Weekend Roundup 1/23
Was that a little pre-shock tremor last week? Let’s review….. Kennedy’s former Senate seat - in a state that is so blue that you’d swear everyone is choking to death when you cross the state line, went to a Republican. A thirty-point swing in the polls in literally less than a month away from Democrats. Despite what the pundits have said this was not simply about health care. It was about general disaffection with where the country has gone and is headed. Since March of last year the banks and stock market generally have rallied hard. But….. The economy has not in fact improved. There are millions more out of work today than there were in March of 2009. There is scant little improvement in freight traffic. Sales tax and income tax numbers are below where they were last year at this time. This, of course, makes perfect sense - the unemployed pay few taxes. The plates have been kept in the air only due to two things: (1) People not paying their mortgages for literally a year or more (and thus spending that money generally) and (2) massive transfer payments amounts to $500 billion a year from the government to the people - money that they borrowed, not taxed and collected. You’d think with people not paying their mortgages the banks would be losing enormous amounts of money and all go under. The big banks haven’t, but only because in March they got permission to lie about their “asset quality.” This is a short-term game and relies on the cash flow being sufficient to (temporarily) cover up the truth. But the asset quality deterioration continues and the truly ugly reality isn’t even found in the first mortgages - it is in the fact that all the home equity lines out there behind an underwater first mortgage that defaults are worth zero.
Original post:
Weekend Roundup 1/23