Hypocrisy….thy name is Obama: (h/t Gateway Pundit)

Over the last couple of weeks, I’ve been traveling around the country and talking with folks about my blueprint for an economy built to last. It’s a blueprint that focuses on restoring the things we’ve always done best. Our strengths. American manufacturing. American energy. The skills and education of American workers.

And most importantly, American values like fairness and responsibility.

We know what happened when we strayed from those values over the past decade – especially when it comes to our housing market.

Lenders sold loans to families who couldn’t afford them. Banks packaged those mortgages up and traded them for phony profits. It drove up prices and created an unsustainable bubble that burst – and left millions of families who did everything right in a world of hurt.

It was wrong. The housing crisis has been the single biggest drag on our recovery from the recession. It has kept millions of families in debt and unable to spend, and it has left hundreds of thousands of construction workers out of a job.

Who created the policies that forced these banks to make loans to people who had no business getting those loans?

And who helped push those policies?

Why Mr. Obama did.

And now he wants to whine that the banks shouldn’t of given those high-risk loans out when they were REQUIRED to?

Now, we know what happens, because we’ve just seen it — what happened when we stray from those values. We saw what happened over the past decade when we strayed from those values — especially when it comes to the massive housing bubble that burst and hurt so many people. Millions of families who did the right and the responsible thing, folks who shopped for a home that they could afford, secured a mortgage, made their payments each month — they were hurt badly by the irresponsible actions of other people who weren’t playing by the same rules, weren’t taking the same care, weren’t acting as responsibly. By lenders who sold loans to people who they knew couldn’t afford the mortgages; and buyers who bought homes they knew they couldn’t afford; and banks that packaged those mortgages up and traded them to reap phantom profits, knowing that they were building a house of cards.

So which is it? Could those people afford that house or not?

Either way, these banks were FORCED to give these loans by the social do-gooders and this was one of the major reasons for the collapse in our economy, as Mata pointed out in her “US Economy – A “perfect storm” of housing and lending events” post.

But now we see the line of attack Obama will be using this election season. And what better foil does he have to use it against than a Mitt Romney?

It appears we need to focus on keeping the House and taking the Senate this election season, because we are going to get another four years of Obama.

60 Minutes, as usual, had a very nearly excellent program last week on the economic collapse, and they were all upset because no one has been arrested; no particular person appears to be under investigation.  They have a good reason to be upset, but they seemed, at least in this report (and in several previous programs), to be clueless as to why.

What happened at the end of 2008 changed history and the direction of the United States.  Treasury Secretary Hank Paulson goes to President George Bush and tells him, “The banks in the United States are about to collapse.  We need TARP.  Let me have nearly a trillion dollars, and I can take care of this.”

Then 10 or so huge banking conglomerates are called in and they are told that they are going to take a huge, temporary loan, and no one is to talk much about it.  If a bank is in good shape, they take the money; if a bank is ready to collapse, they take the money.  The explanation, which seemed reasonable, was, we do not want the public to know which banks are solvent and which ones are not.  The problem was, so many of these banking conglomerates had a huge amount of bad housing investments in their portfolios.

At first, Congress said no.  Then our economy very nearly collapsed.  The Dow Jones dropped 778 points on at the end of September, 2008, right after Congress refused to pass the TARP legislation.  This was the greatest net loss in Stock Market history, when $1.2 trillion of wealth was lost in one day.

TARP was immediately passed; money was left on the table for the next administration, and, eventually, hundreds of institutions were bailed out.   As a result, the momentum for Republican candidates McCain and Palin stopped and they began to lose ground.  The Democrats capitalized on this, blaming the Republicans, and Obama blamed George Bush.  and the Democrats took over the Presidency, with strong majorities in the Senate and the House.

If you will recall the Obama campaign, you heard President Bush and his economic policies being blamed, over and over again, for the market crash.  TARP was not strongly questioned, but it was clearly Bush’s fault, at least, according to Obama and the media.  Democrats successfully blamed George Bush, the banks and Wall Street, and said it was all their fault for the market crash.

So, here it is, 3 years later, after 2 years of super-majorities by Democrats in Congress, and, for some reason, these evil bankers and evil Wall Street types are not being pursued for their criminal acts.  In fact, it turns out that Wall Street is giving far more money to Democrats than to Republicans.  Furthermore, it was Wall Street that got bailed out, both under Bush and under Obama.  Those same evil bankers and financial types that the media told us were at fault.

So, what gives?  Why is there this symbiotic relationship between the current White House and these same financial institutions that they blamed for the crisis?

That is what 60 Minutes asks.  Who is going to be investigated?  Who is going to be arrested?  Department of Justice seemed to have no substantive answers for them, apart from, “The wheels of justice grind slowly.”  Furthermore, 60 Minutes seemed to have no real clue either.  There were no questions about the key connection here: the relationship between the government, Wall Street, credit services and the large banks.  This is the unholy alliance.  I’m not talking about Democrats versus Republicans here; I am talking about government and the many financial institutions which were intimately involved in this crisis.

What has been happening as of late?  It turns out that many members of Congress were making money on the stock market, no matter that we are in a down market or an up market (and this has been going on for a long time).  Senators, in particular, were getting great returns on their investments—even greater than smart fund managers.  Somehow, these Senators are so brilliant that, besides handling all this government stuff, they are brilliant investors.

Although I have not studied this, I can just about guarantee you that the investments that various members of Congress made with respect to housing and the housing market was inspired.  Just as if they could see the future.  It is as though they knew when the markets were going to tank.

Information is coming out in drips and drabs.  No investigating committee wants to turn over too many stones.  After all, what Wall Street banker, who has given $1000′s or has bundled tens of thousands of dollars for the current president wants to take the fall for this.  Do you think they will stay quiet?  Do you think one of them is going to be arrested and then he says, “Yep, I did it all.  It was all my idea.”  No, if he is pushed against the wall, he is going to starting naming government names and government legislation and, more importantly, the names of the government regulation who told them, “Start lending money for housing to specific groups of people and we will buy these loans from you.”  You simply cannot have dozens of institutions suddenly doing the exact same thing (making bad loans) without some guidance and help from the government.

Only recently, it has come out that credit agencies would do rapid re-scores on people with bad credit (one of the ignored stories of this month).  The buyer or buyers would walk in to get a loan after finding a house; they explain with a short letter why this, that, and the other thing is on their credit record, and suddenly, within 1 hour, their credit score goes from 500 to 700.  Suddenly, they are qualified to buy that house; they can now get the loan for it.  They have the background and credit score necessary to qualify.  Although this is well-known in the banking industry, this does not seem to be of any interest to the media.

From personal experience, I know that loan officers and underwriters did a horrible job when it comes to checking the backgrounds of potential home buyers.  I had two instances where I was called to tell how my tenants were doing; did they pay on time; and, in each case, these were problem tenants.  So as not to ruin their chances to get a house, I said, “Call me back in a week” so that I could work things out with the tenant.  These people doing the verification never called back a second time.  They verified the ability of a person to pay on their housing loan without getting a clear appraisal from me, their landlord.

And so, millions of people purchased homes that they could not afford; banks loaned money on very bad loans; and the government continued to buy or guarantee these loans.  Also, in all of this, the government went from owning and controlling 50% of American mortgages to owning and controlling and guaranteeing 90% of the mortgages in the United States.  During all of this time, these rapid re-scores would last just long enough for the loan to close and fund; and the government continued to buy or guarantee these bad loans.  At the same time, people who worked for FNMA and FHLMC made millions–particularly the executives.

In other words, the government was intimately involved in this mortgage mess, as I have pointed out in many articles in the past.  In fact, those in the government were criminally involved.  If there was no government involvement, there would have been no housing bubble and subsequent crash.

What we are talking about is hundreds and possibly thousands of people, both inside and outside of government, who pulled this off.  They may have had some honorable intentions at the beginning, but then they began to make so much money and the economy went like gangbusters; and then there was that crash.  And still, some Senators and Congressmen seemed to have this uncanny ability to know how to time their own investments as to make money during one of the greatest crashes to occur in our lifetime.

Let me make it clear—if there are more than 10 Wall Street types and mortgage company CEO’s that are arrested, then, there is going to be revelations of many ties to our government, government officials, and government regulators to a point that our heads will spin.  And then there will be thousands of arrests, most of them coming from inside the government.

Therefore don’t expect any arrests; not in the near future.  Expect the official explanation to be, “While what these bankers and mortgage officers was immoral, it was not illegal; and so, we have no way that we can prosecute them.”  Because, to bring charges against these private citizens is to eventually bring charges against many congressmen, Senators and government regulators, from both parties.  Do you think our government is going to allow that to happen?

