KeNo's Housing and Economic Portal: Wednesday December 30 Housing and Economic stories

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James Grant Suggests Life in Prison for Bernanke - WSJ.com - (online.wsj.com) Ben S. Bernanke doesn't know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman's noose is another. Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud? If the U.S. Senate so determines, it may send Mr. Bernanke back home to Princeton. But not even Ron Paul, the Texas Republican sponsor of a bill to subject the Fed to periodic congressional audits, is calling for the Federal Reserve chairman's head. I wonder, though, just how far we have really come in the past 200-odd years. To give modernity its due, the dollar has cut a swath in the world. There's no greater success story in the long history of money than the common greenback. Of no intrinsic value, collateralized by nothing, it passes from hand to trusting hand the world over. More than half of the $923 billion's worth of currency in circulation is in the possession of foreigners. In ancient times, the solidus circulated far and wide. But it was a tangible thing, a gold coin struck by the Byzantine Empire. Between Waterloo and the Great Depression, the pound sterling ruled the roost. But it was convertible into gold—slip your bank notes through a teller's window and the Bank of England would return the appropriate number of gold sovereigns. The dollar is faith-based. There's nothing behind it but Congress. But now the world is losing faith, as well it might. It's not that the dollar is overvalued—economists at Deutsche Bank estimate it's 20% too cheap against the euro. The problem lies with its management. The greenback is a glorious old brand that's looking more and more like General Motors. You get the strong impression that Mr. Bernanke fails to appreciate the tenuousness of the situation—fails to understand that the pure paper dollar is a contrivance only 38 years old, brand new, really, and that the experiment may yet come to naught. Indeed, history and mathematics agree that it will certainly come to naught. Paper currencies are wasting assets. In time, they lose all their value. Persistent inflation at even seemingly trifling amounts adds up over the course of half a century. Before you know it, that bill in your wallet won't buy a pack of gum. For most of this country's history, the dollar was exchangeable into gold or silver. "Sound" money was the kind that rang when you dropped it on a counter. For a long time, the rate of exchange was an ounce of gold for $20.67. Following the Roosevelt devaluation of 1933, the rate of exchange became an ounce of gold for $35. After 1933, only foreign governments and central banks were privileged to swap unwanted paper for gold, and most of these official institutions refrained from asking (after 1946, it seemed inadvisable to antagonize the very superpower that was standing between them and the Soviet Union). By the late 1960s, however, some of these overseas dollar holders, notably France, began to clamor for gold. They were well-advised to do so, dollars being in demonstrable surplus. President Richard Nixon solved that problem in August 1971 by suspending convertibility altogether. From that day to this, in the words of John Exter, Citibanker and monetary critic, a Federal Reserve "note" has been an "IOU nothing."

CIA Given Power to Search UK Bank Records - (www.timesonline.co.uk) THE CIA is to be given broad access to the bank records of millions of Britons under a European Union plan to fight terrorism. The Brussels agreement, which will come into force in two months’ time, requires the 27 EU member states to grant requests for banking information made by the United States under its terrorist finance tracking programme. In a little noticed information note released last week, the EU said it had agreed that Europeans would be compelled to release the information to the CIA “as a matter of urgency”. The records will be kept in a US database for five years before being deleted. Critics say the system is “lopsided” because there is no reciprocal arrangement under which the UK authorities can easily access the bank accounts of US citizens in America. They also say the plan to sift through cross-border and domestic EU bank accounts gives US intelligence more scope to consult our bank accounts than is granted to law enforcement agencies in the UK or the rest of Europe. In Britain and most of Europe a judge must authorise a specific search after receiving a sworn statement from a police officer. This weekend civil liberties groups and privacy campaigners said the surveillance programme, introduced as an emergency measure in 2001, was being imposed on Britain without a proper debate. Shami Chakrabarti, director of Liberty, said: “The massive scope for transferring personal information from Europe to the United States is extremely worrying, especially in the absence of public debate or parliamentary scrutiny either at EU or domestic level. “No one is saying that allies should not co-operate, but where is the privacy protection? Where are the judicial safeguards in such a sweeping scheme? “This looks like yet another example of lopsided post-9/11 compromise and of the ease with which temporary emergency measures are foisted on us permanently.”

