Friday, August 10, 2007

Quote of the Day

Regarding recently held elections in Lebanon:

“It’s the kiss of death,” said Turki al-Rasheed, a Saudi reformer who watched last Sunday’s elections closely. “The minute you are counted on or backed by the Americans, kiss it goodbye, you will never win.”


Frothing At The Mouth

If you've had a pulse, you know that Dick Cheney has been wanting to attack Iran for some time. There has been an ongoing battle within the administration between those who agree with Cheney, and those (Condi) who think we should go a much more moderate path. Both sides have garnered headlines at various times, and the battle continues.

None of that is news. My question is this. How long can anti-Cheney forces keep Cheney at bay? I would think that the boy king will eventually conclude that Cheney is right. I wonder how long?


Why I Write About It

Those two or three of you who regularly read this blog may be wondering why I'm spending so much time talking about the markets and the liquidity crunch. Here's why:

Mish explains it all here. But the short version is that the current problems are not really a "liquidity crunch". That's the symptom. The real problem is risk repricing. That means that the markets have finally figured out that there is real risk in lending money to those who can't pay it back. As long as house prices went up, the risk was low as the assets (the house) could cover the loan. But with defaults, the dynamic changes and people begin to have to walk away from over-extended loans.

That is happening.

The next shoe to drop is a spiral effect. Here's an example:

Nicholas Schor and Liza Losada-Schor were ready and willing to spend up to $850,000 on a house in Maryland. That was a month ago, when the rate on their mortgage would have been as low as 6.25 percent.

But a sudden shift in the mortgage market means that the couple -- he's a psychiatrist, she's a clinical nurse psychotherapist -- now face a rate of more than 7 percent [or higher if they can even get a loan], reducing their buying power even though they have solid credit. That's because in the past few days, rates on loans for more than $417,000, known as jumbo loans, have shot up.

"I'm sort of surprised that even though we have excellent credit and excellent income and are putting down a 20 percent contribution that the banks aren't able to offer better rates for folks who seem to be a more reliable investment," Schor said.
People, facing higher costs and bigger obstacles simply remove themselves from the buying market. That depresses asset prices (on everything that requires credit including business, deals, IPO's et al.), causes more defaults which dries up more liquidity. It is also known as a deflationary spiral.

In case you didn't realize it, this is exactly what happened during the Great Depression. If the markets can't stabilize, the decline continues. Are we headed for that? I certainly hope not. But anyone who tells you we're not is as foolish as anyone who definitely says we are. That's why the situation bears close scrutiny.


Throwing In Cash

I told you Bernanke would have the printers working overtime. The Fed tossed in $19 Billion this morning (earlier than usual repo offers), a very very large sum to be pumped into the system. They also did it earlier than usual and with many calming statements.

Added: Here's a great article from my local paper explaining the basics, in laymen terms, of just what is happening in this "liquidity" crisis.

Added: The Fed has pumped in another $16 Billion.

Added: The Fed has pumped in another $3 Billion. Generally speaking, the market is kinda yawning. Although I guess it could be a lot worse.


Thursday, August 9, 2007

Drum Beat Grows

In consuming casual media today, I heard three different casual references to the same thing. The drum beat is growing ......


"Even some critics of President Bush's Iraq war policies are conceding there is evidence of recent improvements from a military standpoint," the piece tells us. But here's the funny thing, though: All the evidence offered in the article in support of this thesis -- with the possible exception of one very dubious piece of info -- is thoroughly bogus.

Let's get the easy one out of the way. With tedious and depressing predictability, the chief piece of evidence cited for the piece is -- yup -- the O'Hanlon and Pollack Op ed. You already know the drill on this one.

Nevermind all the refutations of O'Hanlon/Pollacks op-ed piece, including those by the authors themselves. When Paul Harvey starts citing these idiots, you know it's bullshit (he did today). Now we have Anthony Cordesman, who was traveling with the two saying that he doesn't have the faintest idea what they're talking about:
I did not see any dramatic change in our position in Iraq during this trip. Many of the points, the problems which exist there are problems which have existed really since late 2004, if not earlier. I didn’t see a dramatic shift in the ability of the Iraqi’s to reach the kind of compromise that is almost the foundation of moving forward. […]

But I also want to stress another thing. I did not see success for the strategy that President Bush announced in January.

