Tag Archives: United States

Remove Government Intervention And Let’s Get On With It!

After being beaten down by the inevitable regulatory stranglehold that the government imposes on anyone attempting to do anything disruptive and creative that might revolutionize the banking industry, and probably any other, I am inspired to spew my general contempt for government intervention in anything. My apologies in advance.

Through decades of research, American neurobiologist James McGaugh discovered that as humans learn information and encounter new experiences, the part of the brain known a the amygdala plays a key role in retention.  The amygadala is activated primarily by stress hormones and other emotionally arousing stimuli.  Memory consolidation, or the forming of long term memories, is typically modulated very strongly by the amygdala.  Put simply, events that invoke significant amounts of emotion make a bigger imprint on one’s brain.

Emotion, while an important element in man’s array of mental tools, can unfortunately triumph over reason in crucial matters.  Excessive anger can lead to violent confrontations.  Heartbreak can lead a person to do drastic things in order to woo back a lost lover.  In the context of simple economic reasoning, today’s intellectual establishment often disregards common sense in favor of emotional-tinged policy proposals that rely on feelings of jealously, envy, and blind patriotism for validation rather than logical deduction.  “Eat the rich” schemes such as progressive taxation and income redistribution are used by leftists who style themselves as champions of the poor.  Plucking on the emotional strings of envy makes it easier to arouse widespread support for economic intervention via the state.

In the aftermath of the financial crisis of 2008, economic growth predictably slowed down in most industrialized countries.  Many commentators on the political left have grasped onto this opportunity to point to the vast amount of income inequality which exists in the United States and reason that it played a part in causing the crash.  This argument is typically paired with a proposal to raise taxes on the rich to balance out societal incomes.  It is alleged that having government brutes step in order to play the role of Robin Hood is the best and most justified way to alleviate income inequality.

Presently, income inequality in America is at its highest peak in decades.  In 2011, a study by the Congressional Budget Office concluded that after tax income grew by 275% for the top 1% of income earners between the years of 1979 and 2007.  The top-fifth of the U.S. population saw a 10 percentage point increase in their share of total income in the same period while all other groups saw their share decrease by 2 to 3 percentage points.  The data undoubtedly shows that income inequality has been increasing over the past few decades.  New York Times columnist and economist Paul Krugman has latched onto the evidence and is suggesting that rising income inequality plays a part in causing recessions.

Economist Joseph Stiglitz, who recently wrote the book “The Price of Inequality,” has argued that without a fair share of the national income, the middle class is unable to spend enough to keep aggregate demand elevated.  Both economists see income inequality as a danger to the prosperity of a nation.   Such a message is appealing to the greater public because it plays on their perceptions that the world is unfair.  It almost seems intuitive to think that the rich posses too much wealth or that a prosperous society is one in which income is more equalized.  Comfortableness in these beliefs paves the way for income redistribution efforts by the ever-scheming political class.

With income inequality a hot topic of debate going into the fifth year of the biggest economic downturn since the Great Depression, the question remains: does income inequality have a negative impact on society as Stiglitz and Krugman suggest?  And is growing income inequality an inherit part of capitalism?

First and foremost, the idea of equality for man in physical attributes, mental fitness, and material security  is essentially anti-human.  The most appealing aspect of mankind is that every person varies from one another in a myriad of different ways.  Some are better athletes, some are quicker studies, some have outer features that make them generally more attractive.  It follows that some men and women will be more apt at producing or better attuned to the demands of the marketplace.  They will have higher incomes by virtue of their own entrepreneurship or capacity to produce.  So, in a sense, income inequality is a fact of the free market.

But it is the possibility of inequality and the ability to achieve a higher income that makes capitalism work.  Punishing those who excel at making consumers better off punishes the very market mechanism that leads to better living standards overall.  In a free society, income inequality is not good or bad; it is part of the functioning order.  Any attempt to make incomes more equal through state measures is unjustified plunder of the rightful earners of wealth.

But what of the inequality in income that exists in today’s state-corporatist economy?  Did the 1% acquire its wealth solely through hard work?  The answer is hardly in many cases.  Though there are some innovative businessmen who became rich by providing new and better products, the sharp increase in income inequality over the past two decades is due to an economic phenomenon outside of normal market operations.  Krugman and Stiglitz rightfully point out that the greatest periods of income inequality in the United States were the late 1920s and the period since the mid-1990s.  What they fail to mention is that both these periods were not defined by capitalism run amok but by massive credit expansion.

This expansion in credit, aided and abetted by the Federal Reserve’s loose money policy, is the real culprit behind vast income inequality.  Economist George Reisman explains:

“the new and additional funds created in credit expansion show up very soon in the financial markets, where they drive up the prices of securities, above all, common stocks. The owners of common stock are preponderantly wealthy individuals, who now find themselves the beneficiaries of substantial capital gains. These gains are the greater the larger and more prolonged the credit expansion is and the higher it drives the prices of shares. In the process of new and additional money pouring into the financial markets, investment bankers and stock speculators are in a position to reap especially great gains.”

Since it’s so important, the main point just made needs to be repeated: credit expansion creates an artificial economic inequality by showing up in the stock market and driving up stock prices.

Money acts as a medium of exchange but is not neutral in its effects on receivership.  Those first receivers are able to bid up the price of goods before any other market participants.  As the newly created money flows into the economy, the general price level rises to reflect the new volume of currency.  In practice, credit expansion which brings about a reduction in interest rates also increases the amount of time businesses can go without making deductions for depreciation on their balance sheets as they purchase capital goods.  Because investment tends to go toward durable goods during periods of credit expansion, there is less funds left over to devote to labor.  Profits end up being recorded while wages sag behind.  Since credit expansion and inflationary policy go hand in hand in distorting relative prices and must eventually come to an end, the bust that occurs reveals wasteful investment.  Recession sets in shortly thereafter.

Printed money is not the same as accumulated savings which would otherwise fund sustainable lines of investment.  And it is only through adding to the economy’s pool of real savings that productive capacity is able to increase in the long term.  The wealthy have a higher propensity to save precisely because they have a higher income.  It is through their savings that new business ventures are funded and the economy is able to grow without the faux profits from government-enabled credit expansion.  This is why raising taxes on the rich is a backwards solution to income inequality.  Taxation only funnels money out of the productive, private sector and into the public sector which focuses on spending to meet political ends rather than consumer satisfaction.  All government spending boils down to wasted capitalThe truth is that capital is always scarce; there is never enough of it.

Pointing out this fact is by no means corporate shilling.  Many corporations and well connected businesses lobby for tax increases in order to burden their competitors.  Currently in California, Governor Jerry Brown is campaigning for a ballot measure which would raise taxes on the state’s richest residents.  According to the Wall Street Journal, companies such as Disney, NBC, Warner Bros., Viacom, CBS, and Sony have each already pitched in $100,000 for the initiative.  Various energy companies are financially supporting the ballot measure to make sure that a 25% tax on natural gas and oil extraction isn’t next.  As the scope of government becomes all the more encompassing, big business starts seeing profit opportunity in using its forceful authority to better its own competitive position.  In their unceasing tirades over income inequality, Stiglitz and Krugman recognize the trouble rent-seeking poses to competitive markets yet both reason that the problem doesn’t lie with the state but with those politicians and bureaucrats who occupy its enforcement offices.

