From the LATimes:

9:02 PM, July 10, 2008

William Poole has long warned that mortgage titans Fannie Mae and Freddie Mac had grown so large that they posed a serious threat to the U.S. financial system.

It looks like the former Federal Reserve policymaker had it right. Stocks of both companies are in meltdown mode this week, sending ripples through U.S. markets, on fears that they don't have the capital they'll need to survive rising mortgage defaults.

So let's admit the obvious, Poole suggests: Fannie and Freddie should be nationalized.

 more: http://latimesblogs.latimes.com/money_co/2008/07/fannie-and-fred.html

and a couple of comments from there, they are worth reading:

"Why not call it what it is? Privatized gains,socialized losses. "

"

If taxpayers money will be used to bail out, then the taxpayers should get benefit. Either nationalize or let them fail on their own."

The experience of the 1930s makes me think that the present downturn will be relatively long and difficult

William Rees-Mogg

....{snip}....

I am naturally curious to see whether the global credit crunch is going to be a brief interruption in global prosperity, or the prelude to a longer and deeper depression.

....{snip}....

His introduction to the 1929 crash on the New York Stock Exchange makes an important point: "Most of the stock market's loss in value took place in later years as the Depression deepened. Three years after its initial crash and shortly before the 1932 election, the Dow Jones Industrial Average had fallen to 34, a loss of more than 90 per cent in less than three years. The Dow did not return to its 1929 peak of 381 until a quarter of a century later at the end of 1954."

On that basis, stock markets would get back to their 2007 levels in 2032.
....{snip}....

Before we get back to balance, we may see dramatic changes in politics, as well as in business and finance.

http://www.timesonline.co.uk/tol/comment/columnists/william_rees_mogg/article4326794.ece

NEW YORK/PASADENA, California (Reuters) - Mortgage lender IndyMac Bancorp Inc  said on Tuesday depositors had been withdrawing cash at an "elevated" pace since a key U.S. senator questioned its ability to survive the housing crisis.

IndyMac shares sank 38 percent to 44 cents. A collapse of the largest independent, publicly traded U.S. mortgage lender could prove a headache for U.S. regulators since more than $17 billion of its deposits carry federal insurance.

Paul Miller, a Friedman, Billings, Ramsey & Co analyst, said shareholders may be wiped out, citing IndyMac's decision to stop most mortgage lending and inability to raise capital. Miller cut his price target for the stock to zero from $1.00.

http://uk.reuters.com/article/ousiv/idUKN0744512020080709

UPDATE:

Office of Thrift Supervision shuts down IndyMac

By ALEX VEIGA – 22 minutes ago

LOS ANGELES (AP) — IndyMac Bank's assets were seized by federal regulators on Friday after succumbing to the pressures of tighter credit, tumbling home prices and rising foreclosures.

The Office of Thrift Supervision said it transferred IndyMac's operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors' demands.

http://ap.google.com/article/ALeqM5iWxtfjpQDpa7Wc4t3xQQf84g16XgD91RUI680

NEW YORK -(Dow Jones)- General Motors Corp. (GM) is burning through cash faster than investors realize and may even face bankruptcy if the market worsens and it can't raise enough capital, Merrill Lynch said Wednesday.

Merrill downgraded GM to underperform from buy and said that shares may fall below $7 over the next 12 months. GM shares fell 4.5% in recent trading to $ 11.22. A GM spokeswoman declined to comment on Merrill's report.

"Bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised," the Merrill analysts wrote.

http://urlet.com/hong.restaurant

June 26, 2008

U.S. stocks fell sharply Thursday with the blue-chip index enduring its worst June so far since 1930, and plunging to its lowest finish since Sept. 11, 2006, after getting slammed hard as crude soared to new highs and Goldman Sachs disparaged U.S. brokers and advised selling General Motors Corp.

"We're going to move in the opposite direction of oil, and General Motors is going to go out of business, at least according to Goldman Sachs," said Art Hogan, chief market strategist at Jefferies & Co.

