Mish's Global Economic Trend Analysis

Ron Paul on a Return to the Gold Standard (When and How); The Dangerous Competing Idea for the IMF to Create the Standard for International Money
Some Failed Institutions Always Foreclose; The Reason: FDIC Sponsored Fraud; Who Benefits: George Soros, Michael Dell; John Paulson; Boycott Dell
Wild Ride in 2-Year Italian Bonds; What's Changed? Nothing! Expect More Nonsensical Rumors
Equity Futures Ripping, Bond Market Still on Deathbed; Germany Allegedly Mulls Five-Nation "Elite Bonds"

Ron Paul on a Return to the Gold Standard (When and How); The Dangerous Competing Idea for the IMF to Create the Standard for International Money

Posted: 28 Nov 2011 11:28 PM PST

In the following interview video on Fox News, Ron Paul explains his plan for monetary freedom and a return to a gold standard. Paul also addresses a dangerous competing idea for the IMF take over control of setting international monetary standards. Finally, Paul explains how he has been temporarily stymied on his plan for a full and complete Fed audit.

URL if Video does not play: Ron Paul's Plan for Monetary Freedom

Introduction and questions by Judge Andrew Napolitano, senior judicial analyst for Fox News.

Transcript

Judge Napolitano:
Here is a man who has single-handedly educated the nation to the evils of worthless money and to the dangers of a central bank with a printing press, and who continues to believe that fighting for economic liberties is just as important as fighting for civil liberties.

Who else but Texas Republican Congressman and Republican presidential hopeful, Ron Paul.

Congressman Paul, always a pleasure. Welcome to this special edition of "Freedom Watch" on money.

Ron Paul:
Thank you very much.

Judge Napolitano:
What would happen in a Ron Paul presidency if we were to return to a gold standard. How soon could this happen and how would it happen?

Ron Paul:
I wish we could do this overnight and we could do a few things like repealing the executive order of Nixon but that in and of itself wouldn't be enough.

We know what to do. We did it once after the Civil War. We went from a paper standard back to a gold standard, and the event was not that dramatic. Today the big problem is both the conservatives and the liberals have a big appetite for big government for different reasons. Therefore they need the Fed to tide them over and monetize the debt.

So if you do not get rid of that appetite, it's going to be more difficult. But the transition is not that difficult. You have to get your house in order, you have to balance the budget, you have to not run up debt, and you have to promise to not print any more money.

That's what they did after the Civil War and it was accepted and we went right back to the gold standard.

I would like to have a transition period. Just legalize gold money, and allow us to use gold and silver as legal tender. And we can work our way back.

Judge Napolitano:
I have to agree with you, but I would even go a step further and say, if gold and silver became currency, that would drive paper money out. Who would want the paper money when you have real gold and real silver out there?

Ron Paul:
If there was a fixed exchange rate, sure, we would never pay our bills off with gold. We would pay it off with paper because it drives the good money out of circulation. But if you want a checking account and you want to deal with gold, you put your money in, you could buy and sell in gold and save in gold, so it would be parallel rather than having a fixed exchange rate between the two.

If you tried to fix the exchange rate it would not work.

Judge Napolitano:
Is this a Pipe Dream or might you and I at some time in the near future, actually be able to show up at the gold window, the one Nixon closed in 1971, and receive from that person the equivalent fair market value of actual gold or actual silver? Might that happen?

Ron Paul:
Well it might, but you would have to be completely on the gold standard. But that's not on the near horizon.

What we want to do is legalize the use of gold and silver as the constitution dictates rather then punishing the people who try to do that.

But yes, it will come about. I am quite convinced the system we have here will not be maintained and that's what these last four years are all about, and that's what the turmoil in Europe is all about.

So the question is: Are we going to move towards constitutional form of money or are we going to go another step further into international money? Instead of having an international gold standard based on the market, will we go towards a UN, IMF standard, where they are going to control with the use of force, another fiat standard?

That's what many people are working for. I consider that a very, very dangerous move.

Judge Napolitano:
The last time you proposed the Federal Reserve should be audited, you had more than half of the House of Representative agree with the proposal, and it passed overwhelmingly. Even some of your polar opposites ideologically were agreeing with you. Where does it stand in this Congress, this time around? Are we going to get a real serious, true audit of the Federal Reserve because everybody (liberals, conservatives, Democrats, Republicans, Libertarians, progressives) have had enough.

Ron Paul:
I wish I could tell you we are better off now since we [Republicans] are in charge of the House, but unfortunately we are not moving. Sometimes these things are done in a partisan manner.