While O’Hanlon and Pollack claimed “many of the corrupt and sectarian Iraqi commanders who once infested the [security] force have been removed,” Cordesman observed the opposite. “The security forces are more divided, facing more problems in terms of alignment with Shi’ite factions than I had expected to see, even for the army.”

Later in the briefing, Cordesman slammed O’Hanlon’s plan calling for a “soft-partition” of Iraq into three distinct regions, stating that such an effort would be “brutal, it is repressive, it kills people, it injures them, it drives them out of their homes, and it drives them out of their country. To talk about this as if it was something that is gentle or nonviolent is simply dishonest.”

Cordesman added: “It is clear, that in some ways our intervention in Iraq has allowed the Sadr militia and Shi’ite extremist groups to operate in terms of sectarian cleansing with more freedom than they had in the past.”
I'm telling ya. By September the administration will be feeding the American public, via a all-too-willing media, that Iraq is the new Switzerland, a land of peace and security.


Huh Oh

Countrywide Mortgage is starting to have problems. Countrywide is the largest home lender in the U.S. As Bonddad says, if Countrywide can't get a deal done, no one can:

Countrywide couldn't sell $1 billion of loans at a decent price. They cut the value of these loans by 20% when they transferred those loans to their investment portfolio.

Countrywide couldn't sell $700 billion of prime loans, and devalued those by 14%.

That means the going price on both of these investments is probably lower than the devaluation on the balance sheet. Subprime loans are going for less than 80% of face value and prime loans are going for less than 14% of face value.

Simply put -- liquidity just isn't there in the market right now. And the crunch is getting worse because Countrywide couldn't sell prime loans.
Better be taking some Maalox if you have money invested in stocks. Is this another brief correction, or the start of something bigger? I think I hear government printing presses in the background ......


Yeah Baby

I could get waaaay behind this idea:


In a recent interview with Newsweek, Sen. Joe Biden (D-DE) said he is opposed to impeachment proceedings because they would disrupt Congressional business. “But he has a pretty stunning Plan B“:

The alternative, and it’s taken me time to think through, I think we should be acquiring and accumulating all the data that is appropriate for possibly bringing criminal charges against members of this administration at a later date.



And surprise surprise! It's not some wankish comment!

"The one thing on which the polls are clearest today is that this country is ready to turn the page on the Bush-Cheney experience. If ever there has been an administration that has outstayed its welcome, exhausted its energies and spent most of its original ideas, it is this one. People on the inside are holding on by their thumbs, and the country's patience is about exhausted."
Even a busted watch is right twice a day .....


Troubled Waters

I'm not sure the worst is over yet.

Brad DeLong:

So, today the monetary base in the North Atlantic economies is 7% higher than it was yesterday--an annualized growth rate of 2100% per year.

This is indeed a significant liquidity event...
As Mish noted, more money is being injected into the international monetary system today, than any time in history including post 911.

The ECB said it would provide unlimited cash as the fastest increase in overnight Libor since June 2004 signaled banks are reducing the supply of money just as investors retreat because of losses from the U.S. real-estate slump. Paris-based BNP Paribas SA halted withdrawals from three investment funds today because the French bank couldn't value its holdings. Stocks in the U.S. and Europe fell, a turnaround from the past three days when investors concluded that credit market risks were abating.

``There seems to be a hole in the balance sheet of World Inc. that will have to be filled by government intervention,'' said Peter Lynch, chairman of private equity fund Prime Active Capital Plc in Dublin. ``The ECB is treating this like an emergency; it might make traders even more afraid.''