The Dow Jones Industrial Average (DJI) tumbled 358.41 points, or 3%, to 11, 453.42, leaving it down nearly 1,200 points, or 9.4%, for the month, with one trading day yet to go. As things stand, the month is the worst June so far since 1930 when the index declined 17.72%.

http://urlet.com/belle.agree

Prices fall in all 20 cities in Case-Shiller index in past year
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) - Home prices in 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor's.
Prices in the 20 cities are now down 17.8% from the peak two years ago. The biggest declines were seen in Las Vegas, Miami and Phoenix, with prices falling by 25% or more in the past year. Prices in 10 cities have fallen by more than 10%.
Prices were lower in April than they were a year earlier in all 20 cities tracked by the Case-Shiller index.

 ....{snip}....
Here's the city-by-city breakdown in the Case-Shiller index:
Las Vegas, down 26.8% in the past year; Miami, down 26.7%; Phoenix, down 25%; Los Angeles, down 23.1%; San Diego, down 22.4%; San Francisco, down 22.1%; Tampa, down 20.4%; Detroit, down 18%; Minneapolis, down 15.5%; Washington, down 14.8%; Chicago, down 9.3%; New York, down 8.4%; Atlanta, down 7.5%; Cleveland, down 6.8%; Boston, down 6.4%; Seattle, down 4.9%; Denver, down 4.7%; Portland, down 4.7%; Dallas, down 3.4%; and Charlotte, down 0.1%

more:  http://urlet.com/production.gaining

By Greg Bensinger

June 21 (Bloomberg) -- Plunging prices for used pickups and sport-utility vehicles are deepening U.S. automakers' sales slide, with Ford Motor Co. the latest company to feel the pinch.

Gasoline near $4 a gallon helped send prices for used large pickups and SUVs tumbling at least 21 percent in May,

....{snip}....

Industrywide sales declines led by trucks helped spur Ford's forecast yesterday for a wider 2008 loss. The second- largest U.S. automaker said it will pare output by as much as 25 percent and delay unveiling the latest version of its top- selling vehicle, the F-Series pickup. Auto-loan unit Ford Motor Credit also will post a loss, Ford said.

June auto sales in the U.S. may drop to 12.5 million, their lowest annualized rate in 15 years

....{snip}....

Used SUVs may fetch an average of $6,100 less than they did three years ago, according to Bandon, Oregon-based industry- analysis firm CNW Research. That means a possible writedown of almost $5 billion for vehicle lessors, CNW wrote on June 16.

....{snip}....

http://urlet.com/character.considered

WASHINGTON – June 10, 2008 – For the past few months, the Federal Housing Administration (FHA) has backed nearly every loan that Laura Triplett has closed for customers at SunTrust Mortgage.

“I’ve got another 20 people closing in June and most of them got FHA loans, too,” said Triplett, a branch manager. “I don’t know what we’d be doing without FHA.”

Demand for these once-neglected mortgages has surged because they do not require the hefty down payments or stellar credit scores that lenders have come to expect from borrowers. In addition, the amount of money people can borrow on these loans went up dramatically this year, and many homeowners have found them attractive for refinancing.

They might not be the cheapest loans around, but they are the best fit for some borrowers – and the only option for others – as lenders continue to toughen their standards in response to the sub prime meltdown.

The number of FHA loans issued shot up 126 percent in the first quarter, compared with the same time a year ago, even though they still make up a small part of the market. They have made the biggest gains in pricey areas such as Washington, where the down payment other loans require is out of reach for many borrowers.

David H. Stevens, president of Long & Foster’s affiliated businesses, said his real estate brokerage now holds regular FHA training sessions for its agents and the loan officers at its in-house lender, Prosperity Mortgage.

“Our FHA business in the Washington area went from virtually nothing at the end of 2007 to about 30 percent today,” Stevens said. “In some spots, FHA makes up 50 percent of all our loans.”

The volume of loans at Wells Fargo, one of the nation’s largest lenders, has increased 342 percent this year from the same time in 2007, said Greg Gwizdz, the company’s national retail service manager. Helping drum up business were live simulcasts for real estate agents that the lender recently held in movie theaters nationwide touting the benefits of FHA loans.