Where these bills to audit the Fed used to come through the domestic monetary policy subcommittee, of which I am the chairman, has no longer directed to that committee, it has been sent over to Government Oversight. So I have been hamstring to a degree, on actually pushing that type of legislation. That means their heart is not in it, and that means we need a lot more work from the people to put pressure on members of Congress.

That's why we did get so far last time, because we mobilized the people and they were telling their member of Congress, you better support the position of auditing the Fed, but right now there is a lot more talk about the "super-committee" and how they are going to mess around with the budget under pretense they are going to cut. That is dominating the news.

Judge Napolitano:
When you and I first met, which was a long time ago, you may have been the only member of Congress talking about auditing the Fed. But am I hearing you say, congressman Paul, that their might actually be more resistance from Republicans, particularly the Republican leadership in the House of Representatives, than anybody else to this vital piece of legislation, to reveal secrets that everybody has a right to know?

Ron Paul:
I don't have concrete evidence. I haven't had a statement, but I do know that I could have had more jurisdiction than I have now. I've had it in the past, and committees have always had it in the past, but its gone in a different direction this time. I think that when push comes to shove, there are people at the leadership of both Republicans and Democratic parties have too much at stake to mess around with the Federal Reserve unless there's a political gamesmanship play in there and they can gain some politics out of it.

END Transcript

Please also consider ...

If you want change, and polls suggest you do, there is precisely one candidate who will give you the change this country desperately needs. That person is Ron Paul.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Some Failed Institutions Always Foreclose; The Reason: FDIC Sponsored Fraud; Who Benefits: George Soros, Michael Dell; John Paulson; Boycott Dell

Posted: 28 Nov 2011 07:09 PM PST

A couple of readers asked me to comment on the Sun Sentinel article Are loss-share lenders gouging us?

November 27, 2011

In the wake of the recent real-estate meltdown, the borrower of a nonperforming loan called his lender with promising news: "I have a buyer looking to make an all-cash offer for my Florida property. Will you meet with us tomorrow?" The lender's answer: "No."

Disturbingly, this implausible response is not uncharacteristic of lenders who exploit FDIC loss-share agreements by seeking to foreclose on nonperforming loans, even when prudent business judgment calls for short sale or loan modification solutions. By perverting the terms and spirit of loss-share agreements, these lenders are reaping windfalls while prolonging the foreclosure crisis, depressing real-estate values and sticking taxpayers with the bill.

FDIC Sponsored Fraud

Rather than comment directly, I asked Patrick Pulatie at LFI Analytics to chime in. Pulatie writes ....

I wrote an article about IndyMac and the Shared Loss Agreement (SLA) two years ago, before I quit working with most homeowners. Essentially, here is what is going on.

Shared Loss Agreements were executed by the FDIC with the banks that took over failed institutions. Some had the terms that the author describes. Others did not have the same terms, and were much more restrictive. The author is referring to the Shared Loss Agreements similar to OneWest Bank/IndyMac, which I wrote about.

The SLA for OneWest Bank worked in the following manner:

• It only applied to the Portfolio Loans being purchased. It did not apply to servicing rights. 1st Mortgage Loans were purchased for 70% of the original balance. Second Mortgage Loans were purchased at a much lower rate, at 55% or lower at times. I shall only mention First's from here on out, but Seconds apply as well.

IndyMac had a large portfolio of Neg Am loans, so the 70% purchase price of individual loans might be "lower" if the loan had accrued a Neg Am balance above the original loan amount. If there were a large number of 30 year fully amortized loans, then there might be a greater than 70% purchase price. There is no way to break down the proportion of each.

• The first 20% of losses on the "Total Portfolio" purchase would be absorbed by OneWest Bank. There would be no reimbursement on those losses.

• The next 10% of losses, up to 30%, are reimbursed at 80%. So to begin to make claims, the 20% level must be reached.

• From 30% on, the reimbursement rate is 95%. But the 30% loss level must be reached before the 95% can be claimed.

• The total purchase of Portfolio loans was approximately $12.5 billion, so a 20% loss would be $2.5 billion before claims could begin.

• If every single loan (first mortgage) had defaulted on the first day of purchase, and after reimbursement, the agreement, every $.70 spent would have resulted in $.778 being returned. Not bad! But that is not all.

Most of the loans were not in default. Therefore, interest would continue to be earned until the loan refinanced, or defaulted, so they were making a profit, and as their filings have shown, they made very good profits on these loans.
As you can see, it is always in the best interests of OneWest Bank to foreclose on defaulted properties. The sooner that the 20% loss is reached, then the quicker that they can make claims for reimbursement.

