Banking: Previously/more Sources

Interestingly enough tonight (2-19-09) on Marketplace Money a commentator discusses the concept of a TRILLION dollars.

###--->>> Look at this post from 1-19<<<---### I had to REVISE these predictions!!!

What scares me no end is this:

HERE: I predict that we've only seen 25% of the TOTAL financial crisis.

If you combine this statement (only 25%) with my prediction HERE
where I say it will take between 20 and 70 TRILLION dollars to clean up all the forthcoming mess, I start to shiver and get the shakes.


Please comment. My prediction rate is pretty good. I predicted $100/barrel oil one year before it came. I predicted this financial crisis three years ago.

Proposal: Jus' COME CLEAN: admit the TRUTH

The Stimulus plan is almost passed (Friday night 2-13-09)

Next item on agenda.

Rescue the banks.

Proposal

The Fed, the banks, the Congress and the President ALL need to get together in ONE room* .

They THEN need to:

1. Come clean to each other, and admit how big the problem is. (hint: I say it's closer to 20-70 TRILLION dollars (including sub-primes, CDO's and everything consumer (College Loans, credit card loans, car loans).
2. Discuss ideas on HOW to get rid of these CDO (securatized debt).
3. Agree how both Democrats and Republicans can support these outcomes.
   

Discussion goes here:

I'll start, you continue below...

1. My first proposal: Ban ALL future uses of financial instruments made from or supported by, or hedged against debt that has been aggregated together. (I believe this is a technical definition of a collateralized debt obligation, but am open to correction if wrong...)
2. I believe that All CDO's on the books of Every financial institution's books need to be written off to a value of ZERO dollars. If a bank is lucky enough to make money on it in the future, so be it, but for now the value has to be honestly evaluated, as what it is worth to another bank or trader today, namely nothing.
   
3. The zeroed out assets can either be held by the bank, or given to that "Bad Bank" I keep hearing about.
   
4. I contend that the worst of this financial crisis has YET to hit. HERE, I say*:

...I believe that we have ONLY seen 25% of the financial crisis in the United States. I feel quite strongly that the other 75% will drop on the economy as the CDO's that were made from CONSUMER DEBT (car loans, credit cards, Student Loans, etc) bomb as more and more people start to default and/or file for bankruptcy....

• I (again) contend, that if you look at how the banks performed, and specifically how they revealed their losses from the beginning of the housing/sub-prime bubble to today, the banks were extremely reluctant to disclose their full losses at one time, and dripped the losses out over several quarters, and even several years.
  

---

* Like that'll happen soon... (Is there a conference room BIG enough to hold ALL those egos?)

** And for those counting, My batting average is PRETTY good in predicting trends/ideas/problems (so far...) I'll save that 'puffery' for another post.

NO MORE CDO's Start NOW!!! (STOP NOW!)

Michael Douglas in Oliver Stone's 1987 flick "Wall Street".

An interesting aside about this here, stating

If Oliver Stone did a sequel to "Wall Street," his classic 1987 film, Michael Douglas' Gordon Gekko character would be out of prison and heading a covert "psych-ops" team masterminding Wall Street's secret war against America's 95 million investors.

OK. We're in the Second Depression. There. I've said it AGAIN.

What can get us out of it?

Lots of things.

This post will discuss ONE thing.

CDO's and WHY they must be OUTLAWED and abandoned IMMEDIATELY.

For those new to this blog, I believe that we have ONLY seen 25% of the financial crisis in the United States. I feel quite strongly that the other 75% will drop on the economy as the CDO's that were made from CONSUMER DEBT (car loans, credit cards, Student Loans, etc) bomb as more and more people start to default and/or file for bankruptcy.

sub-note: I think that the ill-conceived revision of the bankruptcy laws, (advocated for decades by the FINANCIAL institutions) will be UN-DONE within five years, after the government sees how much DAMAGE it will have done to consumers in this country...AND that as a result, bankruptcy judges WILL be able to rewrite ALL debt (or remove it ALL!) (but it serves the financial industry RIGHT!)