To put it bluntly, this notion isn’t just juvenile; it rests on the fallacious assumption that government is staffed by only the most well-meaning of individuals in society.  As history and reason dictate however, good souls are not attracted to positions of absolute power.  The state, by Max Weber’s definition, holds the monopoly over force in a given area.  Practically every action taken by state officials introduces violence or the spoils from violence into an otherwise free society.  It follows that only those seeking to use state authority for their own benefit naturally gravitate toward politics.

Krugman and Stiglitz believe, as most do, that Americans should be born with the opportunity to succeed.  To create an environment of fairness, they propose a variety of government policies so that even the most impoverished individuals will have a shot at the American Dream.  Their arguments rest largely on emotion instead of reason and are aimed at inspiring reactionary protest.  What they fail to see (or refuse to acknowledge) is that the free market provides the best opportunities for someone to make a decent living by providing goods and services.

In a totally uninhibited market, profits come only to those who satisfy consumers more than their competition.  Contrary to Stiglitz’s suggestion, Henry Ford wasn’t a great businessman because he paid his workers a high wage.  He made his fortune by streamlining the process from which cars were built in order to sell them at a lower price.  The employees at Ford were able to increase their productivity, and thus wages, through the previous accumulation of capital and investment in machinery.  Ford’s massive profits didn’t last long however as domestic and foreign competition copied the mass production model and were able to attract market share of their own.  The greater the amount of cars on the market meant lower prices for all consumers in the end.

Again, in a truly free market the only way to maintain a rising income is to continually produce at a more efficient and more innovative rate.  In an economy plagued by the heavy hand of government, the market becomes rigged in favor of those connected to the ruling establishment.  Competition is decreased by the rising cost of adhering to regulations, innovation stagnates, and more income flows to the top.  Through central banking and credit expansion, profits are able to be recorded by the financial industry and first receivers of money before the rest of the population; which in turn leads to further evidence of income inequality.

No matter how you slice it, taxation is theft It is indiscernible from highway robbery and devoid of any moral justification.  Income inequality is a problem not because the government isn’t doing enough to combat it but because politicians and bureaucrats never tire of intervening into the private affairs of society.

With government intervention present in practically all market transactions, the solution to income inequality is to remove the intervention; not empower the state further by increasing the amount of funds at its disposal.

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I Gotta Wear Shades!

My partner Tim, hammered me today on a recent post where I thought I had been sharing my optimistic view of the future, when in fact I apparently only underscored the notion that if this is optimism, who needs pessimism.

So, I thought that maybe I should look into the  Milken Institute‘s annual Global Conference, which was held this week in Los Angeles and was attended by many of the world’s most influential investors, economists, CEOs, innovators and policymakers, who met to discuss some of the most imminent and dire problems facing America and the world.

These same people were asked what makes them most optimistic about the America today. There was a predictably wide-range of responses, but it certainly was all positive.  

Here’s what they said:

Niall Ferguson

Professor, Harvard University

“The thing that makes me optimistic about the United States is technology and the ability of the United States still to be at the cutting edge. But of course that is quite geographically localized. That is a Silicon Valley story.”

T. Boone Pickens

Founder, BP Capital

 “It’s energy. I mean, today the United States has the cheapest energy in the world. We got the cheapest oil. We got the cheapest gas. And we got the cheapest gasoline.”

See? If it wasn’t for me, you wouldn’t know Mitch Daniels from Mitch Williams. 

Mitch Daniels

Governor, Indiana

 “The resilience of the American economy over time. We still give birth to more new businesses than other places [and] that we still have a core of innovation.”

Raghuram Rajan

Professor, University of Chicago

 “I think the strength of corporations [and] how much cleaning up they have done of their balance sheets, their work force and improving productivity is a hidden upside for the U.S. economy. If we can realize that over the years to come, I think there is substantial potential for growth.”

James Barth

Senior Finance Fellow, Milken Institute

 “I would agree (with Rajan) but I think that strength depends upon eliminating a lot of uncertainty. I think that’s the biggest barrier right now to the growth and after all it is an election year and one would expect a lot of uncertainty. There’s much more than there needs to be.”

Richard Fisher

Dallas Federal Reserve President

 “We are growing our population. We have an enormous Hispanic population that’s coming in. We are still the magnet for anybody that wants to work hard in the world. And we create, and we innovate, and we are masters of creative destruction. As long as government won’t interfere with that adjustment, and let the American genius go to work, we’ll win.”

Charles Murray

Author, Coming Apart: The State of White America

 The Tea Party to me is certainly as originally developed was this utterly spontaneous movement and all of my connections were that these were not racist, these were not Homophobes, all those social issues were off the table. They were talking about free enterprise, opportunity, liberty in very traditional ways. And that that much energy could be sparked with no direction just welled up is for me…wonderful. That’s my source of optimism.”

But, when they were asked if there are any future events that might impact their outlook, they all said  that the one caveat to their answer, was the hindrance of political dysfunction in Washington and its negative drag on prosperity in America.

What? You don’t feel good about Technology? You don’t live in magical Silicon Valley, where the wealth just trickles down like an endless river? You don’t love that cheap gas, which is on its way to a $4 national average? All those new businesses and that core of innovation got you down? You don’t believe in the strength of those corporations you love? Come on now, just look at how strong and powerful Goldman-Sachs has become. I mean we’re talking insane productivity and ridiculously clean balance sheets. How can you not love that?

And, the population growth? The Hispanic population doubles every year. Making babies, man. Creating and innovating. That’s where its at. What about letting that American Genius get back to work. That’s happening, right? All that energy sparked with no direction, welling up everywhere. And gosh, that Tea Party WAS a thing of beauty. And, no Homophobes. Can’t beat that with a stick.

OK. I’m just being silly now, because finally they did actually say, “There’s always that pesky Iranian problem and our probable backing of Israel’s inevitable bombing of that country, and the resulting spike in global oil prices, along with the coming European breakup and flight from the Eurozone, Germany’s probable rise to supremacy in the wake of the collapse, global warming and the probability of a double-dip recession here at home, which will exacerbate the current unemployment problem and drive civil unrest, and the unchecked corruption of Wall Street bankers and the Congress”.

But all in all, according to these brilliant thinkers, the future looks pretty bright.

 


New Tax Burden: Pay For The Rich!

 

The Brookings Institution has analyzed the new tax system overhaul that Mitt Romney has proposed and concluded that it would give big tax cuts to high-income households and increase the tax burden for middle- and lower-income households

Because Romney has yet to propose an actual tax plan, the researchers modeled a revenue-neutral income tax change that incorporates some of Mr. Romney’s proposals, which include lowering marginal tax rates, eliminating both the alternative minimum tax and taxation of investment income of most taxpayers, eliminating the estate tax and repealing the additional high-income taxes passed with the Affordable Care Act.

All by themselves, these cuts to personal income and estate taxes would reduce total tax revenue by $360 billion in 2015 relative to what is expected of current policy, according to the Brookings scholars.

Mr. Romney has said that his plan will include offsets to the revenue losses from his proposed lower tax rates, although he has not specified what kinds of policies would offset those cuts (that is, how he would come up with an additional $360 billion to offset the lost $360 billion in tax revenue).

Ann thinks this is funny.

The Brookings analysis assumes that those offsets would be achieved chiefly through reducing or altogether eliminating other tax breaks — like the mortgage interest tax deduction or the child tax credit — and does not factor in spending cuts as a means to offset lost tax revenue.

But even if all possible loopholes for households earning more than $200,000 were eliminated, this group would still be a net gainer under Mr. Romney’s plan, since the marginal tax rate decreases and other changes lop off so much of its tax burden.