From Conservative Review #207  (HTML)  (PDF)

This is a testimony to the unending and blind stupidity of the left:

Wall Street’s resurgent prosperity frustrates its claims, and Obama’s

President Obama has called people who work on Wall Street “fat-cat bankers,” and his reelection campaign has sought to harness public frustration with Wall Street. Financial executives retort that the president’s pursuit of financial regulations is punitive and that new rules may be “holding us back.”

But both sides face an inconvenient fact: During Obama’s tenure, Wall Street has roared back, even as the broader economy has struggled.

The largest banks are larger than they were when Obama took office and are nearing the level of profits they were making before the depths of the financial crisis in 2008, according to government data.

Wall Street firms — independent companies and the securities-trading arms of banks — are doing even better. They earned more in the first 21 / 2 years of the Obama administration than they did during the eight years of the George W. Bush administration, industry data show.

The banks did not use bailout money to help consumers.

Neither the Bush administration nor the Obama administration, for instance, compelled banks to increase lending to consumers, known as “prime borrowers.” Such a step might have spurred spending and growth, although generating demand for loans may have proved difficult in the downturn.

No they used the money for high risk ventures:

A recent study by two professors at the University of Michigan found that banks did not significantly increase lending after being bailed out. Rather, they used taxpayer money, in part, to invest in risky securities that profited from short-term price movements. The study found that bailed-out banks increased their investment returns by nearly 10 percent as a result.

And Eric Holder is still suing banks to force them to make bad loans.

In what could be a repeat of the easy-lending cycle that led to the housing crisis, the Justice Department has asked several banks to relax their mortgage underwriting standards and approve loans for minorities with poor credit as part of a new crackdown on alleged discrimination, according to court documents reviewed by IBD.

Prosecutions have already generated more than $20 million in loan set-asides and other subsidies from banks that have settled out of court rather than battle the federal government and risk being branded racist. An additional 60 banks are under investigation, a DOJ spokeswoman says.

Settlements include setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit and even counting “public assistance” as valid income in mortgage applications.

Obama is the best friend Wall St has ever had. While us working stiffs suck dirt, Wall St. is reveling.

But it is highly unlikely the left will be deterred by the truth. They will remain unaffected by facts.

It is called willing suspension of disbelief.

It’s also called stupidity.

Karl Marx has indigestion; Cuba has just announced the imposition of private property rights and a citizen’s right to sell and buy real estate.

Fidel and Raul Castro have maintained the most classical example of Marxism in the world for over 50 years: consequently, the Cuban people live in abject poverty under totalitarian rule, while their leaders enjoy wealth, opulence, and outrageous personal economic portfolios so typical of iron fisted thugs ruling over a Socialist dystopia.

Raul Castro, brother of Fidel, is the strongman of Cuba, ever since his brother went into semi-retirement, due to failing health. Raul has just opened up the small island country to its first glimpse of private property and a market economy since the revolution. This latest move offers a degree of hope to the poverty stricken people of Cuba, who hope to reshape and modernize this country that has suffered such tremendous hardship and poverty under Socialism.

The law becomes effective on November 10, it will allow Cubans to set their own prices and to move at their own discretion. These are major deviations from the strict Socialism that the dilettantes of the OWS movement are pleading for, while they take time out from their expensive educations, preparing for degrees that should be considered hobbies rather than career enhancements. How ironic, Cubans are celebrating their first glimpse of a free market and a free society, the very thing the OWS crowd wants to throw away in their hunger for Wealth Redistribution. Cubans have another disadvantage over the OWS Mob: no one remembers who actually owns anything or the procedures for selling or buying real estate.

There will still be strong vestiges of central control. Financing must go through Cuba’s Central Bank, there will be fees charged, fees that are yet to be determined, and there will be an 8% tax to be split equally between the seller and buyer. A move that will reassure the Socialist hearts of our own leaders. Cubans will be limited to two homes; this rule does not apply to dictators, the Castro brothers already own multiple dwellings. Obama will surely be relieved to hear that the rules don’t apply to dictators.

The earlier freedoms of opening a small business and private agriculture failed to invigorate the Cuba’s comatose economy. Some economists attribute this to a lack of capital and poor central planning; however, people who have been born under the iron fist of Marxism with state control of every facet of their life are probably fearful that success will eventually be punished and appropriated by the state. There is also the natural psychological fear of a repressive state for the entrepreneur; why should he risk his personal capital, while living in fear of a totalitarian state that can regulate your business out of existence.

Obama is perplexed by American capitalists and their reluctance to start or expand their business holdings; yet, he has forgotten about liquidating the General Motors dealerships that were not contributors to his campaign.

The Cuban economy will be slow to start, for the same reason the American economy refuses to start, the people with the capital to invest, just don’t trust the overbearing leadership.

These High-end Condos Are Expected To Sell Within A Few Hours

I have a friend that has a Masters in Psychology. We usually confine our discussions to beer, softball, women, and beer. The man is a master of manipulation. I have seen him deflect arguments with such skill that the other person walks away in a cloud of befuddlement. Sometimes we discuss politics. I brought up the growing divide in our country and told him I have little hope that we will ever bridge it. He explained to me the nature of this divide and why we may never come together again as a nation. These are the five logical fallacies that prevent us from agreeing.

Argumentative Theory of Reasoning: states that humans didn’t learn to ask questions and offer answers in order to find universal truths. We did it as a way to gain authority over others.

Neglect of Probability: states our brains are great for doing a lot of things. Calculating probability is not one of them.

The Trust Gap: states we just do not trust other people to do the right thing.

Fundamental Attribution Error: states when other people screw up, it’s because they’re stupid or evil. But when we screw up, it’s totally circumstantial.

Confirmation Bias: states our brains weigh information on a position we hold, not based on the logic, but on the emotional and social consequences of that position being wrong.

I bring this up because what I am about to write will not change the mind of a single liberal in the country. If you have not yet read the article, Paul Sperry for the Investor’s Business Daily has the single most damning information yet that the housing bubble, and thus the financial crises rests on the shoulders of the Clinton Administration.

At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

I will not go into a detailed analysis; it is just not my specialty. Mata has done some incredible writing on the crises and explained it much better than I could ever begin. I just ask that you read the article, the policy statement, and Mr. Sperry’s analysis. I will leave some highlights for those too busy to read the full article.

Confronted with the combined force of 10 federal regulators, lenders naturally toed the line, and were soon aggressively marketing subprime mortgages in urban areas. The marching orders threw such a scare into the industry that the American Bankers Association issued a “fair-lending tool kit” to every member. The Mortgage Bankers Association of America signed a “fair-lending” contract with HUD. So did Countrywide.

…It warned lenders who rejected minority applicants with high debt ratios and low credit scores to “be prepared” to prove to federal regulators and prosecutors they weren’t racist. “The Department of Justice is authorized to use the full range of its enforcement authority.”

For my friends on the left, once you have read the article, look back at the five logical fallacies, especially Confirmation Bias. I am not denying there was no greed on the part of the banks or Wall Street. Paul Sperry acknowledges that in his conclusion:

The fair-lending task force’s original policy paper undercuts the notion the financial crisis was all about banker “greed,” though it certainly played a role after the fact. Rather, it offers compelling evidence that the crisis evolved chiefly from government mandates and threats to increase lending to applicants who could not afford them.

But ask yourself one question. What facilitated this greed?

Barack Obama has unveiled a crisp, fresh and new campaign theme.

“It’s not my fault.”

President Obama has devised a new strategy for dealing with troubling economic developments: Showcase optimism about turning around the economy while reassuring voters that although he understands their fears he isn’t directly responsible for their pain.

It’s been 2 1/2 years since Obama became President and he has amply demonstrated what happens when a socialist tinkers with a free market economy. Until he’s gone, we’re dead economically.

There are several Obaminary obstructions to recovery: housing, health care, pointless spending, finance, business strangulation, the green fantasy and energy.

Housing

In their socialist zeal to make America pay for homes for everyone, Democrats opened the doors to the abuse of the mortgage system. Bill Clinton had Robert Rubin rewrite CRA in 1995

Though well-intended, the problem was that Congress was about to change hands, from the Democrats to the Republicans. Rather than submit legislation that the GOP-led Congress was almost sure to reject, Clinton ordered Robert Rubin’s Treasury Department to rewrite the rules in 1995.

The rewrite, as City Journal noted back in 2000, “made getting a satisfactory CRA rating harder.” Banks were given strict new numerical quotas and measures for the level of “diversity” in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another.

Loans started being made on the basis of race, and often little else.

Then Clinton and then-Housing Secretary Andrew Cuomo came down on banks, forcing them to make bad loans.

Clinton got the Department of Housing and Urban Development to double-team the issue. That would later prove disastrous.

