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PostPosted: Wed Sep 24, 2008 6:51 pm 
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Too Little Too Late


Last week, Treasury Secretary Paulson and Fed Chairman Ben Bernanke faced Congressional leaders with a reported forecast that we are “literally days away from a complete meltdown of our financial system.” Apparently, the politicians were stunned into a long silence and emerged willing to do whatever the Administration’s had in mind.

If citizens across the country could glimpse the horror seen by the Congressmen (of which we have long warned), then widespread panic would truly be the order of the day. In particular, people will be shocked to see how Paulson’s seemingly vast request to Congress for some $1 trillion is utterly dwarfed by the likely problem.

Of course, Paulson does not want to scare Congress. So he has offered them his own version of a teaser mortgage rate of just $1 trillion. The true figure will only kick in later, like one of the adjustable rate mortgages that tempted millions of optimistic home buyers. Once Congress is locked in to a “blank check”, the funds will keep rolling until the presses run dry!

To put the problem into perspective, let’s just consider some base statistics.

The publicly issued debt of the Unites States was, until very recently, a massive $5.3 trillion. The total debt, including non-public IOU’s and unfunded obligations including social security and Medicare, is now a staggering $50 trillion! The total annual wealth generation, or GDP of America, is some $14 trillion.

Contrast those figures with the current debt problem ascribed to the reckless pursuit of predatory lending. Incidentally, predatory lending was made illegal in most states until overridden by President Bush to protect Wall Street profit opportunities.

The U.S. mortgage holdings are some $14.8 trillion, including some $3 trillion of commercial mortgages. Local government debt is some $3 trillion. But, even these gigantic figures pale in comparison beside the $20.4 trillion of consumer and corporate debt. Therefore, the total of non-Federal Government debt is some $38 trillion!

Of course, not all of it will default. All things being equal, possibly only a small proportion will fail, at least initially. But today, all things are not equal. We know that we are heading into a recession. This means that increasing amounts of debts will default.

The main problem is that predatory lending incurs a high default rate. So if only 10 percent of outstanding loans default, the Government will have to raise some $4 trillion, or more than 5 times what Congress is being asked. It will increase the U.S. Government public debt by some 80 percent.

This will threaten the triple-A credit rating of American Government debt. It will also ‘crowd out’ corporations and entrepreneurs from crucial debt funding. Finally, it will put upward pressure on interest rates at precisely the time when lower rates are called for to avoid recession slipping into depression.

If the economy moves into a severe recession and then depression, default rates will explode. These, in turn, will cause stock markets to implode, as they did in 1929. In addition, the U.S. dollar is likely to plummet, driving up the trade deficit in the longer term. Considering these factors, many of which the Government prefers to hide, things look bad - very bad.

It does not take a rocket scientist to see that we face a very serious situation and that the $1 trillion Paulson rescue plan, although well intentioned, is far too small and too late to avoid disaster. So what should investors do?

An old maxim is that, gold makes sense when nothing else makes sense. Today, not much does make sense. Gold is likely to explode, at least in the initial stages of panic. In a recession, cash becomes a King. In a depression, gold is an Emperor.

In the current panic, many investors are jumping on U.S. Treasury bonds as a perceived life raft. But teetering on the shaky foundation of U.S. dollars, T-bonds are a trap to be avoided. As the U.S. dollar is likely to erode fast, the sovereign debt of countries with strong currencies, such as Swiss francs, are attractive, even with a negative yield.

In these precarious times, think return of capital, not return on capital.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff's book “Crash Proof: How to Profit from the Coming Economic Collapse.”


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PostPosted: Wed Sep 24, 2008 7:13 pm 
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Tread lightly and thoughtfully
Events continue to move at a fast and furious pace. I don't think we've seen the last of startling actions. As for the investment ramifications of all of this action and potential future action, I think folks need to understand that amid the crosscurrents and head fakes, the potential to make mistakes is going to be extremely high. Probably the fewer decisions made right now, the better.

However, all decisions should be made with the expectation that the economic and financial environment will get far worse.


My friend Bill


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PostPosted: Thu Sep 25, 2008 7:23 am 
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Yikes. This is good to know. I was considering having some painting done and perhaps my basement finished. But now, knowing this, I'll definitely hold off. No need for those kinds of discretionary expenses in these seriously troubled economic times.


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PostPosted: Sat Sep 27, 2008 6:56 pm 
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Location: HVE - The original Cranberry "B"
LG wrote:
williamb is on spot, I have been telling my circle of friends this for over a year and everyone just seems to have their head in the sand. I cant believe that people are still purchasing houses at these inflated prices :?


We still need these buyers out there. Crashes usually happen when all buyers pull out and the sellers are forced to off-load property by slashing prices.

