'Surreal'

It's a good thing Fed Chairman Ben Bernanke, the man who saved our economy, is in charge. Otherwise I might be a bit concerned about these three (and many other) bailouts-in-the-making:

"FHA Bailout Risk Looming Larger After Guarantee Binge: Mortgages" (Bloomberg)

The Federal Housing Administration won’t be able to earn its way to financial health this year, increasing the chance it will need a taxpayer bailout, based on an updated forecast from Moody’s Analytics, which provides the agency’s housing-market analysis.

The U.S. government mortgage-insurer, which guarantees $1.1 trillion in home loans, had been counting on “robust growth” in home prices to help rebuild its insurance fund after paying out $37 billion to cover defaults the past three years, according to its annual report to Congress, filed in November.

It won’t get that growth until 2014, according to the latest outlook from Moody’s Analytics. Prices will fall 3 percent in fiscal 2012 before growing 1.4 percent in 2013 and 6.5 percent in 2014, said Celia Chen, a Moody’s Analytics housing economist who updated her estimate after providing the housing-market forecast for the FHA’s annual actuarial report.

“The FHA’s economic projections are surreal,” said Andrew Caplin, a New York University economics professor who has testified to Congress on the agency’s finances. “They must believe there will be very few readers in Congress able to critically review such a complex report.”

In their annual review, the FHA’s actuaries -- risk analysts who specialize in insurance -- used earlier projections that called for increases of 1.2 percent in 2012 and 3.8 percent in 2013. The agency, which backs mortgages that cover as much as 96.5 percent of a home’s value, is sensitive to changes in home prices. While the insurance fund’s 2012 outlook called for net growth of about $9 billion, that will drop if home prices decline, according to the FHA’s November report.

"The First Crack: $270 Billion In Student Loans Are At Least 30 Days Delinquent" (Zero Hedge)

Back in late 2006 and early 2007 a few (soon to be very rich) people were warning anyone who cared to listen, about what cracks in the subprime facade meant for the housing sector and the credit bubble in general. They were largely ignored as none other than the Fed chairman promised that all is fine (see here). A few months later New Century collapsed and the rest is history: tens of trillions later we are still picking up the pieces and housing continues to collapse. Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared. In a report set to convince borrowers that Student Loan ABS are still safe - of course they are - they are backed by all taxpayers after all in the form of the Family Federal Education Program - Fitch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current (extrapolating the delinquency rate into the total loans outstanding). That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable. It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.

"More Municipalities Betting on Pension Bonds to Cover Obligations" (Los Angeles Times)

Local governments are increasingly borrowing money to plug shortfalls in their employee pension funds by exploiting a loophole in federal law. Market experts say the risks and long-term costs are frequently ignored.

-- NEW YORK Struggling to pay employee pensions, local governments are increasingly borrowing money to cover their obligations — exploiting a loophole in federal law that allows them to issue taxable bonds without seeking voter approval.

Oakland took a bet on its pension fund that ended up costing the city an estimated $245 million — nearly a quarter of its annual budget. That hasn't stopped the city from looking to try its luck one more time.

The bets are being made using an exotic but increasingly popular financial instrument known as a pension obligation bond. Cities, counties and states use the bonds to take out high-interest loans from private investors to plug shortfalls in their employee pension funds.

If the pension funds make smart investments with the borrowed money, the returns can help pay the interest due to borrowers and sometimes even spin off some extra cash to pay pension costs. If they don't, the bonds can create additional costs for taxpayers, put the retirement funds of teachers and firefighters in jeopardy, and, in the worst case scenario, force municipalities into bankruptcy.

Municipal finance experts are sounding alarms about the practice, saying that local elected officials are taking unnecessary risk because they are afraid to anger voters by raising taxes. There is also the risk of instigating powerful public employee unions if pensions are cut.

"There are communities that just do not want to make the hard choices, even though it means the choices in the future will be worse," said Robert Doty, a municipal finance consultant in Sacramento. "They are just going to dig themselves deeper and deeper into a hole."

But Apple closed up on the day, so that's all that matters -- right?

Comments

[Honest assessments get no traction...why?]

Definitive on Derivatives Blowup - Ponzi's Fail in Contraction

"Ponzi schemes can go on for a long time under the mask of expansion; these frauds blow up during a contraction of new money being input into them.

Such may be the story of credit derivatives as we see a working contraction in the notional value of these instruments as reported by the comptroller of the currency. In simple terms the number of these instruments has gone down to a mere 240 Trillion!