Clinton’s HUD secretary, Andrew Cuomo, “made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis,” the liberal Village Voice noted. Among those decisions were changes that let Fannie and Freddie get into subprime loan markets in a big way.

Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks.

Since they could borrow at lower rates than banks due to implicit government guarantees for their debt, the government-sponsored enterprises boomed.

With incentives in place, banks poured billions of dollars of loans into poor communities, often “no doc” and “no income” loans that required no money down and no verification of income.

By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market — a staggering exposure.

If that was not enough, Rubin then changed banking rules again and it was described this way:

Former Treasury Secretary Robert Rubin gets cozy with the banking industry while helping push through a bill freeing financial institutions to merge into ever larger megacorporations while largely absolving them of much of their legal obligation to invest in the communities in which they do business.

The predictions (from 1999!) were (and one in particular stands out):

And the weakening of the CRA is only one element of the finance industry’s deregulatory wish list which is included in the compromise legislation. The bill will:

■pave the way for a new round of record-shattering financial industry mergers, dangerously concentrating political and economic power;

■create too-big-to-fail institutions that are someday likely to drain the public treasury as taxpayers bail out imperiled financial giants to protect the stability of the nation’s banking system;

■leave financial regulatory authority spread among a half dozen federal and 50 state agencies, all uncoordinated, that will be overmatched by the soon-to-be financial goliaths;

■facilitate the rip-off of mutual fund insurance policy holders by permitting mutual insurance funds to switch domicile states — thereby enabling them to locate in states where they can convert to for-profit, stockholder companies without properly reimbursing policyholders (a conversion of tens of billions of dollars);

■permit the new financial giants to share finance, health, consumer, and other personal information among affiliates, compromising consumer privacy; and

■allow banks to continue to deny services to the poor (Congress rejected an amendment requiring banks to provide “lifeline accounts” to the poor, so they would have refuge from check-cashing operations and the underground economy).

Has Barack Obama changed any of this?

Why, no. So what has he done? He has thrown a life preserver to a man dying of thirst in the desert.

One of the biggest problems in the market is the number of people who were given homes and mortgages they could not afford. Naturally, Barack Obama’s first reaction was to just vaporize that debt with cram down mortgages, as if no one would notice the instant loss of capital, but we’re all friends, right? Now let’s remember that mortgages were being written with abandon primarily on the basis of race because those were the new rules and ample incentives were provided to make it all happen.

Yet how did Obama phrase it?

Families, he said, who “are being preyed upon by predatory lenders. If you’re protecting America, America should be protecting you from unfair bankruptcy laws.”

So let’s recap right here. Clinton, Rubin and Cuomo forced banks to make bad loans primarily on the basis of race, freed banks from responsibility, incentivized loan originators to provide these loans, pushed Fannie and Freddie to invest in these bad loans and now democrats and Obama blame the “predatory lenders” who did exactly as democrats wanted done.

Barack Obama’s plan was to force banks to forfeit the loans they were incentivized to make, resulting in loss of capital. If the banks were uncooperative, then Obama wanted to allow judges to force banks to forfeit capital.

That capital represented someone’s money.

The program was called HAMP. And how did it pan out?

Not so well.

The Obama administration’s flagship effort to help people in danger of losing their homes is falling flat.

More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.

Last month alone,155,000 borrowers left the program — bringing the total to 436,000 who have dropped out since it began in March 2009.

And why is it failing? Stupidity.

A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

Mother Jones attributed the failure to a number of reasons:

the program’s paltry results, Treasury’s efforts to move the goal posts for HAMP success, the disproportionate number of carrots and too few sticks in the program, and much more.

It never stops. The damage wreaked by one set of democrats is compounded by another set of democrats. Democrats made laws putting responsible, productive Americans on the hook for democrats’ fanciful visions of sugar plum fairies bestowing home ownership on those who could not afford them and would not pay for them and when that collapsed democrats once more demand that responsible, productive Americans pick up the tab for democrats’ largesse.

And that’s especially grating. Those of us who have conducted ourselves in a responsible manner and eligble for receive none of the benefits offered those who were something less than responsible. Incompetence is rewarded. Failure is subsidized. And Obama played the racial/poverty fiddle during his campaign, blaming everyone except for those truly responsible.

Obama has openly voiced his feelings in regards to foreclosure prevention and he has openly supported the bankruptcy bill throughout his campaign. He had also openly criticized lenders and Wall Street for predatory lending throughout his campaign, saying that many CEOs were paid for snookering the American people and paid to fail.

“Predatory lending” is the term democrats have invented to describe loaning institutions carrying out the wishes of democrats in a manner that makes it appear democrats had nothing to do with it.

Housing is either in or nearly in a double dip and there is no chance of recovery until the system is cleaned out. An alcoholic’s evolution offers a similar analogy. As long as the alcoholic is propped up and kept from finding the bottom, he or she will not recover.

Mark Steyn notes one of the geniuses behind these programs:

I’d ask one of Obama’s egghead economists to explain it to you simpletons, but unfortunately they’ve all resigned and returned to cozy sinecures in academia. The latest is chief economic advisor Austan Goolsbee, the genius who in 2007, just before the subprime hit the fan, wrote in The New York Times that this exciting new form of home “ownership” was an “innovation” that had “opened doors to the excluded” and was part of an “incredible flowering of new types of home loans.”

If you want a chuckle, read this from Obama’s website. Much of the story is there, but it omits Robert Rubin rewriting CRA, it omits Clinton pushing Fannie to buy subprime mortgages, it omits the tens of millions made by democrats acting as head of Fannie Mae while Fannie was circling the toilet and it omits Andrew Cuomo suing Accubanc for $2 billion because Accubanc was not making enough bad loans.

And here’s Obama’s explanation for why it all failed.

So why did so many people begin defaulting on their loans?

Because banks were reckless with their lending standards, they gave loans to people for houses these borrowers really couldn’t afford. Suddenly, feeling rich, those people pulled money out of their houses as if they were ATM machines and spent it, often on depreciating items like TVs or cars.

Good God! Banks were only doing what the damned democrats forced them to do! Barack Obama is and was always a stinking liar.

Andrew Cuomo is directly responsible for the housing crisis and as I once remarked, should be in jail instead of of the New York Governor’s mansion.

In 2000, Cuomo required a quantum leap in the number of affordable, low-to-moderate-income loans that the two mortgage banks—known collectively as Government Sponsored Enterprises—would have to buy. The GSEs don’t actually sell mortgages to borrowers. They buy them from banks and mortgage companies, allowing lenders to replenish their capital and make more loans. They also purchase mortgage-backed securities, which are pools of mortgages regularly acquired by the GSEs from investment firms. The government chartered these banks to pump money into the mortgage market and, while they did it, to make a strong enough profit to attract shareholders. That created a tug-of-war between their efforts to maximize shareholder value, which drove them toward high-end mortgages, and their congressionally mandated obligation to finance loans for those who needed help. The 1992 law required HUD’s secretary to make sure housing goals were being met and, every four years, set new goals for Fannie and Freddie.

Please read this carefully:

But raising the affordable-housing goals was only half the Cuomo story.

The HUD secretary is also required to produce voluminous rules that govern how the GSEs meet those goals, and the 187-page rules Cuomo issued opened the door to abuse.

The rules explicitly rejected the idea of imposing any new reporting requirements on the GSEs. In other words, HUD wanted Fannie and Freddie to buy risky loans, but the department didn’t want to hear just how risky they were.

HUD conceded in the rules that many consumer groups had urged it to insist that the GSEs provide “loan-level data” revealing how many of their loans contained high interest rates, prepayment penalties, or other requirements that presaged bad loans.

And as for those “predatory lending” YSP fees?

…it was Cuomo who issued a rule in 1999 that dozens of federal courts have since found legalized the yield-spread premiums. He was the first HUD secretary to say they were “not illegal per se,” nullifying most of the 150 class-action lawsuits against them filed across the country.

Because of Obama’s policies no one can afford to go where the jobs are:

But a Los Angeles Times story from yesterday suggests that even moving to Charlotte or Cleveland may be too expensive. The problem is not the prices of the homes where the jobs are, it’s the prices of the homes where the jobs aren’t:

Charles Mills can barely afford to stay here. But he also can’t afford to move.

That’s why the 44-year-old heavy-equipment operator was preparing to leave his wife and young daughter here and go where he could find work — the Oklahoma oil fields. Mills has a mortgage to pay, even if its size pains him.

He purchased his house in 2006 for $308,500. Current value: $105,797.

“We talked about it: What can we do with the house?” Mills said. “Nobody’s going to buy it. Nobody’s going to rent it. If we walk away, my credit’s shot. We’re stuck.”