``This is an old-fashioned credit crunch,'' Chris Low, the chief economist at FTN Financial in New York, said in a report today. ``This is not a small thing. A credit crunch, when the short-term credit markets seize up, is extraordinarily serious, almost always the precursor of a significant recession.''
Besides happy talk by Bush/Paulson/Benanke et al., and printing more money quickly which they are doing, they don't have many bullets left



No, not Bush and his Lyme's disease.

No, I'm talking about the subprime meltdown. The effect is growing and the Fed is clearly worried ...

The scramble for liquidity in Europe spilled over into the U.S. The federal funds rate, the rate at which banks make overnight loans to each other, was between 5.375% and 5.5% in early trading in New York, analysts said, well above the Federal Reserve's 5.25% target.

The Fed, in an effort to get the funds rate back down and meet the spike in demand for cash, lent $24 billion through its open market operations. It did so through two operations: A 14 day "repo," the name for an operation that adds reserves to the banking system and alleviates upward pressure on rates, and an additional $12 billion through an overnight repo. It is common for the Fed to do the two types of operations, but analysts said the amount added was relatively high, exceeding what it would have injected to cover expiring repos.
This has the markets spooked, and for good reason. Let's hope the "contagion" is contained without further "spilling over". The economy is already dragging and consumers are pulling in their wallets, which is terrible news for growth.

Added: Mish explains why more "cash" is needed. Think, "run on the bank" type stuff as investors want to bail out of risky investments. So the government prints more money and puts it into the system to meet the need.



Did you know that in Iowa, McCain is polling lower than Obama among Republicans?


McCain is toast. He thinks he's fresh french bread.


Expect It

You can expect a whole lot more of this going into September:

Headline from Faux News (sorry, I won't link to them):

Bush Poll Numbers Rise With Progress Reports From Iraq
Of course it's not until the late grafs that you find out that the "improvement" is 2 points, well within the margin of error, or that the "reports of improvement" are O'Hanlon and Pollacks op-ed pieces. In other words, nuthin'. But I'm starting to see the mighty GOP wurlitzer fire up for a September blitz about how much things are improving in Iraq and how we'll need another Friedman or two to finish the job.

Added: Here's a classic example. Dick Durbin said that our military is winning in areas that they fight (duh). Because we have more troops in more areas (know as an escalation), we are making "military progress". Here's the headline on the story from AP:
Democrats Praise Military Progress
Of course Durbin goes on to highlight the "duh" part of that statement and reiterate that there is zero political progress and that these so-called improvements cannot go on forever. Right wingers are virtually peeing their pants with a gotcha moment ... proof PROOF that the escalation is "working". Nevermind that roadside bombings hit a new high last month.

Like I said, get your arguments ready cause there's going to be the mother of all media blitzes around Petraeus report on how good Kool-aid tastes. And you know the media will join right in while they all sing kool-aid kool-aid, tastes great ......


Wednesday, August 8, 2007

The Ultimate Freidman Reader

Go here, and you can follow all the Friedman promises with pictures and a nifty little timeline slider. BTW, it includes around eight by the original Friedman himself .... before he finally figured it was time to shut his yap.

We've got the reader. Now if we could only find the Friedman Unit generator and break it.


The Obama Memo

It's really a must read, especially for the very serious foreign policy community of oh-so-serious policy "scholars" who have no accountability for the messes they create.



Patrick Leahy needs to shit or get off the pot ....


In a letter to White House Counsel Fred Fielding today, Senate Judiciary Chairman Patrick Leahy (D-VT) set a new return date of August 20 for subpoenas served to the executive branch in June. After the White House missed the original due date of July 18, Leahy granted them an extension until Aug. 1, which they also missed. Leahy writes:

Despite my patience and flexibility, you have rejected every proposal, produced none of the responsive documents, provided no basis for any claim of privilege and no accompanying log of withheld documents. I had been requesting this information for an extended time before issuing the subpoenas.

I am setting as the new return date for these four subpoenas August 20,2007, at 2:30 p.m. I look forward to compliance with the Judiciary Committee’s June 27, 2007 subpoenas to the White House Office, the Office of the Vice President, the National Security Council, and the Department of Justice.
This is stupid. Pat, get the message. They're jacking you around and have no intention of complying. I think you know that which then begs the question, why keep playing this little game?