Many attribute FHA’s growth spurt in part to federal legislation that has temporarily raised the FHA loan limits nationwide, broadening the number of people who can use these loans. In most parts of this region, the limit is now capped at $729,750, up from $362,790.

The change, which took effect in early March, came just in time for Abby and Walter Morris.

The couple had made an offer on a house in Chevy Chase. But their lender yanked the loan at the last minute, citing concerns about their finances, the couple said.

Abby Morris, a doctor, had just completed her residency. Her earning potential was huge, but her medical school loans and her lack of long-term employment made the lender squeamish.

“We didn’t have a stash of money in the bank or stocks to cash out,” Abby Morris said. “We were depending on our income potential and our history of on-time payments to help us qualify for a loan.”

When that didn’t happen, the couple planned to withdraw their offer until Kerry White, a loan officer at Prosperity Mortgage in the District, told them about the new FHA loan limits.

“A year ago, this couple would have had no problems getting financing,” White said. “But because of the tightening mortgage climate, their loan options dried up. … FHA became an obvious alternative.”

The FHA does not lend money directly. It provides mortgage insurance to borrowers through private lenders. That means the FHA will pick up the tab for defaulted loans using premiums it collects from all of its borrowers.

The agency lost relevance when home prices soared and borrowers turned to subprime loans with lower upfront costs. When those loans started defaulting at an alarming rate, many subprime lenders shut down and the FHA started slowly regaining its footing. Its market share is now about 10 percent, up from 2 percent in 2005, according to Inside Mortgage Finance, a trade publication.

Most of FHA’s business now comes from refinancing. During the first three months of this year, nearly 60 percent of the 15,000 loans that FHA insured in Maryland and Virginia were for borrowers who were refinancing, federal data show. Some of them turned to FHA to get out of loans that were becoming too much to handle.

Among them was Petrina Chesson, who was anxious to get rid of a burdensome subprime adjustable rate loan. She got that mortgage two years ago and pulled out cash for improvements on her D.C. townhouse.

But the loan’s interest rate reset last month, and her monthly payments climbed to $3,497 from $3,069. Chesson never fell behind on her mortgage but feared she would.

“Things were getting tight, and I was getting worried,” Chesson said. “I just wanted a 30-year fixed loan, and no one would give it to me until Bank of America helped.”

Her new loan will consolidate her other debts so that her total monthly payments will be $3,290. Her mortgage makes up $3,002 of that total.

Although the FHA is starting to recapture borrowers it lost to subprime lenders, its loans do not have the features that drew borrowers to subprime loans but later turned problematic.

Only borrowers who can make at least a 3 percent down payment or have at least 3 percent equity in their homes and who can document their income can qualify for FHA loans.

By contrast, many subprime loans did not require down payments or verification of income. They also charged expensive prepayment penalties that made it tough for borrowers to refinance. FHA loans do not allow such fees. Most FHA loans have fixed interest rates; subprime ones typically have rates that can rise.

Douglas Vazquez, 30, knew none of that when he applied for an FHA loan. “I was more like, ‘FHA? What’s that?’ “ Vazquez said.

All he knew is that he could not afford the 10 to 20 percent down payment many lenders demanded as he shopped for a condo, nor could he qualify for a loan without a co-signer.

An FHA loan worked for him because of the low down payment and because it let his mother, a non-occupant, sign on his loan, something many conventional loans do not allow.

The paperwork was a hassle, said Vazquez, who purchased a D.C. condo for about $400,000. “They required pay stubs from both of my jobs. They required statements from checking accounts. They wanted tax returns. They would call my employers . . .. They called my mother,” Vasquez said. “But it was worth it.”

These glowing reviews stand in sharp contrast to past criticism of the FHA, which was previously bashed by lenders and borrowers alike as too cumbersome. Now, complaints center on whether the agency can handle its growing workload.