SEC charges ex-N.Century execs in subprime case - (www.news.yahoo.com) Three former executives at now-bankrupt lender New Century Financial Corp were charged with fraud by U.S. securities regulators on Monday, the latest government effort to pursue wrongdoing in the subprime mortgage market. The U.S. Securities and Exchange Commission accused the three executives of trying to disguise New Century's rapidly deteriorating performance from investors while releasing weekly internal reports entitled "Storm Watch." The 2007 failure of New Century, one of the largest independent providers of home loans to people with poor credit, rippled across the U.S. mortgage lending industry. It was a forerunner of failures to come as lenders booked losses on billions of dollars of mortgages and mortgage-linked securities at the heart of the global financial crisis. The SEC is seeking civil penalties and disgorgement of funds from former New Century Chief Executive Brad Morrice, former Chief Financial Officer Patti Dodge, and former Controller David Kenneally. The action follows civil fraud and insider trading charges filed in June by the SEC against prominent banker Angelo Mozilo of Countrywide Financial, who built the largest U.S. mortgage lender. The SEC said New Century sought to assure investors that its business was not at risk and failed to disclose dramatic increases in early loan defaults, loan repurchases and pending loan repurchase requests. "New Century shareholders took a double-hit: The company's mortgage assets and business performance became increasingly impaired, and management manipulated its numbers and concealed its deteriorating performance," SEC enforcement director Robert Khuzami said in a statement. The agency charged that Dodge and Kenneally fraudulently accounted for expenses related to bad loans that New Century had to repurchase. The defendants' actions caused investors substantial losses, the SEC charged. After announcing in February 2007 that it would have to restate its 2006 financial statements, New Century's stock price fell 36 percent to about $19. The stock traded for less than $1 when New Century sought bankruptcy protection in April 2007. A spokesman for a law firm representing Morrice said the allegations against him are "flatly false" and will be proved as such at trial. He said Morrice lost millions of dollars in New Century stock and was "among the biggest victims of the company's collapse." An attorney for Kenneally said he was "a hardworking accountant who was still quite new at New Century and lost every penny he ever invested in the company he believed in."

Detroit-Area Real Estate Ponzi Scheme - (www.dsnews.com) Early Friday morning, Rita Gosselin of Grosse Ile, Michigan was arrested after being accused of defrauding dozens of people in a massive real estate ponzi scheme, Attorney General Mike Cox announced. Gosselin is charged with racketeering, multiple counts of obtaining money under false pretenses for orchestrating numerous fraudulent real estate investments, and stealing hundreds of thousands of dollars from Michigan families. Gosseline allegedly orchestrated this real-estate investment ponzi scheme between April 2007 and September 2008 in metro-Detroit. She is accused of enticing investors with claims that she was able to purchase foreclosed and distressed properties in bulk and said she was able to renovate the homes to sell at a profit. Gosselin guaranteed regular monthly payments and allegedly provided investors with promissory notes as a security for these investments. According to reports, few investors received any of the promised payments, and all of the investors lost some, if not all of the money they invested. It is estimated that Gosselin’s scam may have taken in nearly $500,000 from as many as 20 victims. “Taking advantage of Michigan families, especially in today’s economy, will not be tolerated,” said Cox, who has made prosecuting mortgage and real estate fraud a priority for his office. In 2008, he created a mortgage fraud unit and joined forces with Michigan state police and other law enforcement agencies to tackle this problem. After her arrest Friday morning, Gosselin was arraigned in the 33rd District Court in Woodhaven before Judge Michael McNally. The court imposed a $300,000 cash bond and scheduled a preliminary examination of this case for December 15. Gosselin is charged with one count of continuing criminal enterprise, otherwise known as racketeering, a felony punishable up to 20 years in prison and three counts of false pretenses over $20,000, each a 10-year felony.