Dems continue to fuel their label as wimps and plodding policy wonks.


Lying or Ignorant

It's can't be both.

I keep reading, and seeing in the media, the number of right wing pundits who continue to say that the new FISA law is only to spy on foreigners.

This is not true. The new law allows spying on U.S. citizens if the spy's, with oversight by that intrepid civil libertarian Abu Gonzales (and Mike McConnell supposedily), "reasonably believe" that the conversation is a terrorist related.

But our equally vigilante and well-informed reporters are on it, correcting the factual record at every turn!




Torture Buzz

I haven't read it yet (it's printed out sitting by my bedside .... it's fairly long), but this piece in the New Yorker is getting a whole of blogosphere attention. Those who have read it say that it will take you to new heights of disgust at the American government.

And that's saying something. Excerpt via Digby:

"The C.I.A.’s interrogation program is remarkable for its mechanistic aura. 'It’s one of the most sophisticated, refined programs of torture ever,' an outside expert familiar with the protocol said. 'At every stage, there was a rigid attention to detail. Procedure was adhered to almost to the letter. There was top-down quality control, and such a set routine that you get to the point where you know what each detainee is going to say, because you’ve heard it before. It was almost automated. People were utterly dehumanized. People fell apart. It was the intentional and systematic infliction of great suffering masquerading as a legal process. It is just chilling.'"


"A former member of a C.I.A. transport team has described the 'takeout' of prisoners as a carefully choreographed twenty-minute routine, during which a suspect was hog-tied, stripped naked, photographed, hooded, sedated with anal suppositories, placed in diapers, and transported by plane to a secret location. A person involved in the Council of Europe inquiry, referring to cavity searches and the frequent use of suppositories during the takeout of detainees, likened the treatment to 'sodomy.' He said, 'It was used to absolutely strip the detainee of any dignity. It breaks down someone’s sense of impenetrability. The interrogation became a process not just of getting information but of utterly subordinating the detainee through humiliation.' The former C.I.A. officer confirmed that the agency frequently photographed the prisoners naked, 'because it’s demoralizing."


Ramzi Kassem, who teaches at Yale Law School, said that a Yemeni client of his, Sanad al-Kazimi, who is now in Guantánamo, alleged that he had received similar treatment in the Dark Prison, the facility near Kabul. Kazimi claimed to have been suspended by his arms for long periods, causing his legs to swell painfully. “It’s so traumatic, he can barely speak of it,” Kassem said. “He breaks down in tears.” Kazimi also claimed that, while hanging, he was beaten with electric cables.

According to sources familiar with interrogation techniques, the hanging position is designed, in part, to prevent detainees from being able to sleep. The former C.I.A. officer, who is knowledgeable about the interrogation program, explained that “sleep deprivation works. Your electrolyte balance changes. You lose all balance and ability to think rationally. Stuff comes out.” Sleep deprivation has been recognized as an effective form of coercion since the Middle Ages, when it was called tormentum insomniae. It was also recognized for decades in the United States as an illegal form of torture. An American Bar Association report, published in 1930, which was cited in a later U.S. Supreme Court decision, said, “It has been known since 1500 at least that deprivation of sleep is the most effective torture and certain to produce any confession desired.”

Under President Bush’s new executive order, C.I.A. detainees must receive the “basic necessities of life, including adequate food and water, shelter from the elements, necessary clothing, protection from extremes of heat and cold, and essential medical care.” Sleep, according to the order, is not among the basic necessities.

In addition to keeping a prisoner awake, the simple act of remaining upright can over time cause significant pain. McCoy, the historian, noted that “longtime standing” was a common K.G.B. interrogation technique. In his 2006 book, “A Question of Torture,” he writes that the Soviets found that making a victim stand for eighteen to twenty-four hours can produce “excruciating pain, as ankles double in size, skin becomes tense and intensely painful, blisters erupt oozing watery serum, heart rates soar, kidneys shut down, and delusions deepen.”


