Critical Issue: Banning CDO's from the market

I've said this before (here), and will continue to keep discussing this. (because it's my blog!)

We need an ABSOLUTE ban on all financial objects that are bundled (like CDO's) to OTHER objects.

Example:

• We need to ban CDO's that are/were based on sub-prime mortgages.
• We need to ban CDO's that are/were based on consumer based products like:

1. Credit Card debt.
2. Consumer loans (car and other loans)
3. Education (college/student) loans.

Review of the 6 top 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 also ensure the dirty "STINKY" political fireball launched by (now former) Senator Phil Gramm, in the last minutes of his 'duty' in the senate is FINALLY undone.


Again to review:
*No new CDO's.
*Existing CDO's must be settled NOW, not in 25 years.
*We must ensure that these large companies (like American Express, Citicorp, JPMorgan/Chase
are ALL broken up into smaller divisions, that (heaven forbid!! might even COMPETE against each other.
*We need to re-teach banks that they will loan people money, and get property in return, that they can hold (or resell to another bank). They cannot make illogical and illliquid theoretical property from something that doesnt exist.

Mark in NJ

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...

A prediction-- An Admission --A Second DEPRESSION!

OK. I think after two years of writing about this topic I can be honest.

the REAL point of this blog is to point out that we
were heading for a SECOND "Great" DEPRESSION.

OK. We're there now. I think EVERYONE (except for the public, the press and officials)
can admit the truth.

It's BAD out there!

I think that EVERYONE in the POOR America can honestly say that

IT IS a

Second DEPRESSION

I think we need to ADMIT the truth.

Just like "The Great War" (or the "War to end ALL WARS") became WWI,

We now have to admit the "Great Depression" should now be called
"The FIRST Depression"

'come clean...

It REALLY is the truth.

And remember.

I predict that we STILL aren't over the worst yet.

The "CDO" problem (with Sub-prime Mortgages) are TERRIBLE and are NOT finished with the problems (into the public).

Just like an Iceberg (where only 25% of the iceberg is visible above the water) there is 75% of the iceberg (OR CDO problems) LURKING in our WORLD's FUTURE.

Fact and Question One:
Sub-prime (and STILL regular mortgages) are STILL made into CDO's. WHY is this???

Hasn't it been proven that making mortgages into CDO's is NOT a safe way to invest in Mortgages?

Fact and Question Two:
Consumer Money (Credit Card, Student Loans, Car Loans) is STILL being made and SOLD into CDO's.

Isn't anyone looking ahead to the immediate FUTURE? The SUB-prime mortgage CDO's Crashed.

Does NO ONE ELSE see that CONSUMER debt is ALSO going downhill, or I am Just
So far ahead of the economy (again...) that my predictions are AGAIN at least 2 years AHEAD of everyone else.

Btw, my first post (and prediction about the need for a SECOND new deal (or an SOS for a New Deal) is HERE ?

At any RATE: .. .. .. .. Drum..Roll.. My 2009 predictions....

I predict:

1)The financial industry will NOT listen, and will continue to make cdo's out of mortgages (VERY bad idea). They will find many fewer buyers then previously expected.

1A) I predict that (eventually), the Obama administration will require banks to finally start to HOLD their own debt (again, the way it USED to be!) CDO's will become banned.

2) The CDO market for Consumerized debt (credit card, home, college) WILL COLLAPSE.
Many (Millions???) of us/you will be forced to file CONSUMER bankruptcy.

2a) It will ONLY be after THOUSANDS and THOUSANDS of consumers start to overwhelm the FEDERAL bankruptcy courts that the PRESS will FINALLY notice, and bring to the attention of the Congress that the RECENT (2005) bankruptcy laws were NOT CONSUMER FRIENDLY, and ONLY favored the BANKS..

3) The 75 percent of the iceberg that hasn't yet collapsed will swiftly drop, when the US Financial industry starts to notice millions of late payers, and bad debts.

4) The CURRENT US auto industry bailout (Bush -Version 0.50) will fail. There is No longer a Market for automobiles (such as existed two years ago). The next question is: WHO are we TRYING to save?

4a) The current major Industry of Advertising, will be one of the first auto-related businesses to fail (bigger then WALL STREET!)

4b) Auto Makers, Dealers, Resellers, banks, and even car rental companies will Absolutely stop all advertising, as a method to stave off bankruptcy. This will lead Ad agencies to close, and Print media (magazines, newspapers) to be the THIRD industry to fail

Example # 4) The January 2009 issue of GQ was 128 pages. This (I presume) was the First issue after the fallout of the September Stock (and everything) crash (or 1929 crash Two!)

Normal issues of GQ, owned by Conde Nast (as is the New Yorker, and many other magazines)
are about 400-500 pages.
CONSPICUOSLY absent are Car Companies, and MANY, many consumer retail brands.


Mark B in NJ...

(A review for new readers below...)

Fortunately, I really think my 12 point program for pulling us out of the depression CAN work, especially if we do them ALL at once.


Here are the points:

* The current out of control capitalist system has now failed us.
* Single Payer Nationalized health care (to get ins. co buy-in- phased in over 5 years)

* We've managed to WASTE a FULL (and alienate) a FULL generation (from Zero to thirty) with decaying social, educational, and interpersonal skills.
* Our nation is no longer DOING (producing) anything.

SO, from these few premises, I have extrapolated a great deal of items to FIX our society...

We need to do the FOLLOWING to FIX our Society:
* Create A Living Wage
* Create a National Single payer Healthcare
* Create a National 3-4 year draft (or alternate service)
* Create a Federally paid Day Care starting at six months
* Implement Tax Reform on the ULTRA Rich I call this the Milionaire's Minimum Tax!
* Lobbying (Political Reform)
* Education
* Infrastructure (road /bridge/Systems repairs)
* Lack of Training/futures
* A real "Truth and Reconciliation" Commission
* A new "Manhattan" project, focusing on Energy INDEPENDENCE


It's all in the sos-newdeal blog here.

Or just email me for specific questions.

I like to say they all go hand in hand, and it's like juggling a bunch of running chain saws.
Dangerous if any of them drop, but spectacular to watch as being juggled!

Mark Brown in NJ

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