The revisions to GDP published this morning have turned to disgustingly nasty one of my favorite charts.  Specifically, this one:

You’ve all seen this a dozen times.  Well, here’s what it looks like with the revised GDP numbers “corrected” in the Excel file:

“Holy Sheeit” doesn’t even begin to describe this.

These are not small changes, but they also mark the desperation of our government to avoid recognition of even a tiny, 2% annualized decrease in GDP!

That’s right folks – “as-reported”, the maximum y/o/y “depression” that garnered the title “Great Recession” was a minuscule 2% decrease in REPORTED nominal GDP.

But look at the policy response.  Oh, and that last dot – it’s estimated, based on the 2Q preliminary GDP numbers (which are almost-certainly too “hot” and the debt numbers (almost-certainly too “cold”.)

In addition the revisions make clear that there was in fact a zero real growth rate in 2006!  There was your warning…. and likely why we had the nice little dump in the market starting in the early part of 2007.

(Revisions only go back to the e/o/y 2006 numbers.)

If you look to the 2003-2007 period for a clue as to how our government will respond, you’re in for a stunner – there will be no material decrease in deficits while economic “recovery” on a nominal scale will be unlikely to go beyond 4% on a reported basis.

At this rate we’re gonna be Greece – and sooner than you think.

Ponzi Ponzi Ponzi!

The Market-Ticker

By the end of the recession, there will be approximately 1,000 bank failures.  Does this sound extreme?  It should but the numbers don’t cover the entire story.  Since 2008 the number of bank failures has reached 269 and this doesn’t include consolidations done through the FDIC where bigger banks ate up smaller banks before they officially failed.  Last week, 7 banks failed.  At that pace, we are looking at 364 bank failures per year and the actual number of closings per week has consistently gone up.  The FDIC is in a precarious situation.  The Deposit Insurance Fund (DIF) is technically speaking, broke.  They have added additional cash reserves by front loading premiums on surviving banks but this can only stunt the financial bleeding for so long.  The problems in the banking system run deep and many of the smaller regional banks are failing because of commercial real estate loans going bad.

Here is the actual weekly trend of bank failures:

Source: FDIC

The trend is unmistakable.  The worse offending states are as follows:

Georgia:          40

Illinois:                        34

Florida:           34

California:       27

These four states make up 50 percent of all bank failures since the crisis started.  The current policy and momentum seems to be with banks ignoring balance sheet problems until they are no longer able to hide the dirt.  The too big to fail banks have already been chosen by the government and the rest will need to deal with the new economic landscape.  The FDIC, the seal of confidence and strength dates back to the Great Depression:

It is a game of confidence that we have increased the actual amount of deposit insurance to $250,000 from $100,000 at a time when the actual insurance fund is negative.  You would think that something this problematic will cause for a sense of urgency but the government is giving the FDIC until 2020 to get this fixed:

“WASHINGTON (MNI) – With the passage of the Dodd-Frank Act, the Federal Deposit Insurance Corp. will now have until the end of September 2020 to bring its reserve ratio to the statutory minimum of 1.35%, rather that 1.15%.

This is more than the eight years provided under the current Restoration Plan that would have given the FDIC only until the end of 2016 to bring its reserve ratio to 1.15%, an FDIC spokesman told Market News International Wednesday.

The latest projections presented at a Board meeting in June, indicated agency did not expect to meet that deadline.”

While the government gives the FDIC until 2020 to get their house in order, this is how the deposit insurance fund is looking:

This is the third consecutive quarter in the absolute red.  The banking system is starting to look like an imploding ponzi scheme and Wall Street is capitalizing on this vulnerability.  How?  If you were a big time investor would you invest in a too big to fail bank that may be performing poorly but has full government support or a smaller well run bank that has no support at all?  The incentive is not necessarily with the best performing and that is usually a staple of a well run capitalist system.  We are not operating in a capitalist system but a corporate oligarchy based on political connections between Wall Street and D.C.  This kind of system has been prevalent for decades now and crosses both political parties.