Why Is He Smiling?

Can anyone tell me why this man is smiling?



Here's a hypothetical for you.

Suppose you're a U.S. Senator who is considering FISA legislation. During your discussions, the director of the intelligence community, whom you think is credible, tells you that domestic wiretapping powers are needed due to a very credible, imminent threat of a serious terrorist attack.

Do vote for give the power ....
....or do you vote to maintain civil liberties. And probably more importantly, how do you think American voters would want their Senators to vote?

As best I can tell, this is exactly the dilemma that faced Democrats over the recent FISA discussions.

Added: It looks to me like Bush did what he often does with people and their reputations, their credibility. He used McConnell's creds to get what he wanted. Now McConnell is burned. He can now join the ranks of Colin Powell, Petraeus (soon to be burned), and all the other administrations officials who have been used up.

If true, it's amazing how many people, political and policy professionals, are naively allowing themselves to be used. These are not stupid people, and yet in one of the most basic human interactions .... trusting another in authority ... they are getting eaten for lunch.

Here's a money quote from one of the above links:

Senator Christopher S. Bond of Missouri, the ranking Republican on the Senate Intelligence Committee, said a crash course in the ways of Congress might ultimately help the retired admiral get his way.

Mr. McConnell has “admitted ruefully that he’s not experienced in politics,” Mr. Bond told reporters last week.

“And I suggested to him that he is getting a whole lot of experience very quickly.”


Kill or Convert

No, we're not talking about Islam.

[Stephen] Baldwin became a right-wing, born-again Christian after the 9/11 attacks, and now is the star of Operation Straight Up (OSU), an evangelical entertainment troupe that actively proselytizes among active-duty members of the US military. As an official arm of the Defense Department's America Supports You program, OSU plans to mail copies of the controversial apocalyptic video game, Left Behind: Eternal Forces to soldiers serving in Iraq. OSU is also scheduled to embark on a "Military Crusade in Iraq" in the near future.

"We feel the forces of heaven have encouraged us to perform multiple crusades that will sweep through this war torn region," OSU declares on its website about its planned trip to Iraq. "We'll hold the only religious crusade of its size in the dangerous land of Iraq."

A must read article. Those of us who cherish the idea of a separation of church and state are understandably outraged. And using the word 'crusade' is both inflammatory and accurate in this case.


Tuesday, August 7, 2007

Body Count

Why oh why can't we have a decent media.

Awhile back I posted information about how the media was distorting the July 2007 American body count in Iraq. Remember? The headlines were trumpeting improvement and that there were fewer attacks on Americans. But if you'll remember, there was no apples and apples comparisons of this July vs. other July's. Well, now you can see the results:

The spate of recent U.S. deaths — 19 so far in August [note: actually 26, but this was written earlier in the day] — seems certain to intensify the debate over U.S. progress to calm Iraq and gain ground against militants ahead of a key September report to Congress.

U.S. deaths had dropped slightly in July to 79 — the lowest monthly tally since 70 were killed in November. Before July, more than 100 American forces died each month in the April-to-June period as the U.S. military struck out at insurgents on dangerous streets and cities across Iraq.
In the earlier report there was no context, and there's none here.

Why is that important? Because the media would have you believe that Iraq improves, then deteriorates, then improves, then deteriorates. The facts suggest that year over year, it's flat deteriorating. Period. But you'd never know that if you were a casual news consumer.


Boycott Worked?

I've boycotted the NY Times online subscription services. When I first began to blog, the dialog with the NY Times pundits was continuous. MoDo, Krugman, Bobo Brooks were all quite relevant to the discussion. Then they went behind the pay wall .....

It was predicted that the move would simply make them all irrelevant. And that's exactly what happened. Now it looks like they've rethought that strategy:

The New York Times is poised to stop charging readers for online access to its Op-Ed columnists and other content, The Post has learned.