As a result, middle- and lower-income households — the 95 percent of the population earning less than about $200,000 annually — would have to make up the difference.

“It is not possible to design a revenue-neutral plan that does not reduce average tax burdens and the share of taxes paid by high-income taxpayers under the conditions described above, even when we try to make the plan as progressive as possible,” write the study’s authors, Samuel Brown, William Gale and Adam Looney.

If the elimination of tax breaks starts with those affecting the top earners, the authors estimate, those earning under $200,000 a year will see their cash income fall by about 1.2 percent, as shown in the chart below. The very top earners — those earning more than $1 million a year — will by contrast see their cash income rise by 4.1 percent.

This analysis assumes that base-broadening -- eliminate of tax expenditures -- occurs “starting at the top” so that tax preferences are reduced or eliminated first for high-income taxpayers in order to make the resulting plan as progressive as possible.

This analysis assumes that base-broadening — elimination of tax expenditures — occurs “starting at the top” so that tax preferences are reduced or eliminated first for high-income taxpayers to make the resulting plan as progressive as possible.

Mitt Romney looked out the window as he chatted with the traveling press corps aboard his campaign's charter plane on Monday.

And still, all of the guys in the top 2-3% make out, while the rest of us get screwed as usual. Don’t vote for Mitt. Please.

 


Liars, Gamblers, and Suckers.

I just finished reading a piece by Goldman Sachs urging investors to charge into the housing market.

Here is what they said back in March of 2012:

Headline reads: The housing recovery will have to wait a little bit longer. Goldman Sachs just pushed back its estimated date of the bottom.

In December 2011 G-Sax published a new house price model for 147 metro areas that pointed to a decline of around 3% from mid-2011 through mid-2012 before stabilizing in the year thereafter. Since publication of the model–which was based on Case-Shiller house price data up to 2011Q2–the decline in house prices has reaccelerated slightly. In today’s (February 29) comment they updated their forecast in light of this and also used the opportunity to make a couple of technical changes to the model.

They now project that house prices will decline by around 3% from 2011Q3 until 2012Q3, and by an additional 1% in the year thereafter. As a result, the expected bottom in house prices is pushed out from end-2012 to mid-2013. Although the house price outlook has weakened very slightly, they go on to say that they believe that the house price bottom remains in sight.

That was in March, after predicting that we would hit the “bottom” in 3Q12. Here is what they said on Monday of this week. Headline: Goldman Sachs predicting ‘strong’ U.S. housing recovery. Construction up, existing home sale supply down.

Article goes on to say that U.S. home builders are an attractive investment as the housing market starts a “strong” recovery that may drive a surge in new-home sales, Goldman Sachs Group Inc. said in a report Monday.

Housing has a “long list of positives,” including rising prices, job growth, supportive government policies and a decline in the so-called shadow inventory of homes, Goldman Sachs analysts Joshua Pollard and Anto Savarirajan wrote in a note to clients. They raised their rating on the homebuilding industry to attractive from neutral.

As a gentle reminder, these are the same people (different suits) who urged investors to buy Collateral Default Obligations and Credit Default Swaps back in 2007. Anything sound familiar here?

For those not punch-drunk on Wall Street’s propaganda, here is what is actually going to happen:

Housing will not hit bottom until somewhere north of 2015. Why? Banks are holding a ton of shadow inventory that they dare not release to the market for fear of creating insane downward pressure on pricing. In addition, there are still tons (millions) of homes crawling their way through the foreclosure process. Are there pockets of good news? Of course. Just like the fact that not everybody lost their asses in the real estate or stock markets since 2008, there are real estate markets like Pebble Beach and San Francisco and Long Island that are still holding prices up. But, the real real estate market is in the crapper and will stay that way or get worse in the coming months.

Until the November U.S. presidential elections of this year, there will be a deceptive calm before the storm, as every major economy plagued with severe fiscal problems continues to kick the can down the road. Come 2013, there will be a convergence of several major negative metrics.

These include the worsening Eurozone debt crisis, leading to the exit of Greece from the monetary union. China will face a hard economic landing, and the United States — its economic growth and job creation performance already anemic — will face a very high probability of a renewed economic recession, particularly in a political environment favoring austerity.

In addition to those economic factors, there is one other element in the turbulent brew that comprises my prediction of a perfect economic storm in 2013: Iran. If the Iranian nuclear issue is not resolved peacefully, which at present seems highly doubtful, there is a high probability of a military conflict occurring in the region, which will add further strains upon the global economy, particularly if oil prices spike to highly elevated levels.

I am not alone in this view. A guy who got it right the last time has the exact same predictions for 2013. Nouriel Roubini, or Dr. Doom, has issued a characteristically gloom-laden warning about likely economic trends for 2013. Unlike the pontificators among the politicians, Wall Street glad-handlers and central bankers, Roubini’s analysis of future economic trends does have the virtue of reasoned logic as opposed to overly-optimistic rhetoric. Nouriel Roubini’s record in predicting future trends impacting the global economy and financial system has been inherently more reliable than the forecasts offered by the U.S. Federal Reserve, as well as by the policymakers in America and Europe.

He emerged in the months prior to the global financial and economic crisis that erupted in the fall of 2008, warning of a deadly convergence of troubling economic and financial dangers.

Roubini’s prediction that the contraction in housing prices in the U.S. housing market would metastasize into a devastating financial hurricane seemed so incomprehensively dire, the pundits and eternal optimists on Wall Street wrote him off. Was it because they insist on driving markets in spite of the realities before them? Do they care, as long as they are betting on the right side of the dice? Don’t forget, those traders who touted CDOs and CDSs were making a killing on insuring against their performance.

Will you listen to Goldman Sachs or Nouriel Roubini?

 

 

 


I’m Hungry. How About You?

You probably haven’t noticed, but the world is on the verge of a horrific global food crisis. The World Bank and the U.N. are not very good at getting anything done, but they are great at record keeping and statistics. Here are a few items that should give you some alarm.

At some point, this crisis will affect you and your family.

Crazy weather and horrifying natural disasters have played havoc with agricultural production in many areas of the globe over the past couple of years. Meanwhile, the price of oil has begun to skyrocket. The entire global economy is predicated on the ability to use massive amounts of inexpensive oil to cheaply produce food and other goods and transport them over vast distances. Without cheap oil the whole game changes. Topsoil is being depleted at a staggering rate and key aquifers all over the world are being drained at an alarming pace. Global food prices are already at an all-time high and they continue to move up aggressively. So what is going to happen to our world when hundreds of millions more people cannot afford to feed themselves? I don’t know, but I bet it will be interesting.

Most Americans are so accustomed to supermarkets that are absolutely packed to the gills with massive amounts of really inexpensive food that they cannot even imagine that life could be any other way. Unfortunately, that era is ending. There are all kinds of indications that we are now entering a time when there will not be nearly enough food for everyone in the world. As competition for food supplies increases, food prices are going to go up. In fact, at some point they are going to go way up.

Let’s look at some of the key reasons why an increasing number of people believe that a massive food crisis is on the horizon. The following are 20 signs that a horrific global food crisis is coming:

#1 According to the World Bank, 44 million people around the globe have been pushed into extreme poverty since last June because of rising food prices.

#2 The world is losing topsoil at an astounding rate. In fact, according to Lester Brown, “one third of the world’s cropland is losing topsoil faster than new soil is forming through natural processes”.

