Sunday, November 1, 2009

What Happens When The people Stop Believin'?

In 1936, the Congress said that the CFTC "shall" impose limits on trading and positions as necessary to eliminate, diminish, or prevent the undue burdens resulting from outsized futures positions. The CFTC is mandated by statute to set position limits to protect the American public.
-Gary Gensler, Chairman, CFTC

Do banks have something to hide?
Even experts have a hard time getting a handle on how bad losses might get as the commercial real estate market implodes.

NEW YORK (Fortune) -- The banks have taken some lumps since the economy went bad. But some believe their biggest headaches are yet to come.

The pace at which U.S. commercial banks are adding to their loan loss reserves has slowed this year, while loans continue to go bad at a brisk pace.

Despite the optimism of lenders like Wells Fargo (WFC, Fortune 500), some observers warn that banks aren't socking away enough for a rainier day.

The disconnect is particularly acute in commercial real estate, where lenders are facing a surge of defaults on commercial mortgages and construction loans made when prices were much higher and demand for space much stronger.

Banks have been recognizing commercial real estate losses slowly, even though the high season for defaults isn't expected to arrive until next year.

That's not the only problem. Ill-defined or inconsistently applied rules for valuing securities and handling loan modifications can make it hard to say how healthy banks really are, from Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) on down.

The risk is that this year's recovery could turn out to be a false dawn, delivering another blow to investor trust -- not to mention people's 401(k)s.

"The credibility of the banking system could take another step back," said Paul Miller, an analyst at FBR Capital Markets. "Everyone is expecting we've seen the peak in losses, but it's impossible to know for sure because you can't get an apples-to-apples comparison."

Geithner Says Commercial Real Estate Woes Won’t Spark Crisis
Oct. 29 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner said commercial real estate woes won’t set off a new banking crisis, in remarks to the Economic Club of Chicago.

“I don’t think so,” Geithner said, when asked whether commercial real estate could set off another banking meltdown. “That’s a problem the economy can manage through even though it’s going to be still exceptionally difficult.”

The global economy has accelerated since the worst of the recession and banking crisis last year, Geithner said, noting a U.S. Commerce Department report today showing the economy expanded 3.5 percent in the third quarter.

“You can say now with confidence that the financial system is stable, the economy is stabilized,” Geithner said. “You can see the first signs of growth here and around the world.”

Yeah, right Timmy. And the subprime collapse will be contained and only cost $100 BILLION. My Bullshit Detector is ringing like a 5-alarm fire bell.

Wilbur Ross Sees ‘Huge’ Commercial Real Estate Crash
Oct. 30 (Bloomberg) -- Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”

“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property -- are going up.”

U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19.

Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate.

“The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79.

His comments came in the same week that Capmark Financial Group Inc. filed for Chapter 11 bankruptcy protection after originating $60 billion in commercial property loans in 2006 and 2007.

CIT files for Chapter 11 bankruptcy protection
WASHINGTON (AP) -- After struggling for months to avert bankruptcy, lender CIT Group has filed for Chapter 11 protection in an attempt to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses.

CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders overwhelmingly opted for a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.

The Chapter 11 filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. CIT's bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.

A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could allow it to exit court protection by the end of the year. In addition to reducing its debt, CIT said the plan cuts cash needs over the next three years, which should help it return to profitability more quickly.

"The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy," said Jeffrey M. Peek, chairman and CEO. Peek has said he plans to step down at the end of the year.

CIT's move will wipe out current holders of its common and preferred stock. That means the U.S. government will likely lose the $2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.

CIT to Carpet Bomb Middle American Business
By: Jim Sinclair
The so called quick surgical bankruptcy of CIT will result in a company that will only be able to provide 20% of its previous level of financial services to Middle America according to Friday’s Wall Street Journal.

Any institutions replacing these services will have:

1. Higher levels of credit worthiness to be met by small business.

2. Less funds committed to these loans.

Further, the assets of CIT in bankruptcy are the middle American loans outstanding that will be brutally attacked by the bankruptcy process.

That is going to result in a flood of middle American businesses declaring bankruptcy.

Be Prepared for the Worst
By Ron Paul, US Congressman
Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.

A false recovery is under way.

- Recession Is Not Over
- Quarterly GDP Growth Is Not Sustainable, with 92% of Growth in Nonrecurring Factors
- Annual GDP Down 2.3% (5.7% SGS)
- 4th-Quarter GDP Should Resume Quarter-to-Quarter Decline
- Durables Goods Orders at 1997 Level
- Help-Wanted Adverting at New 58-Year Low


We're Governed by Callous Children
When I see those in government, both locally and in Washington, spend and tax and come up each day with new ways to spend and tax—health care, cap and trade, etc.—I think: Why aren't they worried about the impact of what they're doing? Why do they think America is so strong it can take endless abuse?

I think I know part of the answer. It is that they've never seen things go dark. They came of age during the great abundance, circa 1980-2008 (or 1950-2008, take your pick), and they don't have the habit of worry. They talk about their "concerns"—they're big on that word. But they're not really concerned. They think America is the goose that lays the golden egg. Why not? She laid it in their laps. She laid it in grandpa's lap.

They don't feel anxious, because they never had anything to be anxious about. They grew up in an America surrounded by phrases—"strongest nation in the world," "indispensable nation," "unipolar power," "highest standard of living"—and are not bright enough, or serious enough, to imagine that they can damage that, hurt it, even fatally.

We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists—they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice.

A Surprise Gold Rally
By Ed Steer
Starting at 3:00 p.m. in Hong Kong's Friday afternoon, the top was in for the gold price. From there it declined all through London and the first half of the trading day in New York. But around 1 p.m., the whole situation changed, as gold struggled to gain back some its losses, which it did quite nicely... and well into electronic trading after the floor closed, a bit of a rarity. Anyway, by the time the smoke cleared, gold was only down a $1.10 [spot price] from Thursday's close. For a Friday afternoon... and month end... this type of price action was surprising to say the least.

Silver's peak price was around 2:00 p.m. in Hong Trading; before it, too, started the long slide in price. This price decline accelerated once the London p.m. gold fix was in for the day. But, shortly before 1:00 p.m. New York time... and in total sync with gold's price recovery... silver headed higher as well. However, it's price recovery wasn't anywhere near as impressive as gold's... and silver finished down 35 cents [spot price] for the day.

...nothing has changed in either the silver or gold markets. The grotesque short positions held by the bullion banks are still there... and the situation is still unresolved.

...if the situation resolves to the downside... it will become the buying point of the century. I have no idea how long this situation will take to resolve itself... but if it does resolve to the down-side, my guess is that this will happen in conjunction with options expiry for the December contract on November 23rd. I have a bit of spare cash laying around, and regardless of the price [or the price action] on that date... I will be putting it to work then.

As I [and many other commentators] have stated, an historic rise in the price of both metals is most likely at hand... especially in silver... if you listened carefully to what Ted Butler had to say in the interview above. It has also been mentioned by certain persons at the CFTC, that some sort of decision regarding position limits will be made around that time period. I don't know if there's anything to that... but it's just another data point for you to consider.

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