After much internal debate, Times executives — including publisher Arthur Sulzberger Jr. — made the decision to end the subscription-only TimesSelect service but have yet to make an official announcement, according to a source briefed on the matter.
I would guess they found that they 1) the buzz from their writers went away, 2) they didn't get many subscribers, and 3) that the "hits" on the Times website plummeted resulting in lost ad revenue. It was predicted to be an unwise move and I guess it was so.


Quote Of The Day


Well, it's almost here. Amazing how a Friedman Unit seems like a long period of time and then suddenly it's almost over. I've long documented how the Wise People of Washington were convinced that September was some sort of magic change date on Iraq. I think I even pegged it at 20% chance that they were actually right. But as we know, September will come and go and nothing will change because of cowardly old men with large egos.


Packer Fans

If you happen to be a George Packer fan, here's why the guy is a wanker. Here too. Yet another "liberal" pundit who gets it wrong over and over and over ......


Meanwhile In The South

Yesterday we had the post about the U.S. joining Turkey to fight Kurd insurgents in northern Iraq. Today, it's southern Iraq:

The Washington Post leads with a look at how the southern Iraqi city of Basra has turned into a lawless and violent mess as three Shiite political groups are fighting for control and British forces continue to pull back from the area. Earlier this year Vice President Cheney said the oil-rich city was a place "where things are going pretty well" but a U.S. official says "it's hard now to paint Basra as a success story."
I'm not sure there's anything else to say. It's all been said. But knowing Bush he'll want to send in more troops to subdue southern Iraq where the vacuum exists with the British quiet withdrawal.

Added: In other news, six American soldiers killed (twenty six in the last week), a whole bunch of Iraqi's killed, and al Maliki government continues to spin out of control with more Sunni's withdrawing from government .... at least for now.


Where They Stand

Here is a handy chart to keep track of where the candidates stand on the issues.
Hat tip to Gryphen.

Type rest of the post here


Monday, August 6, 2007

Serious Media

Did you know that trophy wife Jeri Thompson (Hollywood Freddie's girl) is not a lawyer? Apparent WaPo and AP , USA Today and the Chicago Tribune don't know. Calling her a lawya, or a political consultant, have been arguments supporters use against accusations that she's a "trophy wife".

Hollywood Fred is 64. Jeri is 40. I have no idea why they married, but if we can have a Congressional impeachment of a President over a blow job, then I think we can speculate about them ......

Actually, I think it's more accurate to suggest she's a daughter.



Don't have time to go into it much right now. But go read this post.

I, too, hope to see Broder and all the wise people of Washington to be up in arms about the White House reniging on a deal playing hard ball with Democrats .... not behaving in a "bipartisan way".

However, I'm not going to hold my breath that Broder will actually notice. After all, IOKIYR.


No End

No End in Sight

I want to see this movie although it will probably be hard to find a theater that will show it.



William Arkin has written a piece about the domestic spying program. In it, he calls the Democrats cry-babies, focusing on minutiae instead of helping to protect the country by upgrading FISA to be consistent with new technology. His conclusion:

The next president will quickly learn that NSA's post-9/11 surveillance program never involved the promiscuous collection of information on innocent Americans. Still, the problem of how to limit what is collected, and how to prevent abuse of these new powers, should be high on any new president's agenda. What we are witnessing is a revolution in the ability of the government to collect digital signals from afar and combine that information with other data to pry into anyone's private life: That ability could be the root of future abuses.
If only that were true. This statement, in light of all the revelations about the Bush administration, seems a bit naive to me.

Arkin misses the point. Perhaps the Bushies have used good sense. Suppose they haven't used the spying improperly. The fact remains that without oversight no one will ever really know. And given human nature, especially humans called "President" I'm not willing to thoroughly trust anyone with that power. And to simply have oversight provided by a Presidential appointee is nonsense. In short, I think Arkin makes a very HUGE assumption that executive officials are and will always work in good faith (if not George Bush, how about Richard Nixon anyone?).

I think Bush has used spying inappropriately. And I don't mean simply violating FISA law. It would be completely consistent with his, and Karl Rove's, behavior to have used intelligence apparatus for political purposes. I suspect the reveleations that Arkin refers to will surprise him. But even if they don't, I simply do not trust Presidents of any party or stripe to have that kind of power without significant oversight.