I am likely to punch in the mouth the next person who blames “Bush policies” for this mess. Nothing will get better until Obama is gone and the market is allowed to cleanse itself and again become a reasonable investment opportunity.

Pointless Spending

Obama’s stimulus is a failure.

As usual for democrats, failure of a policy means it is worth repeating.

Krugman calls for second stimulus

Business strangulation

Barack Obama has made it known that he will not allow any business that is not unionized. His NLRB filed a complaint against Boeing to try to stop Boeing from opening a non-union plant in South Carolina. Tim Pawlenty likened this action to the Soviet Union circa the 1970′s.

Health Care

The cost of Obamacare is likely to exceed $2 trillion and as yet no one knows what’s in it. Its full effects have yet to be felt. Universal health care has failed pretty much everywhere it’s been instituted and once again, if something fails, democrats are determined to repeat it.

A recent study found that one in three employers are likely to drop health care coverage once Obamacare kicks in. The White House took issue with the report, citing Romneycare in Massachusetts. Romneycare is not working out the way it was intended. You might call it “unexpected.”

The 2006 reform jeopardized the solvency of private health plans in the Bay State. Unfortunately, insurers’ solvency is not something patients, physicians, and voters have reason to observe closely, so the political class suffers from perverse incentives once it starts micromanaging health insurance. As a result, higher costs have been passed on through higher per capita spending and premium growth.

According to the state’s 2010 annual report, today “per capita spending on health care in Massachusetts is 15 percent higher than the rest of the nation, even when accounting for wages and spending on medical research and education in Massachusetts.” Indeed, Professor John F. Cogan of Stanford University has concluded the 2006 reform led to premium growth 6 percent higher in Massachusetts than in the rest of the United States between 2006 and 2008.

And there’s more bad news:

Mr. Romney’s promise that getting everyone covered would force costs down also is far from being realized. One third of state residents polled by Harvard researchers in a study published in “Health Affairs” in 2008 said that their health costs had gone up as a result of the 2006 reforms. A typical family of four today faces total annual health costs of nearly $13,788, the highest in the country. Per capita spending is 27% higher than the national average.

~~~~~

Fifty-six percent of Massachusetts internal medicine physicians no longer are accepting new patients, according to a 2009 physician work-force study conducted by the Massachusetts Medical Society. For new patients who do get an appointment with a primary-care doctor, the average waiting time is 44 days, the Medical Society found.
~~~~~

The difficulties in getting primary care have led to an increasing number of patients who rely on emergency rooms for basic medical services. Emergency room visits jumped 7% between 2005 and 2007. Officials have determined that half of those added ER visits didn’t actually require immediate treatment and could have been dealt with at a doctor’s office—if patients could have found one.

Now democrats are determined to take this failure nationwide.

Finance

Dodd Frank is a failure. A summary of Dodd-Frank trumpets this:

ENDING TOO BIG TO FAIL BAILOUTS

No Taxpayer Funded Bailouts: Clearly states taxpayers will not be on the hook to save a failing financial company or to cover the cost of its liquidation.

No it doesn’t. Two of the most incompetent institutions, Fannie and Freddie, are exempt from Dodd Frank. Obama said that the cost of bailing out Fannie and Freddie was $130 billion. The CBO says the real cost of the bailout is $317 billion and F&F are expected to need another $42 billion over the next ten years.

Energy

During his campaign Obama promised to make our electric rates skyrocket.

When I was asked earlier about the issue of coal…under my plan of a cap and trade system, electricity rates would necessarily skyrocket…even regardless of what I say about whether coal is good or bad, because I’m capping greenhouse gasses, coal power plants, natural gas…you name it…whatever the plants were, whatever the industry was, they would have to retro-fit their operations.

That will cost money…they will pass that money on to the consumers.

And he is making good on that promise. His EPA-gone-nuts is shutting down coal power.

Utility giant American Electric Power said Thursday that it will shut down five coal-fired power plants and spend billions of dollars to comply with a series of pending Environmental Protection Agency regulations.

The company’s dramatic plan to comply with the regulations could give Republicans and moderate Democrats ammunition in their ongoing fight against EPA’s efforts to impose new regulations aimed at limiting greenhouse gas emissions and air pollutants including mercury and arsenic.

And with them go potentially hundreds of thousands of jobs.

It is argued that reduced pollution will be worth the cost, but that conclusion is based on legerdemain:

The agency estimates that the utility rule will cost $10.9 billion annually but will yield as much as $140 billion in total health and environmental benefits. Sounds like a deal. But most of those alleged benefits are indirect—i.e., not from the mercury reductions that the rule is supposed to be for. Rather, they come from pollutants (“airborne particles”) that the EPA already regulates under other parts of the Clean Air Act. A good analogy is a corporation double-counting revenue.

And it is going to be expensive.

Consumers could see their electricity bills jump an estimated 40 to 60 percent in the next few years.

The reason: Pending environmental regulations will make coal-fired generating plants, which produce about half the nation’s electricity, more expensive to operate. Many are expected to be shuttered.

If Obama remains in office, half of our energy sources for electricity will be gone.

The green jobs fantasy

Politico ran a story describing the underwhelming number of “green jobs.”

Green jobs success eludes President Obama

President Barack Obama heads to an energy plant in North Carolina on Monday to talk once again about the job-creating power of a green economy.

The catch? Nearly three years into Obama’s presidency, the White House can’t point to much solid evidence that significant numbers of Americans are scoring the green jobs the president has been touting.

Obama’s Council of Economic Advisers suggests 225,000 clean energy jobs were either created or preserved through the third quarter of 2010 thanks to more than $80 billion in the economic stimulus package. But those are estimates at best.

That’s $355,000 per job.

There’s something wrong with the title of the Politico story. Ah, I’ve got it.

“Green jobs success unexpectedly eludes President Obama”

There, I fixed it.

The White House figures 825,000 Americans should be building electric car batteries, retrofitting homes or doing other green collar work by the end of 2012. But that too is an extrapolation.

Car batteries, you say?

Electric cars could produce higher emissions over their lifetimes than petrol equivalents because of the energy consumed in making their batteries, a study has found.

An electric car owner would have to drive at least 129,000km before producing a net saving in CO2. Many electric cars will not travel that far in their lifetime because they typically have a range of less than 145km on a single charge and are unsuitable for long trips. Even those driven 160,000km would save only about a tonne of CO2 over their lifetimes.

The British study, which is the first analysis of the full lifetime emissions of electric cars covering manufacturing, driving and disposal, undermines the case for tackling climate change by the rapid introduction of electric cars.

And that company Obama is visiting? It’s Cree Inc. Cree got $39 million from the stimulus package. And what did it do with that money? It opened a plant in 2010.

In China.

Spain has learned a painful lesson about over-subsidization of green industry:

Zapatero introduced the subsidies three years ago as part of an effort to cut his country’s dependence on fossil fuels. At the time, he promised that the investment in renewable energy would create manufacturing jobs and that Spain could sell its panels to nations seeking to reduce carbon emissions.

Yet by failing to control the program’s cost, Zapatero saddled Spain with at least 126 billion euros of obligations to renewable-energy investors. The spending didn’t achieve the government’s aim of creating green jobs, because Spanish investors imported most of their panels from overseas when domestic manufacturers couldn’t meet short-term demand.

A new headline:

Obama pledges focus on job creation

As long as they are union jobs.

Barack Obama talks jobs, but everything he does kills jobs. Barack Obama talks business, but everything he does is bad for business, especially with business always waiting for the next shoe to drop. Every regulation, every new law- it’s all bad for the economy.

Barack Obama is destroying this country and there is absolutely no chance of recovery as long as he is in office.

Burning House of Dollars - www.123rf.com

It was not to be. Five months later, the POTUS was sticking his finger in the housing dike, promising to stop the flash flood of foreclosures.

It will still not to be. Nothing slows progress more than government intervention, and by Jan 2010, it was obvious that Obama, Bernanke and Geithner were engaged in attempts to reinflate a housing bubble that was supposedly entering into “recovery summer”.

And where are we now? In late March, S&P’s David Blitzer admits he sees no end in sight to the housing price decline.

“Keeping with the trends set in late 2010, January brings us weakening home prices with no real hope in sight for the near future … These data confirm what we have seen with recent housing starts and sales reports. The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing.”

I will repeat what I’ve said before… there is no economic recovery without a housing recovery – despite many overly optimistic economists saying to the contrary. I would say we are in a double dip housing crash, but the fact is the housing industry never recovered. It had a brief blip of life, infused by taxpayer stimulus dollars, and the heart monitor flatlined again. The cheerleaders at the National Association of Realtors, the WH Press Corp dais, and bullish economists can no longer cover up reality …. housing prices continue to plunge for the 57th consecutive month, with no end in sight.

