Official Report on Financial and Economic Crisis Names Usual Suspects, Will Change Nothing

After 18 months of inquiry, and interviews with some 700 people, the National Commission on the Causes of the Financial and Economic Crisis (has a nice ring to it, huh?) has released its findings.

In what will come as little surprise to anyone, the Commission concluded that the crisis was avoidable.

In fact, the government's official verdict on the financial crisis is facing criticism because it doesn't really tell us much we didn't already know.

As one might expect, the report found that: regulators didn't do what they were supposed to; there was a lack of transparency; investors behaved unethically; and credit rating agencies failed in their duties and responsibilities.

The findings also blamed the incompetence and recklessness of Wall St. managers, and the proliferation of exotic mortgages.

The report is 550 pages long and contains 6,711 footnotes.

For political reasons, all four Republicans members of the 10-member panel dissented from the report. In fact, the Republicans issued their own separate report, which is just 26 pages long and has only nine footnotes.

The Republicans took exception to the report's ultimate finding, issued right at the outset: "We conclude this financial crisis was avoidable."

It seems that the Republican dissenters are not only on the wrong side of that argument, but on the wrong side of history.

The commission conducted hundreds of hours of interviews, with industry insiders, policymakers, whistle-blowers and regulators. In the end, the blame was widespread and included the Clinton Administration, the GW Bush Administration and the Federal Reserve.

To no surprise, most of the usual suspects were called onto the carpet for — at a minimum — their acquiescence and ineptitude and — at worst — their complicity.

Former Fed Chairman Alan Greenspan and current Chairman Ben Bernanke were both called to task for their failures and negligence. Greenspan, in particular, was faulted for a “pivotal failure to stem the flow of toxic mortgages.”

Additionally, the findings noted the greed and ineptitude of financial institutions. But it also found that government regulators were completely derelict in their duties. The former is to be expected; the later is entirely unacceptable. Failure of this sort is an abomination to our democracy.

According to the report, regulators “lacked the political will” to scrutinize and hold accountable the institutions they were supposed to oversee. That should infuriate every American.

The financial industry spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with it made more than $1 billion in campaign contributions.

Perhaps that had something to do with the lack of political will. Money talks — quite loudly.

Former Treasury Secretary Hank Paulson is faulted for wrongly predicting that that the subprime collapse would be contained.

Current Treasury Secretary Tim Geithner also faced criticism. The New York Fed, which Geithner then headed, was faulted for missing obvious signs of trouble at Lehman Brothers and Citigroup, even though it wasn't their primary regulator.

The Securities and Exchange Commission was blamed for not mandating higher capital requirements from banks, which would have buffered them from potential losses and prevented many risky practices.

For about every $40 the nation’s five largest investment banks had in assets, they had only $1 in capital to cover losses. Consequently, a mere 3 percent drop in asset values could have wiped out these firms. The banks hid their excessive leverage using derivatives, off-balance-sheet entities and other devices, the report found.

That's typically referred to a trickery, chicanery, deception, or just plain old fraudulent accounting.

The Office of Thrift Supervision and the Office of the Comptroller of the Currency were faulted for engaging in "turf wars" instead of curbing abuses. That will hardly sustain whatever is left of anyone's faith in these regulating agencies.

And the Democrats were faulted for their decision in 2000 (Bill Clinton's final year in office) not to regulate derivatives, which was called “a key turning point in the march toward the financial crisis.”

This toxic stew of failures, cronyism, turf wars, negligence and malfeasance created a perfect storm that led to a historic financial meltdown and subsequent recession, the effects of which we are still dealing with and will be for years to come.

We've come to expect the customary greed and recklessness of Wall St. However, we should be able to expect more from our government and we should, in fact, get more.

Many observers will be suspect of some of the commission's more dubious findings. For instance, the report doesn't lay blame on the Fed for the artificially low interest rates it set after the 2001 recession.

