Quote:July 2005

INTERVIEWER: Ben, there's been a lot of talk about a housing bubble, particularly, you know [inaudible] from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?

BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it's important to note that fundamentals are also very strong. We've got a growing economy, jobs, incomes. We've got very low mortgage rates. We've got demographics supporting housing growth. We've got restricted supply in some places. So it's certainly understandable that prices would go up some. I don't know whether prices are exactly where they should be, but I think it's fair to say that much of what's happened is supported by the strength of the economy.

July 2005

INTERVIEWER: Tell me, what is the worst-case scenario? Sir, we have so many economists coming on our air and saying, "Oh, this is a bubble, and it's going to burst, and this is going to be a real issue for the economy." Some say it could even cause a recession at some point. What is the worst-case scenario, if in fact we were to see prices come down substantially across the country?

BERNANKE: Well, I guess I don't buy your premise. It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don't think it's going to drive the economy too far from its full employment path, though.

INTERVIEWER: So would you agree with Alan Greenspan's comments recently that we've got some areas of that country that are seeing froth, not necessarily a national situation, but certainly froth in some areas?

BERNANKE: You can see some types of speculation: investors turning over condos quickly. Those sorts of things you see in some local areas. I'm hopeful — I'm confident, in fact, that the bank regulators will pay close attention to the kinds of loans that are being made, and make sure that underwriting is done right. But I do think this is mostly a localized problem, and not something that's going to affect the national economy.

November 2006

BERNANKE: This scenario envisions that consumer spending, supported by rising incomes and the recent decline in energy prices, will continue to grow near its trend rate and that the drag on the economy from the [inaudible] housing sector will gradually diminish. The motor vehicles sector may already be showing signs of strengthening. After having cut production significantly in recent months, in response to the rise in inventory of unsold vehicles, automakers appear to have boosted the assembly rate a bit in November, and they have scheduled further increases for December. The effects of the housing correction on real economic activity are likely to persist into next year, as I've already noted. But the rate of decline in home construction should slow as the inventory of unsold new homes is gradually worked down.

February 2007

BERNANKE: We expect moderate growth going forward. We believe that if the housing sector begins to stabilize, and if some of the inventory corrections still going on in manufacturing begin to be completed, that there's a reasonable possibility that we'll see some strengthening in the economy sometime during the middle of the new year.

Our assessment is that there's not much indication at this point that subprime mortgage issues have spread into the broader mortgage market, which still seems to be healthy. And the lending side of that still seems to be healthy.


July 2007

BERNANKE: The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards, and the recent increase in mortgage interest rates. Sales should ultimately be supported by growth in income and employment, as well as by mortgage rates that, despite the recent increase, remain fairly low relative to historical norms. However, even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further, as builders work down the stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth in coming quarters, although the magnitude of the drag on growth should diminish over time. The global economy continues to be strong, supported by solid economic growth abroad. U.S. exports should expand further in coming quarters. Overall, the U.S. economy seems likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy's underlying trend.


http://mises.org/story/3588

Quote:Calling Reuters, CNBC And Goldman On The Carpet: AJC
When, oh when, will we see accuracy in media among the so-called "mainstream reporters"?

A prime example from today - Goldman's Cohen call on the markets:

Quote:Goldman Sachs sees the benchmark Standard & Poor's 500 index in a range of 1,050-1,100 toward year-end, said Cohen, the firm's senior investment strategist and president of its Global Markets Institute. That range, she said, "is where we should be toward the end of this year.

"We do think the new bull market has begun," Cohen said. "It may prove it began in March of this year."

Read the rest of the article. Nowhere will you see reference to Cohen's actual record - including her disastrous and similar call just last year:

Quote:But Abby Joseph Cohen, the superbull at Goldman Sachs, maintained that the Dow would roar back to finish 2008 at a level 22 percent higher — 14,750 is the number — as the economy perks up later in the year.

The economy "perks up" through the year?

If you listened to Abby Cohen in January of 2008, when the Dow was at 12,000 and change, you lost over 3,000 DOW points, or 25%, as opposed to gaining 22%, for a total error of nearly FIFTY PERCENT .vs. her prognostication.

By any measurement this is a catastrophically-bad performance and if your portfolio was invested "per her recommendations" you got destroyed.

Yet the Tout Media is absolutely silent and holds Cohen forth as some sort of "Guru" instead of pointing out (justifiably so) that her last call was best traded in the opposite direction - that is, when they said to buy you should have instead gone short!

I note that in 1999 and early 2000 Cohen also made a series of disastrously-bad calls, one of the most important being right here on 7/3/2000:

Quote:When looking for reassurance, investors have been able to turn to Abby Joseph Cohen. This time is no different. Cohen, one of Wall Street’s most prominent bulls, remains upbeat on stocks despite a slowdown in corporate profits. "What matters most is that profits are sustainable and durable, which we think they are," she says. Still, the Goldman Sachs strategist stresses that "gains in stock prices will be less robust" than in recent years.

Forecast: Cohen predicts the Dow will end the year at 12,600 vs. 10,398 and the S&P 500 at 1575, vs. 1442 now. She expects the Nasdaq, now at 3877, to lag.

Actual results?

On 12/31/2000 the SPX closed at 1320 and the DOW closed at 10,646.

Far worse, if you held on the S&P and Dow (along with the Nasdaq) were just starting their bear market decline - a decline that crushed you in the next two years, with the S&P declining to under 800!

How does "Tout Media" manage to get away with this? Why do their advertisers and viewers and readers put up with this?

How many hundreds of billions of investor dollars need to be lost before the people rise up and demand accountability and an HONEST reporting of these Touts' record on their PAST calls before they give public air to their CURRENT ones?

