More Evidence To Let Banks Fail

Inquiring minds are reading yet another piece of evidence that banks should have been allowed to fail. The NYTimes’ article shows how new companies are stepping into the breech to fill the needs of lending:

Amanda Keppert is convinced that she would have lost Mandy’s Korner, her hot dog stand in San Jose, Calif., if she had not received a type of loan that is more common in the third world than in the United States.

Last year, as fewer people ate out and layoffs mounted in Silicon Valley, sales plunged more than 60 percent at the once-thriving Mandy’s Korner. “My business was drowning and I was afraid it would go under,” Ms. Keppert said. While she picked up catering work at a local concert site, it wasn’t enough to pay her expenses. She had invested all of her savings in the business, and she did not want to see it go under.

But her loan applications were rejected repeatedly at banks in San Jose. Then she found Opportunity Fund, a local microlender that has teamed up with, one of the best-known international microlenders. Kiva, which has lent more than $150 million in 53 countries, had just begun a pilot program lending to business owners in the United States.

Through Kiva, Ms. Keppert obtained a $6,500 loan that she has three years to pay back and that carries a 6 percent interest rate. She used the money to buy an ice maker, a generator to save on propane costs and large signs to advertise her business.

The rest of the article is very informative on what is happening in “small” lending and should be must reading.

Foreclosures up in 75 pct

Inquiring minds are looking aghast at the new data showing US metro foreclosures are up 75%. And that means people on the edge, wishing for price appreciation, are seeing their hopes dim well:

Foreclosures rose in three of every four large U.S. metro areas in this year’s first half, likely ruling out sustained home price gains until 2013, real estate data company RealtyTrac said on Thursday.

Unemployment was the main culprit driving foreclosure actions on more than 1.6 million properties, the company said.

“We’re not going to see meaningful, sustainable home price appreciation while we’re seeing 75 percent of the markets have increases in foreclosures,” RealtyTrac senior vice president Rick Sharga said in an interview.

And near term future doesn’t look rosy either:

Foreclosure actions, which include notice of default, scheduled auction and repossession, in the first half rose in 154 of the 206 metro areas with populations of 200,000 or more.

And the drumbeat continues…

Fed Board Member’s Deflation Warning Hints at Policy Shift

Inquiring minds are looking at the warning of deflation by St. Louis Fed President James Bullard. Bullard has been more prescient than most on the board in seeing the near-term future.

James Bullard, the president of the Federal Reserve Bank of St. Louis, warned on Thursday that the Fed’s current policies were putting the American economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.”

The warning by Mr. Bullard, who is a voting member of the Fed committee that determines interest rates, comes days after Ben S. Bernanke, the Fed chairman, said the central bank was prepared to do more to stimulate the economy if needed, though it had no immediate plans to do so.

A subtle but significant shift appears to be occurring within the Federal Reserve over the course of monetary policy, amid increasing signs that the economic recovery is weakening. Mr. Bullard had been viewed as a centrist, and associated with the camp that saw inflation, the Fed’s historic enemy, as a greater threat than deflation.

Does this mark a distinct policy shift? Does this mean the chances of a pro-longed deflationary period have just increased?

Does President Obama hate the United States.

It is a weird question to say the least. Asking if a democratically elected leader hates his country. Inquiring minds are reading Roger Kimball over at Pajamas Media. His new article, “Thanks for the memories, Barack: Or, how to bankrupt a country in three easy steps” is just wonderful at explaining what damage is being done to the US by this president and presenting the case for his hatred.

Here is a small tidbit to whet your appetite:

Of course, you are a special case, Mr. President. Your dislike of America has the added ingredient of what, for lack of a better term, I’ll call metaphysical ambivalence. At its core, as Samuel Huntington pointed out in Who We Are, the United States is based upon certain “Anglo-Protestant values” that generations of immigrants had absorbed and made their own in the process of becoming American citizens. (Oh, how the left hated to have that pointed out!) Your filiations lie elsewhere, which perhaps explains why you bow to Saudi princes, why you forbid the conjunction of the adjective “Islamic” with the noun “terrorist,” why, to take an example from the day before yesterday, you pretended to criticize the release of Lockerbie bomber Abdel Baset al-Megrahi — all Americans, you said, were “surprised, disappointed and angry” that the Scots released him. But then it turns out that your State Department explictly, if secretly, told British authorities that you preferred his release for “compassionate” reasons. “All Americans” — did that include you Mr. President? I’m not asking about where you were born: I am asking about where your fundamental allegiance lies.

You are encouraged to please read the entire article. Here is another link here.



Phoenix Metro Housing Market To Worsen

Inquiring minds are reading with horror a FoxPhoenixTV article on thier website entitled “Analysts: Valley Housing Market Will Get Worse” and asking, “How?”:

For four years now, we’ve been watching housing prices fall across the nation. It was starting to look like that trend might be over — but experts are saying it’s going to get worse before it gets better.