However, countless observers have noted the effects that all of that low-cost money flowing into the lending system had in promoting over-investment and mal-investment, particularly in the housing market.

The report also found that Fannie Mae, Freddie Mac and the aggressive homeownership goals set by the government were not major culprits. Those findings also seem highly questionable. It's fairly self-evident that loosening lending standards and repurchasing so many dubious, risky mortgages had to have negative consequences.

Obviously, the system was poised, if not rigged, for ultimate failure. What is entirely clear is that there was an abundance of greed, hubris, incompetence, complicity and carelessness.

No one has been arrested. No one has been charged. No one has been prosecuted. No one has been convicted. Nothing has really changed. Life goes on, much as it was before. And the chances of another collapse are as likely today as they were in 2008.

Wall St. owns Washington; it has bought and paid for it. Wall St. is the master and our government is its willing lapdog. We can't really trust anyone in positions of power or authority. The rule of law doesn't truly exist; at least not for the powerful and the connected.

This summation from the report's authors seems all too kind:

“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.”

You could just as easily conclude that government regulation doesn't work because our government is so corrupt and dysfunctional. Laws, rules and regulations don't work — and don't matter — when those charged with enforcing them don't want them to work.

When those in charge of regulation hold the needs and concerns of the regulated in higher regard than those of the general public — and the very nation itself — then regulation is a farce.

And so is the government that protects its Wall St. benefactors and does their bidding.

State of the Union Speech Reveals Conflict Between National Needs & National Debt

In his State of the Union speech, President Obama made calls for investing in America's future and maintaining our nation's competitive edge in an increasingly global economy.

To that end, the president called for spending increases in education, high-speed rail, clean energy technology, and high speed internet.

Yet, noting the nation's precarious financial state and the need to reduce federal spending, the president simultaneously called for cutting the deficit by $400 billion over the next decade.

However, the deficit has exceeded $1 trillion in each of the last three fiscal years. So, cutting forty percent of the annual deficit over a ten-year period amounts to spit in the bucket.

Simply put, such an initiative is as ineffective as it is disingenuous.

Those opposing goals seem to put the president's agenda into conflict.

Though the president called on Congress to eliminate earmarks, and vowed to veto any bill that contains them, earmarks amount to just 1-2% of federal spending.

In addition, the president also called for an end to subsidies to oil companies, who, Obama noted, "are doing just fine on their own."

According to filings with the Securities and Exchange Commission, the five largest oil companies made a combined profit of $64 billion in 2009.

It's not justifiable for the government to be subsidizing the oil industry at the expense of other industries. And most conservatives would contend that the government shouldn't be in the business of subsidizing any private enterprise — period.

While the president called for modest cuts to spending, he also called for the biggest increase for R&D funding since the Kennedy Administration.

However, the advantage President Kennedy had back then, in pursuit of putting a man on the moon, was the absence of such an enormous debt. At the end of 1960, the national debt was roughly 55% of GDP. Yet, at the end of fiscal 2010, it stood at 93.4%.

Once again, the nation's needs and its budget realities seem to be in direct conflict.

Ultimately, investing in eduction, research & development and infrastructure are all as vital as they are sound. However, the government is not in a position to replace $1 in cuts with $1 in new spending. A two-to-one ratio won't even be adequate. It would likely take $3 in cuts to justify $1 in any new spending.

That's how bad our nation's debt problem is. It won't be long—perhaps later this year—before the national debt eclipses the size of our nation's gross domestic product.

In addition to his proposed five-year partial freeze in domestic spending, the president also said he supports cutting the Pentagon budget by $78 billion over five years. However, the total defense budget (including Homeland Security) is the single largest budget expenditure, at over $700 billion annually.

Affirming a paltry decrease to Pentagon funding—amounting to cutting roughly 10% of annual defense expenditures over a five year period—gets us nowhere. The reality is that the defense budget needs to be cut in half.