• Kevin Stanford's company chased for £150,000 in tax
  
• Iceland 'baby boom' after financial crisis
  

• Serious Fraud Office urges Kaupthing whisteblowers to step forward
  
• Fraud expert damns EU, IMF over Icelandic collapse
  
• Serious Fraud Office intensifies Icelandic banking inquiry after Kaupthing leak
  
• Kaupthing leak exposes loans
  

Quote:Icelanders for their part feel that the EU has treated them as a financial colony while backing a neoliberal kleptocracy preying on an increasingly indebted population. In many ways Iceland is the tip of the iceberg – the proverbial canary in the coalmine showing the need to better cope with over-indebted economies. The EU and IMF-style austerity programs to pay off foreign debts that corrupt insiders have run up is not what was promised in 1991 the post-Soviet economies or Third World debtors. It is not the promise of industrial capitalism. It is a financialized post-industrial dystopia, an imperial neofeudalism.

Why Iceland's move is so important for international financial restructuring

For the past decade Iceland has been a kind of controlled experiment, an extreme test case of neoliberal free-market ideology. What has been tested has been whether there is a limit to how far a population can be pushed into debt-dependency. Is there a limit, a point at which government will draw a line against by taking on public responsibility for private debts beyond any reasonable capacity to pay without drastically slashing public spending on education, health care and other basic services?

At issue is the relationship between the financial sector and the “real” economy. From the perspective of the “real” economy, the proper role of credit – that is, debt – is to fund tangible capital investment and economic growth. The objective is to create a tax system and financial regulatory system to maximize the latter.

After all, it is out of the economic surplus that interest is to be paid, if it is not to be extractive and outright predatory. But creditors have not shown much interest in economy-wide wellbeing. Bank managers and subprime mortgage brokers, corporate raiders and their bondholders, and especially the new breed of kleptocratic privatizers applauded so loudly by neoliberal economic ideologues simply (and crassly, I have found) ask how much of a surplus can be squeezed out and capitalized into debt service. From their perspective, an economy’s wealth is measured by the magnitude of debt obligations – mortgages, bonds and packaged bank loans – that capitalize income and even hoped-for capital gains at the going rate of interest.

Iceland has decided that it was wrong to turn over its banking to a few domestic oligarchs without any real oversight or regulation, on the by-now discredited assumption that their self-dealing somehow will benefit the economy. From the vantage point of economic theory, was it not madness to imagine that Adam Smith’s quip about not relying on the benevolence of the butcher, brewer or baker for their products but on their self-interest is applicable to bankers. Their “product” is not a tangible consumption good, but debt – indeed, interest-bearing debt. And debts are a claim on output, revenue and wealth, not wealth itself.

This is what pro-financial neoliberals fail to understand. For them, debt creation is “wealth creation” (Alan Greenspan’s favorite euphemism), because it is credit – that is, debt – that bids up prices for property, stocks and bonds and thus increases financial balance sheets. The mathematically convoluted “equilibrium theory” that underlies neoliberal orthodoxy treats asset prices (wealth in the financial sense of the term) as reflecting prospective income. But in today’s Bubble Economy, asset prices reflect whatever bankers will lend – and rather than being based on rational calculation their loans are based merely on what investment bankers are able to package and sell to gullible financial institutions trying to pay pensions out of the process of running economies into debt, or otherwise disposing of credit that banks freely create.

The amount of debt that can be paid is limited by the size of the economic surplus – corporate profits and personal income for the private sector, and the net fiscal revenue paid to the tax collector for the public sector. But for the past generation neither financial theory nor global practice has recognized any capacity-to-pay constraint. So debt service has been permitted to eat into capital formation and reduce living standards.

Quote: Posted by Karl Denninger in Banking System at 08:12
Asset-Valuation Games Exist In England Too

This is simply unbelievable:

Quote:Britain’s taxpayer-owned banks are selling repossessed property assets to their own subsidiaries to avoid billions of pounds of losses that would be incurred by selling them in the open market.

Royal Bank of Scotland (RBS), which is part-owned by the Government, has set up West Register to buy properties taken over by RBS after borrowers had fallen into default.

Lloyds Banking Group, which inherited billions of pounds of commercial property loans when it took over HBOS, is understood to have a similar subsidiary that buys assets from its owner.

See how this works? You buy the "asset" from yourself (in your subsidiary) at vastly more than anyone would pay for it in a free market and by doing so you avoid taking the mark-to-market loss.

This means you don't have to show that loss on your balance sheet, nor do you have to count it against your capital reserves.

I'm rich! All I have to do to recognize "fair value" is pass assets from one captive entity to another! Heh, that's a free-market sale and "establishes a market price", right?

Didn't our S&Ls pull this same crap as they were trying to avoid marking to the market and ultimately failing? I think they did! Indeed, while it was BETWEEN S&Ls in that case it was the same game - "I'll buy this defaulted loan at par from you, you buy that defaulted loan from me at par! See - Market price!"

Quote: William Newsom, head of valuation at Savills, the property group, said: “Banks sell the property but, rather than selling into the market, they go into a workout vehicle. It is a model that we saw in the last downturn. The subsidiary pays what the property would fetch on the open market. It has to be a fair value.”

Riiiight. "Fair Value" eh?

So why not sell it in the open market? It wouldn't be because there are no bids at the asked price in the open market, would it?

Quote:An industry source familiar with the practice said: “This is a legitimate strategy that was pursued at the end of the previous recession. It means that the bank is able to avoid crystallising the loss, although it is still on the balance sheet.

"Crystallising" eh?

Ah, that's a fancy word.

I think it means to avoid taking it against capital, no?

This is legal over in England? You have to be kidding me.

Yet our Fed issues swap lines into those nations......

Unbelievable.