The premise for this ponzi is the concept of netting whereby risks off offset on paper under the false justification that positions can become risk neutral. In this ponzi scheme the efficacy of the netting process has magically risen from 50% or so to an astounding 92.2%.. This means that the reported risk of 240 Trillion is only 8% of the notional amount.

In less insane times the notional risk was reduced to a mere 50% through the netting process. Even with 8% risk not covered by netting the liabilities of JPM and others are far greater than their assets under management. The problem being that JPM's assets are secured by its liabilities and the liabilities of banks tend to be YOUR Savings.

With changes to Safe Harbor rules the government is not only facilitating fraud with these netting assumptions but they are also putting your savings at risk by giving the coverage of derivatives priority should there be a dispute. This very issue is being worked out presently with MF Global."

http://jessescrossroadscafe.blogspot.com/2012/03/warren-pollock-overal-derivative-market.html

[Tom]

The people at the top are just preparing their (fictitious) "lifeboats" for when the (pretty much) guaranteed collapse of the American dollar as the global reserve currency happens (and it will come sooner rather than later). It's going to be a very "interesting" summer with ridiculously high gas prices causing rampant inflation while we all bake under the ("fictitious") global warming of climate change and have to pay inflated electric bills to try to stay comfortable enough to hold on to our worthless jobs. Enjoy your ride down and out Amerikkka.

[Need a big cleanup of system]

"Gold goes as high as the debt hole goes low."

Recently Ben Bernanke and other really smart people have been on a Gold bashing campaign which they are terming "transparency." Why now? Well, because they have to. They have to because as the debt hole gets deeper and deeper, more and more people understand that it can never be paid back and their minds begin to wander. The central banks of the world just don’t want these wandering minds to end up coming to the conclusion that their money really isn’t money at all. So Gold gets bashed with untruths and a smear campaign (not to mention the millions of fake paper contracts) so as to divert the wandering minds (as many as possible) from the truth.

After what we have been through since 2007, you should probably now understand why. They don’t want Gold in the system. Gold takes actual effort, machinery, (real capital) to produce, and it is rare. Politicians and central bankers would be precluded from handing out free money to friends, cronies etc. at a whim. Bankruptcies would… well… be bankruptcies and bailouts wouldn’t exist. They couldn’t. Think about it, who would be stupid enough to give away something that is real, rare and valuable to save someone else? Surely not any of the greedy scum who run the show now. No, failures should simply fail and capital would be cared for and risk actually avoided. In this manner, capital would efficiently find its way to investments and the AIG’s, Fannies and Freddies, Solyndra’s, GM’s, and bridges to nowhere would not exist, be built or even contemplated.

http://www.jsmineset.com/2012/03/28/jims-mailbox-897/

[EconMan]

Good news = bullish

Bad news = bullish (it could be worse)

Neutral news = bullish (at least it's not bad)

[Binko Barnes]

From a politicians point of view the choices between A: raising taxes, B: cutting benefits and C: taking out risky loans are seen in very simple terms:

A) Political Suicide.
B) Political Suicide.
C) Buys Time.

Seen in these terms politicians, who generally are not too bright but have keen survival instincts, will always choose C. Always. Hence the hole gets deeper and deeper.

[roger,]

'Surreal'
Alter net/by Les Leopold (A single Hedge-fund hustler makes
more than 85000 teachers)
This society has gone immoral and insane!

[The fallow garden]

Eric Sprott: The [Recovery] Has No Clothes

Take the latest US unemployment numbers, for example. There was much excitement about the latest Bureau of Labor Statistics (BLS) report which announced that US unemployment remained unchanged at 8.3% during the month of February.2 The market was particularly enamored by the BLS's insistence that non-farm payrolls increased by 227,000 during the month, as well as its upward revision of the December 2011 and January 2012 jobs numbers. Lost in all the excitement was the Gallup unemployment report released the day before, which had February unemployment increasing to 9.1% in February from 8.6% in January and 8.5% in December.3 Granted, the Gallup methodology is slightly different than that used by the BLS, but even if Gallup had applied the BLS's seasonal adjustment, they would have still come out with an unemployment rate of 8.6%, which is considerably higher than that produced by the BLS.4 We all know which number the pundits chose to champion, but the Gallup data may have been closer to the truth.

For every semi-positive data point the bulls have emphasized since the market rally began, there's a counter-point that makes us question what all the fuss is about.

http://www.zerohedge.com/news/eric-sprott-recovery-has-no-clothes?