Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
October 23, 2010
Issue 119  -  A Confluence of Crappy News
 
 
As the powers that be continue to stick multiple fingers in the dike, more and more holes appear.  Exhibit A from the Ticker Guy: 
 
If This Is True...... KaBOOM
 
By Karl Denninger
 
I don't know.

Multiple people have told me this before.

Catherine Austin Fitts has talked about this for a long time.  I get "whispers" all the time from people who I know actually are involved in securitization work related to this on occasion - and have for the last three years.  We have the story from this morningfrom FDN talking about their software that has uncovered multiple sales of the same instruments.

But this..... if this is true it's not just systemic, it's not just common, it was the premise and basis of the entire securitization game - and "game" is the correct word for it, as the allegation made here is that the entire thing was a gigantic scam.
 

The game was to move money under a scheme of deceit and fraud. First sell the bonds and collect the money into a pool. Second take your fees, third take what’s left and get it committed into “loans” (which were in actuality securities) sold to homeowners under the same false pretenses as the bonds were sold to investors. By controlling the flow of funds and documentation, the middlemen were able to sell, pledge and otherwise trade off the flow of receivables several times over — a necessary complexity not only for the profit it generated, but to make it far more difficult for anyone to track the footprints in the sand.

If the loans had actually been securitized, the issue would not arise. They were not securitized. This was a mass illusion or hallucination induced by Wall Street spiking the punch bowl. The gap (second tier yield spread premium) created between the amount of money funded by investors and the amount of money actually deployed into “loans” was so large that it could not be justified as fees. It was profit on sale from the aggregator to the “trust” (special purpose vehicle). It was undisclosed, deceitful and fraudulent.
 

Truth?

I don't know.

But it does fit with what we know.

True securitization has so many fingers in the pie that I find it difficult - or impossible - to make the argument that it "works" compared to portfolio lending for the investor who is providing the funds.

This sort of scenario also explains why everyone is resisting any attempt to provide the actual background documentation from origination forward to the assignment into the trusts, and all we see are "copies" and "lost note affidavits."  True, actual wet-signature notes with the endorsements they all claim they got - but which nobody has yet seen, leading one foreclosure defense attorney to quip that if someone ever does see such a note they should "bronze it" - much as one would bronze their baby's first shoe pair.

 
So there you have it.  The WHOLE mortgage system may be a gigantic fraud.  If these crooks were actually multiple assigning the same loan, then to sort things out will take YEARS.  Lawsuits will flood the system.  I hope this is a rarity, but the money involved in the mid 2000s makes me doubt it.  These mortgage lenders were basically printing money and we are to now believe they resisted the huge temptation to sell the same loans twice (or more???) because they knew it would be nearly impossible to discover?  This could be huge.  We'll watch this one closely.
 
As if the mortgage mess wasn't enough, the U.S. continues its slide from the top of the mountain.  I have previously shown our standing in academics and now how about net worth?  Yes, we still have the most total wealth, but the more important figure to measure a nations worth is the average.  We are now 7th:  (from zerohedge)
 

US Drops From First To Seventh In Average Wealth Per Adult, Behind Singapore, Sweden, And... France

 


As if we needed more warnings that the US is rapidly losing its position as the world's superpower and wealth aggregator, is the following chart from Credit Suisse, which ranks the top 10 countries in the world in terms of average wealth per adult. While the US was #1 10 years ago, due to an abysmal growth rate of only 23%, by far the lowest of all the ranked countries, the US has now dropped from first to seventh, falling behind such countries as Sweden and France. At the top - such perennially voted "top places to live" as Switzerland and Norway. Hopefully the US can fix its ever-expanding black hole of problems soon, as once the wealthiest decide they have had it here and move away, look for this number to drop ever faster until the US drops out of the ranking altogether.

 
Is that depressing or what?  We USED to be the top dog.  Now, we are dropping fast.  This is will only accelerate.  I was listening to the Rick Edelman show and he was noting a survey of adults and 61% of the people asked were worried about how they were going to afford retirement.  Interestingly, 75% of the worried people hadn't done ANYTHING about it.  I guess they'll worry about that later, huh?  They ought to be worried if this story is any indication:
 

Perry Wong, Director of Regional Economics at the Milken Institute is co-author of a new report, Addressing California’s Pension Shortfalls: The Role of Demographics in Designing Solutions. His conclusion:

We’re talking about a perfect storm: more state services needed for an aging population, a workforce that will spend more years in retirement than they did contributing to the funds, and a smaller ratio of working-age taxpayers and contributing state workers to pay for it all.

Some of the

key findings in the report include:

• By around 2012 or 2013, the three major state pensions’ obligations will be more than five times as large as total state tax revenue.

• Not only will California’s growing senior population depend on Medi-Cal and other state services, but public school enrollment is likely to rise in the coming years. The state can ill afford to fund pensions by cutting back on these services.

• In 2009, the pension liability came out to $3,000 per working-age adult in the state. By 2014, it will triple to over $10,000 per working-age Californian.

• Raising employee contributions alone will be less effective over time as the ratio of actively contributing members to benefit recipients continues to decrease.

• Currently, the average state employee contributes to the system for 25 years, but will receive benefits for 26 years — and the number of benefit-receiving years is increasing as longevity improves.
 