Defense and Medicare are the two places where spending needs to be significantly reigned in to make any appreciable difference to our chronic deficits, as well as the nation's long term fiscal health.

It's worth noting that the president didn't call for adopting any of the proposals of the bipartisan deficit commission he himself created.

Eliminating earmarks or funding for the National Endowment for the Arts, public radio, and public television (GOP favorites) are just window dressing. Such proposals amount to nothing more than grandstanding and political gamesmanship.

These are serious times, for serious people, and serious proposals.

Such proposals need to start with significant cuts to the military budget and Medicare spending. Anything else is as marginal as it is futile.

Fiscal Time Bomb Ignited: National Debt Breaches $14 Trillion

Though you could see it coming long ago, a lamentable moment in US history has finally been reached; the national debt has now eclipsed $14 trillion, a truly mind-boggling figure.

To put this in perspective, the total amount of currency in circulation in the US is less than $1 trillion.

For further perspective, the estimated US GDP last year is $14.7 trillion. Given our tepid economic growth, and the rapid pace at which the debt is climbing, it may not be long before the debt eclipses GDP. That would essentially define bankruptcy.

Early last year, Congress preemptively raised the debt limit to $14.3 trillion in an effort to circumvent this hot-button issue in the midst of the mid-term elections.

However, next month, Congress will begin a huge political battle over the nation's finances and there is the potential for a government shutdown, though that possibility may amount to nothing more than political gamesmanship.

Yet, the bond markets may soon become spooked and insist on much higher interest rates to continue their lending to the US. Interest payments alone will soon eat up an inordinate share of the federal budget. According to the Congressional Budget Office, interest payments on the debt could balloon to $800 billion a year, or 3.4 percent of the economy, by 2020.

There is also the distinct possibility that foreign lending could come to a halt if sovereign governments come to doubt the US's ability to repay them.

At present, the government is borrowing 40 cents of every dollar it spends.

One thing that most Americans don't realize is that the US must continually borrow money just to pay off old debts. In other words, current bond buyers are funding the redemptions of previous bond holders.

Due to fiscal mismanagement and an inability to square revenues with expenditures, the national debt has grown precipitously over the past decade.

According to the Treasury Department, the nation's debt stood at $5.8 trillion on September 30, 2001. By the same date in 2008, after the engagement of two wars and two rounds of tax cuts, the debt had grown to $10 trillion. And more than two years into an economic crash and stagnation, the debt has now crested beyond $14 trillion.

There is no let up in sight. The US still has troops on the ground in Iraq and Afghanistan. It's emblematic of the American Empire; the US presently has 500,000 military personnel stationed on over 700 military bases in more than 150 nations.

Last year, the government estimated that the Medicare Hospital Trust Fund would be depleted in 2017, a mere six years from now. The projections for this date with destiny could change for the worse; in 2009, Medicare ran a deficit for the first time.

The timing couldn't be worse. This month, the beginning of an enormous wave of Baby Boomers began turning 65 and applying for Medicare. The Boomers are 78 million strong and account for roughly a quarter of the US population. They will continue applying for Medicare every month for the next 18 years, assuming Medicare lasts that long.

The US government's total unfunded liabilities for Social Security and Medicare are now in excess of $100 trillion (no, that's not a typo), and that number is only growing. Yet, the private net worth of all Americans was estimated at just $53.5 trillion dollars in the second quarter of last year, according to the Federal Reserve.

This means that more money is owed than exists in the US. In other words, those liabilities can never be paid.

The problem may be even worse. Using Congressional Budget Office data, Boston University professor Laurence Kotlikoff created quite a stir last summer when he calculated the fiscal gap of the US at $202 trillion. The fiscal gap is the present value difference between projected future spending and projected future revenues in all future years.

As if that isn't bad enough — all by itself — our problems go well beyond entitlements.