As the FDIC digs deeper into a hole, the number of problem institutions grows:

Keep in mind that the above list also fails to catch many of banks that do fail.  It isn’t exhaustive.  So even just looking at the above, we already have the 1,000 banks that will fail.  And the problem of course is how the current banking system is structured.  We have close to 8,000 FDIC insured banks but in reality, a very few control the bulk of the assets:

The top 4 banks of Bank of America, JP Morgan Chase, Wells Fargo, and Citibank make up 55 percent of all banking assets.  Then there is another tier of roughly 100 banks that eats up another 20 to 25 percent of assets.  So you have some 7,800 banks basically fighting for the remaining scraps.  The FDIC is in deep trouble going forward and this means we are in deep trouble.  The taxpayer is on the hook for the bill.  The U.S. Treasury already extended a lifeline of $500 billion to the FDIC “in case” they need the money.  Looking at the above data do you think they are going to use that lifeline?  It is only a matter of time.

My Budget360

Paris, France – There are two major schools of thought on what is coming next…and two renegade, home-schools too. There are those who believe we have a recovery…though weak…that will continue and eventually bring the economy back to health. This is the line of the Obama Administration and most mainstream economists.

Then, there are those who think the recovery will not come as planned…and that the feds’ efforts to spur a recovery – along with strong demand from Asia and the emerging markets – will lead to higher levels of inflation, destroying the dollar and bonds. This is what Marc Faber expects. He urges listeners to avoid going too heavily into cash, since it might be the number one victim of inflation. Instead, you’ll do better in stocks and real estate, he says.

A third line of thinking is what Faber calls “hard core deflationism” – typified by Robert Prechter and Gary Shilling. They think the de-leveraging trend will be catastrophic – leading to outright deflation, taking the Dow down below 1,000, for example.

Then, there’s The Daily Reckoning line. You can call it “soft-core deflationism”:

1) There is no recovery; there won’t ever be a recovery
2) The de-leveraging period will be longer and harder than people expect…leading to spells of deflation and double…triple…dipping
3) The feds will fight it with every weapon available
4) However, they will not push the ‘nuclear button’ – wanton, reckless money printing – until the bond market cracks
5) It will not crack soon, because the feds are incompetent; they will not succeed in getting higher rates of inflation; at least, not soon.
6) The dollar will remain strong. Bonds will go up…for now…
7) The Dow will fall…but not below 1,000…probably not below 5,000

What does that mean for gold? Well, it means gold won’t do spectacularly well. It might decline…say, down to $850 or so.

Eventually, the bull market in gold will resume, however. You can’t keep a good metal down. Just don’t expect it to go up dramatically while the private sector is reducing its debts in an orderly fashion.

Does that mean you should sell your gold? We wouldn’t if we were you. Because something could go very wrong. Another big bank failure. A blow-up in China. It wouldn’t take much to cause a panic. Investors could turn to gold for security.

Or, maybe the feds will panic…and dump dollars from helicopters as Ben Bernanke threatened.

Besides, we could be wrong. Predictions are always difficult to get right. Especially when they’re about the future.

Regards,

Bill Bonner
for The Daily Reckoning

Bailed out Blankfein’s $41 million Hamptons pad.

Transparency piece from the Financial Times this morning.  The $400 Bilsky figure is just for Q1 of ’09.  BIS hasn’t gotten around to the other nine months of lies.

—

As many as five US banks failed to report hundreds of billions of dollars in credit derivatives bought from foreign counterparties during 2009, leaving those risks below the radar of regulators in the US and Europe.

The banks’ underreported exposures to credit default swaps came to light as the US Federal Reserve and the Bank for International Settlements were preparing first-quarter reports of the industry’s lending and risk activities. It was revealed as a footnote to the BIS report’s lengthy tables.

The BIS became alarmed at the discrepancy, according to one official familiar with the report.

“This underscores how little transparency there was and how much information was missing,” said one BIS official familiar with the report.

The missing exposures came from a group of financial institutions that were hastily granted bank holding company status in 2008 as panic engulfed the world’s financial system. The rapid conversion to bank status allowed them to borrow cash from the Fed, if needed, as liquidity threatened to dry up.

The mishap underlines how the conversion also introduced those companies to a raft of complex bank reporting standards, and raises new questions on the lack of scrutiny they faced under previous regulators.

The Fed, following a review of its quarterly report on cross-border risks, discovered that the group, which included Goldman Sachs, Morgan Stanley, American Express and CIT, only submitted claims on credit derivatives up to the amount where there was a corresponding position to hedge against. The additional risks, which totalled $400bn in the first quarter, were left out.

