By Danny Schechter:

The Question: As The Feds Broaden A Mortgage Fraud Probe, Will The White Collar Perps Of Subprime Crime Ever Do Time?

New York, May 6: There is a time in the life of every writer when you find yourself fearing that you have become a robo call phone machine—repeating the same message over and over with diminishing results.

That’s how I felt after eight months of silence after labeling the credit crisis a “subcrime” scandal, lashing out at the fraudulent activity at its core and calling for the investigation and prosecution of wrong doers. Almost no media outlets accepted this way of framing the problem, although, as usual, the British press was ahead of its American cousins in putting the blame on the bankers, not the borrowers.

more: http://www.mediachannel.org/

While there plenty of bad news gathering momentum out there, the most frightening picture is without a doubt The Ticking Credit Card Time Bomb:

For those holding out hope that the American economy can miraculously avoid a long and deep recession consumer credit is often viewed as the wonder drug that can cure all manner of economic ills. As such, this week’s report showing $15 billion growth in consumer credit was widely heralded as proof of America’s economic strength and resilience. However, we are now suffering the after effects of too much debt, and our salvation cannot be found in more of the same.

Credit card debt, which now stands at whopping $957 billion nationally (approximately $3,000 for every citizen) has, in recent years taken on a different role in American life. While in the past cards were used primarily to purchase big ticket items, spreading out costs over many months, they are now increasingly used to bridge the gap between cost of living and the diminishing purchasing power of Americans who have been taxed mercilessly by inflation. By buying with available credit instead of unavailable cash, consumers are not simply postponing the pain of higher prices, but compounding it by adding interest to the cost of everyday purchases. In addition, as home equity credit is now unavailable to fund large purchases, many consumers are turning to non-deductible, higher cost credit card debt as the last remaining life line. As such, credit card debt compounds steadily, and for many borrowers, becomes increasingly impossible to pay down…

It is not just us at In Debt We Trust who are getting creepy feelings. Last week on CNN.com there was this article revealing the appalling state of the middle class.

Barely surviving on credit cards. No longer able to turn their homes for cash, Americans are increasingly using plastic to meet their basic living expenses. But many can’t afford to pay the bills… “Other sources of money for a lot of Americans are drying up,” said Dick Reed, regional counseling manager of Consumer Credit Counseling Service of Greater Atlanta, who sees more clients with mounting credit card debts these days. “Consumers just don’t have a place to go to get money. They are digging themselves into a deeper hole not only to pay for normal living expenses, but to make minimum payments on outstanding debt.”…
For many people, racking up credit card debt is not a choice they want to make, experts say. Not too long ago, they could have tapped into the equity in their homes through loans or lines of credit or refinancing. But this debt, which usually carries lower interest rates, is no longer as widely available with the collapse of the housing market. So, faced with soaring costs for food and fuel, people find they must charge more to make ends meet…. more

Keeping an eye on the big picture: The global slump of 2008-09 has begun as poison spreads

Diane Vazza, S&P’s credit chief, says defaults are rising at almost twice the rate of past downturns. “Companies are heading into this recession with a much more toxic mix. Their margin for error is razor-thin,” she said. Two-thirds have a “speculative” rating, compared to 50pc before the dotcom bust, and 40pc in the early 1990s. The culprit is debt. “They ramped it up in the last 18 months of the credit boom. A lot of deals were funded that should not have been funded,” she said. Some 174 US companies are trading at “distress levels”…..

“My guess is that many Americans continue to run up massive credit card debt because they have little intention of paying it off,” said Peter Schiff at Euro Pacific Capital. Quite. Thankfully, the Fed’s monetary blitz has averted a depression. Emergency lending under the “unusual and exigent circumstances” clause of the Fed Act - the nuclear Article 13 (3), unused since the 1930s - has put a floor under the banking system.

There will be no “reset Armaggedon” as rates vault on honey-trap mortgages. Drastic Fed cuts - to 2pc from 5.25pc in September - have conjured away that disaster, at least. One dreads to think what would have happened if Fed liquidationists (Plosser, Hoenig, Fisher) had prevailed, as they did in 1930 - and still do in Euroland, where Germany’s Axel Weber holds sway, and nobody of sense dares lead a mutiny…. more

By Danny Schechter

The official headline for U.S. Q1 GDP growth says a
positive 0.6% growth but the details are ugly and
confirm that we are in a recession.