Guy Cecala, publisher of Inside Mortgage Finance, said the FHA remains bureaucratic. “But if your choice is vanilla ice cream or no ice cream, vanilla starts looking good.”
Source: washingtonpost.com

Bankruptcy Reform Act Finally Blows Sky High

The Debt Slave Act, better known as the Bankruptcy Reform Act of 2005 has at long last blown sky high.

....{snip}....

2 hours ago

LONDON (AFP) — Britain on Wednesday gave the go-ahead for two new North Sea oil fields, as Prime Minister Gordon Brown warned the world faced a "great oil shock" fuelled in part by increased demand and tight supplies.

Business Secretary John Hutton said the fields some 150 kilometres (93 miles) northeast of the Shetland Islands, off northern Scotland, would peak at up to 50,000 barrels per day, with a total output of 50 million barrels.

He also outlined government plans for new oil and gas fields to be carved out of unprofitable parts of about 30 existing fields off Britain's coast, which could see 20,000 barrels a day added to daily production.

The announcement came as Brown and his finance minister Alistair Darling met heads of the Oil and Gas UK industry body in northeast Scotland to push for greater output from Britain's North Sea fields.

Afterwards, Brown said: "I met the oil producers today because we are facing the third great oil shock in decades."

http://urlet.com/relationships.death

by Stephanie Armour / USA Today | Monday, May 19, 2008 |

 http://urlet.com/salaried.bahamas

All dies ist nicht neu, wird jedoch immer wieder von vielen Leuten vergessen. Es ist klar, dass irgendwann Zahltag ist. Irgendwann können nicht mehr neue Schulden aufgenommen werden, um die alten zu begleichen. Bzw. falls es immer nöch möglich ist, wird der Zinssatz gewaltig nach oben schnellen, so dass der Schuldner an allen Ecken und Enden sparen muss (oder die Währung wertet massiv ab). Dies ist den meisten verantwortlichen Politikern (und auch einigen Unternehmenschefs) jedoch herzlich egal, da sie durch die Schuldenaufnahme die Probleme in die Zukunft verschieben. Die Probleme also den Nachfolgern überlassen.

Gestern las ich in Bloomberg (Bloomberg Story) eine neue Variante dieses Verschuldungsexzesses. Derzeit nehmen mehrere amerikanische Städte Kredite auf (geschätzte $35 Mrd in 2008), um durch aktives Spekulieren eine Überrendite (durchschnittlicher Kreditzins war 5.88% im April) zu erwirtschaften. Mit Hilfe dieser "Mehrrendite" könnten dann die Lücken im Rentensystem geschlossen werden. Die Städte versuchen also nichts anderes als ein Trader bei einer Investmentbank bzw. einem Hedge Fund. Der ehemalige Goldman Sachs Chef Jon Corzine fasst es prägnant zusammen:

It's the dumbest idea I ever heard!

A DERIVATIVES expert who two years ago warned of a potential meltdown in global credit markets has cautioned that the crisis is far from over, and has endorsed recent calls to relax controls on inflation and allow higher prices to help markets trade their way out of their problems.  Longtime critic of derivatives markets, Satyajit Das, says those who believe the US sub-prime loans crisis, and the drought in credit markets it triggered, are nearly over are wrong.

Full article:  das0508

[01]
http://www.cnbc.com/id/23588079
[02]
http://thehousingbubbleblog.com/?p=4264
[03]
http://www.informationliberation.com/?id=24789
[04]
http://seekingalpha.com/article/66208-who-is-blowing-bubbles-in-the-commodity-markets?source=yahoo
[05]
http://www.wealthbuildinglessons.com/2008/02/21/how-to-invest-like-jim-rogers/
[06]
http://money.cnn.com/2008/01/30/news/international/okeefe_rogers.fortune/index.htm?section=money_topstories
[07]
http://blog.mises.org/archives/007726.asp
[08]
http://registeredrep.com/wealthmanagement/recession_talk/
[09]
http://www.msnbc.msn.com/id/22636679/
[10]
http://www.earthtimes.org/articles/show/136988.html
[11]
http://finance.yahoo.com/expert/article/futureinvest/43359
[12]
http://news.neilrogers.com/news/articles/2008011409.html

Over-confidence. Xenakis, who wrote Generational Dynamics, in 2004 wrote this: "Ten years ago, all the major senior business, government and education leaders were risk-averse people from the generation that grew up during the Great Depression and World War II. Today, all the major leaders are from the risk-seeking, arrogant, hubristic, narcissistic, self-assured 'baby boomer generation.'"

