StopTheSqueeze.org Newsletter - Americans For Debt Relief Now!

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-- 22 August 2007 --

IT’S YOUR TURN TO ACT.

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MONITORING THE MELTDOWN
The Weekly Stop The Squeeze Newsletter
In Debt We Trust director Danny Schechter reports on the film and campaign.

As the week began, the ship of commerce was still afloat. We saw what was in effect a bailout of t he markets and investors. So far there is still no “bailout” of the victims of predatory lending practices that drove the subprime lending boom. The big players on top are being given the means to be made whole; the people at the bottom are still suffering,

On Monday, the Wall Street Journal reported that there had been a panic with massive losses looming.

"This week, the Fed will find out if it did enough to bolster the confidence that was in such short supply last week, when investors refused to buy or accept as collateral securities that in normal times would be of unquestioned worth. Its critics, including those who say it is too quick to rescue imprudent lenders and borrowers, will be watching for evidence that the Fed went too far.

The initial reaction of U.S. stock and credit markets to Friday's Fed move was favorable….It isn't clear yet how many big banks responded to the Fed's encouragement to borrow at what is known as the Fed's discount window. ..

The latest chapter in the credit crisis of 2007, rooted in the deterioration of the market for U.S. subprime mortgages and securities linked to them, represents a new test of the savvy of central banks from Frankfurt to London to Washington to Tokyo."

It also represents a new test for the two million American families facing foreclosure and the millions more caught in the debt trap.

THIS ISN’T “SICKO”---ITS WACKO.

Sometimes you just can’t make this stuff up or even decode it. As you and everyone knows, the debt problem has flamed into a major issue threatening the financial system worldwide, and our own economy. Lenders, the people most have us have been complaining about because of their predatory practices and abuses of consumers seem to finally getting some payback in the form of falling markets.

Even they are having a hard time making sense of what’s happening because its so volatile. Last week ended with crazy ups and downs in the stock market with the Federal Bank easing rates for banks, but not for the general public. That maneuver seemed to have worked in that it was a sign that the FED was doing something. Its weird how of these rational financial wonks can act as emotionally as they do. The Federal Reserve Bank said it was acting to "promote the restoration of orderly conditions in financial markets."

The Washington Post added “The Federal Reserve …said for the first time that it viewed turmoil in financial markets as a major risk to the U.S. economy. (The day before, The NY Times reported that the US Treasury Secretary didn’t feel he needed to say or do anything.” Maybe The Fed Chairman saw how stupid that looked.

The NY Times’ take on the issue added a class spin suggesting that the Fed acted NOT because poor and working class people were losing their homes but because rich people were now having trouble getting mortgages

“The Fed, while not yet cutting a rate that wields more influence over the economy, moved to stimulate lending in part because it recognized that even well-to-do families with good credit ratings were having difficulty getting mortgages."

Underscore those words: “even well-to-do families….”

How will this symbolic measure likely impact on the rest of us? The answer is NOT encouraging

"Markets should not be calmed by this tactic," wrote Carl Weinberg, chief economist for High Frequency Economics. "This move is not going to provide any relief to the overall economy." Said another commentator: “The Fed is in a tight box, and anytime they do move the markets react violently one way or the other (or both!). Calm will arrive, but it won’t be today.”

In the meantime, Wall Street has taken out its begging bowl and asking the Fed to help And Help is On the Way:

FORTUNE Magazine reports:

"Wall Street loves to talk about letting financial markets weed out the weak. But when the Street itself gets in trouble, it sticks out its little tin cup, asking for help. And gets it.

The subprime-mortgage-market meltdown is a classic example of the way small fry get devoured, but the whales of Wall Street get rescued. Here's the deal: People with crummy credit who took out mortgages are being allowed to fail in record numbers. The mortgage companies that made those loans are being allowed to fail.

The Street itself? It's bailout city. Even before the Fed made a symbolic half-point cut in the discount rate, it and other central banks from Switzerland to Singapore were trying to rescue the Street by injecting hundreds of billions of dollars into the financial markets and announcing they will put up more, if needed.

Hello? If you believe in markets - which I do - this rescue is especially galling, because Wall Street enabled this mess in the first place…”

How? Its complicated and if you have the time and appetite for a good explainer, check this one on SALON.COM

Now that may be reassuring---but for whom? Don’t answer that. You already know

In fact, folks, this can get worse unless we understand what’s really behind all this:

“GRAND COLLECTIVE DELUSION”

Jerome a Paris wrote on Daily Kos:

"The core of the Reagan-Thatcher revolution is that greed (especially that of financiers capturing future cash flows of the real world for their personal, immediate profit) spontaneously improves the common good (because it generates apparent GDP out of thin air, and that GDP could be shared) and that all regulations and taxes that limit it should be dismantled.

