The Pending Crisis And Growing Analogies To Greece

From the “Are we having fun yet?” files comes this bit of happy commentary from Former Federal Reserve Chairman Alan Greenspan.

See: Greenspan Says U.S. May Soon Reach Borrowing Limit

“The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.”

Greece?

That will suck.

Is TARP Failing?

While the country is focused on the high theater of the BP show trial taking place in the hallowed halls of congress, other things are very unwell in Obama's happy rainbow farting unicorn land.

See: More Than 90 Banks Miss TARP Payments

More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations.

The statistics, compiled by SNL Financial from U.S. Treasury data, showed 91 banks and thrifts skipped the May dividend payment under the Troubled Asset Relief Program, or TARP. It was the first missed payment for 23 of the banks; for the others, it was at least their second miss.

The number of banks missing their TARP payments rose for the third straight quarter. In February, 74 banks deferred their payments; 55 deferred last November.

That is a scary trend.

Hillery Clinton Talks About Brazil As A Taxation Model

See: Clinton: 'The rich are not paying their fair share'

"Brazil has the highest tax-to-GDP rate in the Western Hemisphere and guess what — they're growing like crazy," Clinton said. "And the rich are getting richer, but they're pulling people out of poverty."

Both Clinton and Obama campaigned for president on promises to allow the Bush tax cuts for wealthy Americans expire this year, a plan that is now part of Obama's budget. The move will effectively raise taxes sharply on people earning more than $250,000.

Hillery is clearly suggesting that Brazil's high tax rate is the reason that its economy is growing.

Brazil may have a high tax rate, but it also largely avoided the banking disaster that has put many other western nations on the brink of bankruptcy.

See: Lessons from Brazil: Why Is It Bouncing Back While Other Markets Stumble?

But all of Brazil's banks can be thankful that, to a large extent, they haven't had to deal with the toxic assets that crippled banks in developed countries. Unlike their counterparts elsewhere, Brazilian banks were not as exposed to the property sector and credit derivatives, and financial soundness indicators were robust coming into the crisis, according to Fabio Barbosa, head of Banco Santander Brasil and the Brazilian Federation of Banking Associations (Febraban). He cites the high capitalization requirement as a key reason for the sector's resilience -- the minimum capital adequacy requirement in Brazil is 11%, compared with 8% under the Basel regulations that other banks around the world follow. In December 2008, the average ratio for the sector in Brazil was 20%, and for the country's five largest banks (accounting for 67% of total assets) the ratio was 18.5%. He adds that Brazil also didn't have a shadow financial system, like in the U.S., thanks to tight regulatory and supervisory oversight. All financial institutions (including investment banks) are under the watch of the Central Bank.

One of Brazil's biggest advantages is that it did not have a Barney Frank or a Chris Dodd plundering it's banking system to redistribute wealth.

Comparatively, with the rest of the western world seeing their future play out for them in the street riots of Greece, Brazil is doing pretty good. It could do even better.

High tax rates reduce the private sectors ability to raise money for new projects, new ideas, new services, and new businesses. If Brazil were to reduce its tax rake to a lower level, productivity in their private sector would likely increase, which ironically enough, would also increase the amount of tax revenue that the government would be able to take in. Increasing the opportunity for the private sector to make money also increases the potential amount of taxable revenue that can be collected.

Conversely, if Brazil were to increase its tax rake even more than it is at present, it could expect to see an eventual decline in private sector productivity. Lower profits would reduce the amount of taxable revenue that the government could then skim out the publics pockets.

There is a point at which the tax rates can be raised high enough that the result would be reduced tax revenue to the Government. Right now, Brazil is in a boom period. They are making money. The high tax rate is not the reason that they are making money. It is just a factor that businesses in Brazil have to deal with, a hindrance that they have to overcome, a red-line that they have to pay for in their books.

In time, as their economy matures, that high tax rate of theirs will become more of a problem. Their politicians will either have the wit and the will to lower their tax rates which will increase profits and tax collections, or they will squeeze the public even harder with even higher taxes, which will reduce profits and reduce tax collections.