First of all, if you exclude the increase of inventory
of unsold goods (that moved positive after a negative
figure in Q4) the Final Sales of Domestic Product were
a negative 0.2%. In other terms, inventories of unsold
goods added an artificial 0.8% to Q1 growth boosting
it from a negative 0.2% to a positive 0.6%. So actual
aggregate demand (Final Sales of Domestic Product) –
the actual measure of growth of true demand - fell in
Q1. And this build-up of inventories in Q1 means that
the fall in GDP in Q2 will be larger than otherwise as
firms will have to reduce that large inventory of
unsold goods via a further reduction in production and
employment.

Second, residential investment is in total free fall,
collapsing at an accelerating annual rate of 26.7%.
But GDP figures underestimate the true fall in
aggregate demand as they do not separate residential
investment into true final sales of new homes and into
the unsold inventory of new homes that are produced
and not sold. Thus, all production of new homes is
assumed to be sold in the national income accounts
data. But we know that home sales are falling more
than production of new homes, that cancellation rates
(running at a rate of 20-30%) are not included in the
new home sales figures and that the inventory of
unsold new homes is actually rising. Thus, if the BEA
had correctly measured final sales of domestic
product, by having a separate line for the change in
the inventories of new unsold homes (the equivalent of
the change in business inventories), the figure for
final sales of domestic product would have been even
more negative than the already negative 0.2%, probably
a negative 1.0%. So the national accounts make a
methodological mistake in measuring final sales of
domestic product by assuming that the change in
inventories of unsold housing is always zero,
something that is obviously wrong especially during a
severe housing recession.

Third, now all components of fixed investment
(residential investment, non-residential investment in
structures and capex spending by the corporate sector
(i.e. non residential investment in software and
equipment) are now in negative growth territory. This
is a major difference relative to 2007 when structures
investment and capex spending were significantly
positive. The investment recession is now clearly
spreading from housing to non residential commercial
real estate and to real capital spending by the
corporate sector.

Fourth, since the quarterly GDP figure compare the
average GDP in the first three months of 2008 to the
average GDP in the last month of 2007 even a flat or
slightly falling GDP in some months of Q1 is
consistent with the average being positive relative to
the previous quarter (that is the average of three
growing months). And data on monthly GDP (say from
Macro Advisers) show that GDP started to fall in
February of 2008. This is the typical inertia in
growth figures that comes from looking at quarterly,
rather than monthly, figure. Thus, the Q2 GDP
contraction will be larger than otherwise.

Fifth, both durables goods consumption and non durable
goods consumption grew at a negative rate in Q1. What
boosted an anemic 1% growth in Q1 consumption was a
still positive growth in services consumption. Durable
consumption spending is clearly collapsing (-6.1%) But
the fact that spending on non durable goods is falling
– something that has not happened in decades – is an
ominous sign.

Sixth, the only good news on growth came from net
exports. But with sharply rising oil prices in the
last few months you are going to see a sharp rise in
imports of oil and energy goods in Q2 that will
further depress Q2 growth.

Finally, the NBER does not use the mechanical rule of
two consecutive quarters of negative GDP growth in
determining whether we had a recession or not. The
NBER looks at a variety of economic indicators and
puts more emphasis – among other variables – on
employment and labor market conditions. We do know
that employment in the private sector has now fallen
for four months in a row and that overall non-farm
employment (including the government employment) has
fallen for three months in a row. So I do expect,
leaving aside possible future downward revisions in
the Q1 figures, that the NBER will eventually date the
beginning of the 2008 recession to the first quarter
of 2008.

Yes, you read well… and if we’re lucky “deep recession” is a mild terminology. The worse case scenario is the “D” word - like depression.

Whie this is true that we do not have to become paranoid every time somebody is ‘crying wolf’, this time we’d take it very seriously because the fundamentals say so.

Let’s take a look at them:

04/04/08 - Reuters: U.S. government bonds are the most overvalued assets in the world and it is tough to justify them as an investment given the level of inflation expectations, the manager of the world’s biggest bond fund said on Friday…

04/11/08 - NYTimes: Mr. Soros has always been a controversial figure. But he is becoming more so with a new, dire forecast for the world economy. Last week he rushed out a book, his 10th, warning that the financial pain has only just begun. “I consider this the biggest financial crisis of my lifetime,” Mr. Soros said during an interview Monday in his office overlooking Central Park. A “superbubble” that has been swelling for a quarter of a century is finally bursting, he said.

04/09/08 - Businessweek.com: Forecasting the stock market is a fool’s game—but there are grounds to believe there’s another drop in the market yet to come. The reason: a broad decline in consumer spending, which so far has been masked by a quirk in the government’s statistics. Combine that with a rapidly unraveling job market, high energy prices, and the continuing credit crunch, and you have the recipe for a drop in consumer stocks. A big decline there could take the rest of the market down with it..