Reasons we need to outlaw Collateralized debt obligations are as follows:

1. In the old days, when the Bailey Building & Loan Association made a loan, they DIDN'T try and sell it. They KEPT the loan ON their books, and the neighbor who had the loan or mortgage payed them DIRECTLY. They didn't have to have ANOTHER company SERVICE the loan.
2. CDO's in today's market have absolutely NO value. They cannot be traded, they are currenly what we call "toxic debt" (See great article from TWO years ago HERE!)
3. SELLING the mortgage (debt) does NOT make more money available for the bank. This is not real life. In real life, (today) NO Loans are being made, because banks are now what I call "chicken-S*it
4. CDO's are toxic. Attempting to take the risk from a loan, and apportion it to 100 different investors is nice. However, too little too late. I repeat, CDO's are toxic, and will NEVER be a worthwhile asset to ANY financial institution EVER again. I will also predict that ANY bank that ever purchases CDOs from ANY institution will need to have the brains of its board of directors scanned for metal from bullet fragments.
5. The days of "Greed Season" are over for Wall Street. Wall Street Bonuses got inflated because some 'genius' figured out how to "SCAM" the market, creating (for his company, and himself {his bonus}) a WIN-WIN scenario, where the ONLY loser (today) is US, the taxpayer.
6. The most important reason to ban CDO's? We now OWN the banks. We now need to EXERT FINANCIAL CONTROLS that will bring the market place BACK to a safer time, like when the Bailey Building & Loan Association made loans to their community.

We must ensure that the BANKS are RE-REGULATED. the Glass-Stengal repeal of 1999 and other similar "SLIME" last minute financial regulations MUST be undone.

We MUST FORCE these "mega"banks to DIVEST. CITI-bank can NO LONGER be the behemoth that it is. Much of these mega-banks WERE created right after the Glass-Stengal repeal, and must be UNDONE.

It' the only way to make the second depression we're in last for LESS time, and recover the economy...

Economics: and the forthcoming DEPRESSION(2)

1. 
   
2. According to Robert Reich, former Clinton Sec'y of Labor,

The only measurable number that can be taken from the great depression of the last century, is that there was 25% unemployment, as opposed to our average unemployment numbers between 3 and 9% in the last century.

At 25% unemployment: A Hypothesis....

* Let's pretend that the average enclosed mall in anytown, usa has 100 stores
(most have more!)
* Let's pretend the average store has 3 fulltime (Managers) and 14 part time
employees
* Let's pretend the average 14 time part/time employees equals 7 full time employees.
* Let's pretend the average store thus has 10 full time employees.

Now.
Let's look at a couple of national Chains..
1) The Gap: consists of
a)The gap b) Baby Gap, c) Old Navy, and two other brands I can't remember.
b) let's pretend that's 5 stores in ONE mall.
2) Hot Topics = Hot topics & Torrid stores (2 stores in same mall)

for a quick overview of the bankruptcy of Retail chains, see this article in today's NYTimes Here

Now (using ONLY the numbers in this article, we come to this quick chart I put together...
Chain Estimated # of store closings
=======================================
Linens ‘n Things, 500 stores
Foot Locker 140 stores,
Ann Taylor 117stores
Zales 100.stores
Bombay, 360 stores
Lane Bryant 75 stores ---same owner
Fashion Bug 75 stores.---same owner
Wilsons/Leather 158stores
Demo 153-stores
Sharper Image 184
----------------------------------------------
1862 stores

OK... so we see a list of 1800 RETAIL shops closing over the next year or two...

let's take that number and multiply by our estimates of 10 equivalent F/T employees Per store..

Roouuh-ohhhh,,,
1862+say another 5% for 'home office employees' (93) equals almost 19,55 employees OUT OF WORK...

Now take this lovely line in the article,

The International Council of Shopping Centers, a trade group, estimates there will be 5,770 store closings in 2008, up 25 percent from 2007, when there were 4,603.

Let's take that number (5770 * (10/store)*
57,700 workers plus 5% home office employees (289)=57,989 round up to 58,000 employees OUT OF WORK...

Now add the past # (19,055+58,000)=77,000 out of WORK employees.

let's go sideways 5770 stores plus 1862 stores = 7,632 stores closing...

7632 stores divided by our hypothetical 100 stores per mall= 76.32 malls

Imagine your local town...

Imagine that 76 malls become...FULLY EMPTY... WITH NO stores in THE MALL.

Now what happens??

Call it TRICKLE DOWN Economics....

1. The local coffee shops and Dunkin Donuts and Starbucks get less customers.
2. The entire (let's presume local) population that worked in the Mall are OUT OF WORK.
3. The number of remaining stores are NOT hiring, or not absorbing THAT many people
4. The 76 malls need to declare bankruptcy
5. What do local governments do?

Imagine retraing 76,0000 people....

And we say 25% unemployment (the only measurable number according to Robert Reich)
is a far fetched number today??

I say... We've screwed ourselves.... And that's only ONE reason we need this 'another' New deal to Save Our Society...

your opinion always welcome...

Mark Brown...

PS: and I wish I could say I was overly pessimistic, I have been telling folks about this for almost a year, and just found the article about retail bankruptcies today