Jun 18 2010

FDIC flashes code red – Banking system insolvent and expecting more bank failures. Since 2008 247 banks with $616 billion in assets have failed. History of Federal Reserve designed to protect the big banks.

The FDIC which technically supports the nation’s banking system is for all practical purposes insolvent.  I’m not sure the magnitude of this problem has sunk into the psyche of the American public.  The FDIC insures accounts at banks that include checking, saving, and CD accounts from a bank failure.  This has occurred with regular frequency since the recession started 29 long months ago.  Some 247 banks have failed since 2008 with a total asset base of $616 billion.  The government has tried to calm the unsettled waters by raising the regular deposit coverage from $100,000 to $250,000 even though the FDIC deposit insurance fund is in the negative.  This seems to have calmed the nerves of people since the days of long lines at IndyMac Bank in California but nothing has really changed at least at the core of the financial system.  To the contrary things have worsened for the banking system.

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Jun 16 2010

Gear up for another lost decade in real estate. Housing will remain stagnate from 2010 to 2020. Demographic shifts, higher mortgage rates, and shifting consumer taste in real estate.

The dynamics for housing moving forward point to a very bleak future and a potential lost decade yet again from 2010 to 2020.  Housing has a treacherous path moving forward and deep down demographic shifts will keep a lid on any significant housing appreciation moving forward.  The economy is in the process of deleveraging from a market highly dependent on real estate.  Wall Street and the government are doing everything they can to bring back the economy of yesterday but have had little success.  This recession has shrunk the middle class so those looking to buy homes have declined simply because many can no longer afford to purchase a home even at today’s lower prices.  Focusing on housing first was a big expensive policy mistake where we should have focused on creating sustainable jobs.  The market is slowly shifting to a new housing paradigm.  Family growth rates, employment trends, baby boomers, and wages will all keep a lid on housing prices moving forward.

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Jun 14 2010

Fooled by financial randomness – Number of millionaires back to late 1990s levels and the end of a 30 year bull market. Real estate and stock market speculators luck out but want to believe in Wall Street religion.

It is hard to convince a generation of Americans built on the “greed is good” motto that we have just lived through a once in a lifetime bull market in stocks and real estate.  I’m reminded of Michael Lewis and his semi-autobiographical book Liar’s Poker printed in 1990 that was to serve as a warning of the massive gambling and fraud by bond salesman on Wall Street in the late 1980s.  Instead of being taken as a siren call, many eager business students used the book as a how-to manual on how to get obsessively rich even if it meant destroying entire sectors of the real economy and helping to destroy the middle class in America.  Yet this financial crisis with the debt boom fueled by housing will never be rivaled in our lifetime.  I don’t think many in America can understand that we have just lived through a once in a lifetime bull market.  Wall Street has pulled back from the bottom reached in 2009 yet the real economy shows very little signs of economic life.  Many have been fooled by the random nature of the market.

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Jun 11 2010

The financial raid against the middle class – 9 of the 10 largest occupations in the U.S. have median wages between $8 per hour and $14per hour. The middle class is inheriting a new serfdom drowning in mountains of debt. The new two income trap.

The war against the middle class is silent and has grown since the recession started.  We don’t hear much about this because in large part, those falling out of the middle class don’t have the funds to purchase airtime with the media who is wedded to Wall Street.  40 million Americans now receive food assistance.  How often do we hear about this?  Each month we add tens of thousands to this number yet we are somehow in a recovery?  A recovery for which group of people is the question we should be asking.  Clearly the middle class isn’t feeling this recovery.  Nearly 17 percent of our population is underemployed.  But then we add 20 percent of those who are employed who are part of the working poor.  If we look at the top 10 occupational sectors in the U.S. we start to realize that many in the middle class are giving up higher paying jobs to service the needs of a tiny elite class.

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Jun 9 2010

Blame the real estate bubble on California and New York. Why the housing bubble centered around 4 states and spread across the nation. The Southwest and Florida sunshine real estate infatuation. 45 percent of foreclosure filings come from 4 states.

When we hear about the foreclosure crisis we tend to paint with a very broad real estate brush.  Without a doubt the housing bubble bursting is rippling throughout the country.  Yet to assume all states are being impacted equally is absolutely incorrect yet mainstream media analysis usually talks about the “foreclosure crisis” as if it were hitting each state on an equal footing.  For example, 45 percent of all foreclosure filings in April, the last data we have available, all occurred in 4 states; California, Florida, Nevada, and Arizona.  This is something that most understand but why did these Southwestern states and Florida lead the charge forward in the housing bubble to begin with?  It really is a question that hasn’t been examined.  If we look closely, we will find structural but also psychological reasons for why this occurred.

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