04/08/08 - Reuters: The Group of Seven warned Friday the global economic outlook was weakening and said banks should adopt steps to ‘fully and promptly’ reveal their risk exposure due to the current financial market turmoil within 100 days.

On the top of that, today, the US banks Citigroup and Merrill Lynch revealed fresh $15bn loss… how many more Titanics out there?

It doesn’t bode well, does it? You are free to believe what you wish but to us the prospects of a 25 year depression, is absolutely meaningful.

Speaking at the Reuters Hedge Fund & Private Equity Summit in London, Hugh Hendry, Chief Investment Officer of Eclectica Asset Management, said financial stocks were set to fall further after the credit crisis burst a 16 year bubble in their prices last year…. When a bubble is created in a sector’s stocks, which sees their weighting dominate the index, it typically takes a generation, or around quarter of the century for them to recover to their pre-bubble levels, he said… (Reuters - 04/09/08)

send us your comment to: indebtwetrust(at)gmail.com

Major headlines today and simply shocking.

Some US banks face failure as credit problems mount-RBC
Mon Apr 7, 2008 (Reuters) - During the next two to three years, U.S. bank failures will likely increase dramatically from the low levels recorded from 2004 to 2007, as credit problems mount for the industry, a RBC Capital Markets analyst said. “We anticipate upwards to 150 banks will fail over the next two years. Banks that deplete their capital through rising credit losses are most vulnerable to failure,” Gerard Cassidy said.

He said credit problems at U.S. banks are expected to worsen throughout the year from existing levels and are unlikely to peak until sometime next year, also noting that widespread housing deflation will put further pressure on the economy. “As we move deeper into 2008, we expect to see economic growth grind to a halt with recessionary pressures mounting as the year progresses,” Cassidy said, recommending investors “underweight” the bank sector.

Let’s take a deep breath in now…

Fitch: Bank systemic risk still rising; global credit growth falling
April 8, 2008 - Fitch Ratings, in its latest semi-annual “Bank Systemic Risk report” issued recently, says that banks worldwide face an increasingly challenging operating environment. Bank systemic risk continues to rise, the US and Swiss banking systems have weakened due to the US subprime crisis, and a sharp fall in global credit growth is underway. “Large, global banks in several major developed countries have been hardest hit by the US subprime crisis, marking this crisis out from more familiar, country-specific banking crises,” says Richard Fox, Senior Director in Fitch’s sovereign team. “The US and Swiss banking systems have been toppled from their top, ‘very strong’ ranking based on Fitch’s Banking System Indicator. But this still leaves them on a par with most developed country banking systems which remain ’strong’. In the US, losses and writedowns to date, while still mounting, fall well short of aggregate system capital - a conventional measure of the severity of a banking crisis. But global real credit growth is forecast to slow sharply to 9% this year, from over 14% last year, and leading indicators of potential stress are flashing in more emerging market regions.”

The fall in the US Banking System Indicator (BSI) to ‘B’ from ‘A’ reflects Individual rating downgrades for over 30 banks and bank groups since October. “Fitch expects ratings pressure to remain for the remainder of 2008, but a further decline in the BSI is not envisioned,” says James Moss, Managing Director of Fitch’s North American Financial Institutions team. “The largest US banks have raised in excess of USD60bn in new capital to date, often in amounts representing 10% or more of a firm’s capital base.”

We can indeed understand why the Federal Reserve is getting nervous…

Fed Officials Worried About Recession - april 8, 2008 WASHINGTON (AP) — Worries about a deep recession drove Fed policymakers to slash a key interest rate last month, minutes of their closed-door meeting show. Even as the Fed battled in almost unprecedented fashion to stem a widening credit and housing slump, some Fed members fretted over the possibility of “prolonged and severe” business downturn. It was in that environment that they vote — with some dissent — to cut this important interest rate by three-quarters of a percentage point to 2.25 percent. That action capped the most aggressive Fed intervention in a quarter-century. Some Fed policymakers thought that such a widening recession could not be ruled out given the further restriction of credit availability and “ongoing weakness in the housing market,” according to the meeting minutes that were made public Tuesday…

Bear in mind…
US Subprime Crisis to Claim 200,000 Bank Jobs

Distinguished law scholar Elizabeth Warren teaches contract law,
bankruptcy, and commercial law at Harvard Law School. She is an outspoken critic of America’s credit economy, which she has linked to the continuing rise in bankruptcy among the middle-class.
http://www.youtube.com/watch?v=akVL7QY0S8A&eurl

It ain’t over yet until it is over.
Faced with a growing number of homeowners walking away, even sometimes with their pet still inside, banks are so overwhelmed that they have found a new way to handle the crisis.

