WARNING: Deflationary Collapse Dead Ahead ~ KARL DENNINGER

[peaceandlove]

WARNING: Deflationary Collapse Dead Ahead

Tuesday, September 15. 2009
Posted by Karl Denninger

VIDEO (7:00): YouTube - CAUTION: Monetary System Collapse

TEXT and GRAPHS:

For those of you who prefer text......

You have heard me talk about this before.

I have written Tickers for more than two years.

I have sent multiple petitions to our Congress, and you have signed them.

I raised an unbelievable amount of Hell when TARP was under debate, arguing that we must allow those banks that are underwater to collapse and we must force the bad debt from the system.

The fact of the matter is that you have been lied to for the last decade about our economic state, and if we do not divert from the road we are on our economy, our monetary system and our government WILL COLLAPSE.

Not "might collapse."

Not "might get bad."

WILL COLLAPSE.

It is a mathematical certainty, and here is the proof.

First, I present the graph of our economy - GDP and Debt, from the 1950s onward. This chart you've seen before (click any of these for a larger copy)

CONTINUES: http://market-ticker.org/archives/1439-WARNING-Deflationary-Collapse-Dead-Ahead.html

[lucrum]

He mentions the US, but this will add a domino effect through out the world. US debt must come from somewhere, and defaulting it would mean a huge asset loss for every nation involved.

I am all for letting it fall, sooner rather than later, because of what this man is presenting. Not because he's the one presenting it, not because it is new to me. It's because I feel in my gut that something isn't right..

[Christo888]

As long as the collapse includes ALL the banking families that created the system so that they cannot re-emerge with another system, then may it fall to our; We The People-individual sovereign humans, benefit; OK to the highest benefit of ALL concerned. Only right action happens... and may everyone know how to take right action in this opportunity!

May the NWO crack into pieces and atrophy. And may a whole new world emerge in a positive light!:wink2:

[peaceandlove]

Because I feel in my gut that something isn't right..

Intuition is strong these days, best not to ignore it ever!!!

Love your sign off: DON'T WORRY, BE HAPPY...one of Swanny's favorites too.



And may a whole new world emerge in a positive light! :thumb_yello:


My Goodness, so many new Karl Denninger Blogs of significance. This one from yesterday and the four that follow all from today. Busy man!!!

FDIC Bankrupt? Uh huh.

Monday, September 28. 2009
Posted by Karl Denninger

From CNBC's "Breaking News" banner:

FDIC to Ask Banks to Pre-Pay Premiums to Inject Cash Into Deposit Insurance Fund (story developing)
"Ask"?

Somehow I suspect it will be something like this:

http://i34.tinypic.com/ir0wvm.jpg

(Gee, I need to graft Geithner's head on that one..... along with Bair!)

Anyway, the point stands. The FDIC is clearly out of money, and this is nothing more than yet another legalized accounting fraud game, where they'll get "the money" now but allow the banks to "recognize" that "charge" over time.

Gee, what happens if the bank doesn't have any money somewhere between now and then and fails?

Oh we won't bother with that, right? Remember, there will be no more failures - and just like in Oz, if you say it enough times it might even become true!

SOURCE: http://market-ticker.denninger.net/archives/1472-FDIC-Bankrupt-Uh-huh..html




Wall Street's Fraud

Tuesday, September 29. 2009
Posted by Karl Denninger at 08:15

Janet Tavakoli has launched another salvo related to the massive Fraud Street machine: http://www.tavakolistructuredfinance.com/Fraud.pdf

Wall Street gave mortgage lenders large credit lines (similar to credit card debt) and packaged the loans into private-label residential mortgage backed securities (RMBS). Most of the RMBS was rated “AAA,” since subordinated investors absorbed the risk of a pre-agreed amount of loan losses. But many RMBSs were backed by portfolios comprising risky fraud-riddled loans. Most of the “AAA” investment was imperiled, and subordinated “investment grade” components were worthless. Wall Street disguised these toxic “investments” with new value-destroying securitizations and derivatives.

As I have repeatedly pointed out it is not possible for the value in a transaction to ever be higher than at the point of origination of a loan. It is mathematically impossible for it to be otherwise as the cash flow from the debtors is a fixed quantity; you can divide it up and siphon part of it off, but you can't manufacture that which does not exist. Any claim that you can do so is fraud on its face.

Continues: http://market-ticker.denninger.net/archives/1474-Wall-Streets-Fraud.html




Is It Time To Recognize Reality?