The US imports more than two-thirds of the oil it uses, part of the reason the trade deficit reached $38.3 billion in November. More on that in a moment.

Through the first 11 months of 2010, the trade deficit was running at an annual rate of $500.4 billion, 33.5 percent higher than in 2009 — a year when the deep recession cut into Americans' appetite for imports.

For decades, the US has led the world in imports, sending trillions of dollars overseas. The trade deficit is a significant reason why we are the world's biggest debtor nation.

The US has held a trade deficit since 1976, and there is no reason to expect that this will change any time soon. Unfortunately, the US will remain hampered by the fact that exports account for just 12 percent of GDP. That is not something that can be fixed quickly or easily.

Though manufacturing expanded for the 17th consecutive month in November, it still accounts for just 11 percent of the US economy. That will not help us dig out of the hole we are in, create new jobs, or significantly reduce the trade deficit.

When all of this is added up, the long term prognosis for the US just isn't good. There are numerous factors working against us all at once.

The US economy is overly reliant on foreign oil, importing two-thirds of what it uses. Without oil, there can be no economic growth, something our system is entirely predicated on. The problem boils down to a limited supply and an ever-increasing global demand.

Tom Kloza, chief oil analyst at the Oil Price Information Service, says that for the last six months, or so, worldwide oil demand has exceeded supply.

"Once demand really comes back online full force, refineries in the US will not be able to satisfy both demand for diesel and for gasoline," says Kevin Kerr, editor of Kerr Commodities Watch. "The days of cheap gas and diesel are certainly over."

As if on cue, last week the US Energy Department warned in a report that retail gasoline prices could top $4 per gallon later this year. That would be very bad for the US economy.

“If the US had a sustained period of $4 gasoline prices, a second recession would be a near certainty,” says James Williams, economist at WTRG Economics.

There is a widespread belief amongst analysts that oil will reach $100 per barrel this year. That will adversely affect everything in the US economy, from shipping and transportation, to food production, to manufacturing. Simply put, everything in our society is oil dependent.

Then there's the matter of the dire fiscal position of most states, some of which will certainly request further federal assistance. It's one thing to deny bailout money to banks and other corporations, but can the federal government say no to the states and their own citizens? It all gets very complicated.

One in seven Americans now receive food stamps. That's a great expense to the federal government.

Additionally, the U-6 unemployment number was 16.7 percent in December. This category includes those who are unemployed and actively seeking work, 'discouraged workers' who have given up looking because they believe no work is available for them, and those who can only find part-time work, even though they want full-time employment.

All told, this amounts to one-in-six Americans in the work force.

Though that is certainly a startling number, the U-6 figure is widely viewed as an underestimation by economists.

The jobs problem is so bad, the states have been overwhelmed by the millions of Americans seeking unemployment benefits. As a result, they have turned to the federal government for assistance. But the federal government is also broke.

Because of this, Washington will be sending the states a cumulative bill of $1.3 billion this September. The government is seeking reimbursement from 30 beleaguered states for the money they borrowed to cover the unemployment benefits they couldn't otherwise afford.

However, that amount only covers interest; the states have borrowed a total of $41 billion to manage unemployment payments so far, and the federal government says that total may eventually reach $80 billion.

For some states, it may take years to pay off these loans. The total state debts are the highest in the 75-year history of the unemployment program. And this doesn't even take into account that the nation's unemployment problem isn't expected to improve significantly any time soon.

Where will the states find the money to repay those loans? As the saying goes, you can't get blood from a stone.

The US is in the midst of a perfect storm, in which all of these assorted crises are reaching a critical mass, and they are now feeding on one another, making the eventual outcomes even worse.

The nation is in the midst of simultaneous fiscal and monetary crises. Our financial position is tenuous and our economy on shaky legs.

It is only a matter of time until taxes are raised, entitlements are cut, interest rates spike and inflation (which is a lagging indicator) begins to rise.

