The Debts of the Spenders: Option ARMs Continue to Bleed

Over 1/3 of Option ARMs are in default. And this data was as of April 2009. How much worse has it gotten since then?

Not even the banks know for sure since under revised FASB rules, they continue to be able to book projected income as full income . . . . rather than the tiny amounts that borrowers are sending in - not even enough to make the full interest payments as the original author points out.

As featured on:

http://themessthatgreenspanmade.blogspot.com/2009/07/
option-arms-worse-than-subprime.html

The Debts of the Spenders: Health Care Inflation - The High Cost of Living In America

While the deflation/inflation debate continues to rage among academics and traders, one area of consumer spending has continued to rise uninterrupted year after year for well over a generation. Health care costs - the biggest block to consumer consumption (in other areas) - is steadily growing into a giant monster that forces Americans to devote more of their savings for the inevitable high cost of living.

This problem is becoming particularly acute as the Boomer wave reaches maturity and starts withdrawing savings/liquidating assets to pay for costly medicines and medical treatments. No amount of Generation Y spending on Xbox's, iPods, and other youthful gadgets is going to be enough to offset their elders' withdrawal of spending dollars. Not when hospital beds routinely cost 5 digits and up.

But never fear, there is a solution available as Steven Colbert points out. The trick is in allocating health care funds as one of the 3 sacred cows of Congressional spending - Guns, Credit, and Corn. This is a pointed reference to the War lobby, Bank lobby, and Agricultural lobby.

http://www.colbertnation.com/the-colbert-report-videos/
233530/july-14-2009/the-word---guns--credit--and-corn

Average premium increases on the rise

By Danielle Andrus | Published July 15, 2009 From the July 15, 2009 Issue of Benefits Selling WEEKLY

The average premium increase for health insurance has been decreasing in recent years, but 2009 saw a bump of over 10 percent for all plan types. According to the 2009 Compensation Data Insurance, conducted by Compdata Surveys, premiums increased 7.7 percent in 2008 and 10.7 percent in 2007; this year average premiums increased almost to 2007 levels, at 10.3 percent.

PPO plans and POS plans saw the greatest increase at 11.1 percent and 11.2 percent, respectively. HMO plans had a slightly lower increase, at 7.3 percent. HDHP plan premiums increased 10.6 percent.

Employers are more or less in agreement on the best way to cut costs. Over 88 percent are coordinating benefits to rein in rising costs, while 76.9 percent use a network of health care professionals. Nearly 60 percent passed the cost on to their employees by increasing their portion of the premium.

Insurance companies contribute an average 11.2 percent of payroll to the cost of health benefits, the same cost to provide dental, life, retirement, disability and other non-mandated benefits together.

The Debts of the Spenders: TARP for Small Business Loans Meets Lender Reluctance

Tarp Capital for Small Businesses Is Back in Play

By Emily Flitter, American Banker

July 14, 2009

The White House is weighing another attempt to help small businesses with bailout funds, but doubts remain about whether lenders will bite.

Just how the Trouble Asset Relief Program might be used to aid small businesses has not been decided, but the issue is expected to be aired this morning at a meeting with the head of the Small Business Administration, lawmakers and industry leaders.

"This is a signal that the White House continues to be concerned about the credit crunch on small businesses," said Christopher Crawford, who was to attend and is the president and chief executive officer of the National Association of Development Companies.

But a previous effort to direct some of Tarp's $700 billion toward small business sputtered.

In mid-March the administration unveiled a $15 billion plan to buy securities backed by SBA loans in an attempt to jump-start the secondary market for small-business loans.

Yet broker-dealers, who held the securities, balked. Many said they feared they would have to meet the same tough conditions imposed on financial institutions receiving Tarp capital infusions, including having to issue stock purchase warrants to the government and abiding by restrictions on executive pay.

Observers said SBA lenders may have a similar reaction the second time around.

"The challenge is: How do they get rid of the Tarp restrictions so that lenders will participate?" Crawford said.

It remained unclear Monday whether the administration will try to strengthen traditional SBA programs that provide loan guarantees for private lenders or provide aid directly to SBA lenders.

Using Tarp money to benefit small business could also face legal questions. For example, some benefits for small businesses were provided by the economic stimulus package, such as lower borrower fees and increasing the amount of an SBA loan that is guaranteed. But it is unclear whether the administration could use Tarp to pay for those benefits, since Congress had approved using stimulus funds to pay for them.