#3 Due to U.S. ethanol subsidies, almost a third of all corn grown in the United States is now used for fuel. This is putting a lot of stress on the price of corn.

#4 Due to a lack of water, some countries in the Middle East find themselves forced to almost totally rely on other nations for basic food staples. For example, it is being projected that there will be no more wheat production in Saudi Arabia by the year 2012.

#5 Water tables all over the globe are being depleted at an alarming rate due to “overpumping”. According to the World Bank, there are 130 million people in China and 175 million people in India that are being fed with grain with water that is being pumped out of aquifers faster than it can be replaced. So what happens once all of that water is gone?

#6 In the United States, the systematic depletion of the Ogallala Aquifer could eventually turn “America’s Breadbasket” back into the “Dust Bowl“.

#7 Diseases such as UG99 wheat rust are wiping out increasingly large segments of the world food supply.

#8 The tsunami and subsequent nuclear crisis in Japan have rendered vast agricultural areas in that nation unusable. In fact, there are many that believe that eventually a significant portion of northern Japan will be considered to be uninhabitable. Not only that, many are now convinced that the Japanese economy, the third largest economy in the world, is likely to totally collapse as a result of all this.

#9 The price of oil may be the biggest factor on this list. The way that we produce our food is very heavily dependent on oil. The way that we transport our food is very heavily dependent on oil. When you have skyrocketing oil prices, our entire food production system becomes much more expensive. If the price of oil continues to stay high, we are going to see much higher food prices and some forms of food production will no longer make economic sense at all.

#10 At some point the world could experience a very serious fertilizer shortage. According to scientists with the Global Phosphorus Research Initiative, the world is not going to have enough phosphorous to meet agricultural demand in just 30 to 40 years.

#11 Food inflation is already devastating many economies around the globe. For example, India is dealing with an annual food inflation rate of 18 percent.

#12 According to the United Nations, the global price of food reached a new all-time high in February.

#13 According to the World Bank, the global price of food has risen 36% over the past 12 months.

#14 The commodity price of wheat has approximately doubled since last summer.

#15 The commodity price of corn has also about doubled since last summer.

#16 The commodity price of soybeans is up about 50% since last June.

#17 The commodity price of orange juice has doubled since 2009.

#18 There are about 3 billion people around the globe that live on the equivalent of 2 dollars a day or less and the world was already on the verge of economic disaster before this year even began.

#19 2011 has already been one of the craziest years since World War 2. Revolutions have swept across the Middle East, the United States has gotten involved in the civil war in Libya, Europe is on the verge of a financial meltdown and the U.S. dollar is dying. None of this is good news for global food production.

#20 There have been persistent rumors of shortages at some of the biggest suppliers of emergency food in the United States. The following is an excerpt from a recent “special alert” posted on Raiders News Network: “Look around you. Read the headlines. See the largest factories of food, potassium iodide, and other emergency product manufacturers literally closing their online stores and putting up signs like those on Mountain House’s Official Website and Thyrosafe’s Factory Webpage that explain, due to overwhelming demand, they are shutting down sales for the time being and hope to reopen someday.

Not good signs.


Housing Bust Is Over! Not So Fast.

The housing experts, Ben Bernanke, the Obama administration, and the Wall Street Journal all want us to believe that the housing market has turned—at last.

 

The next thing out of his mouth will be Quantitative Easing, Round 3.

Headlines like this are in the news this week: “The U.S. finally has moved beyond attention-grabbing predictions from housing “experts” that housing is bottoming. The numbers are now convincing.”

And this: “Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. “We finally saw some rising home prices,” S&P’s David Blitzer said a few weeks ago as he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.”

Housing starts rose 6.9 percent to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate. Which means they were off by 2%. I don’t think this grounds for celebration.

Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later, an important sign of an inflection point. In something of a surprise, the inventory of existing homes for sale has fallen close to the normal level of six months’ worth despite all the foreclosed homes that lenders own. The fraction of homes for sale that are vacant is at its lowest level since 2006. Which means nothing since the 2006 number was normal, and banks have been holding on to property that they have foreclosed in order to not flood the market and drive up inventory.

In other words, these numbers are completely manipulated by the banking industry in an attempt to normalize the markets.

“Even with the overall economy slowing,” Wells Fargo Securities economists said, cautiously, in a note to clients, “the budding recovery in the housing market appears to be gradually gaining momentum.”

Housing is still far from healthy despite the Federal Reserve’s efforts to resuscitate it by helping to push mortgage rates to extraordinary lows: 3.62% for a 30-year loan, according to Freddie Mac‘s latest survey. Single-family housing starts, though up, remain 60% below the 2002 pre-bubble pace. And, by the way, try qualifying for a mortgage these days. Ha!

Americans‘ equity in homes is $2 trillion, or 25%, less than it was in 2002 and half what it was at the peak, in 2006. More than one in every four mortgage borrowers still has a loan bigger than the value of the house, though rising home prices are reducing that fraction very slightly.

Still, the upturn in housing is a milestone, a particularly welcome one amid a distressing dearth of jobs. For some time, housing has been one of the biggest causes of economic weakness. It has now—barely—moved to the plus side. “A little tail wind is a lot better than a headwind,” says economist Chip Case, the “Case” in Case-Shiller.

 

From here on, housing is unlikely to be the leading drag on the U.S. economy. It will instead reflect the strength or weakness of the overall economy: The more jobs, the more confident Americans are about keeping their jobs, the more they are willing to buy houses. “Manufacturing had led growth and construction had lagged,” JPMorgan Chase economists said last week. “Now the roles are reversed: Manufacturing growth has slowed as private construction comes to life.”

Unfortunately, as we see fewer jobs, all of the new construction will result in a huge inventory of new homes and further bloat an already bloated market.

The biggest threat is that large shadow inventory of unsold homes, homes which owners won’t put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders. Another threat is the holdback that the banks have been managing around homes already in foreclosure, so as to not flood the market. They have been trickling onto the market, slowed in part by government efforts to delay foreclosures; a flood could reverse the recent rise in prices. Or the still-dysfunctional mortgage market could get even worse. 

Don’t believe what you read, folks. The housing bust is far from over.

 


Let’s Do This Thing!

Everybody keeps telling me to write something positive and to stop harping on gloom and doom in our future.

I really wish I knew how to do that, because every day I search for some signs, or any sign that there is some hopeful event on the horizon that will create a positive impact on our future, but I can’t find any.

I turn on the TV News and without fail, there are varying degrees of sterilized coverage of some economic event that happened three days earlier that will have far greater impact than the newsies imply and is of far greater complexity than they can possibly understand or communicate.

So, they don’t, and America does what? Goes about their business placated by the blind faith that their leaders will figure out how to prevent the world from ending before it does?  Do they say to themselves, “Hey, how bad could it get? After all, we went through some deep shit in the 30’s and we came out alright.”

Cable news is marginally better because at least they have a longer segment in which to explore the charts, data, directions, patterns, history, etc., but it is still not enough. Then, I have to remind myself every day that people just don’t care. Here is what people care about:

TRENDING NOW (from Yahoo web searches ranked by popularity) on this fine day in July:

01 Mariah Carey

02 Sigourney Weaver

03 Harrison Ford turns 70

04 Michelle Obama threat

05 Chevy buy-back

06 F-22 hypoxia

07 Bonnie and Clyde guns

08 Bankruptcy protection

09 GOP vice-presidential candidates

10 Rheumatoid arthritis

So, it is obviously more important to the American people that Mariah Carey and Sigourney Weaver are celebrating Harrison Ford’s 70th birthday, while Michelle Obama has threatened a Chevy buy-back and some pilots are still experiencing hypoxia when they ride in the cockpit of a jet the military never wanted, and Bonnie and Clyde have hidden their guns and filed for bankruptcy protection because the GOP VP candidates have rheumatoid arthritis.