Tell your friends to keep buying :) It's good for all of us who currently own homes :)


Last edited by Zee-Shan on Wed Oct 22, 2008 7:25 pm, edited 1 time in total.

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 Post subject: outlook
PostPosted: Wed Oct 01, 2008 2:45 pm 
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From Peter schiff


The bottom line is that there is no way to resolve our economic problems without a severe recession, and our politicians need to level with the public. As a nation, we gambled on the alluring riches of real estate and we lost. The price must be paid. Contrary to the Bush Administration rhetoric, the fundamentals of our economy are not sound. If they were, we would not be in this mess. Recessions are meant to restore balance, purge excess, and liquidate mal-investments. On that score we have a lot of work to do.

We are being told that this plan will help the economy by keeping the spigots of consumer credit flowing. However, to really address the fundamental problems, those spigots must be tightened. Since we have already borrowed and spent ourselves into bankruptcy, the last thing we need is for consumers to borrow more.

Our leaders maintain that without this bailout consumers will not be able to borrow money to buy cars. So what is wrong with that? We already have plenty of cars, and if we are broke, why do we need to buy more? Instead, we need drive our old cars longer, pay off our underwater auto loans, and produce more cars for export. It is also argued that without access to credit parents will not be able to borrow money to send their kids to school. That’s fine by me as it will force Universities to reduce tuitions to levels families can actually afford. They will either have to cut out all of that bureaucratic fat, or go out of business for lack of customers.

In the end it is impossible for the American economy to be rebuilt on a sounder foundation of savings and production without a lot of economic pain. Government efforts to reinforce the shaky foundation of borrowing and consuming will result in the entire structure falling down around us.


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PostPosted: Thu Oct 02, 2008 8:43 am 
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JOBS AND THE LOOMING DEPRESSION...


U.S. jobless claims hit 7-year high


WASHINGTON–New applications for unemployment benefits rose slightly last week to a seven-year high due to a weakening economy and the impact of Hurricanes Ike and Gustav, the Labor Department said Thursday.

The department reported that initial claims for jobless benefits increased by 1,000 to a seasonally adjusted 497,000. That's significantly above analysts' estimate of 475,000. The total is the highest since just after the Sept. 11 terrorist attacks seven years ago.

U.S. stock futures declined on the report. Dow Jones industrial average futures dropped 102 to the 10,785 level, pointing to a lower opening for shares.

The hurricanes, which hit Texas and Louisiana earlier this month, added about 45,000 claims from the two states for the week ending Sept. 27, the department said.

The hurricanes have led to higher claims for several weeks. As a result, the four-week average of claims, which smooths out fluctuations, jumped to 474,000, up 11,500 from the previous week.

In the week ending Sept. 20, Texas reported a 22,235 jump in claims, while Louisiana said claims rose by 9,671.

The number of people continuing to receive benefits increased to 3.59 million, up 48,000 and higher than analysts' estimates. That's the highest total in five years.

Jobless claims are at elevated levels even excluding the hurricanes. Weekly claims have now topped 400,000 for 11 straight weeks, a level economists consider a sign of recession. A year ago, claims stood at 324,000.

The economy is struggling with the financial crisis and slowing consumer spending, leading to increased layoffs by the nation's employers.

Economists expect a separate Labor Department report Friday on payrolls to reflect further weakness in the labor market. They predict the report will show that the nation's employers cut 100,000 jobs last month. That's on top of 605,000 jobs that were eliminated in the first eight months of this year.

The report is expected to show that the jobless rate remains at 6.1 percent. The rate jumped above 6 percent for the first time in five years in August.

The financial crisis will likely cause greater job cuts in the coming months. Several large, troubled banks have been bought by competitors and layoffs are likely.

Citigroup Inc. on Monday purchased Wachovia Corp., which had about 120,000 employees. JPMorgan Chase & Co. last week bought Seattle-based Washington Mutual, which employed roughly 43,000.

Several companies have announced layoffs in the past week, including aluminum company Alcoa Inc., auto retailer CarMax, Inc. and chicken producer Pilgrim's Pride Corp.


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PostPosted: Thu Oct 02, 2008 8:17 pm 
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I'm sorry, but there is no way that Canada is just going to crash like the Americans.

Canada has not been lending money like the United States. The reason why the United States housing market crashed is because in the States, you did not have to prove your income to get a loan for a home. All you required is a letter from your employer. In Canada you have to prove by providing T4 slips. There is a huge difference in how Canada approves mortgages and how the Americans gives their money away.

Canada and the rest of the world will be hit a little bit, like 2001-2002. No big slump.

To think we will be in a huge depression is crazy. Ya, the Americans owe lots of money, but don't you think someone like Japan, will come buy pieces of America. Just because America is broke does not mean everyone else is.