April 4 (Bloomberg) — Banks are so overwhelmed by the U.S. housing crisis they’ve started to look the other way when homeowners stop paying their mortgages. The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on. Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody’s Economy.com, a unit of New York-based Moody’s Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.

Of course whatever solution being implemented right now is only designed to prevent the bubble from popping further. Even if the market is broken for at least one decade, the only solution is to rewrite these mortgages. But we have heard from the pundits themselves, no measures are being taken seriously for the people. Bailouts are for financial and brokerage firms only. In short, the Bankers who caused the crisis are perpetuating it..

It’s ironic that the industry that caused the housing crisis in America is refusing to allow it’s high end debt to be discharged in a Bankruptcy Proceeding. Granted, filing for bankruptcy protection is not the cakewalk it once was but if you are going to have to file you should not have the reason you are having to file excluded from being discharged…the home mortgage.
This exclusion is the result of a cozy little lobbyist relationship between the American Bankers Association and Congress. It’s the same sort of thing that spending 95 million dollars got them in the new Bankruptcy Act. Only in America can you lobby as a crack dealer for protection of your proceeds. It has to be the greatest slight of hand trick in American Business. If you aren’t clear who controls Congress then look at how quickly the bankruptcy relief provisions for mortgage holders has been defeated…

It is about time that “We The People” begin to voice our outrage. It is not because 15% of the population are getting rich and richer daily that the rest of it must feel bad and think of itself as dumb and idiotic. Today there is one Forbidden Financial Topic: America runs its finances like a crack addict. It is because Congress gave the impression to be able to convert debts into wealth that consumers followed the same steps. Unfortunately everybody is going to realize soon that the philosophical stone is a fairy tale for alchemists.

Great Depression questions resurface amid current economic conditions, just as they have during other downturns, Chicago Tribune declared as of 03/24/07

Fears resurface amid latest turmoil, as they have during previous downturns, but parallels are few and regulation has changed… (but further we read)…. HOLC took over 1 million mortgages in default starting in 1933, worked to keep the owners in their homes and made new loans to strapped mortgage holders. When the agency was finally liquidated in 1951, it even returned a small profit to the U.S. Treasury….

Who is wrong… who is right, would you ask?

Although many people perceive capitalism as the root cause, it is about time to stop socialist bailouts in order to really understand what is really going on. The absolute is that no law can fix a “failure to deliver”. Politicians and monetary scientists have spent centuries to make us believe in their magic tricks. Meanwhile, the US dollar is headed for a deep bottom and that’s the reality.

If you are in a philosophical mood, we definitely recommend The Fable Of The Deserted island

.. Whether your deserted island is your college dorm room, a transnational megacorporation, an apartment in a big city, your automobile, a wide-bodied jet, your television set, your personal computer, or an Internet blog, there is but one fundamental question: “How can I die happy?” Your answer will determine how you live and whether or not your life has meaning…

Dear Readers: This could be gloomiest day of the month. And here is why… As of March 19, 2008, CBSmarketwatch ran one of the scariest headline ever: The Great Unwind has begun:

As markets and economies de-leverage across the globe, investors should avoid companies and countries that have grown to rely too much on borrowed money, they said. That means favoring public-equity markets over hedge funds, private-equity and real estate, while leaning toward emerging market countries and away from developed nations like the U.S., the bank’s global equity strategy team advised. Within equity markets, the financial-services should be avoided because it’s still over-leveraged, while other companies have stronger balance sheets, the strategists said….. “The banks have a long way to go,” the strategists said. “We would continue to avoid the sector while they are de-leveraging.” Other companies are in much better shape, having rebuilt cash from strong earnings since 2003…. However, even though some companies may not have much debt themselves, they may be exposed to over-leveraged customers or highly leveraged investors, Citigroup warned…. “Similarly, many hedge funds have generated healthy uncorrelated returns by adopting cautious underlying strategies, but applying significant leverage. Again, that looks unsustainable in the current environment.” Leveraged economies, like the U.S., should also be avoided, in favor of emerging market countries, which have reduced borrowing, the bank advised….

Well, thank you Citigroup for finally acknowledging that the world credit crisis resulting from lenders’ own criminal doings in the first place has entered its last phase, which reminds us of the Shades of 1929.

The debt orgy is coming to an end. It only is a matter of time… not ‘if’ but ‘when’.