His hypothesis applies to the Iraq War instigators. And they are so hubristic they'd start a war with Iran.

It applies to Bush II, born in 1946, who thinks he can remake the world.

It applies to the credit bubble, which is a manifestation in part of lowered risk aversion. Those contracting big debts, both in the business world and out, didn't think about the risks or factor them in to pricing. It applied earlier to the internet bubble.

These are history. My main point is that Bernanke, born in 1953, is in this group. He thinks that he can stem another Great Depression, if not with helicopter money, then with some other gimmick. He thinks he can manipulate the stock market and stem its decline. He cannot do either of these things. He's overconfident.

Obama, born in 1961, is a Generation X-er. He's just as overconfident as the Baby Boomers and will be just as activist, as he is not separated that far in time from them. But his agenda is a different set of "problems", namely, social problems.

----------------------------------

Ah...there it is. So people want to unite the country. But how can you do that when we are at war and the economy is going down the tubes?

Let's see, redeploy troops...., spend..., spend..., spend...,

Think it will work?

With regards to military reform, read this post by Lind.
[here's an excerpt]
"Events on Wall Street suggest that the day when the money flow stops may be approaching. Despite President Hoover's assurance that "Prosperity is just around the corner," the American economy is in free-fall. After decades of frivolity, that economy now amounts to little more than a pyramid of financial pyramids, all requiring a constant inflow of borrowed money. The inflow is endangered by the developing Panic of '08, where the junk mortgage crisis and the collapse of the housing market combine to dry up lending. What happens to pyramid schemes when money stops flowing in at the bottom? Maybe a recession; maybe a depression. That's why pyramid schemes are illegal, unless the government runs them.

A tanking economy and world credit markets tighter than Scrooge's sphincter will require large cuts in federal spending. That will include the Pentagon. If a new administration were to turn to the military reformers and ask us how to cut defense spending while still securing the country, what would we advise?"

Understanding that the credit market is a leading indicator of the stock market is the stock market priced for a recession? I don't think so. In one of John Maldin's recent letters the S&P 500 earnings are discussed. Let me summarize; all numbers are for one share of the S&P 500. In January 2007, S&P estimated that the earnings would be $89.10 (FP/E = 16) for 2007. They were actually $71.56, down 20% from the estimate at the beginning of the year and down 12% from the actual 2006 earnings. The 2008 estimate has gone from $92.30 (in March 2007) to $83.90 (in December 2007, a FP/E = 17.5) to a current estimate of $71.20 (FP/E = 19.2). The scary part of S&P's estimates is that it expects earnings will grow 20% in both the Q3 and Q4 of 2008; very doubtful if we are in a recession.

The S&P is currently at 1,304.34 assuming earnings fall 20% from their highs which appears very reasonable from 2006's historical peak in margins to a recession in 2008, then earnings will be roughly $65 in 2008. That would give the S&P 500 a price/earnings over 20. Expecting at least a bear market drop to a P/E below 15 seems reasonable. So, I don't think the market has yet to price in a recession.

My approach to the current market is one third cash, one third stocks (mostly tech), and one third short derivatives (options and inverse ETFs) and gold. Since the fall last year gold has been my biggest position and has cushioned most of the drop in my stocks. If gold keeps going up at the rate it has lately you wonder if it moves into bubble territory.

I think as other central banks start cutting rates late in 2008 the old greenback will rally some. Honestly, I'd rather have less money in straight cash, but my 401K has horrible options…only one bond fund (Who designed that!?!) and I do not have the option to go self-directed, so I'm working with what I can in that account.