THIS is what the people care about.

How can that be? I haven’t a clue.

And, if I believe we are truly headed for hell, then why don’t I write about what we can do about it and instead of warning people all the time, point out some things that people can do once they know it.

OK. Here goes: If you have a job, no matter how shitty, keep it and shut-up about how shitty it is. You are blessed. It isn’t like they promised it would be. So, what? If you are still in school, stay there. Slow it down. Take fewer courses. Get Mono. Avoid graduation like the plague. Yes, even if you are at Harvard or Stanford. And, yes, even if you will have an MBA. Particularly if you have an MBA. Stay on your parents’ health care plan as long as you can. If you have a government job, you are even more blessed.

If you are an Airline Pilot, a Doctor or Lawyer, you are just fine. Not making very much money, but fine. Don’t buy anything you don’t need. Don’t buy real estate, yet.

If you are an investment banker, you are also fine. In fact, you are great. There will be tons of money to be made on the craziest gambles you’ve ever seen. Derivatives? Nah, child’s play. China? Gold? Corn? Salmon? Copper? You betcha.

If you are a commercial banker, you are screwed. Too bad.

If you are unemployed, find something that only you can do and offer it for sale. Try Fiverr, or the like. Make something up. “I will sing Happy Birthday in my silly hat for $5”. Really.

Stop looking for work if you haven’t already. It is bad for your soul. If you’ve been out of work for a year, you undoubtedly have erectile dysfunction. You may have already joined many who have considered suicide. Don’t do it.

Get creative. Find others and band together in some common cause. Like tearing down the government. Don’t do it like the Occupy movement did. Actually form a political party and talk to the media. Use simple words. Talk slowly. Even though it makes no sense, talk about the government making jobs. Or, find a bunch of people and start a business that capitalizes on the GREATEST DEPRESSION EVER. Put people in need together with people who have. Make something up. Now is the time. Bend rules. The law will be so busy chasing truly bad guys, it won’t have time to worry about you. And, where would they put you? Jail? Who would look after you? They are all out of work too.

If you are a teacher, you are doomed, but at least 40% of you still have jobs. Try to stay out of site and don’t ever complain.

If you’re in the military, stay in the military. Re-up. For anything.

If you are upside down on your house, walk away and start over somewhere. If you have a ton of debt, declare bankruptcy before they change the law again and make it even harder. If you are lucky enough to be on unemployment or other government welfare programs, revel in it and stay on them. They are NOT entitlements. You paid for them in taxes. They are yours. You have earned them.

If you have a ton of money, you will have fun and be able to make lots more by betting against all fiscal progress and economic recovery. Bet against Greece. Bet against European banks surviving. Bet against the dollar. Bet against every bank stock, and bet on every European sovereign bond default.

Oh, that’s not what you meant, huh?

OK. The truth is we live in the modern world. And, no matter what happens in Washington or in our State Capitols, this is still the modern world (it would be easy to say this is still America, but technology now allows our freedoms to enable behavior around the world, so I call this the modern world). We can do anything we want here. You want to know what to do? Then, page down to the end, and I’ll tell you.

In the meantime, the cracks in the ice are getting bigger.  At this point it is really hard to have much confidence in the global financial system at all.  The lying leaders told us that MF Global was an isolated incident.  Well, the horrific financial scandal over at PFGBest last week is essentially MF Global all over again.  And, either no one was watching or no one was telling. They told us that we would not see a huge wave of municipal bankruptcies in the United States.  Well, three California cities have declared bankruptcy in less than a month, and many more are on their way.  They told us that we could have faith in the integrity of the global financial system.  Well, now we are finding out that global interest rates have been fixed by insiders for years, including our own Treasury leader. 

They told us that Greece was an isolated problem and that none of the larger European nations would experience anything remotely similar.  Well, what is happening in Spain right now looks like an instant replay of exactly what happened in Greece.  So who are we supposed to believe?  Why does it seem like nearly everything that “the authorities” tell us turns out to be a lie?   What else haven’t they been telling us? I think I know.

Look, tens of millions of American families are about to go through economic hell and most of them don’t even realize it. For some weird reason, most Americans don’t spend a whole lot of time thinking about things like “monetary policy” or “economic cycles”.  The vast majority of people just want to be able to get up in the morning, go to work and provide for themselves and their families.  Most Americans realize that things seem “harder” these days, but most of them also have faith that things will eventually get better.  Why? I have no idea.

Unfortunately, things are NOT going to get any better.  The number of good jobs continues to decline, the number of Americans losing their homes continues to go up, people are having a much more difficult time paying their bills and our federal government is drowning in debt.  Sadly, this is only just the beginning of how bad it is going to be.

Since the financial collapse of 2008, the Federal Reserve and the U.S. government have taken unprecedented steps to stimulate the economy.  But even with all of those efforts, we are still living in an economic wasteland.

So what is going to happen when the next wave of the economic crisis hits?

If you look at the economic relapse that’s going on right now, look at last week’s abysmal job numbers, look at the housing numbers, understand that all of this is taking place with record monetary and fiscal stimulus. What happens if we remove those supports? What do you think will happen?

Last month, the Federal Reserve’s quantitative easing program ended (QE2 for those of you still counting).  The U.S. Congress and state legislatures from coast to coast are talking about budget cuts.  The amount of borrowing and spending that has been going on is clearly unsustainable, but will the U.S. economy start shrinking again once the current “financial sugar high” has worn off? QE3? It won’t work. Trust me.

Already, most economic news has been bad and almost all true economic indicators are turning south.  And, finally, the American people are becoming increasingly restless.  One new poll has found that 59 percent of the American people disapprove of Barack Obama’s handling of the economy (which is a new high).  According to another recent poll, 63% of Americans say that they feel “not good” or “bad” about how the U.S. economy is performing. It is not surprising that my buddy, Jimmy Carville is predicting a civil uprising.

The official unemployment rate just went up to 9.1 percent, but that figure only tells part of the picture.

There are some areas of the country where it seems nearly impossible to find a decent job.  Millions of Americans have fallen into depression as they find themselves unable to provide for their families.

According to CBS News, 45.1 percent of all unemployed Americans have been out of work for at least six months.  That is a higher percentage than at any point during the Great Depression. Just two years ago, the number of “long-term unemployed” in the United States was only 2.6 million.  Today, that number is up to 6.2 million.

Can you imagine being out of work for 6 months or more? How would you survive? Do you have enough money in the bank to last 6 months with no income? 89% of Americans don’t. Should I repeat that?

 

So is there any realistic expectation that things will get any better?  Well, there were only about 3 million job openings in the United States during the month of April.  Normally there should be about 4.5 million job openings.  The economy has slowed down once again.  Good jobs are going to become even more rare. Unless we can generate 160,000 new jobs each month, we fail to satisfy new demand. And, that is just NEW demand. It says nothing about existing unemployment. In other words, every new job we fall short of 160,000 is one more added to the unemployment number. So, yes, unemployment is growing. It is not coming down as many in the Obama administration would like to believe.