Here is the why:

he Phoenix metro area is expected to be harder hit than most other U.S. cities. Analysts say values will drop by at least 10 percent over the next year.

Right now short sales — where the bank is willing to sell the home for less than it’s worth and cover the difference — make up nearly 1 out of every 3 sales. In June, 21 percent of home sold were short sales — in July, the number rose to 28 percent.

The economy, worries about job security and challenges in getting a home loan are all contributing to the problem.

Just how bad is it going to be in California when the OC shadow inventory begins to show up in the MLS?

401(k): How much do you pay in fees? has a timely minute-long video on the fees being charged for inquiring minds.

The Labor Dept. is moving ahead on rules to help both employers and workers better understand 401(k) fees. Some folks say this is more information than needed, yet a survey finds otherwise, reports MarketWatch’s Andrea Coombes in the Personal Finance Minute.

The video can be found here.

Bye Bye Paper Money, It Was Nice Knowing Ye!

Inquiring minds are taking stock of the UKTelegraph’s article “The Death of Paper Money“. As they prepare for holiday reading in Tuscany, City bankers are buying up rare copies of an obscure book on the mechanics of Weimar inflation published in 1974:

Ebay is offering a well-thumbed volume of “Dying of Money: Lessons of the Great German and American Inflations” at a starting bid of $699 (shipping free.. thanks a lot).

The crucial passage comes in Chapter 17 entitled “Velocity”. Each big inflation — whether the early 1920s in Germany, or the Korean and Vietnam wars in the US — starts with a passive expansion of the quantity money. This sits inert for a surprisingly long time. Asset prices may go up, but latent price inflation is disguised. The effect is much like lighter fuel on a camp fire before the match is struck.

The data and historical record are a bit mind numbing:

“Velocity took an almost right-angle turn upward in the summer of 1922,” said Mr O Parsson. Reichsbank officials were baffled. They could not fathom why the German people had started to behave differently almost two years after the bank had already boosted the money supply. He contends that public patience snapped abruptly once people lost trust and began to “smell a government rat”.

Some might smile at the Bank of England “surprise” at the recent the jump in Brtiish inflation. Across the Atlantic, Fed critics say the rise in the US monetary base from $871bn to $2,024bn in just two years is an incendiary pyre that will ignite as soon as US money velocity returns to normal.

This article must really be read in its entirety to be fully understood.

More on 401(k)’s

Inquiring minds are reading the Contra Costa Times regarding Bay Area jobless tapping 401(k) plans. Since there are few prospects for jobs, some of the Bay Area’s jobless are sacrificing their future retirement security for day-to-day survival:

As the recession drags on and savings are exhausted, they’re turning to their 401(k) retirement plans for money to pay for mortgages, health care insurance and daily expenses, even though they rack up stiff penalties and lock in market losses from the crash.

People are hurting and having to make tough decisions:

Breana Bartholomew, 53, an accountant, says she doesn’t have much choice. She’s working two part-time jobs — one in San Jose and another in Gilroy — after losing a full-time job in December 2008. Her income is only one-fourth of what she made before.

Her emergency savings gone, Bartholomew said she is using her 401(k) to pay her health insurance premiums. “I’ll lose about 50 percent to taxes and penalties” and market losses, she said.

Electronics engineer Robert Sweat, 36, of San Jose said he had to cash out his 401(k) to make ends meet after losing his job with Pillar Data Systems in October 2008.

“It’s for your retirement, and it’s a very large percentage of it that gets taxed,” he said.

Sweat came to the Silicon Valley in 1998, building up a tidy sum in his 401(k) while working on a missile defense system project at Lockheed Martin in Sunnyvale. He dipped into it to keep himself afloat financially after being laid off. He eventually rolled over what was left into Pillar’s pension plan. Laid off again in
2008, he has borne the brunt of the recession ever since.

“Once again, I had to turn to my savings to support myself. The 401(k) I had to burn out because I needed the money.”

There is so much more here that the full article is a must read.

Another Recession Due in 2012

Inquiring minds are looking into the future…a new recession due in 2012:

A new recession would be due around 2012 but central banks will not be able to throw cash at it anymore, Jim Rogers, chairman of Rogers Holdings, told CNBC Tuesday.

India’s central bank raised its interest rate Tuesday, joining other monetary authorities such as the Canadian and Norwegian central banks in hiking rates to stem inflation.

“We do have inflation in the world… most central banks should resign,” Rogers said.

There has always been a recession every four to six years in the US “since the beginning of time,” and that would mean another one is due around 2012…

The problem is saved for the last line:

“When the next one comes the world is going to be in worse shape because the world has shot all its bullets,” he said.

“Is Mr. Bernanke going to print more money than he already has? No, the world would run out of trees,” Rogers added…