Tuesday, September 29. 2009
Posted by Karl Denninger at 08:39

Or must we go entirely off the cliff and play Wile-E-Coyote?

Yes, I know, we "came back from the brink." Or did we?

Let's look at a few facts:

The Fed IS literally the entire mortgage market. Yes, really. As Chris Martenson points out http://www.chrismartenson.com/blog/federal-reserve-buys-more-100-mortgages-issued-2009/28343 (correctly) we have issued roughly $685 billion in new mortgages through August, while The Fed has bought $722 billion of mortgage paper and GSE debt (I argue illegally, and have for months) with printed money. That is, they are the market - not a part of the market. But reality is much worse - there is no market when a central bank simply buys with printed money, intentionally overpaying. After all it's not their money, right? (On the contrary, it's yours they're spending - without your consent! Must be nice eh?)

Fannie announced a change in lending policies today, effectively tightening mortgage credit. The "new criteria" will get rid of the 50%+ DTIs they used to allow and demand a 620 FICO. This is still massively below anything that can be considered "prudent"; the average FICO is reported to be 680. But Fannie has found that FICOs under 620 are in fact defaulting at a rate nine times higher than those with a higher score (!) Nine times is 900% - that's bad, right? They didn't release the percentage of loans that they had bought with the lower scores - so we don't know how ugly their book is - but remember, The Fed effectively owns all of their current-year issuance. This could end very badly for them - and us.

We claim that we're "helping homeowners" yet a recently-run study by Amherst (on Bloomberg this morning) shows that missing just one payment on your house places the probability of eventual default at 75%. Miss two and the probability is 95%.

Continues: http://market-ticker.denninger.net/archives/1473-Is-It-Time-To-Recognize-Reality.html




The Mainstream Fallacy Machine

Tuesday, September 29. 2009
Posted by Karl Denninger at 11:33

You have to love the "moral outrage" expressed in articles like this: http://nymag.com/guides/money/2009/59457/

The information that flowed from the banks, the ratings agencies, the regulatory agencies, and the mainstream media—the bedrock of the financial markets, in a sense—was viewed with great suspicion, and that created an opportunity for financial bloggers: a motley assortment of amateurs and professionals from all over the map. There are traders, economists, venture capitalists, financial advisers, and pajama-clad cranks all vying to explain the complex machinations that got us into this mess and to critique governmental solutions.

Complex machinations? On the contrary.

The only thing that is complex is the web of lies put forward to cover up what is simple mathematical reality: You cannot expand credit at a rate faster than GDP forever without suffering a financial panic and collapse.

Continues: http://market-ticker.denninger.net/archives/1475-The-Mainstream-Fallacy-Machine.html




The Banking System Is Insolvent

Tuesday, September 29. 2009
Posted by Karl Denninger in Housing at 13:56

Following up on the quick mention now that I have a story to cite from Amherst: http://www.housingwire.com/2009/09/24/amherst-sees-7m-foreclosures-poised-to-distress-house-prices/

Cure rates for these distressed loans remain low. Amherst noted a near 0% cure rate of all loans in foreclosure, 0.8% for 90 plus days delinquent, 4.4% for 60 days delinquent and 26.5% for 30-day delinquencies. All told, Amherst expects 12.42% of units (from the 13.54% of properties delinquent and in foreclosure) to eventually liquidate.

Let's put some numbers on this.

There are roughly 125 million single-family homes in the US.

Of those, roughly 30% have no mortgage on them at all. This leaves 87.5 million single-family homes with mortgages.

Let us assume the average outstanding balance is $200,000 across the entire set and will take a 40% loss severity. This is less than S&P has estimated for subprime loans and only assumes a roughly 20% market deficiency in the home price (the rest is from legal, rehabilitation and marketing expenses.)

These numbers are, with a high degree of confidence (90%+) low - that is, losses will exceed these estimates, perhaps dramatically so. It is, for example, quite reasonable to believe that due to the concentration of defaults in higher-priced areas (e.g. California and Florida) that the average outstanding balance could be close to double that $200,000 value and the loss due to negative equity higher.

From this we can develop a "cocktail napkin" view of the losses to be taken in home mortgages for single-family homes (remember, this does not include condos, apartment buildings and similar "commercial" paper.)

Continues: http://market-ticker.denninger.net/archives/1476-The-Banking-System-Is-Insolvent.html

[peaceandlove]

A casual Karl commentary, kind of...

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Videos and other Recent Commentary: http://market-ticker.denninger.net/archives/2009/10/01.html