• Continue reading at the FT

The Daily Bail

Without millions more good jobs, the U.S. economy is simply never, ever going to recover.  But at this point, there is every indication that the U.S. economy is going to continue to bleed jobs.  In the past, employment would bounce up and down as the economy went through various cycles.  But today what we are witnessing is something much different.  Over the past 30 or 40 years, literally millions of good jobs have been shipped off to China, India and to dozens of third world nations where half-starving workers are more than happy to slave away for big global corporations for less than a dollar an hour.  In the new “global economy” that we were promised would be so good for us, the expensive American worker is obsolete.  The giant global predator corporations that now dominate our economy do not exist to provide you and your family with a nice home, two cars and college educations for all your children.  No, their goal is to keep costs as low as possible so that their profits will be as high as possible.  For many of these giant global predator corporations, that means that paying workers as close to zero as possible is the best decision for the bottom line. 

The truth is that the American people were never told that “free trade” and a “global economy” would mean that they would soon be lumped into a giant global labor pool and would be forced to compete for jobs with people on the other side of the globe.

No, we were just told that we should enjoy all of the cheap plastic crap made overseas that all of the “big box” retail stores were pushing us to buy.

Well, the party was fun while it lasted.  Americans ran up unprecedented amounts of debt on their credit cards buying all this stuff, while our once great manufacturing cities degenerated into rotted-out war zones.

But isn’t it a good thing to get all these products at such a cheap price?

After all, who wants to pay substantially more for things?

Well, running an economy this way is kind of like tearing off pieces of your house in order to keep your fire going.  Sure the fire will burn brightly for a while, but eventually you will have torn down your entire house.

One way or another, we end up paying dearly for the jobs we have shipped overseas.

You see, the millions of Americans who are now chronically unemployed because of “free trade” have to be supported by the U.S. government.

That means that it is the U.S. taxpayers who end up footing the bill.

You didn’t think that we were going to let all of those unemployed workers starve in the streets, did you?

Without good jobs, an increasing number of Americans are becoming completely dependent on government handouts.

Already, state governments across the United States are going broke trying to pay out unemployment benefits to the hordes of Americans who don’t have a job and can’t find a job.

In addition, for the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.

Also, according to one new study, somewhere around 21 percent of all children in the United States are living below the poverty line in 2010, which is the highest rate in 20 years.

The truth is that more Americans are dependent on direct payments from the federal government than ever before.

But how long can we afford to support the millions upon millions of Americans who have been impoverished by this new “global economy”?

The U.S. government budget deficit was a record $1.4 trillion in 2009.  Now the White House says that we will exceed that figure in 2010 and again in 2011.

So just how long can we afford to run deficits equivalent to 10 percent of GDP?

Anyone with half a brain knows that these kind of debts are not anywhere close to sustainable.

So where is the money going to come from to pay for these exploding government programs?

Well, from you of course.

Recently I dubbed 2011 “the year of the tax increase”.  A whole slew of new taxes is scheduled to go into effect starting next year that will impact every single American taxpayer.

It is almost enough to make you want to stop working and start collecting government handouts instead.

But the American people don’t need even more handouts.

Handouts are only a temporary solution to a long-term problem.

What the American people need are good jobs.

But where in the world are these jobs going to come from?

The reality is that in the new “global economy”, the United States is a very unattractive place to do business.

If you were a global corporation, would you rather open a new facility in the third world where there are very few rules and regulations and where people will work for less than a dollar an hour, or would you rather open a new facility in the United States where there are literally thousands of laws and regulations to comply with and where you are going to have to pay workers at least ten times as much?

It doesn’t take a genius to see where all of this is headed.

For decades, an increasing number of Americans have been forced into lower paying service jobs, but now there aren’t even nearly enough of those to go around. 

But it isn’t just the jobs that have been shipped overseas that are depressing wages and causing unemployment to skyrocket.  The millions of illegal immigrants that have flooded unchecked across the border have depressed wages and fundamentally changed the employment picture in industries such as construction and food service. 

Not only that, but in this environment not even high tech workers are safe.  In fact, there are some corporations in the high tech industry that have been openly abusing worker visas to ship in large numbers of foreign workers to replace more expensive American employees.

What all this means is that it is becoming much more difficult to live a middle class lifestyle in the United States.

