Remember that correction we’ve been quietly talking about over the past couple of months?Well, it might be right around the corner. Stocks waited until the last day of the month to nose-dive. The S&P 500 posted its first 2% down day since April — and the Dow wasn’t far behind. Early this morning, futures continue […]
I was talking with one of my colleagues the other day, and he raised a very interesting question, one that deserves consideration by anyone worried about their digital privacy. He read an article that championed the idea that the more steps one took to protect their privacy by using anonymous Web-browsing tools like Tor, the […]
A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, […]
Fifty years after the 1929 crash, a group of money managers and investment thinkers put together a collection of essays looking back at that experience. The result was a distillation of some pretty fine investment wisdom. Timely, I think, to review now.One of the contributors was Arthur Zeikel, then with Merrill Lynch. The title of […]
Although the mainstream media have turned its attention away from the wreckage of Obamacare, don’t think for a second that all is well.As the politicos in D.C. focus their attention on the midterm elections in November, now is a great time to study, prepare, and seek out the most affordable, accessible, and highest quality options […]
I’m sure you’ve seen the news. As if recent, past U.S. policy fiascos in Libya, Egypt and Syria were not enough, the wheels are now coming off the proverbial bus in Iraq, site of so much blood and treasure spent in the last decade. Radical Islamist armies are marching toward Baghdad, slicing through Iraqi government […]
Turn on the tube and economic ignorance seems to be everywhere. There is constant shilling for more government. Business is demonized. Man is said to be trashing the environment. “Workers and women are oppressed” is the constant mantra.And members of the clueless media nod their heads in unison.Only John Stossel has provided the fresh air […]
Health care costs in the U.S. have been rising so steadily for so long that containment barely seems possible. Even optimists don’t dream of cutting the price tag. As its official name — the Patient Protection and Affordable Care Act — suggests, Obamacare aims for affordability, not radical reduction.But at a time when we’re all […]
In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
In the minds of many people around the world, including in the United States, the term “capitalism” carries the idea of unfairness, exploitation, undeserved privilege and power, and immoral profit making. What is often difficult to get people to understand is that this misplaced conception of “capitalism” has nothing to do with real free markets […]
“Do you hear that popping noise?” “Yeah…” said Joe, my racquetball companion. “What is that?” “It’s my knee” I replied, grimacing. Apparently, after a series of twists, turns and lunges, my left knee had endured enough. Every step I took produced that eerie suction sound your tongue makes after being released from the roof of […]
When you type a website address into a browser, you might have noticed that the letters “http” appear at the front. “HTTP” stands for Hypertext Transfer Protocol. In typing a Web address, you are actually sending an HTTP command to transmit that website to you. Hypertext Transfer Protocol is the means by which information is […]
Some people are saying it is just what the doctor ordered. Others are saying that the cure is worse than the disease.The Affordable Care Act? Reengagement in Iraq? Tea Party bullying in the GOP?Not this time. Just as protracted in the corridors of Congress and the White House is the debate over the proposed reform […]
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
Picture the scene. It’s 2020. You’re at the checkout in a convenience store with a carton of milk. But you’ve got no cash and you’ve left your cards at home. No problem. You scan your right index finger; the green light flashes. Purchase approved and you leave. Easy.Is this a realistic vision of the future, […]
They’re in every grocery store… those brightly colored boxes of prepared foods loudly claiming how healthy they are. But they’re not what you think. Nearly all of the prepackaged “low-fat,” “low-carb,” and “heart-healthy” meals lining the shelves are just shadows of real food… with little to no nutritional value. “Most people think of “flavoring” as […]
“In the beginning, all the world was America.” — John Locke“The Garden of Eden was a perfect place,” my friend Manuel explained. “Man had free will. He could live in harmony with nature and God — and everything would be fine. But if he defied God, the stain of original sin would be on his […]
