit, decides to buy the cheaper house. He can"t afford both, so then he walks away from his original home, letting it fall into foreclosure. That will hurt his credit, but he"s willing to take the hit for a more affordable home.

Changing Social Attitudes At Forefront Of Crisis

Changing Social Attitudes About Debt have clearly moved to the forefront of the housing crisis. Even those who can afford to pay are walking away with no regrets. And with people walking away in mass, Banks Attempt To Freeze Balance Sheets is destined to fail.

This is what happens when you give people free money. Unfortunately, Bernanke, Congress, and Paulson are intent on giving away more free money to fix the problem. On the surface this might appear inflationary. However, credit destruction and bank impairments are happening far faster than Bernanke and Congress are acting.

Welcome to Deflation American Style. At the current rate of progression, Deflation American Style figures to be far worse than anything Japan ever saw.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Harman"s Wiretap Woes and the AIPAC Cabal

By Marcy WinogradWho else has AIPAC colluded with on the Hill? If the tapes are out there, Harman got caught, but isn"t this a much larger story than just one woman bedazzled by men with money in their pockets and nuclear warheads in their backyards. It is time AIPAC register as a foreign lobbyist LinkHere

Why Did The Harman Case Break Now?

By Philip WeissThe lobby has won through White House access of the sort Harman allegedly boasted of in the wiretapped call; and those who are critical of a Jewish state or its policies have been excluded and smeared, as antisemites. LinkHere

Turley to Obama: �Do the right thing,� prosecute torture

Constitutional attorney Jonathan Turley wants the Obama administration to �do the right thing� by appointing a special prosecutor to investigate the Bush administration�s torture program.
�I hope, at a minimum, President Obama will end this just endless performance of Hamlet on the Potomac, debating whether a special prosecutor will be appointed, whether these crimes will be investigated, and do the right thing,� he said on MSNBC�s Rachel Maddow Show Thursday night. �Just appoint a special prosecutor and let the chips land where they may.�
Judge Jay Bybee, who co-authored memos that authorized the Bush administration�s torture program, is trying to reach out and lobby members of the Nevada delegation in hopes that he won�t be disbarred from his seat on the bench, Maddow said. LinkHere

19 Dems were briefed on torture, CIA claims

Update: CIA can"t vouch for exactly what they told Dems
Alexandrovna: "Unethical leading the blind" against Pelosi