Perhaps that is why one of my articles struck such a nerve recently.  An article that I originally wrote for The American Dream blog and adapted by Business Insider has gone mega-viral and has ended up on Yahoo Finance.  The article was entitled “The Middle Class In America Is Radically Shrinking – Here Are The Stats To Prove it” and it has received over 9000 comments on Yahoo.

So why did it provoke such an extraordinary response?

Well, because it hits people where they live.

Today, millions of American families are really struggling.  Record numbers of middle class Americans are receiving foreclosure notices and record numbers of middle class Americans are going bankrupt.

In fact, more Americans than ever find themselves just trying to survive.

According to a poll taken in 2009, 61 percent of Americans ”always or usually” live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.

You see, the truth is that most American families are not concerned with saving for retirement or even with planning for next year.  In this economic environment, most American families are worried about how they are going to survive until next month.

So who has been doing well in the new global economy?

The very, very wealthy of course.

According to Harvard Magazine, 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans.

Now, the truth is that there is absolutely nothing wrong with making money, but by any reasonable standard an economic system that produces such skewed results is horribly broken.

So will “redistributing the wealth” solve things?

No, it won’t.

At best, “redistributing the wealth” is only a temporary solution and it always ends up creating a lot of long-term problems.

What the American people really need are millions more good jobs.

But as we have seen, the current imbalances in the new “global economy” make it more likely that the American people will continue to lose millions more good jobs rather than gaining them.

Unless something is done, the standard of living for middle class Americans will continue to be forced down as labor increasingly becomes a global commodity.

So are you just going to accept that, or are you going to start demanding that your representatives change things?

The choice is up to you.

The Economic Collapse

Well, it’s a little late at this point, but it appears that Congress has now awakened to the fact that the Federal Reserve and the US Treasury Department seem to have been complicit in allowing Goldman Sachs to funnel taxpayer funds all over the world.  Certainly this is a landmark case of ‘horse and barn door’ – for anyone paying attention, we were screaming about this here on FedUpUSA when it happened, well over a year ago.  I guess better late than never?  Just remember where all those billions of dollars went for when your kids and grandkids ask you why the US government takes everything they earn.

Goldman Sachs received a $12.9 billion payout from the government’s bailout of AIG, which was at one time the world’s largest insurance company.

Goldman Sachs sent $4.3 billion in federal tax money to 32 entities, including many overseas banks, hedge funds and pensions, according to information made public Friday night.Goldman Sachs disclosed the list of companies to the Senate Finance Committee after a threat of subpoena from Sen. Chuck Grassley, R-Ia.

 Asked the significance of the list, Grassley said, “I hope it’s as simple as taxpayers deserve to know what happened to their money.”

 He added, “We thought originally we were bailing out AIG. Then later on … we learned that the money flowed through AIG to a few big banks, and now we know that the money went from these few big banks to dozens of financial institutions all around the world.”

 Grassley said he was reserving judgment on the appropriateness of U.S. taxpayer money ending up overseas until he learns more about the 32 entities.

 SETTLEMENT: Goldman Sachs admits it misled investors, pays $550M fine

GOLDMAN CONSENT: SEC vs. Goldman Sachs

JUDGEMENT: Final judgement of defendant

 Goldman Sachs (GS) received $5.55 billion from the government in fall of 2008 as payment for then-worthless securities it held in AIG. Goldman had already hedged its risk that the securities would go bad. It had entered into agreements to spread the risk with the 32 entities named in Friday’s report.

 Overall, Goldman Sachs received a $12.9 billion payout from the government’s bailout of AIG, which was at one time the world’s largest insurance company.

 Goldman Sachs also revealed to the Senate Finance Committee that it would have received $2.3 billion if AIG had gone under. Other large financial institutions, such as Citibank, JPMorgan Chase and Morgan Stanley, sold Goldman Sachs protection in the case of AIG’s collapse. Those institutions did not have to pay Goldman Sachs after the government stepped in with tax money.

 Shouldn’t Goldman Sachs be expected to collect from those institutions “before they collect the taxpayers’ dollars?” Grassley asked. “It’s a little bit like a farmer, if you got crop insurance, you shouldn’t be getting disaster aid.”

 Goldman had not disclosed the names of the counterparties it paid in late 2008 until Friday, despite repeated requests from Elizabeth Warren, chairwoman of the Congressional Oversight Panel.

 ”I think we didn’t get the information because they consider it very embarrassing,” Grassley said, “and they ought to consider it very embarrassing.”