Even an SBA spokesman said it was too early to know what the program would look like, and he cast doubts on whether the aid for small business loans would come from the bailout program, which has largely focused on keeping banks and other institutions solvent.

"This is one of many ideas that have been put out for consideration among members of the administration," said Jonathan Swain, the SBA's Assistant Administrator for Communications. "Any discussion of utilizing Tarp money is preliminary and any speculation on the specifics of how that would work is premature."

Those expected to attend the meeting today in addition to Crawford included Karen Mills, the SBA administrator; Senate Small Business Committee Chairman Mary Landrieu, D-La.; Tom Burke, the head of Wells Fargo & Co.'s SBA lending division; and representatives of various financial services trade associations.

"This is more of a continued dialogue," said Tony Wilkinson, the president and chief executive of the National Association of Government Guaranteed Lenders.

Crawford said it made the most sense to direct bailout funds to expand existing programs at the SBA, rather than create a new framework for providing credit to small businesses, since the agency has the best track record.

"This is the reason why the White House has to turn to the SBA," he said. "The SBA has the conduits to get the money on the street."

Source:

http://www.financial-planning.com/news/
tarp-capital-small-businesses-2663270-1.html

The Debts of the Spenders: Wells Fargo Sues Itself

*Credit to Clair Hayashi.

Due to state foreclosure laws, Wells Fargo was required to list itself as BOTH the plaintiff and defendant in court forms. In other words, Wells Fargo sued itself.

Yes, attorneys for Wells Fargo the plaintiff were issued responses by attorneys for Wells Fargo defendant.

Wells Fargo hired Florida Default Law Group., P.L., of Tampa, Fla., to file the lawsuit against itself.

And then Wells Fargo hired another Tampa law firm -- Kass, Shuler, Solomon, Spector, Foyle & Singer P.A. -- to defend itself against its own lawsuit, according to court documents.

http://www.foxbusiness.com/story/
markets/al-lewis-wells-fargo-bank-sues/

The Debts of the Lenders: Mid-July 2009 Look at BRIC Equities

These charts are for the Brazilian, Indian, and Russian exchanges. I have included both weekly and daily charts to show that although the BRICs have staged impressive rallies this year SO FAR, they have yet to regain their 2008 highs.

The Debts of the Lenders: Commodities Hit the BRIC Wall of China

Have commodities hit the BRIC wall of China? Shanghai has been one of the only markets to continue rallying even after US, European, and fellow Asian markets retraced their impressive gains. (Note: this post is best reviewed in relation to the next post: "Mid-July Look at BRIC equities").

Indeed, the other BRICs (Brazil, Russia, and India) have already seen sharp to medium drops in profit taking among traders.

Questions continue to be raised about the sustainability of Chinese equities - especially when IPOs are oversubscribed by a ratio of several hundred percent, exports are slowing, internal unrest is growing (see the Uighur riots), and manufacturing jobs disappearing.

Indeed, the Chinese equity boom is based on A LOT of leverage. Simply put, there is a MASSIVE liquidity drain going on in the Chinese system - they make Greenspan look like a little boy.

http://ftalphaville.ft.com/blog/2009/07/09/
61171/quantitative-tightening/

It looks like the Chinese authorities are setting themselves up for an epic drop sometime in the future.

Sources:

ZH does a great job of covering the Chinese fundamentals in this and other older articles:

http://zerohedge.blogspot.com/2009/07/
continued-commentary-on-china.html

The Professor is on point as always:

http://mpettis.com/2009/07/rmb-15-trillion-in-new-
chinese-lending-can-we-turn-this-thing-off/

The Debts of the Spenders: IRS Declares California IOUs to be Securities and Not Legal Tender

Banks have good reason to be wary of accepting California IOUs as valid legal tender because only the Federal government has the authority to issue money. This is a basic principle enshrined in the Constitution. Article 1, Section 8 clearly states:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

So, it comes w/little surprise that the IRS has declared California IOUs to be securities or negotiable instruments similar to checks. After all, they cannot contravene something that is taught in high school civics classes.

Source: http://capital-flow-analysis.com/capital-flow-watch/
sec-declares-california-ious-to-be-municipal-securities.html

Interestingly enough, this has opened up a whole new Financial "Wild West" where speculators are working on arbitrage opportunities to trade, lever, and exchange the IOUs on secondary markets.