But to think that Brazil has somehow managed to tax itself into prosperity . . . is nuts.

Roller Coaster Market Ride - Are We Having Fun Yet?

See: Bank Risk Soars to Record, Default Swaps Overtake Lehman Crisis

May 7 (Bloomberg) -- The cost of insuring against losses on European bank bonds soared to a record, surpassing levels triggered by the collapse of Lehman Brothers Holdings Inc., as the sovereign debt crisis deepened.

Like on an old wooden roller coaster, our economic cars have been pulled slowly to the top again after the first plunge, tickity tickity tickity all the way up.

Now, here we are at the the top of the second rise, at the long breathless moment where the cars just kind of sit there, slipping slowly forward as we get our first look at the deep drop before us. No more tickity tickity. The brakes are now off.

In moments, there will be little that we can do but throw our hands up in the air and scream in the downward plunge.

Are we having fun yet?

The Coming Commercial Real Estate Crash

You may have noticed a lot of empty store fronts in your neighborhood strip malls. If those empty spaces give you any kind of uneasy pause or sense of concern, your instincts are sound. Something terrible is happening in the quiet corners of the nation's economy.

Commercial Real Estate is about to become big news. Very big news.

Lets look at a news article that appeared recently in the Seattle Times.

See: Columbia Center misses mortgage payment

The Columbia Center is Seattle's tallest skyscraper. It is the city's flagship office tower. A tall slender structure of black glass and steel, it rises high above all of Seattle's other offices buildings.

And nearly half of it is now available for rent.

Bottom line!: The new owners of the building are totally screwed.

When Beacon bought the Columbia Center in April 2007 it was 89 percent leased. The firm paid $621 million, according to county records, and borrowed a total of $480 million to help pay for the tower.

Its assessed value now is $380 million.

"There are many buildings in a similar position where the loan is greater than the value of the building," said Craig Kinzer of Seattle-based Kinzer Real Estate Services.

That is a world of butt-hurt.

That is also only one of many of the large office towers in this city.

The office towers are not alone in their problems. Residential rents in the Seattle area are at historic lows.

See: Renters, rejoice: Apartments are cheap and the iPod is free

After peaking in 2006 and 2007, rents in King, Snohomish and Pierce counties tanked over the course of last year by nearly 4 percent, according to Scott. He expects rents will continue to plummet this year by 5 percent, and again in 2011, but less dramatically.

In Seattle, property managers say that trend has been more pronounced, with some rents dropping as much as 15 to 20 percent last year. In general, higher-priced units have had biggest rent reductions. Bart Flora, co-owner of Cornell & Associates, which manages 6,500 properties in the city, said some, in-city, one-bedroom apartment now rent for $800 to $850, instead of roughly $1,000 two years ago.

"It's the steepest drop I've ever encountered in 25 years, certainly in my career," said Flora. He added that he believed the market - at least in Seattle - appears to have hit bottom and is stabilizing.

(Stablizing? Not even close buddy. There is a whole lot more bottom to hit.)

Now think about what all of that means, not only to the landlords of both the office towers and the apartment buildings, but also about what it means to the municipal coffers. When there is no money to tax . . .

Seattle is screwed.

And its not alone.

Look around.

What do you see happening in your city?

See: Half of Commercial Mortgages to Be Underwater: Warren

By the end of 2010, about half of all commercial real estate mortgages will be underwater, said Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel, in a wide-ranging interview on Monday.

“They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending."

As a result, the economy will face another “very serious problem” that will have to be resolved over the next three years, she said, adding that things are unlikely to return to normalcy in 2010.

Soon, the quiet corners of our economy are going to come screaming down around all of our ears.

HT: 3Wood at CC

The Looming Commercial Mortgage Debt Crisis

With California, New York, and some of the other large states on the verge of default, a problem with commercial property debt may push them that much closer to the brink.