 FINANCIAL REFORM: How Congress rewrote the regulations

FIXED? Will new regulations prevent future meltdowns?

FINANCIAL OVERHAUL AND YOU: Mortgages, debit cards, loans, more

 The initial $85 billion to bail out AIG was supplemented by an additional $49.1 billion from the Troubled Asset Relief Program, known as TARP, as well as additional funds from the Federal Reserve. AIG’s debt to U.S. taxpayers totals $133.3 billion outstanding.

 ”The only thing I can tell you is that people have the right to know, and the Fed and the public’s business ought to be more public,” Grassley said.

DesMoinesRegister

USAToday

Nathan’s Economic Edge

Last Friday seven more banks failed bringing the total bank failures to 103.

U.S. bank failures this year have surpassed a bleak milestone of 100 as regulators shut down banks in Georgia, Florida, South Carolina, Kansas, Nevada, Minnesota and Oregon.

The seven bank seizures announced Friday bring to 103 the failures so far in 2010. The pace of bank closures this year is well ahead of that of 2009, which saw a total of 140 banks shuttered amid the recession and mounting loan defaults. That was the highest annual tally since 1992, at the height of the savings and loan crisis.

The number of banks on the FDIC’s confidential “problem” list jumped to 775 in the first quarter, from 702 three months earlier, even as the industry as a whole had its best quarter in two years.

More Failures Coming

The FDIC is now deep in the red and the situation is getting worse every week. The situation would be even worse were it not for widespread “extend and pretend” tactics that keep woefully insolvent banks in business.

FDIC Shell Game To Hide Bad Assets

To address the situation, the FDIC is going to start selling U.S.-guaranteed FDIC senior certificates. However, it has no Congressional authority to do so according to former thrift regulator William Black.

Unlimited Taxpayer Bailout

Black claims an “unlimited taxpayer bailout” of the FDIC is on the way.

Barrons discusses the situation in Uncle Sam Rides Again: Banking on a Bailout?

BEFORE THE FINANCIAL CRISIS is unwound, the Federal Deposit Insurance Corp. expects to have taken over some 300 failed banks. The rapid closures have drained the agency’s cash reserves.

The FDIC must sell assets to continue the closings. It has about $37 billion of bad-bank assets to sell, but the stockpile would bring only 10 to 50 cents on the dollar.

Enter the FDIC’s Securitization Pilot Program, the sale of U.S.-guaranteed FDIC senior certificates. This enables the FDIC to push much of the losses off its books, thanks to the U.S. guarantee of principal and interest. The program starts with a $500 million issue.

“They aren’t really selling the bad assets. They’re selling the equivalent of a Treasury bond without congressional approval,” says William Black, a former thrift regulator. “It hides the economic substance of what’s really happening—an unlimited taxpayer bailout.”

The FDIC contests the characterization, saying it doesn’t expect a claim on the guarantee because of an equity cushion to absorb the losses, and the use of only performing mortgages in the pools. The agency says a lot of resources stand between it and the taxpayer.

Foot in the Door Ploy

Notice how the $500 million start gets the FDIC foot in the taxpayer’s door. At some point Congress will probably grant authority to the FDIC just as the Fed got unlimited funding for Fannie Mae.

President Obama and the Democrats are making matters worse by permanently upping the FDIC limit to 250,000 in the financial reform legislation that just passed.

Moral Hazards

FDIC is a moral hazard. Many banks that failed were able to stay in business because of taxpayer deposits at above market rates. For example, no one in their right mind would have had deposits at Corus Bank, a bank with many troubled loans to Florida and Nevada condo developers.

Corus bank would have failed long before it did, without the FDIC guarantee. Not only was the bank able to attract funding by offering above market rates, Corus contributed to the enormous property bubble in Florida and other places.

Instead of preventing risky bank practices in the first place, or upping the insurance rate on risky bank practices to cover excessive risk, the FDIC is about to get an unlimited taxpayer sponsored bailout by selling U.S.-guaranteed FDIC senior certificates, even though it has no authority to do so.

FDIC Legacy

As a result of the inept policy decisions by the FDIC, instead of having small bank failures widely spread out over time, we have had concentrated bank failures in a short period of time.

Taxpayers will be the ones to pay the price. This is the legacy of FDIC and its failed moral hazard policies.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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