We Are the 75%!!

I attach a revisionist history from CNN.

http://finance.fortune.cnn.com/2011/12/08/blame-bankers-occupy/

The point they seek to make is that the big banks did no better than the poor in terms of government help and bailouts this past recession - seriously! They make truly stupid comments like, under the Dodd-Frank bill:

"Wall Street is now subject to the most massive new regulation to be imposed on it since the 1930s"

Now if "massive" is just a reference to the number of pages, they may be correct, but they imply it is massive in impact. The final bill was so watered down and gutted it was a waste of paper. And indeed, the financial institutions have already figured out ways around any financial impact from the bill. In the six months before Dodd-Frank, I paid virtually nothing in fees and charges to my bank for the privilege of having them hold my money pretty much interest free. In the past six months, over $150, mostly with new fees/service charges they inacted six months ago. They are making up for any losses just fine.

CNN argues that the big banks during the real estate/lending/derivative bubble were making the same they were making 15 years ago. Opps, I am sorry, not exactly what CNN said. It actually said:

"The industry has made no more money over the past five years than it was making 15 years ago, and in 2007 and 2008 it suffered the greatest losses in its history."

Now this is a bit tricky to decipher, but read it carefully. It implies that during the bubble the industry was not making any more than it did 15 years ago, but what it truly says is that over the past five years - which by definition includes the worst two in history - they still did about the same as they did 15 years ago. So you had years where the banks were gluttons preying off the gullible, off-set by the two worst years in history, to lead to results commensurate with historical earnings. Yep, the banks really paid the price for their foolish ways.

The other key point made by CNN is that the debt crises is a two-way street. You have the big banks offering no income verification loans and if you can fog a mirror you can get a loan, loans. And you have everyone who can fog a mirror getting a loan. Now let's set aside for a moment the relative financial sophistication of the big banks versus the mirror foggers, and focus on a lost fact in all this; these two groups aside there is a big group that fits neither camp. I say 75% in the title to this but it could easily be 10% higher or lower. Nonetheless, there is a majority of Americans who did not take out loans they could not afford, who had income they could prove and who are still making payments. We are not the 99% and I resent the "Occupy" crowd from lumping us in to their 99%.

The point here is that there were a lot of irresponsible folks taking loans they could not afford, many of whom not financially sophisticated enough to perhaps understand it but certainly many as well trying to game the system and play the real estate bubble, but there were also a host of big banks gaming that same bubble massively. And if CNN believes folks on the short end of the stick got relief similar to what the big banks got, they are truly smoking something good.

So both ends of the candle are to blame, but the majority of Americans sit in the middle and are paying the price. When it comes to what I am calling the "We are the 75%" neither the big banks nor the occupy crowd get to tout superiority in message. So stick that in your pipe and smoke it CNN (which I assume does not have tobacco in it.)

I think it is the 75% that need to start a revolution!

Disclosures: None.

Bubble On, Bubble Off, Bubble On, Bubble Off . . .

Let's talk China. It was not so long ago that they were increasing bank reserve requirement ratios to a high 21.5% to cool an overly hot real estate market, a/k/a bubble, fueled by the same easy lending that cooked us here in the U.S. Now the economy there, rosy by most countries' standards, is too slow to support its massive population, so last week it cut the reserve requirement to 21% and is fully expected to cut more in January. This, in addition to some coordinated central bank moves in Europe and the U.S., is credited for last week's rather incredible market advance.

But here is the problem - China was right about the bubble and right to cool it. Most global investors, as it turns out, predict a banking crisis in China in the next five years - go figure - and China is now doing steps to make it worse. Makes you kind of wonder why the markets responded positively. Well, they are a tad fixated on the short term and the need for China to overheat its economy to keep the world from falling into an economic black hole. They do not care what happens there in five years as long as it moves to keep things chugging along for the next few years. Just my take, of course. Hopefully by the time their bubble bursts the rest of the world will be back on its feet and able to keep is chugging. Any takers on this prospect?

http://www.bloomberg.com/news/2011-12-07/poll-investors-predict-china-bank-crisis.html

By the way, holding your breath about the EU? Good luck with that. Read the following and get a grip.

http://www.nytimes.com/2011/12/08/business/global/as-europes-bond-market-dries-up-traders-fear-for-jobs.html

http://www.reuters.com/article/2011/12/08/us-ratings-eu-idUSTRE7B62GQ20111208

http://www.bloomberg.com/news/2011-12-07/japanese-futures-little-changed-before-summit-australian-shares-decline.html

http://www.reuters.com/article/2011/12/07/us-citi-jobs-idUSTRE7B61P720111207

I could attach a lot more, but you get the picture. Seriously, the lipstick is off these PIIGS.

Disclosures: None.

That's Going to Leave a Bruise

Everything was sailing fine. Central banks circling the wagons, governments saying some smarter things, I got my closet cleaned out - everything was simply dandy. Then that old fuddy duddy S&P had to come out this evening with a credit rating watch (like expect a downgrade for some soon) on several EU countries, including France and Germany (okay, France has been suspect for a while but Germany?, seriously). I suspect the strong market gains we have seen of late are going to be shaved back a tad. Nothing too terrible, but a shave nonetheless - at least for now. Long term, I do not see a tad, but I am not about to try to predict how long the powers that be in EU can keep this ship afloat. They already surpassed my expectations by at least a year. But the darn thing will sink in time.

http://www.bbc.co.uk/news/business-16042346