Has OneWest Bank reached the 20% threshold? That has not been announced. However, it has been 2.75 years since the Shared Loss Agreement went into effect in March 09. One would think that the 20% level has been reached.

In Feb 2010, a person I know claimed to have seen the paperwork on one loan showing that reimbursement had occurred on that loan. I did not see the paperwork, but since this person did the Good Bank/Bad Bank scenario for the FDIC in the early 90's, I have to accept that he knew what he was looking at.

Who Benefits: George Soros, Michael Dell, John Paulson

Pulatie referred to an article he wrote on December 1, 2009: Anatomy of a Government-Abetted Fraud: Why Indymac/OneWest Always Forecloses

OneWest Bank and its Sweetheart Deal

OneWest Bank was created on Mar 19, 2009 from the assets of Indymac Bank. It was created solely for the purpose of absorbing Indymac Bank. The principle owners of OneWest Bank include Michael Dell and George Soros. (George was a major supporter of Barack Obama and is also notorious for knocking the UK out of the Euro Exchange Rate Mechanism in 1992 by shorting the Pound).

When OneWest took over Indymac, the FDIC and OneWest executed a "Shared-Loss Agreement" covering the sale. This Agreement covered the terms of what the FDIC would reimburse OneWest for any losses from foreclosure on a property. It is at this point that the details get very confusing, so I shall try to simplify the terms. Some of the major details are:

OneWest would purchase all first mortgages at 70% of the current balance

OneWest would purchase Line of Equity Loans at 58% of the current balance.

In the event of foreclosure, the FDIC would cover from 80%-95% of losses, using the original loan amount, and not the current balance.

How does this translate to the "Real World"? Let us take a hypothetical situation. A homeowner has just lost his home in default. OneWest sells the property. Here are the details of the transaction:

The original loan amount was $500,000. Missed payments and other foreclosure costs bring the amount up to $550,000. At 70%, OneWest bought the loan for $385,000

The home is located in Stockton, CA, so its current value is likely about $185,000 and OneWest sells the home for that amount. Total loss for OneWest is $200,000. But this is not how FDIC determines the loss.

'FDIC takes the $500,000 and subtracts the $185,000 Purchase Price. Total loss according to the FDIC is $315,000. If the FDIC is covering "ONLY" 80% of the loss, then the FDIC would reimburse OneWest to the tune of $252,000.

Add the $252,000 to the Purchase Price of $185,000, and you have One West recovering $437,000 for an "investment" of $385,000. Therefore, OneWest makes $52,000 in additional income above the actual Purchase Price loan amount after the FDIC reimbursement.

At this point, it becomes readily apparent why OneWest Bank has no intention of conducting loan modifications. Any modification means that OneWest would lose out on all this additional profit.

Meet IndyMac's New Owners

Flashback March 20, 2009: IndyMac Bank's new name: OneWest Bank

The sale of IndyMac Federal Bank was concluded Thursday, and the new owners wasted no time in ditching its tainted name. Starting today, IndyMac is OneWest Bank.

The Pasadena bank's new owners, organized under OneWest Bank Group, bought the bank's $20.7 billion in loans and other assets for $16 billion. That includes $9 billion in financing from the Federal Deposit Insurance Corp. and the Federal Home Loan Bank.

The ownership group is led by Steven Mnuchin of Dune Capital Management in New York. The bank's investors include J. Christopher Flowers, who has specialized in distressed bank purchases, and hedge fund operators George Soros and John Paulson.

Check out the last line and primary lie in the above article:

The management team has been working with the FDIC on a loan modification program to attempt to keep people in their homes.

OneWest bank profit: $1.6 billion

On February 20, 2010, the Los Angeles Times reported OneWest bank profit: $1.6 billion

The billionaires' club of private financiers who took over the remains of IndyMac Bank from the Federal Deposit Insurance Corp. turned a profit of $1.57 billion last year on the failed mortgage lender -- more than they invested less than a year ago.

Yet under the sale agreement, the federal deposit insurance fund still could lose nearly $11 billion on bad loans that the Pasadena institution made before it was sold last March and renamed OneWest Bank.

In taking over IndyMac's assets, the investor group, led by Steven Mnuchin of Dune Capital Management, put up $1.55 billion to revitalize the bank. Other investors included hedge-fund operators George Soros and John Paulson, bank buyout expert J. Christopher Flowers and computer mogul Michael S. Dell.

OneWest's financial results were filed with regulators Friday. Regulators and the investors declined to comment on the profit.