Oh wait… they do see “an end”. Now they are kicking the housing “recovery” to 2012 or 2013. Right… And we should believe them why?

Absolutely no reason whatsoever.

Here’s the point… the foreclosure shadow inventory still looms large. Unemployment remains high. And even tho delinquencies are coming down, the new foreclosures pile on, bloating the pipeline.

“31% of loans in foreclosure have not made a payment in over 2 years.” So about one third of the 2.22 million loans in the foreclosure process haven’t made a payment in over 2 years.

The decline in the delinquency rate is partially seasonal, but the sharp decline is a positive. A key problem is all those homes in the foreclosure process. As LPS notes: “Delinquencies have dropped to about 1.8 times the 1995-2005 average, foreclosure inventories are 8 times historical “norms”.” There were only 94,780 foreclosure sales in March and 270,681 foreclosure starts – so the foreclosure inventory just keeps growing.

Housing prices are now off 30% from the already unnaturally high 2006 prices. To put a visual to how high that “off 30%” still is in the scheme of reality, just have a gander at the history of real housing prices in the US.

In the real world – with long term unemployment slated to remain high, and wages stagnant or dropping as higher paid industrial jobs head to friendlier countries for manufacturing – 30% decline from 2006 is no where near where the housing prices need to be to accommodate for the cost of living wages this nation can anticipate. They simply must come down considerably more. Not only to be in line with wages, but to also allow the flexibility for prime rates to control the inflation that we now stare down daily.

While the picture points out the need for prices to come down, the fiscal repercussions of this reality is more complex. It becomes a nightmare carousel ride as the amount of toxic assets pile on to the original problematic toxic assets. With the continued decline, every new purchase during this housing “stimulus”, 2008 crash stage, is yet a new toxic asset lurking as a future short sale or foreclosure. Those who aren’t having problems meeting their mortgage, but have refinanced in the past 10-12 years are sitting on a toxic time bomb they can’t sell.

This translates to a catch-22 housing cycle. The new buyers, purchasing foreclosures cheap, feel like winners. But reality is, they are underwater the day after closing. There’s nothing wrong with this if they are locked into a mortgage they can sustain until some semblence of stability can occur. Housing has, after all, always been and up and down investment historically. But if the rest of the toxic assets cannot sustain their overpriced mortgages… well… there goes the neighborhood, as the saying goes. We simply start a new cycle of short sales/foreclosures and price declines. Same game… different players.

More toxic assets mean more financial losses for banks, and more potential bailouts by the taxpayers. With the amount of banks failing yearly, we move even more into a “too big to fail” world with each loss. The thought of this encroaching monopoly in the finance world is ironic in the wake of the 2010 banner year for financial stocks – buoyed by Bernanke’s low rates, enabling almost risk free profits for financial assets trading. Bernanke’s non-stop Fed printing presses, combined with Geithner’s buying up treasuries left and right didn’t hurt them either.

While this ugly cycle of government injected taxpayer cash into the financial institutions bodes well for those investors that hold financial stocks, not to mention the health of the financial institutions themselves, just how long can this nonstop carousel keep spinning in what is tantamount to a funny money game, with the taxpayers absorbing all the risk?

I’m not sure how to end this vicious cycle, but someone better put some serious thought to some realistic free market solutions. Government intervention has exacerbated the problem instead of alleviating it.

And we haven’t even gotten to the icing on the cake for home prices plunging further… Bernanke’s inevitable rate increase.

Life not fair. Nor for that matter is it unfair. It simply is. It’s not fair or unfair that the lion feasts on the slowest zebra or that the penguin who leaps into the ocean at just the wrong moment becomes dinner for an Orca. Life is life… fair doesn’t come into play.

Fair is a fundamentally human concept that is defined by a lack of preference or favoritism and or injustice.

Despite its subjective nature, fairness is a word that the left loves to bring to what should be an objective realm, politics. It’s not fair that CEOs earn millions of dollars when their employees are earning minimum wage. It’s not fair that the acceptance rates into Stanford or Ivy League universities differ between blacks, whites and Asians. It’s not fair that the United States has less than 5% of the world’s population yet uses almost a quarter of the world’s energy. It’s not fair that someone was born on the wrong side of the Rio and someone is trying to send them back home.

Unfortunately, life is not fair and neither wishing nor government can make it so. That of course does not mean that liberals do not try to use the government for exactly that purpose. From affirmative action to welfare to social security to government set-asides to progressive tax rates to suits against voter ID laws, liberals seek to use the coercive nature of government to create a world where everyone (read every outcome) is the same.

One of the many problems with the left’s pursuit of fairness through government is the idea of who gets to decide what is fair, and on what basis. Back in the early 1990’s much was made of the fact that blacks were getting rejected for mortgages more often than whites. Not only did the story become front page news, but it led regulators to make changes in banking rules which in turn produced the economic collapse of 2007/08. Not surprisingly, not only did it turn out that the story in itself was false, but the ensuing legislation had the effect of actually harming the black homeowners it was seeking to give a “fair chance”. (Thomas Sowell does a tremendous job of rebuffing the idea that blacks were receiving unfair treatment in the first place.)

Another example of the left seeking to use government to impose fairness is welfare. In an effort to provide a basic level of income for the poor and downtrodden, the federal government has spent trillions of dollars over the last 40 years. True to form, rather than obviating poverty those fairness based programs have instead created a perpetual underclass and alienated tens of millions of Americans from the fundamental notion of working to support themselves and their families and becoming contributing members of society.

As bad as these examples are, one could argue that they are merely the wrongheaded actions of useful idiots who have no understanding of basic economics. It’s another thing all together for politicians to conspire with groups in the name of “fairness” to impose regulations on the entire country and then to turn around and exempt the groups with whom they were conspiring from the very regulations they’d just passed.

Such is the situation with the single most controversial and intrusive piece of legislation of our lifetimes: ObamaCare. In January HHS released the list of the latest 729 organizations to receive waivers from the onerous requirements of ObamaCare. Those 729 organizations represented a total of 2,189,636 employees. A quick look at the largest of those organizations exposes the hypocrisy and arrogance of the Obama administration. Of the 100 largest organizations – by covered employees – being granted a waiver, 57 of them are unions, representing 836,278 employees, or fully 40% of the total. What makes this hypocrisy so pernicious is that unions were the single biggest supporters of ObamaCare in the first place.

Citizens expect their politicians will pass laws every now and then that benefit this or that constituent or funnel funding to their home district for a bridge or a community center. While offensive, such pork barrel efforts are largely innocuous to the general public as they typically impact only a small number of people and do so in a positive light – if of course you don’t count all of the taxpayers who had to actually pay for that pork.

ObamaCare and the unions are doing something all together different. Not only is it what most people would call unfair – although few on the left are suggesting that of course – but more consequentially, it is blatant deception of the American people. Essentially what we had was an administration conspiring with some of its favored groups to vociferously advance the notion that ObamaCare was an absolute necessity for the country and that it would benefit everyone. Then, as soon as the law is passed, it begins exempting the very groups that helped force the legislation down our throats in the first place… or giving them money to defray its costs. (The administration just announced that it has spent $1.7 billion on helping 1,500 organizations deal with ObamaCare’s consequences… Once again the same story: A quick look at the top 40 organizations given money reveals that 15 of them are unions who cashed checks for $573 million, or about one third of the total.)

However one defines good government, and whatever one’s expectations as to the proper role of government, by any objective standard, this is not it. When an administration becomes sufficiently arrogant that it feels it can blatantly lie with impunity about its signature legislation knowing that its detractors are watching it like a hawk, one has to wonder what it’s doing behind the scenes with the tens of thousands of other regulations and Executive Orders that neither the citizens nor the press have the time or bandwidth to scrutinize. Now that doesn’t seem fair to anyone…

In Sept, 2008, I penned the post, the US Economy: A Perfect Storm of Housing and Lending Events. This overview of how we managed to bring ourselves to the precarious cliff of a failed economy revealed it was not a single issue, but a combination of many events – including political pressure on lenders for homeownership, relaxing of GSE lending criteria, regulation/deregulation, and profit motivation by financial institutions – leading to an out of whack supply vs demand, driving up housing values to unsustainable and dangerous levels.

It never crossed my mind that financial terrorism could be another element to be factored in. So when the WA Times wrote of an unclassified Pentagon report by Kevin D. Freeman, my head perked up. (Read the Scribd version here.)

Since that time, I’ve tried to dissect what many here, and elsewhere, have dismissed as a report they consider simply a distraction from ill thought US fiscal policies and irresponsibility by both Congress and Wall Street alike, and fueled to a frenzy by irresponsible homeowners.