One issue I have with our modern lifestyle – of many — is the emphasis on perfection. Newer, slimmer, bigger, better, faster: the message of perfection screams out to us from glossy magazines, slick television ads and popup ad after popup ad. (Or purrs, cajoles, teases, and smothers.)While I do believe fundamentally in pursuing whatever your […]
People jacked up about income inequality can find a new hobby. The 1% are victims of a doomsday machine, and the countdown is ticking. Machine, thy name is “family.”This came to mind as I was reading a preview of Columbia Professor Andrew Ang’s forthcoming, must-read book on Asset Management. Ang is that oxymoron, an exciting […]
After a week of reckoning about the American oil and gas boom… I’ve got to get something off my chest.I can’t stand it when a coworker takes credit for something I did.Whether it’s a special report I wrote or just a little investing trick I found on my own — if someone takes it and […]
To get free, unlimited access to these books and 100s more, join the Laissez Faire Club! The Ethics of Redistribution by Bertrand de Jouvenel Release Date: July 24, 2014 This interesting and challenging book argues that redistributing income from the rich to the poor is unethical. It also shows how redistribution works in practice: it […]
It might sound like the latest new product from Apple, but IPAB is actually the newest major legal challenge to Obamacare.Recently, a three-judge panel in the 9th Circuit Court of Appeals in San Francisco heard arguments about the Independent Payment Advisory Board, or IPAB, a 15-member panel created by the Affordable Care Act and empowered […]
Americans have come to believe that the IRS and the income tax are inevitable parts of our lives. After all, most everyone alive today has lived his entire life under federal income taxation.It wasn’t always that way. For some 125 years, the American people lived without having any tax imposed upon their income.The obvious question […]
Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]
Franklin Delano Roosevelt famously used the term “forgotten man” in a 1932 speech to describe those at the bottom of the economic pyramid who, he felt, government should aid.But the originator of the phrase “forgotten man” had a whole different meaning in mind. He aimed to expose the seeming good intentions of government to reveal […]
In France, each winemaking appellation is governed by specific rules. To be called a “Burgundy” or a “Bordeaux,” for example, wines must come from a specific geographic border. Not only that, these rules dictate which grapes can be grown, how they’re irrigated and pruned, and even what alcohol level is allowed in the finished product. […]
“As the nation’s central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding […]
The Keynesian disaster recovery plan has been to lower rates, force people to take more risk in search of yield, and entice others to borrow and spend and, magically, more jobs will be created. If people won’t buy stocks, central banks will.Back in 2011, Ben Bernanke, when asked if QE2 was driving up stock prices, […]
I want to share some insight and give you a front-row seat to America’s next big shale play.Let’s get to it…Over the past 10 years, the U.S. has turned the ship around, quite literally.We’ve gone from a country that was expecting to import massive amounts of oil and gas — to a country that’s sitting […]
In September 2009, when President Obama made a primetime speech pitching his not-yet-passed health care overhaul, he made the following promise: “I will not sign a plan that adds one dime to our deficits — either now or in the future. Period.” To prove his seriousness, he further promised that “there will be a provision […]
The trend of pervasive surveillance is accelerating. Fortunately, the marketplace for privacy is growing too. And with just a little effort, you can take advantage of these privacy tools to help protect your “digital life.” Several months ago, in our Make Yourself Invisible to the NSA special report, we told you about DuckDuckGo. Unlike Google […]
Whatever your views on the role of government, one thing is clear: There will be no way to pay for it if the economy doesn’t grow. And I’m not talking by a measly percentage point or two. If we can’t find our way back to 5% annual economic growth or above soon, America’s accumulated federal […]
What if I told you that the march of human progress could be traced in a direct line from the Epicureans of Ancient Greece… through the 18th Century’s cure for smallpox… to where Steve Jobs and Bill Gates found inspiration as scrappy teenagers… to the flying car of tomorrow?Stay with me and I’ll show you […]
It’s four years after the crash in the housing market and the economy is still in a funk. Sure the stock market has recovered, but unemployment remains high, housing prices continue to go nowhere, and plenty of unemployed 50 years olds worry they will never work again. Just how long are we to wait for a recovery and why is it taking so long?