It's like saying I over spent on my house so I will loss every thing. Now, because I was a crazy business owner and I spent all my equity on war items to store in my garage with my tank of oil. All my neighbors will loss everything too.

That ridicules, do you believe nobody would want to by my war stuff or tank of oil or my business's that I own. Sooner or later I would be forced to sell them at less then 1/4 of the price.

Well guess what News Flash... The States no longer the ruler, of the world.
Japan has money, they are just waiting for there opportunity to pounce. Do you really think they will not start buying parts/business from the states.

Do you believe that instead of buying pieces of the states at a fraction of the cost, Japan and the rest of the world will choose go into a 1900 Depression with the States.

I do not believe this will happen.


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PostPosted: Mon Oct 06, 2008 7:11 pm 
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Liquidity is in the Eye of the Holder


We are being told loudly and repeatedly that the gargantuan mortgage bail-out package is necessary because illiquid mortgage-backed securities are clogging our financial arteries, threatening the economic equivalent of cardiac arrest. The idea of the plan is to transfer these supposedly valuable, but currently unmarketable, assets to the government so that private institutions can freely lend once more. The monumental flaw in this argument is that the mortgage backed securities are in fact highly liquid, just not at the prices the owners would like to receive.

Mortgage bonds are just like houses. They won’t sell if the owners stubbornly refuse to drop the price. However, they can find buyers if they acknowledge reality, and lower their expectations accordingly.

The government tells us that if these assets are held to maturity their full value will eventually be realized, and that it is only because of a lack of current liquidity that their value is not reflected in the market. However, as many private transactions have shown us in recent months, these assets will find buyers at the right price. These are not overly exotic assets but relatively straight forward mortgage obligations. The inability to find buyers is not a function of liquidity but simply of price. The government is seeking to “create liquidity” by overpaying.

The government’s assumptions about the “held to maturity” value of these mortgages completely understate the likelihood of widespread default. Some of the “illiquid” assets represent tranches of mortgage-backed securities that will be completely wiped out. Even the higher quality tranches will suffer severe losses due to mortgages that will inevitably go bad.

For example, take a $500,000 adjustable rate mortgage on a condo in Las Vegas that has a current value of only $250,000. To assume that this asset can be safely held to maturity is absurd, when in all likelihood the borrower will default shortly after the rate re-sets, even if the borrower has not yet shown signs of distress. Of course such a mortgage would be completely illiquid if one tried to sell it anywhere near par, but would be extremely liquid if priced to reflect a more realistic value; say 35 cents on the dollar. But if the government pays prices that fairly factors in likely defaults, it will bankrupt the very institutions it is trying to bail out.

Another factor that has not yet been considered is that that the government has already indicated that it will try to avoid foreclosures by reducing the principal and interest rates on the loans it acquires to levels current homeowners can afford. This will immediately eliminate the delusion of the government recouping its “investment” as even if held to maturity the mortgages will never be worth anything close to what the government pays.

Also missing in the discussion is the concept of the time value of money. Even if a substantial percentage of the $700 billion is eventually recovered, it will still represent a huge loss for taxpayers who theoretically have to come up with the cash today to buy the mortgages. Further, the inflationary nature of the bailout ensures a substantial rise in long term interest rates. This will further suppress the present values of the low coupon mortgages the government will be restructuring.

The moral hazard implicit in the government’s willingness to re-write troubled mortgages ensures that the plan will spark a wave of new delinquencies by borrowers looking to cash in on the windfall. Since troubled loans will no longer be foreclosed by lenders but instead sold to the government, the rational choice for many homeowners will be to stop making their mortgage payments and wait for a better deal from the government. This reality will eventually push the cost of this bailout well above $2 trillion.

In addition to the government bailout, distressed lenders are looking to the suspension of “mark to market” accounting rules as a means of salvation. These rules require institutions to value their mortgage assets according to the most recently traded price. However, suspending these rules will not make the losses go away. Rather it will simply allow lenders to pretend that the losses do not exist.

Armed with such fantasies, banks could pretend that their mortgage assets had more value, and that their balance sheets were well capitalized. They would not need to raise more capital in order to fund new loans. But, just as a person with no sensitivity to pain runs the risk of catastrophic injury, such a move would encourage financial institutions to take greater risks which, in the end, will produce more bankruptcies and greater losses.

In fact, the Senate version of the bailout bill, which authorizes a suspension of mark- to-market, also increases the dollar limit on FDIC insured deposits from $100,000 to $250,000 (with no extra money budgeted to fund the increased taxpayer liability). Only in Washington would a bill pass which simultaneous makes banks more likely to fail while increasing taxpayer exposure when they do!

peter schiff


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 Post subject: great comment below
PostPosted: Mon Oct 06, 2008 7:14 pm 
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Privatize the profits and Socialize the losses










Today is the day whatever form of crony capitalism we had was lost. King Geroge Bush has now decided to Privatize all profits and Socalize the losses.