Be assured that the Freeman report does not dismiss irresponsibility for US fiscal policies and events. Rather, he frames his three Phrase hypothesis upon the premise that our self-induced fragile and unsustainable fiscal trajectory, combined with opaque global trading practices, was easily exploited for purposes of financial terrorism. And several out of the norm trading activities – such as an oil spike that wouldn’t traditionally happen, the bear runs at US financial institutions, and the disappearance of a hefty amount of money in the markets in a short time – were enough to raise suspicion.

It can be said that most conspiracy theories contain variations and glimmers of truth. So, to be as analytical as I can, without slinging political arrows, I offer you my thoughts on the first two of three Phases of the Freeman theory of Financial Terrorism as an element in the global 2008 economic crash.

Under normal conditions, an economic actor would seek to maximize returns and would therefore slow any price rise to reduce suspicion and minimize negative impacts on demand. A desire to spike prices may imply other intentions more in line with the oil as a weapon theory.

To summarize, the end goal of Phase 1 was simple… to generate enough excess wealth to launch Phase 2; bear raids on the markets. This starts with the assumption that the spike in oil prices in late 2007 and 2008 were not as a result of the usual supply/demand reasoning, but of speculation. Growth seemed to be leveling, and drilling activity had increased. So in hindsight, without disruption of crude, speculation was a likely explanation for a tripling of prices in a very short time.

Instead of using the more traditional hedge funds to drive up prices, a newer mechanism was flourishing… the Sovereign Wealth Funds (SWFs).

 “A Sovereign Wealth Fund (SWF) is a state-owned investment fund composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign exchange assets. These assets can include: balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports.‖

 “Since 2005, at least 17 sovereign wealth funds have been created. As other countries grow their currency reserves they will seek greater returns. Their growth has also been skyrocketed by rising commodity prices especially oil & gas, especially between the years of 2003 – 2008.

44% of all SWFs are in the Middle East, and 61% of the funding sources for these SWF’s are oil and gas related. These new power brokers have not only the motive to drive up oil prices, they have the means. According to Dr. Gal Luft, Executive Director of the Institute for the Analysis of Global Security – when testifying before House Committee on Foreign Affairs – they have been pouring billions into Western economies’ hedge funds, private equity funds, real estate and other natural western resources. They were estimated to hold approx $3.5 trillion in western assets at that hearing, and predicted to balloon to $10 to $15 trillion within a decade.

This is an amount equivalent to the entire US GDP.

Contrary to popular political beliefs, oil prices are out of our regulatory control. Instead, they are determined on a global basis, effected through non-transparent trading, and regulated outside the United States borders.

But one US corporation, Intercontinental Exchange (ICE), founded by young entrepreneuer, Jeffrey Sprecher in 2000, has been taking the brunt of Congressional Dems blame, with accusations of oil speculation. Sen. Maria Cantwell, along with Maine’s Olympia Snow, had introduced legislation meant to give the CFTC more authority over the juggernaut that ICE has become since it’s creation. Before that, it was a Feinstein/Levin/Snow bill.

ICE was founded as an energy clearing house and online trading market for energy commodies, including partnering with Chicago Climate Exchange (and it’s links to Al Gore, Obama and Goldman Sachs) in 2006. In a letter to Sen. Feinstein, Sprecher protests Congressional charges about transparency, saying “Not only does ICE provide an audit trail but it provides one that cannot be replicated by other parts of the OTC marketplace (voice brokers, bilateral trading parties, etc.).”

But how much transparency is enough, when it comes to financial terrorist attacks? And is it energy clearing houses, such as ICE, that become unwitting (or witting) accomplices for SWFs putting excess revenues into hedge funds that positively speculate on increased oil prices?

Whalid Phares (pg 22 of the Freeman report), like Freeman, attributed much of the economic crisis to political pressure on Wall Street for risky loans, and Wall’s Streets willing participation in the risk. But Phares also sees a potential 3rd player in crisis – radical elements in OPEC nations…. Crumbling the US economic defense in a matter of months.

The thesis argue that combined Salafist-Wahabi and Muslim Brotherhood circles in the Gulf -with consent from the Iranian side on this particular issue, used the escalating pricing of Oil over the past year to push the financial crisis in the US over the cliff. The ‗high point‘ in this analysis is the timing between the skyrocketing of the prices at the pumps and the widening of the real estate crisis. In short the ―Oil-push‖ put the market out of balance hitting back at Wall Street.

~~~

Let‘s not underestimate the power of the Jihadi-oil lobby in America: it has decades of influence and it has long arms into the system, and it has powerful political allies. It knows when Americans are messing up their own system, and it knows very well how to push them over the cliff, into the abyss of economic calamity.

Jihad doesn’t care about economic destabilization in their backyard. And in fact, would welcome such an opportunity, as we witness with the current uprising in the ME countries. A political and economic vacuum translates to a jihad opportunity. How important is oil as a financial weapon to jihad? (excerpts from pgs 23 and 24 of the Freeman report)

―Sheikh Yussuf al Qardawi, Muslim Brotherhood ideologue and mentor of the Qatari-funded channel, spoke openly of Silah al Naft, i.e, ‗the weapon of oil.‘ Indeed, it was called a weapon – as in a warfare situation — and most likely it was used as such.

~~~

For years now, Salafist web sites and al Qaeda spokespersons have loudly called for an ‗oil Jihad against infidel America and its lackeys.‘ Online material is still circulating. But more revealing are the official speeches by Osama Bin Laden and his deputy on the ‗absolute necessity to use that weapon.‘

The second phase appears to have begun in 2008 with a series of bear raids targeting U.S. financial services firms that appeared to be systemically significant.

Motive of the market, for the most part, is profit. And to accomplish that, sometimes it behooves certain market participants to see a decline in stock values. Bear raids short a target stock… i.e. “borrow” shares in the hopes to cover/replace them with a cheaper price than the current rate. So bad news or rumors are spread to get the stock to drop.

Short selling, a similar process, is legit. But a bear raid is a rapid “short selling” process, involving violations of markets rules by using rumors or manipulation of perceived stock value. It is believed that it was such bear raids, conducted by Jesse “The Boy Plunger” Livermore, that lead to the 1929 US crash, and ushered in the creation of the SEC and the “uptick rule”. – the latter which would limit a short seller‘s ability to drive down a stock price simply from continual selling. Ironically, the uptick rule was eliminated by a Dem held Congress back in July 2007 – a year before the crash, and just months before the oil price run up began. Since 2009, debate and a reintroduction of it’s implementation began, but has not resulted in it’s reinstatement.

Not unlike politicians, campaigns and media rumors to negate their appeal, even a healthy business can fail when rumors abound. Such a case was Bear Sterms who failed not from lack of capital, but lack of confidence.

But the bear raid assault has been enhanced in sophistication with other more recent, tools. The success of a raid, using Credit Default Swaps, naked shorting*, Exchange Traded Funds (ETFs), and option strategies increases considerably, plus affords appeal with the near impossibility in tracing their origins. Lehman Brothers was also the victim of a bear raid using a combination of these financial tools. (pg 27 of the Freeman study). Dr. Susan Trimbath estimated that failed trades from naked short sales could account for 30-70% of the decline in share values for both Bear Stearns and Lehman. Had the uptick rule, or more transparency for short selling been in place, it’s entirely possible that even the troubled accounting of LB may have been revivable within bankruptcy reorganizing.

Naked short selling occurs when shares are sold without first owning them or borrowing them. This practice is basically illegal with a few exceptions created to promote short-term liquidity. Unfortunately, provisions against naked short selling have had lax enforcement by regulatory authorities in recent years, creating a serious vulnerability in our financial markets.

Just as with Phase 1, where it’s obvious that the conditions did not warrant a run up of oil prices, finding out the How’s, Who’s and Why’s of those at the heart of the bear raids is important… however extremely difficult.

Per the Freeman theory, the “how’s” were obvious. Multiple bear raids were successfully conducted against major US financial institutions. After the collapse of LB, the credit market froze, and stocks collapsed. Amazing when you consider that LB’s collapse may have been averted if there were a restraint on the naked short selling. Thus the economic dominoes began to fall, with the chaos surrounding AIG, GS, Morgan Stanley, losses in Norway’s government pension funds and the Reserve Primary Fund falling below $1 a share for the 1st time in 14 years.

“Who” demands examining who benefited from this chaos? According to Freeman, only net short financial stocks, or the entire market in general. Considering what it would take to organize such chaos across such wide spans and participants, one might discount conspiracy from the overall stock market community, working in concert.

Not withstanding the lack of transparency in these type of illegal trades, most of this trading originated from behind the fronts of brokerage firms, hedge funds and client investor pools.