The continued government stimulus of zero interest rates, bailouts, and fiscal stimulus have kept the asset bubble in real estate from correcting, at the same time it has pumped up the stock and bond markets.
But while there are more than a few pundits calling a bottom in the housing market, any slight bounce in activity we’ve seen is merely the resulting malinvestment brought about by zero interest rates, and the legal quagmire stopping home foreclosures. The market has not been allowed the clear. Until it is, the market will continue to meander near the bottom.
Ironically, it is Alan Greenspan who sheds some light on this in an interview with Bloomberg Businessweek. Greenspan points to a key difference between the RTC liquidation process after the S & L crash, and today’s lack of liquidation. When asked about the current administration’s policies, Greenspan said,
Well, it’s not the present administration, it’s the current view of most policy-oriented economists. And here, regrettably, I am in the minority. The notion that if there is an economic problem, the government is obligated to address it, necessarily creates uncertainty about the future. And there’s hard research that shows such activism is responsible in part for the very heavy discounting of earnings on longer-lived business investments, and by households that had dramatically shifted from owner occupancy to short-lived rentals in the face of the uncertainty of the direction of home prices. We need to replace such activism with a policy that allows the markets to correct their own imbalances. Remember the Resolution Trust Corporation in the early ’90s? I was on the oversight board of the RTC. It got stuck with the job of liquidating more than 700 failed savings and loans. Some of the stuff that the RTC wound up with was perfectly liquid and saleable. But a big chunk was uncompleted eight-hole golf courses, half-built office towers, and vacant malls. Nobody wanted it. We all sat around and said, “This stuff is deteriorating very rapidly, and if we don’t get rid of it, the taxpayers are going to take a huge hit.” I mean, the numbers were very, very large. Somebody suggested, “Let’s package it and sell it.” And we did. Needless to say, the bids were less than 50 percent of the original cost. Congress was outraged. We were giving away taxpayer-owned assets to greedy vulture funds.
A couple questions later,
Yes. Investors cleared out our illiquid inventory in a matter of months. The final cost to the taxpayers for the savings and loan crisis amounted to $87 billion, a fraction of the original estimate. Allowing the markets to liquidate worked.
What’s different with this crisis is that the FDIC remembers Congress being outraged. The deposit insurer does not want to be accused of “giving away taxpayer-owned assets to greedy vulture funds” again. So, it sits on almost $22 billion in failed bank assets and is partner in billions more.
For instance, NYSE-traded homebuilder Lennar Corp. purchased 40% stakes in bank loans from the FDIC in 2010, with the FDIC retaining the other 60% ownership along with providing seven-year, interest-free financing for Lennar’s share, beyond the $243 million the homebuilder contributed in equity. The three billion dollars in loans was purchased for $1.22 billion or 40 cents on the dollar according to Wall Street analysts.
Colony Capital was also a buyer of busted bank portfolios, again partnering with the FDIC. Commercial Mortgage Alert wrote about one of Colony’s purchases,
The stake was offered under the FDIC’s structured-sales program – one of the agency’s options for liquidating assets inherited from failed banks. Under the program, the FDIC sells stakes of 20-40% in portfolios to operating partners, which work out the assets. The agency retains an interest in order to share in any upside.
These partnerships are not the quick liquidations of the S&L/RTC days. The assets really haven’t left the government’s hands. The government holds majority shares in the partnerships and the minority partners are beholden to the FDIC for the interest-free financing. The seven -year term of the loan belies the idea that these assets will be quickly liquidated.
So as not to anger Congress, the deposit insurer is hoping the market will magically turn around and the punk loans and assets will be sold at higher prices.
The government braintrust embraces the view that the economy is cyclical and that no matter what the Fed or the government is doing, if they just wait long enough the market will turn around and a whole new real estate bubble will appear for them to sell into.
Unless the market is allowed to correct, these asset values are going nowhere. Meanwhile, the Federal Reserve’s monetary pumping will only create other asset bubbles that will ultimately crash.