There are millions of other Americans that are “underemployed”.  All over the United States you will find hard working Americans that are flipping burgers or working in retail stores because that is all they can get right now. Most temp jobs and most part-time jobs don’t pay enough to be able to provide for a family.  And there are not nearly enough full-time jobs for everyone.

Sadly, the number of “middle class jobs” is about 10 percent lower than a decade ago.  There are simply less tickets to the “good life” than there used to be. And without good jobs, the American people cannot afford to buy homes. Without good jobs, the American people cannot even afford the homes that they are in now. And, these jobs are NEVER COMING BACK.

U.S. home prices have fallen 33 percent since the peak of the housing bubble.  That is more than they fell during the Great Depression. 28 percent of all homes with a mortgage in the United States are in negative equity at this point.  There are millions of American families that are now paying on mortgages that are for far more than their homes are worth. Millions of American families literally feel trapped in their homes.  They can’t afford to sell their homes, and they are afraid to simply walk away, because as things stand now, nobody will approve them for new home loans for many years to come.

Many Americans are sticking it out and are staying in their homes until they simply can’t pay for them anymore. As the number of good jobs continues to decline, the number of Americans that are losing their homes continues to rise. For the first time ever, more than a million U.S. families lost their homes to foreclosure in a single year during 2010. As the economy slows down once again and millions more Americans lose their jobs, this problem is going to get a lot worse. WORSE THAN TODAY.

Even if they aren’t losing their homes yet, millions of other Americans families are finding it increasingly difficult to pay the bills. Wages have been very flat over the past few years and yet the cost of most of the basics just seems to keep going up and up. According to Brent Meyer, a senior economic analyst at the Federal Reserve Bank of Cleveland, the cost of food and the cost of energy have risen at an annualized rate of 17 percent over the past six months. Have your wages gone up by 17 percent over the past six months?

As 2009 began, the average price of a gallon of gasoline in the United States was $1.83.  Today it is $3.77. American families are finding that their paychecks are going a lot less farther than they used to, but Ben Bernanke keeps insisting that we have very little inflation in 2011.

Most Americans don’t care much about economic statistics – they just want to be able to do basic things like sit on their porch and have a beer, and take their children to the doctor. According to one recent survey, 26 percent of Americans have put off doctor visits because of the economy. Sadly, soon a lot more American families will not be able to afford to go to the doctor. But, ironically, not because Doctors are earning and charging more, but because Insurance companies are.  Doctor’s wages continue to trend down while Insurance company profits continue to trend up.

As the economic situation has unraveled, an increasing number of people are being forced to turn to the federal government for assistance. One out of every six Americans is now enrolled in at least one anti-poverty program run by the federal government. Some of the hardest hit members of our society have been our children.  Today, one out of every four American children is on food stamps. At the moment, approximately 44 million Americans are on food stamps.

But our federal government cannot afford to spend money like this forever.

According to a recent USA Today analysis, the U.S. federal government took on $5.3 trillion in new financial obligations during 2010.  USA Today says that the U.S. government now has $61.6 trillion in financial obligations that have not been paid for yet. Yes, that is trillion! $61.6 TRILLION.  Who is going to end up paying that bill? I know; you don’t care. And neither do I. What I care about is where my next meal is coming from, and how I am going to afford that next gallon of gas. I suspect you do too.

So with so much bad news and with all economic indicators pointing in the wrong direction, are our leaders alarmed?

According to Federal Reserve Chairman Ben Bernanke, “growth seems likely to pick up somewhat in the second half of the year.” I swear to God, the man is on drugs or has a contract clause that forces him to keep repeating the same mantra, no matter what happens. He, and his buddies in Washington and in your State capitol are part of the same disease. The disease that brings us closer every day to Armageddon.

So, what do we do? I said I would tell you what to do, right?

OK. This may seem silly to some of you, but there is absolutely no reason why we cannot all start a new business that is independent of anyone else and relies only on our own creativity and energy. This is not a plug for Crowdfunding. This is a plug for entrepreneurship.  There are many websites around now that provide the ability to post a project and solicit funds to launch it. Kickstarter, Indiegogo and RocketHub are three American sites joined by several in the UK and elsewhere that facilitate anyone with a dream to test the water in the Crowd for enthusiasm about your project. Here’s an example:

http://www.kickstarter.com/projects/readmatter/matter — Might not be your style? How about this one: http://www.kickstarter.com/projects/1220832022/bloc-socks?ref=popular … or … this one: http://www.rockethub.com/projects/8479-social-action-10-months-in-tel-aviv

The point is that you can, and should … DO SOMETHING! Stop waiting for somebody else to do it for you. Stop looking for a job. Stop feeling sorry for yourself.

Grab some buds, and get a dialogue going around some pet idea that you have had in the back of your mind. Maybe it comes from your frustrations as a single mother, as a cabdriver, as a fireman, a teacher, a bricklayer, whatever. There must be 99 ways to whatever you do better, faster, cooler, bigger or more. You can come up with something that maybe a few hundred other people think is a good idea also.

Then, you can post it on these sites and maybe, just maybe, you will raise enough money to start a little company doing that thing. Maybe it takes off. Maybe it flops. In the meantime, you might raise enough to sustain yourself to get to the second or third idea. You know? The one that really works.

This beats sitting around, feeling sorry for yourself and looking at want-ads, doesn’t it? And, you know that will never work anyway, and all it does is bring you closer to depression. Don’t be that guy. Don’t do the stuff that brings you closer to depression. Start something. It takes zero cash. You can do this.

And, though I realize you really don’t care, it is also the way in which we re-start this country and throw all of the old paradigms about banking and central government out the window. It is up to us now. Let’s do this thing!

 


Classic Case of Fraud in U.S. Regulatory Oversight. Futures Trader Trust is Gone.

PFG (Peregrine Financial Group) follows MFG (MF Global) into bankruptcy. MFG filed 6 months ago in December of 2011. Both companies were Commodity Futures Traders and both were regulated by the U.S. Commodity Futures Trading Commission (CFTC).

It seems like this is the logical and dispirited ending to every fraud: liquidation; and a very sad ending for the 10,000 – 25,000 creditors who will get nothing as a result of this liquidation proceeding.

MF Global, as you might recall, was John Corzine’s (former U. S. Senator, former New Jersey Governor, and former CEO of Goldman-Sachs) company about which he famously said, “I am stunned that we couldn’t find the money”, (hundreds of millions of dollars in client money mysteriously disappeared in the days before the firm’s collapse), and “I have no idea where it’s gone.” And, by the way, Mr. Corzine has not served any prison time nor has he been formally accused of or prosecuted for fraud.

MF Global filed for bankruptcy protection in December of 2011, becoming the first American financial casualty of the European debt crisis. The firm took a gamble in buying the troubled bonds of Italy, Portugal, Spain and Ireland last year, gambling (with other people’s money) that they would soon recover. Bad gamble. $1.6 billion in missing client cash has yet to be recovered by trustees overseeing the liquidation of the firm.

Peregrine Financial Group Inc., on Tuesday filed to liquidate under Chapter 7 of the U.S. bankruptcy code. Missing this time? Over $300 million in customers’ funds.

Russell Wasendorf Sr attempted suicide Monday, July 9. Wasendorf was found in his car with a note, the contents of which the sheriff declined to divulge. A hose ran from the vehicle’s exhaust pipe into the passenger compartment.