Houseowners are getting hit a second time - (www.silive.com) A new foreclosure tactic, whereby lenders or debt collectors holding second mortgages freeze bank accounts or garnish pay checks of already struggling homeowners, is emerging and making it even more difficult for people to hold onto their homes. Lawyers for troubled Staten Island homeowners say they are beginning to see examples of clients who go to the bank to take out money and find that their accounts have been frozen or wiped out by other banks or debt collectors -- the entities holding second mortgages on houses already in default on the first and primary mortgage. Some are learning the lender or debt collector has already gone to court and secured a judgment to garnish paychecks. It's a move more in line with the traditional debt collection industry, which typically targets credit card debt, and it's dragging the house and what little cash reserves people often have into the foreclosure battleground. Experts say it's an end-run by second lien holders around the traditional foreclosure process, which involves only the first mortgage holder and provides important legal protections for the homeowner. "It's a fast and dirty process," Margaret Becker, lead attorney with the Homeowner Defense Project of Staten Island Legal Services in St. George, said of the new trend. So far, she said, she's taken on two cases and she's heard similar stories from other attorneys. In several emerging tales, homeowners say they learned about the garnishments only after their bank accounts dropped into the negative or paychecks diminished. And that is making it even more difficult for people to pay bills and modify the terms of the first mortgage to save homes from foreclosure. Homeowners being targeted often include the most troubled, or people who are behind on payments and whose homes are worth less than what is owed on the house. "It just takes their money away so they don't have any money to afford a (loan) modification," Ms. Becker said of those who have been hit with judgments from second lien holders. She is representing an Arden Heights woman who was talking to her bank about modifying the loan on her first mortgage. Then a debt collector, which bought the second mortgage on the house, won a judgment to garnish 10 percent of the woman's paycheck. That has jeopardized a good shot at a loan modification, said Ms. Becker.

Kaufman warns of commodities bubble - (www.reuters.com) A bubble has formed in commodities as "speculative fervor" returns to markets after the global financial crisis, veteran Wall Street economist Henry Kaufman said on Monday. "There are bubbles in commodities," and probably in the gold market as well, Kaufman, president of financial consulting firm Henry Kaufman & Co Inc in New York, told the Reuters Investment Outlook Summit in New York. He cited the return of leveraged bets as one driver. Because commodity markets are small compared with some other financial markets, comparatively modest shifts out of other assets could increase the risks in commodity markets, he said. Kaufman also cited some risks to the U.S. dollar and said it is debatable whether the dollar is bottoming, though he added that the currency's retreat has so far been orderly, and that inflation is not likely to be a problem for the foreseeable future. However, the "speculative fervor" where participants are borrowing heavily in short-dated markets "might be a risk for the dollar," Kaufman said. Investors, spurred by near-zero U.S. interest rates and easy availability of funds, have borrowed huge sums of money in dollars in recent months to purchase higher-yielding assets in so-called "carry trades." Kaufman said he did not expect the U.S. government to take any action to stabilize the dollar. Longer term, if the U.S. economic recovery is more anemic than that in some other major economies, that will weigh more on the dollar, he added, citing the area between 80 yen and 85 yen per dollar as a "testing point." Despite some analysts' concerns that the huge amount of U.S. government debt issuance will ultimately pummel the dollar and push U.S. government bond yields steeply higher, Kaufman expects the 30-year Treasury bond's yield will rise only moderately to about 5.5 percent by early 2011, from about 4.4 percent now.

U.S. Scientific Community Circa 1975: 'The Coming Ice Age!' - (www.forbes.com) Many of you are too young to remember, but in 1975 our government pushed "the coming ice age." Random House dutifully printed "THE WEATHER CONSPIRACY … coming of the New Ice Age." This may be the only book ever written by 18 authors. All 18 lived just a short sled ride from Washington, D.C. Newsweek fell in line and did a cover issue warning us of global cooling on April 28, 1975. And The New York Times, Aug. 14, 1976, reported "many signs that Earth may be headed for another ice age." OK, you say, that's media. But what did our rational scientists say? In 1974, the National Science Board announced: "During the last 20 to 30 years, world temperature has fallen, irregularly at first but more sharply over the last decade. Judging from the record of the past interglacial ages, the present time of high temperatures should be drawing to an end…leading into the next ice age." You can't blame these scientists for sucking up to the fed's mantra du jour. Scientists live off grants. Remember how Galileo recanted his preaching about the earth revolving around the sun? He, of course, was about to be barbecued by his leaders. Today's scientists merely lose their cash flow. Threats work. In 2002 I stood in a room of the Smithsonian. One entire wall charted the cooling of our globe over the last 60 million years. This was no straight line. The curve had two steep dips followed by leveling. There were no significant warming periods. Smithsonian scientists inscribed it across some 20 feet of plaster, with timelines. Last year, I went back. That fresco is painted over. The same curve hides behind smoked glass, shrunk to three feet but showing the same cooling trend. Hey, why should the Smithsonian put its tax-free status at risk? If the politicians decide to whip up public fear in a different direction, get with it, oh ye subsidized servants. Downplay that embarrassing old chart and maybe nobody will notice. Sorry, I noticed. It's the job of elected officials to whip up panic. They then get re-elected. Their supporters fall in line.