Note: The UltraShort Real Estate ProShares (Symbol SRS) was up almost 10% today so that was a nice gain. I'm still waiting to increase my stock holdings, but prices keep getting more appealing. F5 (FFIV) dropped below 20 today giving the company a valuation around ten times cash flow. Not sure how much cheaper I can expect F5 to get. Especially considering that their much panned acquisition of Acopia Networks might actually pay off.

• The fall in the Global Alpha fund during the market turmoil last year shows the weaknesses in using computer models to trade unusual markets
• Goldman also has a huge portion of their portfolio in level 3 assets
• Goldman may face significant counterparty risk from hedge funds, private equity, and financial guarantors
• A highly leveraged firm in a market that is de-leveraging

"The derivatives business is like hell easy to enter and almost impossible to exit" – Warren Buffet

"Two parties to [a derivatives] contract might well use differing models allowing both to show substantial profits for many years" - Warren Buffet

Update April 2008

In early April I closed one of my two Goldman short positions. I had a put position that expired in January 2009 which I closed out at a small loss and I still have open a short straddle that expires in January 2010. I was disappointed to see the Fed provide financing to the investment banks without requiring any additional oversight or regulation.

The fact that our government is now directly financing an institution with 40 to 1 leverage is absurd. The Fed giving Goldman Sachs access to financing is like the government providing crack to a crack addict. With a Fed chairman and Treasury Secretary that are both Goldman alums you get a situation similar to Italy's.

1. Impact of losses measured on post-tax basis

• Should be $5.13B (assuming a tax rate of 38%), not $3.18B

2. Covenant Violations and Loss of Access to Liquidity Facilities

• Lose access to $500M

3. Loss Estimates Must Incorporate Reinsured Exposures

• $42B ($21.5B is CDOs of ABS or CLO/CBOs) of reinsurance from Channel Re should be put back on the balance sheet
  
• $11B from Ram Re
  
• MBIA reinsures Ambac, and Ambac reinsures MBIA

4. Bond Insurers' Investment Portfolios are Riskier Than They Appear

• Portfolios include substantial amount of bonds guaranteed by bond insurer itself or other bond insurers

5. Commercial Mortgage Backed Securities (CMBS) Problems Ignored

• MBIA insured $43B net par of CMBS securities (vast majority underwritten in 2006 & 2007)
  

6. Claims-Paying Resources Definition Overstates Capital Available to Pay Claims

• Include present value of future premiums discounted at extremely low discount rates (~5%)
  
  • Ignore defaults or prepayments
    
  • Purchasers of secondary market guarantees likely to terminate periodic premium payments
    
  • No provision for overhead, remediation, legal, or other costs required to run the business

7. Holding Company Liquidity Risk

• The holding company has $45B of derivative obligations (currency, interest-rate, + CDS)
  
• Holding company legal expenses and litigation claims
  
• Holding company downgrade scenarios
  

Historically, AAA corporate bonds have performed up to 80x worse (based on defaults) than A muni bonds. Care to guess how AAA CDO bonds performance compares? So ratings by themselves are often relatively worthless. Now if I was to guess what the quant risk models are based on….

Calculating risk is still more art than science which is largely being proved out by the failure of Moody's and banks to accurately gauge CDO and CLO risk. Moody's and others just follow trend lines. As Egan Jones has asked, when have the major bond rating firms ever anticipated a market inflection point?  In addition, the lack of transparency exacerbates the problem.  On top of that I-bankers and analysts are paid annually so they are rewarded if years of investor's profits are eventually destroyed through bankruptcy. 

Greenspan had one great call (understanding productivity was dramatically increasing) and one horrible call (exuberantly supporting OTC derivatives and dramatically increased leverage). The increased leverage was justified by the financial engineers' fancy new models that were just assumed to work; but have now been refuted. So what has happened? The financial engineers just adjusted the models to the new trend lines.

Many financial parties break risk down to nearly a purely mathematical equation.

• Quant funds (e.g. Goldman claiming two consecutive days of 10 standard deviation events)
• Hedge funds (e.g. Citadel whose computers often account for more than 10% of daily U.S. listed equity options contract volume)
• Ratings firms (e.g. Fitch's models for MBS's did not account for falling house prices…prices never decrease?)