Update: Right on time. LOL. Right after posting this, I ran across this story:
SAN FRANCISCO — In open court and legal filings it's referred to simply as "the Document."

Federal officials claim its contents are so sensitive to national security that it is stored in a bombproof safe in Washington and viewed only by prosecutors with top secret security clearances and a few select federal judges.

The Document, described by those who have seen it as a National Security Administration log of calls intercepted between an Islamic charity and its American lawyers, is at the heart of what legal experts say may be the strongest case against the Bush administration's warrantless eavesdropping program. The federal appeals court in San Francisco plans to hear arguments in the case Aug. 15.

The charity's lawyer scoffs at the often surreal lengths the government has taken to keep the Document under wraps.

"Believe me," Oakland attorney Jon Eisenberg said, "if this appeared on the front pages of newspapers, national security would not be jeopardized."
Lawyers and an "Islamic Charity" ferchristsakes. Based on what? I'll tell you. Based on a racist perspective that if they're Islamic they "might" be a terrorist. Same thing applies to anyone who is "anti-war" or "anti-Bush" I guess.



Just how bad are things in the housing market?

There's a whole lot of fear. The credit markets are under tremendous pressure. But just what does that mean? Mish:

Late last Friday I gave a call to Dave Donhoff at No Bull Mortgage and was wondering about subprime and Alt-A, and how they were affected by these treasury gyrations. Before I go further, let me say that Dave is one of the good guys. He has not had a single returned loan or foreclosure on one of his customers in the last 6 years. Although Dave has not been tracking exactly what I wanted he did offer this:

* Almost all stated income loans everywhere vanished last Friday.
* Almost all 2/28 ARMs vanished last Friday.
* While this was eventually expected it was not expected by everyone overnight.

As we were talking I was fortunate that a representative of major mortgage lender who had a scheduled appointment stopped by to see Dave. That person agreed to talk to me on condition anonymity so I will honor the request. But here is what I found out from that major lending insider.

* Subprime rates have risen by as much as 190 basis points at his organization in just the last 2 weeks!
* Many other lending institutions have done the same thing.
* The definition of prime has tightened considerably, everywhere.
* Any variance from prime raises the mortgage rate.
* Small differences in FICO score now matter (sometimes by a lot).
* Every little thing adds up.
* 90% LTV rates are higher than 85% LTV rates which are higher than 80% LTV rates.
* 100% LTV rates are very difficult to come for subprime and even Alt-A.
* Condos vs. homes matters significantly.
* There were 3 rate increases in the last 2 weeks even as 10 year treasury rates rallied [10 year treasuries fell].
* Second mortgages have nearly vanished - no market.
* 2/28 arms - gone.
* Someone who is "really clean" but is not prime (but close) and is putting down 20% has had a 70-80 basis point hike in the last 2 weeks.
* The bankrate charts might not show it, but in the last two weeks nearly every loan rate went up even as treasuries rallied significantly. The primest of prime was perhaps flat.

A 190 basis point hike in two weeks was so shocking that I asked for a repeat. "90?" I asked. "No. that's 190 basis points" came the reply. For those not familiar with the term basis points, 100 basis points is a 1% rise in the loan rate. For example, 190 basis points would send a mortgage loan from 7% to 8.9%. The bigger the loan the bigger the increase in monthly payments (ouch!)
Go read the whole thing for a full perspective.

Now let me say this. Mish is a bear. He thinks the whole mess is going to crash around everyone's ears. And unfortunately thus far, he's been correct. I'm hoping he's overly pessimistic now.

There's two things I take away from Mish's post. First, because of increasing defaults and a popping in the housing bubble, mortgage interest rates are going up significantly if you can even get a loan. And that's a key. Unless you are a very holy prime borrower, forgetaboutit. And if you do get a loan, be prepared to have that loan be a couple of percent higher than a few months ago.

