SEC You Later Mortgage Defaults

By: The Mogambo Guru | Thu, Aug 9, 2007
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"One of the things that is keeping the stock market alive is the same reason why China is trying to shore up its banks; to address the ugly fact that inflation in China has risen to 4.4%...above the government's '3% target'"

With all the losses in mortgage securities, I guess it is surprising that Required Reserves in the banks are still hovering at the same measly $41 billion in Total Reserves that the banks have been reporting since 1999. In short, reported Bank Reserves have not increased by so much as a thin dime in eight years of rampant additions to the levels of deposits, levels of loans, levels of debt, and levels of the money supply created by the banks, mostly because they found that they can get away with it simply because nobody ever tried to stop them!

And you can "get away" with a lot of crazy stuff if the same kind of crap is endemic to the entire regulatory side of the government, as it apparently is, as I gather from Junior Mogambo Ranger (JMR) John H., who said, "This gem was in the New York Post Online this morning in an article titled 'Credit Crisis Kills Two More Mortgage Bigs'".

It turns out that the Securities and Exchange Commission, having turned a blind eye to everything all these years like everybody else, now has degenerated to the point where SEC chief Chris Cox is saying, "the SEC is coming up with new, more flexible accounting rule interpretations that companies and others could use to avoid declaring their mortgage securities in default." Hahahaha! What a surprising, astonishing admission of corrupt, lying fraud!

JMR John, apparently as flabbergasted as I am about this startling admission from the SEC, opines, "Let's see if I'm gettin' this straight... Just because it's worthless doesn't mean that we've got to list it on our books that way - Wowie !!!!! Even five exclamation points don't do this justice."

Maybe all of this stuff has something to do with perceived shocks of odometer-like things rolling over, such as the holdings of U.S. and agency debt held by foreign central banks and stored at the Fed, which have now topped the historic $2 trillion mark. Written out to the penny, that's $2,000,000,000,000.00.

Another upcoming odometer rollover will be when the national debt rolls up to over $9 trillion, as from the AP we learn that "Treasury Secretary Henry Paulson on Monday said the United States may be unable to pay its bills this fall unless Congress raises the government's borrowing authority, now capped at $8.965 trillion", and currently sitting at about $8.950 trillion. Getting close!

And government spending ain't slowing down either, as, "Separately, the government expects to borrow $73 billion in the July-to-September quarter, which would be more than previously forecast, the Treasury Department said. The new estimate is $31 billion higher than a projection made in April", which is, in turn, a zillion dollars higher than the official federal budget, all of which is rapidly taking us closer and closer to the horror of the federal government spending a whopping $4 trillion a year!

But I guess they have to spend it, as Addison Wiggin, of the terrific 5-Minute Forecast at DailyReckoning.com, calmly reports with a remarkably calm demeanor that "We've already heaped a monumental list on Beltway bureaucrats' shoulders: Free health care, free drugs, full employment, free education, safe airports, safe water, safe rap lyrics, cheap mortgages, trips to the moon, bridges to nowhere, smoke-free bars, trans fat-free french fries, a secure retirement, national highways (with no bumps), stocks that only go up, cheap gas, cheap electricity, ethanol, easy money, low interest rates... not to mention a comprehensive solution to global warming and total victory in the wars on terror, drugs, poverty and Christmas." Hahaha! Well put! The fiscal problem in a nutshell!

-- One of the things that is keeping the stock market alive is the same reason why China is trying to shore up its banks; to address the ugly fact that inflation in China has risen to 4.4%, which is therefore theoretically above the government's "3% target", but the interest rate paid on bank deposits is less than that, and that's BEFORE the government levies a tax on the "gain"!

This crappy real (inflation-adjusted) negative return has made Chinese people say, "Hey! I'm really getting hosed here, what with that 'loss of buying power' thing, and I'm pretty cheesed off, just like The Mogambo said I would be!"

Now, I don't speak Chinese, but I imagine it sounds something like "How chow hoy nah Mogambo idiot choy me wong soy sauce big screw job!" Notice how even with the language barrier, you can get the drift! It's that serious!

So, desperate to stop losing buying power, Chinese depositors are forced by necessity to put their money into riskier investments, and these trapped people have now helped drive their stock market "to levels that many analysts consider extremely high."

And of course a lot of this money bled into other stock and bond markets around the world after just a few iterations of the international market system, driving them "to levels that many analysts consider extremely high", too.

Now, in tepid response, the Chinese authorities not only boosted the interest rate payable on deposits, but also slashed the tax payable on the interest income. This results in a double boost that nets depositors to just over (insert comically inept trumpet fanfare) 3%! Hahaha! Still losing money against 4.4% price inflation, but not as fast!

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The Mogambo Guru

Author: The Mogambo Guru

Richard Daughty, the angriest guy in economics
The Mogambo Guru

The Mogambo Guru

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning, and other fine publications.

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