Regardless of the motive, the actors behind the bear raids not only prefer anonymity but most likely planned for it from the beginning. This suggests layer upon layer of secrecy through foreign shell corporations, feeder funds, and numerous other pass-through entities. Historically, hedge funds have disclosed nothing to the government and very little to the public. Even from a tax standpoint, there has been virtually no ability for governments to track investment results back to most clients.

With the increase of “dark pools” and hedge funds comes anonymity in trading…, which is ideal for the laundering and the use of terror funds as an economic weapon.

One scenario could be that a terror group could direct investments to a feeder hedge fund. That feeder fund would locate a Cayman Islands-based hedge fund on their behalf that was predisposed to sell short financial shares. With sufficient new money, the hedge fund would expand their short selling activity (naked and traditional) and trade through dark pools or with sponsored access.

At the same time, the same terror group might invest heavily in credit default swaps of the targeted short sales either directly, through foreign contacts, or hedge funds. This activity, focused initially on Bear Stearns would prove greatly profitable. The same activity refocused on Lehman Brothers could account for a significant portion of the 33 million failed-to-deliver (naked short) shares, providing the trigger for the market and economy to collapse. And, nearly all of it would occur without notice. In fact, the original investor could close out positions basically undetected.

What this means is that terrorists no longer need to fly buildings into heart of the US financial district. With substantial financial backing, and Internet connection from their caves, they need only set up several overseas hedge funds and, acting as a coordinated unit, dump U.S. stocks…all under the financial radar of virtually all countries.

But for those seeking the quintessential smoking gun, it will be impossible to prove jihad groups were behind the financial crash. As Freeman notes, the only reason to suspect financial terrorism at all is the existence of such unusual trading activity in the scope of the historical norm. Therefore, in order to speculate on the “who’s”, it becomes necessary to review the available trading in the stocks of the financial services firms that appeared subjects of bear raids.

Starting on pg 43 of the Freeman study is the mention of a 65 pg report to Congress, various law enforcement agencies and regulators, titled “Red Flags of Market Manipulation Causing a Collapse of the U.S. Economy”. The report was submitted by an anonymous author.

In this anonymous report, is the key point that there were two companies at the heart of this style of trading, and they consistently work in concert. Freeman deliberately withholds the names of these two companies from his study because “…trading data alone is insufficient to consider any accusations against them.”

Likely for this reason, I have not found this document on the Internet… nor do I suspect any of us will. But it would be an interesting FOIA request to put in. In case any of you find that some enterprising investigative journalist has successfully done so, please provide the links in the comments for the rest of us.

But with the breadcrumbs of clues Freeman left, we can deduce who these companies are *not*, based on the data provided for the anonymous author.

These firms became, virtually overnight, the largest traders in the U.S. financial markets. These companies provide a one-stop-shop for trade execution, back office clearing and bookkeeping that cater to hedge funds and small broker dealers. To give perspective, the amount of trading executed by these two firms in October 2008 exceeded the trading of securities firms Goldman Sachs, JP Morgan and Merrill Lynch combined in the NASDAQ market participant reports.

This obviously leaves out the favored political target of Goldman Sachs, who enjoys the current POTUS on the end of their marionette strings. Whoever these firms are, they dwarf these immense US financial institutions.

But for those who may have a better grasp of the players in the global trading world, here are the other clues from “deep keyboard”, as I’ll call this author:

(From the anonymous report directly)

1) The firms have traded trillions of dollars worth of U.S. blue chip companies. They are the number one traders in all financial companies that collapsed or are now financially supported by the U.S. government. Trading by the firms has grown exponentially while the markets have lost trillions of dollars in value.