Second, we already know that most of the adjustable rate mortgages that were lent during the bubble are due to adjust early in 2008. And those adjustments now look to be rather large which will fuel another large round of defaults. Defaults = losses and = depressed consumer spending.

Bottom line, we're a long way from being out of the woods in the housing slump. The slump seems to be affecting consumers and pessimism is running really high about the economy right now. Are these predictions accurate? Or, as some stock advisors like Bob Brinker suggest, is it simply setting the stage for a huge stock market rally based on a proverbial "wall of worry"? Bob has called the turn in previous stock markets ......

My guess? There's trouble ahead. But unkie's Paulson and Bernanke will come to the rescue with plenty brand new freshly printed dollar bills. This won't solve the housing problem, but it will ease the credit markets softening the blow. And it will further fuel inflation .......

Update: Here's a chart that shows the adjustable mortgage resets (numbers are in billions):

Note that the bulk of adjustable mortgage resets occur in early 2008 .... a whole lot of them. Also note where we are in the process ..... Ouch.


Kurdistan .... Again

Sabre rattling or the real deal?

The Post goes inside with a dispatch from Cairo that says Turkish leaders will warn Maliki that if he doesn't go after Kurdish rebels in northern Iraq, Turkey is prepared to invade. Although Turkey has always expressed concern over PKK members, it seems the country's politicians now agree with the army that it's time for decisive action. An analyst tells the paper that the invasion could come at "any moment" and an attack would likely include some form of U.S. participation.
With "some form of U.S. participation"? Swell. That should really help our relations with Iraqis. The Kurds are about the only ones who have like us, now we're going to piss them off too?



The newspaper all have a question for us ... a kinda quiz:

Can anyone tell them what happened here?

The Washington Post leads with word that 30 percent of weapons meant for Iraqi security forces appear to be lost. According to a new Government Accountability Office report, the U.S. military can't account for approximately 190,000 AK-47 assault rifles and pistols that it handed out between 2004 and 2005.
Do you have a guess?
It's not the first time the issue of missing weapons in Iraq has come up, but this latest estimate is much larger. Of course, the main concern is that the U.S. military has been inadvertently providing weapons to insurgents courtesy of the American taxpayer. The GAO found the military really has no consistent oversight over these weapons, but emphasized that the problem was particularly bad in 2004 and 2005, which is when Gen. David Petraeus, now the top commander in Iraq, ran the training program. The paper talks to a defense analyst who says that while the U.S. military often talks about how Syria and Iran are supplying weapons to insurgents, it has paid little attention to its own role in arming the enemy.


Sunday, August 5, 2007

Smoking Gun Over A Smoking Bridge

"We never could have anticipated that bridge would fall"

That's not a real quote, but it might as well be. Check it out:

Via Rick Perlstein:

This excellent diary on Daily Kos lays out the story. The summary:

1. In May 2005, bipartisan transportation bill which would have added an extra $300 million a year to MnDoT was shot down by Pawlenty to avoid raising taxes.

2. This move effectively bankrupted MnDoT until early this year (and this year, of course, there have still been snags in getting the funding).

3. Minnesotans approved the spending by ballot in November 2006...

4. ...but even that spending was insufficient to cover the expected problems.

But nobody could have predicted the levees would... oh, wait, wrong infrastructure disaster.

By the way, this May another transportation bill went through the legislature... with a vetoproof majority. Pawlenty proceeded to veto it anyway. Congress failed to override the veto. So, in addition to there being no money to watch out for problems, there's still no money to fix the problems. Comforting, isn't it?

The cause of the failure still hasn't been conclusively decided. But I don't think there's much doubt.


THIS is Amazing



Meet Blackwater.

MEET BLACKWATER USA, the powerful private army that the U.S. government has made its Praetorian Guard for the “global war on terror.” Blackwater has the world's largest private military base, a fleet of twenty aircraft, and 20,000 contractors at the ready. Run by a multimillionaire Christian conservative who bankrolls President Bush and his allies, its forces are capable of overthrowing governments, and yet most people have never heard of Blackwater. That is about to change.

I'm buying the book.