Unfortunately, the recent tax “rebates” implemented to stimulate the economy and the socialist Wall Street bailout will not address our ever growing triple deficits. Nevertheless, the stockbrokers and Co whose machinations brought upon us the day of reckoning will be enjoy driving their ‘ferraris-porsches-lmaborgini-mazerattis‘ for a while longer and at our expenses - rest assured!
But it would be unwise to throw more oil onto the fire. Let’s analyze another fact mentioned by Robert Novak in his editorial Finance’s “New Day”.

The Federal Reserve’s unprecedented bailout of Bear Stearns was crafted not at the White House or Treasury, but in secret by a New York central banker whose name is unknown to Washington power brokers and was a Clinton administration presidential appointee..

America was conned - who will pay? Larry Elliott, working for the guardian.uk, asks

Indeed - Where does it leave us?

Fixing the mess and to prevent it from happening again is a non-partisan issue that goes beyond the future of America. It is the entire world that is shaking and could be crumble down completely at any moment.

Please do not miss any in depth reports by Danny Schechter, for further info.

send us your comment to: indebtwetrust(at)gmail.com

Today, Reuters ran an article whose headline gave us the creeps: Bank-to-bank lending freezes; bankers ask “who’s next?”

… In an effort to minimize the fallout and in conjunction with the fire sale of Bear Stearns to JP Morgan, the Fed on Sunday cut its discount lending rate by a quarter percentage point to 3.25 percent and announced another series of liquidity measures. But with concerns about whether other firms may meet a similar fate to Bear Stearns, nerves on every trade were jangled.

“It’s quite illiquid this morning. If you want unsecured cash you’re really going to have to pay up for it. It’s really quite an intense situation,” said Calyon analyst David Keeble. Banks led the losers as stock markets lost more than 3 percent. UBS, Royal Bank of Scotland and Barclays all fell more than 8 percent. HBOS and Alliance & Leicester slid more than 11 percent. Shares in Lehman Brothers dropped 34 percent before the opening bell on Wall St. “There’s turmoil in all markets after Bear Stearns,” said BNP Paribas strategist Edmund Shing. “Everyone’s asking: Who’s next? Is there a Bear Stearns in Europe? Could investment banks start to fail?” … But International Monetary Fund chief Dominique Strauss-Kahn said the global financial markets crisis was worsening and risk of contagion was increasing. With the dollar sliding to record lows, traders said currency options markets were seizing up too, another reflection of the state of panic and fear that appears to be dominating all financial markets…

The scariest assessment was most likely that issued by Greensopan himself in the FTimes:

We will never have a perfect model of risk:The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities… The American housing bubble peaked in early 2006, followed by an abrupt and rapid retreat over the past two years. Since summer 2006, hundreds of thousands of homeowners, many forced by foreclosure, have moved out of single-family homes into rental housing, creating an excess of approximately 600,000 vacant, largely investor-owned single-family units for sale. Homebuilders caught by the market’s rapid contraction have involuntarily added an additional 200,000 newly built homes to the “empty-house-for-sale” market… The pace of liquidation is likely to pick up even more as new-home construction falls further. The level of home prices will probably stabilise as soon as the rate of inventory liquidation reaches its maximum, well before the ultimate elimination of inventory excess. That point, however, is still an indeterminate number of months in the future. The crisis will leave many casualties. Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress…

Considering the magnitude of the crisis, one question comes to mind: since we are flirting with a turmoil unseen since 1940 and which could translate into a Greater Depression, where is the point to have central bankers managing our economy? Where those big degrees from Harvard and Co lead us in the end?

Too big too fail is a myth… Like Others Before It, Bear Seen Too Big To Fail: who had guessed it among the mainstream pundits. (CNN/03.14)… The ultimate final word is painful. In The telegraphy.uk didn’t mince its words: A world addicted to easy credit must go cold turkey…

When, several years from now, economic historians tot up the final casualty list, a trail of destruction will stretch from mobile homes in America’s Budweiser belt to the council estates of fish-and-chip Britain. The credit crunch travels with alarming ease… Be under no illusion, Friday’s dramatic events in New York were neither an aberration nor confined to the surreal world of investment banking. The pain will be lasting and felt by millions who had no idea they were playing with financial fireworks… For too long, those who warned that the borrowing bubble would burst with terrible consequences were dismissed as congenital gloomsters. Greedy lenders, their irresponsible customers and incompetent ministers formed an unholy alliance to perpetuate a myth: that consumers, companies and governments could keep spending more than they earned and suffer no penalty…

send us your comment to: indebtwetrust(at)gmail.com