See: Commercial Mortgage Default Rate in U.S. More Than Doubles

The default rate for commercial property mortgages held by U.S. banks more than doubled in the fourth quarter and may reach a peak of 5.4 percent at the end of next year, according to Real Capital Analytics Inc.

We may have rough seas ahead of us.

The timing of the midterm elections will make all of this that much more interesting.

Democrats Will Destroy California

The Democrats are inherently incapable of stopping themselves from destroying California.

See: California is a greater risk than Greece, warns JP Morgan chief

Mr Dimon told investors at the Wall Street bank's annual meeting that "there could be contagion" if a state the size of California, the biggest of the United States, had problems making debt repayments. "Greece itself would not be an issue for this company, nor would any other country," said Mr Dimon. "We don't really foresee the European Union coming apart." The senior banker said that JP Morgan Chase and other US rivals are largely immune from the European debt crisis, as the risks have largely been hedged.

California however poses more of a risk, given the state's $20bn (£13.1bn) budget deficit, which Governor Arnold Schwarzenegger is desperately trying to reduce.

I have serious doubts about California coming to grips with it's debt problem. The Democrats own that state's legislature lock, stock and barrel. Even if Arnold Schwarzenegger were inclined to be a fiscal conservative, there is damn little that he could do to stop the Democrats from running the state smack into the ground.

The Democrats will not become fiscal conservatives. It just won't happen. Their very reason for existence is to create an ever expanding welfare state. It's what they promise to get elected and it is what they believe is right and good.

Given the Democrat's visceral hatred and fear of the concept that lowering taxes increases tax revenue, and their willingness if not eagerness to raise tax rates for both revenue collection and for social engineering purposes, what can we foresee them proposing to get themselves out of the mess that they have spent themselves into?

Can we really imagine for a moment that Democrats will seriously even entertain the notion of tax cuts and social spending reductions?

Tax cuts and social spending reductions, real tax cuts and real reductions in social spending, just won't happen.

Unfortunately, California is such a large part of our nations economy that when they hit the wall, the rest of us will feel it.

Barrack Obama, Reckless Lending, The State Of The Union and Punishing Banks.

There are lots of people out there taking the President's State Of The Union Speech to pieces. It lends itself easily to that task. It really is a stinking pile.

The part that I would like to highlight is a few of President Obama's comments about Banks.

Our most urgent task upon taking office was to shore up the same banks that helped cause this crisis.

The Banks are to blame?

Look, I am not interested in punishing banks. I'm interested in protecting our economy. A strong, healthy financial market makes it possible for businesses to access credit and create new jobs. It channels the savings of families into investments that raise incomes. But that can only happen if we guard against the same recklessness that nearly brought down our entire economy.

Barrak Obama's interests in banks goes way back. Punishing banks is not a new thing to him. I suspect that from a certain point of view, he really isn't particularly interested in “punishing” banks per say, but punishing them is not a new thing for him.

From Forbes.com: A Poisonous Cocktail by Peter Schweizer

Obama's battle against banks has a long history. In 1994, freshly out of Harvard Law School, he joined two other attorneys in filing a lawsuit against Citibank, the giant mortgage lender. In Selma S. Buycks-Roberson v. Citibank, the plaintiffs claimed that although they had ostensibly been denied home loans "because of delinquent credit obligations and adverse credit," the real culprit was institutional racism. The suit alleged that Citibank had violated the Equal Credit Opportunity Act, the Fair Housing Act and, for good measure, the 13th Constitutional Amendment, which abolished slavery. The bank denied the charge, but after four years of legal wrangling and mounting legal bills, elected to settle. According to court documents, the three plaintiffs received a total of $60,000. Their lawyers received $950,000.

Barrack Obama has been a major player in our current banking problem for a long time.

He is offering the people of the United States solutions to a problem that can substantively be laid at his feet. It would be unfair to lay the blame exclusively on Barrack Obama. Lots of people were helping “punish” the banks. He was just one of many.

And now he offers to help fix the problem.

A problem that he helped create.

What a guy.