Well, we're about to see the price of that grand collective delusion. But we should not mistake our target. Bankers and financiers should be made to pay for their follies but that is only a small part of it. The big thing is to blame it on the failed, and utterly dangerous, ideology of the efficient-markets/society-doesn't-exist/government-is-the-problem crowd.

Otherwise it will start again - and not only that, but their proposed remedy WILL be lower wages, fewer worker rights, lower taxes and the other usual "reforms."

A reader wrote to the Wall Street Journal nailing:

"Things will get worse before they get better…..This is a house of cards that our leaders are trying to segment. It isn’t a subprime problem, it isn’t a foreclosure problem, it isn’t a mortgage problem, a bond market problem, a hedge fund problem, or a bank problem…This is a full systematic collapse of our economy….The problems are masked and hidden throughout every layer of our economy…being too slow to react will only compound this problem as it builds momentum…We have no idea how bad this is really going to get..."

This has happened before—back in the days leading up to the Great Depression when all was “Calmed” they thought—until it got worse.

TIME: “MAD SCIENTISTS BLOW UP THE LAB AGAIN”

In fact TIME magazine says this problem has been created by Wall Street’s MAD SCIENTISTS as if we are living in a horror movie: “Looks like Wall Street's mad scientists have blown up the lab again. The subprime mess that is cutting so wide a swath through financial markets can be traced to the alchemy of creating collateralized debt obligations (CDOs) compounded by the enormous amount of leverage applied by big hedge funds. CDOs are derivatives — synthetic financial instruments derived from another asset.” Can you make out this gobbledykook. What it means is that while many Americans were pursuing their dreams, they were coming up with new schemes to take your money and make more with it .

WHAT IS THE MEDIA SAYING?

After the market took a 340 point dive on Thursday only to recover, I went to the NY Times. I figured that they would tell me what was going on. But guess what: THEY DIDN’T KNOW. “Emotion and psychology, not financial fundamentals were mostly at work,” they reported. And then they quoted the chief US equity strategist for CITIBANK—that sounds important. And He said, “I don’t think anybody can make sense of it. It’s not about fundamental development…”

Ummm…so what is it about? I would say. Anxiety and panic—and not because they have a guilty conscience about the mess they made so many people’s lives who are caught up in the debt trap. Its all about how they are gioing to keep on making more money from our collective pockets. MEwanwhile one of the country’s biggest lenders was I deep doo doo:

CBS reporters; “Customers of Countrywide's banking business are crowding branches and jamming phone lines and Web site to pull out their savings, according to reports.”

MORTGAGE BROKERS ARE FEELING THE PAIN

"(AP) As more lenders collapse, the skittish survivors are raising their rates and changing the rules for getting a loan every few hours as they scramble to stay alive. The upheaval has made it virtually impossible to secure financing for scores of borrowers who would have easily qualified for mortgages just a few months ago, creating a lending drought likely to deepen the housing slump.

"You have a ripple effect in the marketplace that is devastating," said Smith, who is based in San Diego."

IT WILL GET WORSE (MSNBC)

<blockquote>While most of the mortgage market worries so far have focused on the huge losses flowing from the subprime home loans made to people with bad credit, the option and interest-only ARMs held by more creditworthy borrowers loom as another calamity in the making.

If the worst fears about these loans materialize, the economic damage would likely extend well beyond the United States because much of the debt has been packaged into securities sold to pension funds, banks and other investors around the world who were hungry for high yields. The fallout could also further depress housing prices, leaving U.S. consumers feeling poorer and less likely to buy the merchandise imported from overseas.</blockquote>

READ THESE TWO ARTICLES

After the Pain of Foreclosure, a Big Tax Bill

Cleveland savaged by tragedy of home foreclosures - Yahoo! News

To see how you are affected or keep up with foreclosures see this new site

JOBS IMPACT (DAILY RECKONING-AUSTRALIA)

“Real Estate, both as an asset class and as an industry, has assumed such an outsized share of US economic activity that the entire economy would mourn the passing of the housing boom.

Since the end of 2001, housing-related industries have produced a whopping 43% of the nation’s total net private sector employment growth. Obviously, therefore, any slackening of real estate activity would slow employment growth in the industry. Indeed, this massive job-creator could become a job-destroyer.

The nation’s banking operations have also become heavily reliant on the real estate sector. Mortgage-related assets at US banks have swelled to more than 60% of total assets.”

I wrote about the market on Mediachannel.org last week—see what you think.

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