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Suckers’ Rally on Wallstreet

 
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Spitfire



Anmeldungsdatum: 21.02.2006
Beiträge: 402
Wohnort: L.A., California

BeitragVerfasst am: Do Jul 24, 2008 9:27 pm    Titel: Suckers’ Rally on Wallstreet Antworten mit Zitat



The price of oil will shoot back up and subprime crisis will cost a lot more than $25 billion.

by James Buchanan

The latest Big Lie from the Bush regime is that the bail out of Freddie Mac and Fannie Mae won’t cost the $300 billion originally authorized by the US Senate ten days ago, but will only cost a modest $25 billion. This dubious announcement -along with a sudden drop in oil prices- has caused a 638 point rally on Wall Street. Funny how the price of oil suddenly plunged just in time to save the stock market. It’s almost as if Big Oil jacks up the price as high as possible most of the time and only drops the price a little if the bottom is starting to fall out of the economy. If Teddy Roosevelt were still alive and acting as president (instead of the dim-witted stooge George W. Bush), the Big Oil Companies would be under investigation for behaving like a monopoly.

The Bush regime has a “sure fire” response to any disaster that takes place on their watch. They lie about it. The quagmire in Iraq was “necessary” if you listen to the various neocon spokes-holes. The “surge” has been a “great success” even though we still have an extra 10,000 “surged” troops still in Iraq and even though we’re still suffering dozens of casualties every month as the rebel forces launch increasingly sophisticated attacks. I strongly suspect any drop in casualties is NOT due to the surge, but due to the fact that the Republicans are almost certain to lose in 2008. The Iraqi rebels have effectively won and don’t NEED to fight as much anymore since US troops will likely leave by 2010 (if Obama can be taken at his word).

The neocons also told us the huge failure at Katrina was not the fault of Bush and the federal government even though flood control is the job of the (federal) Army Corps of Engineers. Oh no, Karl Rove, various neocon talk show hacks and Internet trolls fooled millions of Americans into thinking that the Katrina disaster was the fault of the mayor of New Orleans and Governor of Louisiana even though they had no role or responsibility for flood control while President Bush had all the responsibility for building levees. Why let facts get in the way of a good propaganda campaign that shifts the blame on your enemies?

Now we are neck-deep in a subprime crisis that recently drove the stock market below 11,000 points for the first time in two years. So how is the Bush regime responding to this disaster? They’re lying. They’re claiming the Freddie Mac Fannie Mae bail out will cost a mere $25 billion. They most likely pulled strings to get their Big Oil buddies to drop the price of oil temporarily to fool people into rushing back into the stock market. This smoke and mirrors trickery should really not fool anyone. As the weeks go by, a more realistic estimate of the size of the subprime crisis will materialize. So far, it only seems to grow to more gigantic proportions. Two weeks from now, that $25 billion estimate will be seen as a ridiculously low amount.

A recent news article entitled “Investors question financial sector rebound” reports that “Surprisingly large second-quarter losses at Wachovia Corp. and Washington Mutual Inc. have quickly revived concerns that the financial sector still has a long way to go before it recovers from the year-old credit crisis. Investors who were growing optimistic after a string of upbeat bank results in recent days were jolted Tuesday when Wachovia, the nation’s fourth-largest bank, racked up an $8.86 billion loss because of charges and reserves for bad mortgage loans. The Charlotte-based bank also cut its dividend for the second time this year and eliminated 10,750 positions. Washington Mutual, the nation’s largest savings and loan, delivered a further blow, swinging to a $3.33 billion loss as it boosted its loan loss reserve to more than $8 billion, betting it will have more soured mortgages… ‘Wachovia’s news isn’t isolated. I think there is still a structural issue with U.S. banks,’ said Russell Walker, a risk management professor… Global banks and brokerages already have written down some $300 billion of mortgage-backed securities and other risky investments since the crisis began last year and there are fears that more write-downs are ahead as more mortgages fail. Questions remain about which companies will have to raise additional capital going forward, and just how much will be needed.”

Another article reports “The Bush administration’s plan to rescue ailing mortgage-finance giants Fannie Mae and Freddie Mac is likely to cost about $25 billion during the next two years, according to congressional budget analysts… However, ‘that scenario is far from the only possible result,’ the letter says, and the cost estimate takes into account ‘the probability of various possible outcomes.’ That means rescuing the mortgage firms could cost significantly more than $25 billion if the authority is exercised, the letter says.”

Frankly, the $25 billion dollar estimate by Congressional hacks sounds like so much wishful thinking. Freddie Mac and Fannie Mae handle the financing of about 40 to 50 percent of all the home mortgages in the US. Let’s say Joe Sixpack got a loan for $600,000 with little-to-no money down. One year after he started buying his home, he discovers the value of his house has plunged to $400,000. Millions of “Joe Sixpacks” are predictably walking away from massive debt and declaring bankruptcy. Some are simply flaking out on the home loan, because they only bought the house to re-sell later at a profit. A large number of loans went to Blacks and Latinos, who should never have gotten loans. Sometimes loan agents fabricated information about the lenders’ income to make the loan go through. In many cases, the real estate agent flat out lied to the borrower claiming that they would get a one percent interest rate for the first three years. Add to the subprime loans, a large number of “prime loans” that fail after the borrower loses his high-paying yuppie job to outsourcing.

The current rally on Wall Street has “Suckers’ Rally” written all over it. While the price per barrel of oil has temporarily dipped, the price at the gas stations is still well over $4 per gallon. I can easily see the price per barrel shooting back up in the very near future. The rosy prediction that Freddie Mac and Fannie Mae can be saved with a mere $25 billion defies all logic. The number of mortgage defaults is likely to grow into the millions, which would mean hundreds of billions of dollars in losses. The fact that the US Senate authorized 300 billion for loans to Freddie Mac and Fannie Mae suggests that the disaster will be much, much larger than the highly dubious $25 billion estimate, whose real purpose was to reduce the panic on Wallstreet over the subprime crisis.

We’ll soon see just how serious the subprime crisis is as the fate of Wachovia Bank and Washington Mutual Bank becomes more obvious in the next few weeks.
_________________
“Wenn ein Volk seit 3000 Jahren verfolgt und geächtet wird, dann muss dass wohl irgend einen Grund haben”.
Henry Kissinger
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