As much as $11 billion is set to go straight into the hands of the desperately needy: George Soros, John Paulson, Michael Dell, and Christopher Flowers. The regulators and the ~~investors~~ parasites declined to comment.

Boycott Dell

If you are thinking about buying a new computer, and you are considering Dell, you may wish to reconsider.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Wild Ride in 2-Year Italian Bonds; What's Changed? Nothing! Expect More Nonsensical Rumors

Posted: 28 Nov 2011 10:33 AM PST

It's difficult to catch the early news from Europe and the US open as well, unless one never sleeps. Here we are in the midst of another flatline gap-up rally.

Here is an intraday chart of the S&P 500.

S&P 500 3-Minute Chart

As with the last gap-up on rumors now dead, I confidently predict this nearly-3% gap will fill sooner, rather than later.

Let's take another look at the bond market.

Italy 10-Year Government Bonds

Italy 2-Year Government Bonds

Spain 10-Year Government Bonds

Spain 2-Year Government Bonds

The yield on 10-Year Italian bonds barely budged. In contrast there was wild action in 2-year bonds, opening up at 8.11% then finishing 100 basis points down from the high and 56 basis points lower than Friday's close. This intraday move is probably another 6-Sigma event.

2-year bonds for Spain showed similar action, but the swings were not as dramatic.

Nonetheless, in spite of these swings, the yield on both 10- and 2-year Italian bonds is over 7%, and Spanish bonds are sick as well.

As I said at 2:52 AM in Equity Futures Ripping, Bond Market Still on Deathbed; Germany Allegedly Mulls Five-Nation "Elite Bonds" ....

If there was any reason to believe "elite bonds" would help Italy, or the IMF would help Italy, then 2- and 10-year yields would not be above 7%, and the 2-year yield certainly would not have soared to a new high above 8%.

Equity markets are responding to something the bond market does not see, most likely pure nonsense.

Expect More Nonsensical Rumors

Don't worry, when the equity gaps fill, there will be still more nonsensical rumors to excite the stock market.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Equity Futures Ripping, Bond Market Still on Deathbed; Germany Allegedly Mulls Five-Nation "Elite Bonds"

Posted: 28 Nov 2011 12:52 AM PST

Equity futures are ripping tonight primarily on a pair of rumors regarding Italy. The first rumor is the IMF would buy Italian debt, now denied but the equity markets could care less.

No sooner than one ridiculous rumor goes up in flames than does another ridiculous rumor spring up in its place.

Germany Allegedly Mulls Five-Nation "Elite Bonds"

Reuters reports Germany mulls "elite bonds" with 5 nations

The German government is considering the possibility of issuing joint bonds with five fellow triple A euro zone countries that are being referred to as "elite bonds" or "AAA bonds," newspaper Die Welt reported on Monday.

Chancellor Angela Merkel and her center-right government have repeated ruled out collectivizing debt and the introduction of common euro zone bonds.

The conservative daily cited "high European Union diplomats" involved in fighting the sovereign debt crisis saying the Berlin government was nevertheless considering issuing bonds jointly with France, Finland, Netherlands, Luxembourg and Austria.

The joint bonds could be used not only to finance borrowing for those six countries but also could be used to raise funds under strict conditions for countries such as Italy and Spain, the newspaper reported.

The goal would be to stabilize the situation in the AAA countries as well as "building a credible firewall to calm the financial markets," Die Welt said. The interest rate for the bonds should be somewhere between 2 and 2.5 percent -- or only slightly above the level for German government bonds.

The newspaper said the euro zone countries without AAA ratings should not be included initially.

Far be it from me to rule out complete stupidity from any politician at any level, but this story does not remotely smack of the truth.

I have no doubt some low or mid-level German bureaucrat might concoct such an idea but it makes no sense that Angela Merkel would go along with it.

Notice the report cited "high European Union diplomats", not Merkel and not even German officials.

Even if Merkel was willing to go along with this nonsense, the German Supreme Court wouldn't.

Dead on Arrival

This idea is dead on arrival no matter what the equity market thinks.

Check out the action in bonds.

Italy 10-Year Government Bonds

Italy 2-Year Government Bonds

Spain 10-Year Government Bonds

Spain 2-Year Government Bonds

Italian debt yields are modestly lower but only after the two-year bond yield soared to a new high of 8.12%. Spain yields are essentially flat.

If there was any reason to believe "elite bonds" would help Italy, or the IMF would help Italy, then 2- and 10-year yields would not be above 7%, and the 2-year yield certainly would not have soared to a new high above 8%.

Anything can happen in the next few hours I suppose, but equity markets are responding to something the bond market does not see, most likely pure nonsense.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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