“A note was found in the vehicle that indicated possible discrepancies with accounts at Peregrine Financial Group,” according to the sheriff’s report.

Here’s where this story gets interesting: It turns out that Russell Wasendorf Sr. intercepted and forged bank documents for more than two years to cover up hundreds of millions of dollars in missing money, a person close to the situation testified for the record.

Once Wasendorf realized he was caught, and knew the implications of his actions would be exposed for the whole world to see, he tried to commit suicide, and failed. And while crime happens all the time, what is truly stunning is that the CFTC gave the firm a clean bill of health in its January inspection of Peregrine Financial Group. That’s 6 months ago. The CFTC, as a reminder, was it regulator. The entity, whose sole charge is to make sure that firms at least have real, not rehypothecated, cash in their segregated client bank accounts. PFG failed to do so for at least the past two years. And somehow, the CFTC missed this. MF Global was a warning shot, and the CFTC missed it entirely. And not only that, 2 months later, it pronounced PFG clean.

Gary S. Gensler is the chairman of the CFTC.

Gensler was Undersecretary of the Treasury (1999-2001) and Assistant Secretary of the Treasury (1997-1999) in the United States. Barack Obama selected him to lead the Commodity Futures Trading Commission, which has jurisdiction over $5 trillion in trades. Gensler was sworn in on May 26, 2009.

In March 2009, Senator Bernie Sanders (I-VT) attempted to block his nomination to head the Commodity Futures Trading Commission. A statement from Sanders’ office said that Gensler “had worked with Sen. Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of AIG and has resulted in the largest taxpayer bailout in US history.” He also accused Gensler of working to deregulate electronic energy trading, which led to the downfall of Enron, and supporting the Gramm-Leach-Bliley Act, which allowed American banks to become “too big to fail.”

In early November, 2011, Gensler stepped aside from the CFTC’s investigation of the giant derivatives broker MF Global because of his longstanding ties to Jon Corzine, the CEO of MF Global, for whom Gensler had worked while both were at Goldman Sachs.

For the PFG fiasco, and for the failure to adequately investigate MF Global, Gensler has to be fired immediately, with prejudice, and never allowed to serve anywhere in the U.S. government again. Unfortunately, this is only the tip of the iceberg as we will see during the rest of 2012 and all of 2013. 


Obama vs. Romney.

This time around, there is no great black hope, no chanting, “yes, we can.”, no Black-eyed Peas reminding us that the future can be different, if we are willing to elect a reasonable man or woman to the highest office in the land.

This time around, we have seen what 3+ years of a reasonable man can do in that office, and we are deflated, depressed and disenfranchised even further than we were under eight years of the Bush presidency. How could that be even possible?

Did we really just witness 3+ years of congress doing imitations of the ultimate fighting championships, promoted to kill any legislation that Obama was behind, just because he was behind it, regardless of its impact on the American people? Really? I thought the Clinton years were brutal, but those were kindergarten neener-neener nasty compared to this. And, they even included an impeachment.

I really can’t take any more of this. Even the thought of voting for Romney is crazy. Is that what people want? Back to No future III? The Bush years revisited, but with a Republican congress? You like this quarter’s jobs report? You’ll LOVE it under Romney. You like the state of housing? Romney will give you a boner. You like the cost of health care? Romney will make it even higher. You like social programs for those who are in trouble? Forget about it. You like rich guys being protected by the government and helped to get even richer? You will be in heaven.

Do we need to be reminded that our current predicament is the result of eight years of Bush policies? Really?

Deficit spending: higher under George Bush. Military spending: higher under George Bush. National Debt: higher under George Bush. Government employment: higher under George Bush. Pace of the increase in National debt: higher under George Bush. Authorization for  the biggest government handout in history: George Bush.

When Obama took office, the first thing he got to witness was the implementation of the most poorly thought out policy dictate in American history, an $887 billion bailout of the nation’s banks. Obama didn’t get a vote in this. It just was. And, guess what? It wasn’t enough. We needed to bail them out some more. Then, the banks hunkered down and we haven’t seen them since (except when trading derivatives and disclosing over-exposures to European trading partners). Credit? HA! You want credit? You get Yogi Berra credit. You can have all you want as long as you don’t need it. If you need it, you can’t have it.

Then the housing market crashed, but banks didn’t like the way they filled out those pesky loan documents, so they sort of delayed full disclosure on their exposures. Now, we all see their exposures and nobody likes it, especially the banks. Obama said, “Shouldn’t the banks be held to some accountability if we are going to keep them afloat?”, and congress laughed. That boy clearly doesn’t understand how the game is played, does he?

He tried to close Guantanamo like he promised, but congress said, “Hell no, boy. Don’t you understand people don’t want those ‘ragheads’ in their neighborhood prisons?” as if someone actually asked anybody what they wanted? Nope – not how it’s done.

He authorized a (relatively) small bailout for the auto industry and guess what happened? The industry is stronger now than it has ever been, and they all paid their loans back well before they were due. Detroit has jobs now. People are working in the auto industry again. Did you know that? Probably not, because Obama’s message seems to get drowned out in the air waves, or nobody seems to remember how bad it was, just 3 years ago. Or, how scary.

I think, based upon looking at the polls, people don’t remember anything that happened yesterday. This country polls hugely (above 65%) in favor of every component of what is now known as Obamacare, yet when asked whether they approve of Obamacare itself, they poll negative. How can that be? Oh, that’s right. The Kardashian’s are making $40 million a year and have renewed their insane reality show for another five years. Now, it all makes sense.

Obama tries to take credit for ridding the planet of the most dangerous terrorist that ever lived and people pretty much yawn.

What have you done for us lately, I guess? Seemed like a pretty big deal when Bush was in office. Whatever.

Jobs? Obama has clearly failed to create any new ones. But, when he actually does something to try and create new ones, he gets shot down in congress. The JOBS act struggled to get out of a Democratic controlled Senate with major revisions and is now stalled out in the SEC during implementation over petty issues surrounding accreditation of lenders. Come’ on, man! Is this what you people want?

How about at least prosecuting the ‘criminal’ banks? Are you kidding me? Not one banker does any jail time, yet they all played a major part in taking down the world’s financial system as we knew it, and it will probably get much worse. Instead, his AG gets rung up on contempt of congress on some nonsensical ATF screw-up that no one cares about, least of all the guys still looking for work in their 24th month of unemployment.

I mean really. This is what congress focuses on? This is way worse than re-arranging deck chairs while the Titanic sinks.

A couple of inherited wars? Obama ended one and has begun to end the other, meanwhile avoiding the “crazies” in Iran and their brinkmanship. Silly people; they want their own nuclear bomb just like the big guys. Where do they get off? Israel? The peace process grinds along and Obama has done as much or as little to placate all sides as anyone before him, while trying to keep the Israelis in a state of reason.  But, no way is Obama a tough war president like Bush or that Romney guy, both of whom are delighted to send our young men and women into harm’s way, particularly if there is oil or other stuff we want. National security, you know.

Health care? Never mind that he risked almost all of his political capital to usher in the most revolutionary health care reform bill in history, and the people LOVED it (see above), but he also frightened the living skittles out of the insurance companies and lobbyists at the same time. How many times has your health insurance premiums gone up in the last twelve months? There is a reason for that, and yes, we are on the path to a single payer health plan … unless, of course Romney gets elected. In that case, Obamacare will be overturned (though it will be interesting to see how he actually does this) and 33 million Americans can return to having no health care, along with all of the college students now on their parent’s plans for a few more years. Pre-existing conditions? Forgetaboutit.