Where was Chimpy Bush during this run up? He was signing the praises of an "ownership society". Meanwhile the fat cats on Wall Street were being paid BILLIONS in bonuses.

Now we the American taxpayer must foot the bill for this mess, while the richest of the rich get to walk away with all the profits. $1 trillion to $2 trillion will be the price tag for the bailouts of Bear Stearns, Fannie Mae, Freddie Mac, AIG, actions by the Treasury and Fed and the cost to run and step up RTC2.

Welcome to the USSRA!


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PostPosted: Tue Oct 07, 2008 3:15 pm 
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i emplore everyone to read the above article and take action,

a market crash is imminent and unlike previous crashes, this one will be different, and will not recover for yrs, how many yrs, its to early to tell, but you will have to look at the total losses (to large for even Carl sagan to comprehend)in the financial sectors and estimate the amount of time it will take to recover those .

oh by the way, the sky is falling

DOG is a great hedge


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 Post subject: love that last line
PostPosted: Tue Oct 07, 2008 3:20 pm 
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Financial crisis begins seeping into all corners of Canada's economy

Oct 07, 2008 04:30 AM
Comments on this story (2)
Brett Popplewell
Business Reporters
Chris Sorensen

George Goutzioulis has been selling thousand-dollar bottles of wine to Bay Street's high rollers for 32 years. Not any more.

"They're not coming in," said Goutzioulis, long-time owner of Tom Jones Steak House – a high-end downtown eatery that caters to some of the city's most important financiers. "They're all just sitting watching the ticker tape."

Yesterday, just as the ticker showed a 1,200-point loss, the Toronto stock market's biggest intraday drop on record, Goutzioulis's restaurant was virtually empty. The market later came back, but Goutzioulis wasn't optimistic the high rollers would follow.

"On a good day, when a guy makes a killing on the trading floor, he'd come in and celebrate with a very, very expensive wine," he said.

"Now, they're buying a glass of house red."

Goutzioulis's business is just one reflection of the global financial crisis that is now seeping into the Canadian economy. Others include falling oil and raw material prices, declining air travel, slumping sales of wireless gadgets, and real estate agents wondering where the next commission will come from.


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 Post subject: Re: love that last line
PostPosted: Tue Oct 07, 2008 3:53 pm 
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williamb wrote:
Financial crisis begins seeping into all corners of Canada's economy

Oct 07, 2008 04:30 AM
Comments on this story (2)
Brett Popplewell
Business Reporters
Chris Sorensen

George Goutzioulis has been selling thousand-dollar bottles of wine to Bay Street's high rollers for 32 years. Not any more.

"They're not coming in," said Goutzioulis, long-time owner of Tom Jones Steak House – a high-end downtown eatery that caters to some of the city's most important financiers. "They're all just sitting watching the ticker tape."

Yesterday, just as the ticker showed a 1,200-point loss, the Toronto stock market's biggest intraday drop on record, Goutzioulis's restaurant was virtually empty. The market later came back, but Goutzioulis wasn't optimistic the high rollers would follow.

"On a good day, when a guy makes a killing on the trading floor, he'd come in and celebrate with a very, very expensive wine," he said.

"Now, they're buying a glass of house red."

Goutzioulis's business is just one reflection of the global financial crisis that is now seeping into the Canadian economy. Others include falling oil and raw material prices, declining air travel, slumping sales of wireless
gadgets, and real estate agents wondering where the next commission will come from.


I do not know where you are getting this information, but it is completely false.
I am in the high end restaurant business and customers who order bottles of very expensive wine will never order a glass of house wine, because they are suddenly on a budget. These people that you are referring to, order $250 to $2500 bottle of wine are suddenly ordering a $10.00 glass? LOL Your funny...


Last edited by justagirl on Tue Oct 07, 2008 8:17 pm, edited 1 time in total.

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 Post subject: Re: love that last line
PostPosted: Tue Oct 07, 2008 4:11 pm 
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Opps double posted


Last edited by justagirl on Wed Oct 08, 2008 4:04 pm, edited 2 times in total.

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PostPosted: Tue Oct 07, 2008 4:29 pm 
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go back to sleep


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PostPosted: Thu Oct 09, 2008 7:46 pm 
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ALL RISE

The guru has entered the room

ASSUME CRASH POSITION

PUT YOUR HEAD BETWEEN YOUR LEGS AND KISS YOUR ASS GOODBYE

ALL RISE

THE GURU HAS LEFT THE BULIDING


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