Remember the retirement system used to be only needed for a few years as the life expectancy was much lower.  The system was never made to pay huge salaries for over 26 years.  How would it be possible to work 25 years and then get paid for 26 more?  The math just doesn't work.  California is finding this out.  They won't be alone. 
 
If things proceed to get worse, not better, as I expect, this situation will get out of hand:
 
HONOLULU — Lillie Gonzales does whatever it takes to provide for three ravenous sons who live under her roof. She grows her own vegetables at home on Kauai, runs her own small business and like a record 42 million other Americans, she relies on food stamps.

Gonzales and her husband consistently qualify for food stamps now that Hawaii and other states are quietly expanding eligibility and offering the benefit to more working, moderate income families.

Data from the U.S. Department of Agriculture reviewed by The Associated Press shows that 32 states have adopted rules making it easier to qualify for food stamps since 2007. In all, 38 states have loosened eligibility standards.

Hawaii has gone farther than most, allowing a family like Gonzales' to earn up to $59,328 and still get food stamps.

Prior to an Oct. 1 increase, the income eligibility limit for a Hawaii family of five was $38,568 a year.

"If I didn't have food stamps, I would be buying white rice and Spam every day," said Gonzales, whose Island Angels business makes Hawaiian-style fabric angel ornaments, quilts, aprons and purses.

Eligibility for food stamps varies from state to state, with the 11 most generous states allowing families to apply if their gross income is less than double the federal poverty line of $22,050 for a family of four on the U.S. mainland. The threshold is higher in Alaska and Hawaii.

Food stamps while making $50,000??????!  Are you kidding me?  How is this possible?  What's going on?  The socialization of this country, that's what.  It's the plan.  Make a nation of sheeple waiting to be fed by Uncle/Daddy Sam.  This is unsustainable also.  It creates more and more dependents until we're all one big glob.  Then the power masters control the shots.  If they control if you eat, they control you.  It's that simple, and devious. 
 
The national debt continues to spiral out of control with the current total of 13.6 trillion dollars.  What's interesting and you can track this here, is that the unfunded liabilities have just gone nuts.  The medicare liability is now $76 trillion.  Would you like to guess the prescription drug liability.  You remember this was Bush 43's great blunder?  It's almost $20 trillion!  Just for drugs!  Interestingly enough, these numbers have not slowed down in the least since Obama's health care con was passed.  Just how are we going to afford all this stuff?  We won't and then the national takeover of EVERYTHING can be enacted.  Just look at what has transpired in the last 20 days:  (from GATA) 
 
Bill,
The Federal Debt has kicked into overdrive the last 20 days rising $202 billion from September 29 thru October 18 to a new high of $13,668,894,473,093.42. This is $3,686 billion annualized ($3.686 trillion). As far as I can tell, the Feds usually receive about $82 billion in tax payments over a 20 day period. This means the income of the Federal Government the last 20 days was $82 billion and the expenditures were $284 billion. They are spending 3.46 times more than they are collecting. No wonder Congress did not pass a budget. No wonder the Federal Reserve is going to ramp up quantitative easing. Bill H is right – the dollar is doomed. Regards,
-Bryant
 
Yes, in the last 20 days we have spent almost 4 times revenues.  Yeah, that's sustainable.  Everything's fine.  We are spending so much money that things will inevitably come unglued.  It's only the timing that's unknown.  That's why I have gold and silver.  They're the ultimate insurance.  Make sure you have yours.
 
Investing Tip of the Week:  Cut your losses
 
 
This a new section I wanted to add to give one of my thoughts about investing each blog.  This week its selling.  This is the hardest part of investing.  There is no more difficult thing to perfect then when to sell.  I think I'm pretty good it at.  I'll give you an example of how big of a difference this can be.  I had purchased Novagold at about 17 because there was a takeout offer on the table.  The price was trading below the take out offer.  This was a negative sign.  Instead of hoping that the market was "wrong", I took a loss of 10% and sold.  I later bought GORO at about $3.  What is Novagold at today?  $9.57.  If you're wrong, you're wrong.  Don't try to "prove" that you were right by holding on when things don't go as you thought they would.  Sell and don't look back.  A lot of time is wasted by investors trying to get back to even.  Don't be one of those investors.
 
 
Positions:
 
Goro  (closed at $20.20, down $2.50, average price paid, $6.10)  First down week in a long time.  There was extremely good news announced as the private placement of $55 million buyers were revealed.  As it turns out, Tocqueville Gold, a large mutual fund, bought more shares.  They actually bought in REAL early and hadn't purchased anymore shares for quite a while.  They increased their shares held by 50%.  They now own about 4.5 million shares.  This is very bullish.
  
Mexus Gold  (closed .27, down 1 cent, average price paid, $0.16)
 
Silver Wheaton Jan 11, call options, strike $27 (closed $3.05, average price paid, $2.70)  Closed out.  Sold at $1.97.  Loss of 27%.
 
GORO June 11, call options, strike $20 (added more this week lowering average cost) (closed at $4.30, average price paid, $5.60)
 
New positions Silver Standard Call options, 3 strikes, all jan 2011,
      $22.50  bought at$2.60, closed $2.20
      $25.00 bought at $1.65, closed $1.40
      $30.00 bought at .65, closed .50
 
I'll close this week with a video of the largest snake ever found.  Amazing!  You might want to turn your audio volume up before playing as it's a little low for some reason.  Have a great week!