2) These firms appear to own few or no shares of blue chip companies they are number one traders in. There is no doubt that the magnitude of their trading impacted the marketplace. Since the direction of the market place has been in a severe downward trend, the impact from the firms has been and remains, negative to the marketplace.

~~~

(From Freeman’s summarized addition key findings)

 The two previously small broker dealers mentioned in the report are market makers for every major financial services firm under attack.
 These firms have a combined 76 different symbols under which they act as market maker (by contrast a major firm such as Citigroup has just 6).
 Both firms offer sponsored access.
 Both firms offer access to dark pools.
 From June through September 2008, the two firms appeared to concentrate on Lehman Brothers, trading 1.04 billion shares while the stock price collapsed from $33.83 to $0.21 on 15 September. This pattern seemed to repeat in every other major financial stock.
 The report estimates that the two firms completed as many as 641,000 trades per hour in October 2008 (based on market participation statistics and average trade size from the last available data).
 Total trading volume by month in the financial sector listed for these two firms grew from approximately 350,000 shares (less than 1% of all market participant trading) in September 2006 to approximately 600,000 shares in the sector (about 6% of all market participant trading) in September 2007, to over 8 billion shares in the sector (about 19% of all market participant trading) by September 2008. That‘s an increase of 2.4 million percent in two years.
 While both firms have been around for several decades, their rapid growth began in 2006 for one and 2007 for the other.
 Both firms seem to specialize in the same stocks at the same time, appearing to work in concert.
 Combined, the two firms traded 203 billion shares, mostly concentrated in major financial services companies. This compares to a total of 427 billion shares outstanding of all issues on the New York Stock Exchange.
 The report estimates trading of at least $5 trillion over the 25-month period ending in November 2008.
 The trading appears to represent new money to the marketplace by new participants.
 From July 2008 through September 2008, the two firms ―traded more shares of Fannie and Freddie than were issued‖ even as the share prices were collapsing.
 The firms were also the largest traders of the UltraShort funds as well as the ―financial spider‖ (symbol ―XLF‖) during the reporting period.
 The firms also became the largest traders of energy stocks.
 The two firms did not and do not hold major equity positions on their books

Whoever they are, they had to have sufficient capital to effect $5 trillion in trades in a very short period… whether domestic or foreign. And they used minor league brokers to focus on failed or failing US financial institutions.

This bring us to the “Why’s”…

Their motive comes down to two base choices… financial for profit, or subversive non-economic motives.

Another favorite target would be George Soros. Certainly the Soros Quantum Fund profited by $1.1 billion during this period. But then Soros was also an outspoken voice, warning of the danger of this bear raid activity. Therefore it’s also entirely possible that Soros, an astute businessman if not a likeable character, merely piggybacked wealth on the events out of his control.

Certainly hedge funds profited as well. Add to that, the naked short selling is a favorite of organized crime and the Russian Mafia. In this case, it will have to be a very greased palm for any of the potential mafias involved.

But then, when you consider greed, coupled with the chaos of the markets, you have to wonder if the quick fast profit, and potential destruction of the largest free market economy, is such a wise strategy. Would a manufacturer make a killing on a new invention right out of the gate, then burn down his factory and the potential to make even more?

Which brings me to those with non-economic motives. Barry Ritholtz, the head of research firm FusionIQ, made an interesting observation on his blog, The Big Picture, on Sept 19th, 2008. Ritholtz was discussing the absurdity of banning all short sales.

I have been trying to contextualize this, and I keep coming back to what seemed like a wild theory yesterday that seems a whole lot less wild today. During the day, I had an interesting phone conversation with Joe Besecker of Emerald Asset Management. (We used to do schtick together on Power Lunch, and made for an amusing financial comedy team).

But Joe is a good money manager, a great stock picker, and a thoughtful guy. He raised an intriguing issue: None of the many hedgies he knew were pressing their bets recently. The bear raids on the banks and brokers were NOT a case of piling on by US based hedge funds. And from what he was seeing and hearing about in terms of order flow, the vast majority of the financial short selling the past week or so were being done overseas. It appears that the lion’s share of shorting was coming out of overseas bourses such as London and Dubai.It may not be a coincidence that the financial short selling ban is both here and in London.

Then there is another coincidence: The huge increase in shorting of the financials occurred on the anniversary of 9/11. And on top of that, the same institutions attacked on 9/11/01 were the ones suffering in recent days.

This same financial terrorism theory, plus the date of the economic assault, was noted by Jim Cramer. But in the chaos of the moment, no follow up was done. To pile on to what may not be such a wild theory afterall, add Charles Duelfer and James Rickards in their co-authored NYTs op-ed on Dec 21, 2008, titled Financial Time Bombs.

In their examination of possible suspects, they note that China behaved appropriately during the fiscal crisis, being large holders of US debt. Russia was considered in the bailout of the GSE’s because they are also some of the largest holders of government agency debt. This seems to indicate these two are unlikely perps.

Al Qaeda, on the other hand, has declared that damage to the US economy is it’s 2nd priority, following only mass deaths. To emphasize the jihad focus on the US economy, we need only remember OBL’s words on Dec 21st, 2001.

…hitting the economic structure…is basic for the military power. If their economy is destroyed, they will be busy with their own affairs rather than enslaving the weak peoples. It is very important to concentrate on hitting the US economy through all possible means.”

AQ, acting alone, doesn’t have the financial resources for such an attack. However with their tentacles extending to the cash rich Taliban, Russia, Iran, Venezuela, China and the Arab states, their combined effort may be enough to do the trick. All sects of radical Islam share a common goal – that of replacing “..the ‘slavery’ of the Western international monetary system” with Shariah Compliant Financing (SCF) because it is then subject to Shariah Law.

According to Saudi and Muslim Brotherhood (MB) spiritual leader Hamud bin Uqla al-Shuaibi, “The importance of Financial Jihad [is]…more important…than self-sacrificing.”

There are documented ties between the Shariah Finance Compliance and the widely increased appearance of Sovereign Wealth Funds that have appeared on the scene in the past decade. Which again ties into Phase 1′s driving up the price of oil.

Altho there is no evidence that these SWFs have participated in bear raids, the Shariah-compliant SWF now has the ability to sell short either through SCF-compliant hedge funds or directly via the arboon short sale…. and all without transparency.

Yet none of the above bonding between jihad groups eliminates other likely suspects, such as Venezuela, Iran, Russia and China, as they are also abundant in wealthy SWFs. But, as mentioned above, Russia and China have more financial ties economically that would be negatively affected by a damaged US economy.

But renegade Chinese elements may indeed have their motives, and some of the involvement can be traced back to a Chinese individual, helping to launder money thru multiple global banks, aiding in Iran’s WMD program, presumably obtained from Russian sources. Some of Iran’s largest banks are believed to have played roles in illegal money movement.

Another axis of evil, engaging in illegal money movement has been North Korea, who was ID’d as creating and laundry’ing huge sums of counterfeit money.

The report says North Korea uses front companies and shell companies overseas to facilitate the illicit trafficking in supernotes. The use of fake companies increased after the Treasury Department barred U.S. companies from working with Banco Delta Asia.

To further hide the transactions from international financial authorities, the North Korean party office used a financial front company, set up in China in 2006, to make payments as part of the purchases, the report says. North Korea also set up a front company in the British Virgin Islands in the mid-2000s to take advantage of lax banking regulations and tax laws there, it says, and other branches of the front company were established for financial support activities in China, Russia and Southeast Asia.

However what may possibly be the largest indication that financial terrorism is at work is a 2009 story that was virtually swept under the rug by the MSM. The arrest of two Japanese nationals (or Asian men, as reported elsewhere) in Italy, trying to smuggle $134.5 billion in US Treasury bearer bonds into Switzerland. If they were real, it would constitute the largest financial smuggling operation in history. If fake, the quality of the counterfeiting was such high quality to be almost undistinguishable from the original.

At the time, Seeking Alpha pointed out the many strange inconsistencies in the story. Obvious points were their choice of transportation, where two affluent business men would have stood out like sore thumbs on a train filled with Italian common workers, and why the bearer bonds would have been hidden in a secret cache of an attaché case. If they were real, they could have been transported in a diplomatic pouch, exempt from customs scrutiny.

Another eyebrow raiser was the amount of the bearer bonds. The arrest of the Asian men took place early June of 2009. In March, 2009, US Treasury Department announced that USD $134.5 billion remained in TARP funds…, coincidently the same amount of the counterfeit bearer bonds.

The head scratching moments don’t end there. While doing an article about just how this attempt to smuggle bearer bonds could bring down the US economic, Contrarian Profits also points out who broke the story of this historic smuggling attempt… AsiaNews.it…, an obscure Vatican-sponsored news website.

This story has more holes than a Swiss cheese. We know from experience here at Notes (your co-editor spent two years working as an investigative reporter in his native Ireland) that there is rarely smoke without fire when it comes to news stories. But one aspect of this story still puzzles us… and it’s a part of the story nobody to date has questioned: What was an obscure Vatican-sponsored news outfit doing breaking the largest financial crime story all time?

As far as we can tell, AsiaNews.it broke the story on June 8. Major news services followed on with their own reports much later. Bloomberg, for instance, only got to it yesterday. So how did AsiaNews.it, a website linked to the Ponticial Institute for Foreign Missions and funded by the Vatican scoop the major news agencies on the bond story?

AsiaNews.it’s About Us page freely admits that it is an anti-Communist organ of the Roman Catholic Church, “nobly dedicated to China and her people.” The organization’s missionary zeal is not difficult to detect.

A smuggling operation of this magnitude demands a level of sophistication that is absent in this attempt in every fashion… from the strategic action to the media outlet who exposed it. It was almost as if they wanted to be caught.

Why? As Seeking Alpha notes, there’s no faster way to sabotage and usher in the death of a currency than to raise legitimate questions about its ability to withstand counterfeiting efforts. (as was done by the Nazis in WWII with Operation Bernhard)

Ironically, the Asian business men, arrested, were released. According to the Italian authorities, they were not caught using the fake bonds in the commission of fraud. Status of the bonds as real or counterfeit did not seem to enter the picture for prosecution.

As for the US Treasury, they declared them counterfeit. (linked from Cryptogon’s various updates on the story…)

“The whole thing is a total fraud,” Stephen Meyerhardt, a spokesman for the Treasury Department, said Thursday. “They don’t look anything like real securities, which in any case were never issued in any of those denominations.”

The highest denomination ever issued by the Treasury Department was $10,000, he said. The Italian financial police claimed some of the paper was “Kennedy bonds” from the 1930s, but no such bonds ever existed. And the total of Treasury bearer bonds still outstanding is a mere $105 million; the Treasury has been issuing bonds in electronic form since 1986.

Here’s the rub… the Treasury dept declared their counterfeit status not by in person inspection, but
by photos on the Internet. WTF? They appear to be so real as to fool Italian customs, yet can be so easily dismissed by shooting a photo or two thru cyberspace??

On the contrary, again the Vatican’ news arm, AsiaNew.it, linked above, gives reason to doubt the quick dismissal of authenticity.

One more element in favour of the bond’s authenticity is found in the securities, which in the June 4 statement, the GdF termed “Kennedy Bonds” with photos provided. These photos reveal that the securities under discussion are not bonds but Treasury Notes, because they are securities that can be immediately exchanged for their worth in goods or services and because they are devoid of interest coupons. One side carries a reproduction of the image of the American president, the reverse side that of a spaceship. From confidential, usually well-informed sources, AsiaNews has learned that this type of paper money was issued less than ten years ago (in 1998), although it is difficult to know whether those seized in Chiasso are authentic. But the fact that the release of this particular State Treasury was not completely in the public domain tends to exclude the possibility of counterfeiting. It highly unreasonable to suppose that a forger would reproduce a State Treasury not commonly in circulation and of which there is no public knowledge.

As Freeman notes in his report:

The sheer amount of the bonds takes the activity out of the role of the criminal and into the realm of financial terrorism and/or economic warfare.

Again, more questions than answers INRE motive, and players. But it’s obvious that financial terrorism is not a conspiracy theory to be lightly dismissed.

Coming next…. Phase 3, assault on the US dollar.

Just caught this from this evening’s Washington Times. I’ve done no research yet, nor found a link to the actual report. But here’s the basics…. a Pentagon contractor, Kevin D. Freeman, wrote an analysis in 2009 titled “Economic Warfare: Risks and Responses” in which he suggested the economic crash of 2008 was three pronged attack against the US economy by outside forces, and is still in progress now.

“There is sufficient justification to question whether outside forces triggered, capitalized upon or magnified the economic difficulties of 2008,” the report says, explaining that those domestic economic factors would have caused a “normal downturn” but not the “near collapse” of the global economic system that took place.

Suspects include financial enemies in Middle Eastern states, Islamic terrorists, hostile members of the Chinese military, or government and organized crime groups in Russia, Venezuela or Iran. Chinese military officials publicly have suggested using economic warfare against the U.S.

Michael G. Vickers, assistant secretary of defense for special operations, said the Pentagon was not the appropriate agency to assess economic warfare and financial terrorism risks. (Associated Press)In an interview with The Times, Mr. Freeman said his report provided enough theoretical evidence for an economic warfare attack that further forensic study was warranted.

This is a lengthy piece, and what becomes notable is already too many agencies haven’t given this type of terrorism a second thought. Ironic since the September 11 attacks was all about bringing this nation to it’s knees by knocking out the financial district, and crippling response from the Pentagon and WH or Congress. Do we never learn?

This is still a breaking story, so for now, I’m throwing this out for y’all to chew on with much added commentary until I read more. Added sources and information in the comments by all of you would be appreciated!