These models never anticipated the apparent shock of the housing bubble. Even though the cover page of every magazine at Barnes and Noble exclaimed the current housing bubble, but the models did not see it. Risk will always be much more than a mathematical equation. We don't need better math or better data; we need better analysts.

Considering my gains the past 9 – 12 months have come shorting financials (or being long gold) I'm pondering when to unwind these positions. Based on the write downs and continued freezing of the credit markets I don't think financials have bottomed.

One metric I follow is the US banks non-borrowed reserves published by the fed, every two weeks, which are now negative and have been for three weeks.  I'm sure this played are part into why the fed lowered the fed funds rate an unprecedented 1.25% over 8 days. US banks non-borrowed reserves have fallen to a NEGATIVE $15 billion (last row on page 2, in the column nonborrowed).  I'm not implying the banking system is bankrupt; I'm implying several major banks are technically insolvent.  And yes, I realize that has happened before and many of the insolvent banks (including Citibank) recovered.

So far this year I've sold my puts on XHB, MBI, and PMI, but I think the financial sector will hit a new bottom. The bond market is usually a good leading indicator for the stock market and right now the pendulum in bond market has swung from greed to fear. I look forward to a bottoming in the financial market so the economy can get back to growing and I can get back to focusing on investing in the technology industry.

Among the highlights are not only Liu's synthesis of economic theories (Friedman, Minsky, Taylor, for example), but his commentary on less renowned "economists:"

"The faith-based Larry Kudlow & Company program on CNBC, where participants are asked to declare with solemn piety: "I believe free market capitalism is the best route to prosperity" as an article of faith, is increasingly attracting viewers for its entertainment value rather than for the quality of its analysis, particularly when the host continues to repeat with a straight face his tiresome mantra that the Goldilocks economy is alive and well in the face of serious systemic financial disaster."

And, if you read nothing else, here's the money quote:

"Global inflation outlook for 2008 does not justify an accommodating monetary policy stance for any central bank. Risk of a recession in the US looms larger by the day from the collapse of the debt bubble, yet monetary policy is not an effective tool to prevent that prospect. A debt bubble will eventually have to burst to allow overblown asset prices to self-correct. If a central bank, as Greenspan claims, should not and cannot intervene on asset prices on the way up, but starts to target them on the way down, it fuels inflationary expectations. Low interest rates had caused the price bubble; and resorting to lowering interest rates to keep prices up after the bubble burst risks hyperinflation.

If higher inflation to the level needed to sustain the expanding debt bubble is tolerated, serious convulsions in global bond markets and the foreign exchange market and serious disruption to the global flows of funds can be expected. If high inflation is not tolerated, a violent burst of the debt bubble may be the outcome. While the market pushes the Fed to allow inflation to moderate price correction, it is far from clear that the damage to the global economy from inflation will be less than that from market price correction."
Full article:  "Inflation Targeting"  http://www.atimes.com/atimes/Global_Economy/JB21Dj02.html

It's time to wonder what would happen if Fannie Mae and Freddie Mac failed.

NEW YORK (Fortune) -- Here's a scary, and relevant, question to ponder as the housing market continues to slide: What would it take for the government to step in and help Fannie Mae and Freddie Mac, and how would a rescue affect you, the taxpayer?

It's been a brutal week for Freddie (FRE, Fortune 500) and Fannie (FNM, Fortune 500). A Lehman analyst report Monday kicked off a stock rout that had shares in both companies hitting fresh multi-year lows Thursday. Freddie was down 22% in late morning trading; Fannie was down more than 9%.

....{snip}....

William Poole, the former president of the St. Louis Federal Reserve, told Bloomberg the companies are already "insolvent."

....{snip}....

The doomsday scenario could cost taxpayers more than $1 trillion, says the S&P report. The report went so far as to say that a government bailout of Fannie or Freddie could force the agency to lower its rating on the creditworthiness of the United States.

more:

http://money.cnn.com/2008/07/09/news/companies/benner_fanniefreddie.fortune/