And then there’s the economy. Give me a break. If this election is won or lost based on the economy, Obama is history. The economy is lousy now, hasn’t improved in the slightest in the last 4 years, and is about to get really bad. The only thing we can be sure of is that we are hopelessly overexposed to Europe, the European bankers are even bigger liars than our own bankers, and when the sizzle finally hits the fan, the US banks and the US economy will be a disaster. The recent jobs report will look the same or worse for the rest of the year. Housing hasn’t budged and won’t, except to fall even further. All of that, we can be sure of.

But, the election shouldn’t be won or lost based on the economy. Generally reasonable people should conclude that no one individual, especially the president of the US, can actually do anything to alter this course, and that many complex factors must resolve themselves before any of this can begin moving in the right direction. Factors that rely on individuals at the levers of power to do things that are in the interests of the general well-being of mankind, as opposed to their own private interests.

Fixing this mess will require that the Fed and Treasury break some rules and force bankers to do truly radical things like forgiving all of the bad mortgage debt, for openers. Stop collecting bad debts. Open their credit drawers to small businesses and returning vets and people who used to have good credit. In other words, pitch in and help.

Our current situation is in many ways, reminiscent of World War II. A small group of evil men determined to wreak havoc on the rest of global society with the fiercest and most treacherous means available at their disposal. But, instead, a few good men stood tall and acted like the statesmen they were, and inspired the rest of us to carry on and fight the good fight. And, they called for immense sacrifice.

We went without – a lot of stuff – for a long time. Rules were broken and changed. There were very few sacred cows untarnished. The future of the world was on the line. And, because of all of that, the people banded together and prevailed.

This election also needs to be about statesmanship and leadership.

We face three major disasters today — the first being fallout from the financial recession of 2008 with respect to the balance sheets of consumers and government entities. The collapse of housing prices destroyed trillions in family assets. The median net worth of families in the United States dropped by 39 percent over a three year period — from $126,000 in 2007 to $77,300 in 2010 — leaving family wealth back where it was in 1992, two decades before.

Second, the housing collapse led to permanent damage to our financial and banking system. Banks are not making normal loans because they still have a lot of bad debt on the books and they are uncertain about future regulatory requirements, and global financial developments. As much as I hate them, they are doing what is right for their shareholders. But, what they are doing is wrong for the world.

And third, our enormous government debt breeds uncertainty. No one has any idea how we can pay this debt down, and especially when Congress continues to do their UFC imitations and seems completely unable to function.

And, we face one huge potential disruptor – the coming financial fallout from the impending collapse of most of Europe and many of their most prestigious banking institutions. This event will create panic, banking disasters, it will plunge the economy even deeper into chaos and cause even greater job loss.

We can avoid all of this, but it will require a summit like no other and leadership rarely witnessed in history. It will require that we throw away all convention and determine to start anew at whatever cost and whatever pain to those most heavily invested. I once asked the head of Levi Strauss’s Jeanswear division why they decided to stop shipping product to China and he said, “The Haas brothers don’t need any more money.” Well, I think that reasoning applies aptly to a lot of people in power today as well.

How can we stop all this?

Whether you’re a Republican or Democrat, Conservative, Liberal or Libertarian, we need to vote for a leader and a statesman. The only man running, who is capable of delivering speeches to raise the spirit and pride of the American people, who is driven by reason and not by politics, who can conjure the presence and will of Roosevelt and Churchill, Kennedy and Lincoln, and who can summon our courage and strength when we will need it most. There is only one who can bring global leaders to a summit and get them to do the hard things that must be done to put a stop to this spiral. There’s only one statesman running, and his name isn’t Mitt Romney.


New Peer-to-peer Lender Enters Space.

RainFin: latest entry into peer-to-peer lending – but, in South Africa.

RainFin intends to disrupt South Africa’s financial services sector by allowing credit-worthy South Africans to engage in peer-to-peer lending, cutting out banks in the process and offering higher returns to lenders and better interest rates to borrowers.

Sean Emery, cofounder and CEO of RainFin, says the company’s online platform links people who need to borrow money with people who have money to lend. He says borrowers can access funds at lower interest rates and with better terms and conditions than they could through a bank.

Emery says borrowers may be able to get interest rates as low as half of those offered by traditional banks. Lenders, meanwhile, can achieve “superior returns” on money they loan to others. He calls it “social lending”, and it fits well with American models that are rolling out this year, in advance of the JOBS act and attendant CrowdFunding bill, though Emery contends social-lending is different.

Lending is making the wrong people rich and the wrong people poor,” says Emery. There’s an important distinction between “CrowdFunding” and “social lending”, he says. The latter is a subset of the former and sees a group of people engaging in transactions while sidestepping traditional intermediaries rather than pooling resources to create a product or fund an event.

In order to use RainFin, consumers must be older than 18 and resident in South Africa. The site employs a thorough credit vetting process, after which borrowers can apply for loans of between R1 000 ($123 US) and R75000 ($9,191 US) using the RainFin marketplace.

These are small, short-term loans. Borrowers can specify the loan amount, the maximum interest they are willing to pay and the loan duration they prefer. The maximum repayment period is one year.

Individual lenders, meanwhile, can invest between R100 ($12 US) and R500000 ($61.275 US) in the service and spread it across numerous loans. Investors are not obliged to lend to groups or individuals, and have access to anonymous credit risk information based on factors such as age, gender, location and credit score.

RainFin earns a percentage-based transactional fee on every loan that takes place. Emery says this makes the costs of the platform “completely transparent” to its users. There is a 2% origination fee charged to the borrower and a 1% fee to lender for managing the transaction. Thus, the service takes 3% of a transaction’s value, added to it.

“We believe that consumers have an opportunity to take back some of the power they have given to banks, benefitting each other rather than large institutions in the process.”

Emery says RainFin intends to add other products to its offering, including financing for small and medium-sized businesses and mortgages in coming months.

The service is aimed at two types of borrowers. The first are highly creditworthy borrowers who want a better return on investment than they get currently.

The second is the first-time borrower or a borrower that is shunned by the formal banking sector because of their age — whether too young or too old — or because they are freelancers, students or entrepreneurs.

At launch, the service is designed to handle up to 100,000 users. Emery says there are no plans to launch the service outside South Africa on account of the banking regulation complexities that it would entail. The service doesn’t require a banking license because it doesn’t take deposits.

“In the same way a real estate agent isn’t a bank, we aren’t either. We don’t take deposits and reinvest them for profit; we merely facilitate the moving of money between people,” says Emery.

Co-founder Hannes van der Merwe says RainFin is not a micro-lender. “We are not trying to extract as much money out of you as we can.” He says one of the challenges the service faced was designing a process that would allow users to engage in a legally binding contract online.

Lenders stipulate the interest rate they are prepared to accept and, in the case of two or more lenders offering the same rate, the first to bid on a loan request wins it. The service warns lenders if it appears a lender is taking on too much of a loan and inadequately spreading their risk on the service.

Van der Merwe says lenders can be kept up to date on new loans coming into the marketplace via Web feeds. Alternatively, the service includes an automatic “bid agent” that will bid on loans that meet specific criteria or notify the lender via e-mail.

Emery says the bulk of the service’s marketing will be done online, as that is where its audience is. “We are focused on using the mediums in which we operate so online, mobile and social networks to start with,” he says.

RainFin is funded by SA capital and went live on Tuesday.