Many Americans will be stunned and embittered when they discover they will not receive all the benefits they have been expecting — that they were promised. With the inevitability of future tax hikes, Americans will be asked to give more and receive less.

The US has reached the point of no return. There will be financial and economic chaos, marked by a continually devalued dollar and a shrinking economy. There will be growing poverty, more homelessness, more desperation, and the likelihood of civil unrest at some point.

When the government money stops flowing to those expecting and needing it, the results will be disastrous.

We have crossed the Rubicon.

Broken Government: Failure Is Rewarded & Taxpayer Money Wasted, Even As Debt Swells

The national debt has now reached a staggering $14 trillion.

As a result, next month, Congress will begin a huge political battle over raising the $14.3 trillion debt limit, set just last year.

The 2010 election was largely about government spending, budget deficits, taxes, and that dangerous debt total, which could be the financial train wreck that ultimately destroys the US.

The problem with the deficit debate is that one person's example of government waste is another person's example of critical government spending.

Politicians and voters alike cling to certain programs and expenditures they see as vital to the nation, their state, or even a community.

However, there are examples of waste that are so outrageous they may make everyone want to stand up and scream.

Like this one, for instance, as reported by MSNBC.com:

WASHINGTON — The Obama administration on Friday ended a high-tech southern border fence plan that cost taxpayers nearly $1 billion but did little to improve security. Congress ordered the high-tech fence in 2006 amid a clamor over the porous border, but the project yielded only 53 miles of protection.

Homeland Security Secretary Janet Napolitano informed key members of Congress Friday that an “independent, quantitative, science-based review made clear” the fence, known as SBInet, “cannot meet its original objective of providing a single, integrated border security technology solution.”

The fence, initiated in 2005, was to be a network of cameras, ground sensors and radars that would be used to spot incursions or problems and decide where to deploy Border Patrol agents. It was supposed to be keeping watch over most of the southern border with Mexico by this year.

Instead, taxpayers ended up with about 53 miles of operational “virtual fence” in Arizona for a cost of at least $15 million a mile, according to testimony in previous congressional hearings.

The Bush administration awarded Boeing [the contractor] a three-year, $67 million contract. But the fence had a long list of glitches and delays. Its radar system had trouble distinguishing between vegetation and people in windy weather, cameras moved too slowly and satellite communications also were slow. Although some of the concept is in use in two sections of Arizona, the security came at too high a cost.

So, based on this, one might expect that not only would the project be scrapped, but that the contractor would be summarily dismissed and even sued to recover the taxpayer money wasted on this utterly failed system. But that kind of rationale would be wrong.

Boeing was the contractor for SBInet. Despite the problems, the Homeland Security Department granted Boeing a second one-year option on a three-year contract to work with the department for maintenance and upkeep of the two Arizona sections that are operational.

In a statement, Boeing said it is proud of the accomplishments of its team and the “unprecedented capabilities” delivered in the last year to assist Border Patrol. The company said it appreciates that Homeland Security Department recognizes the value of the fixed towers Boeing built as part of SBInet.

Got that? Failure is rewarded, and Boeing is proud of its failure.

As a result of Boeing's "unprecedented capabilities", this albatross of a project had to be scrapped due to its abject failure.

This is an egregious example of our government at work, wasting our tax dollars in a time of fiscal crisis. It is the definition of government gone mad. And it defines the cronyism that is endemic in our government.

Entire industries, such as the Military-Industrial Complex, hold sway over our government. The government is the servant and industry is its master.

What's clear is that the bigger government becomes, the more wasteful, the more corrupt and the more entitled it also becomes.

Even as conservatives and Tea Party members in Congress — and across the country — scream about the size, reach and irresponsibility of government, outrages such as this continue unabated.

Like the Titanic, the US is sailing — full-speed ahead — into a fiscal and financial ice berg.

Sadly, this story will fly under the radar of the average, highly distracted American.

Meanwhile, our government continues to rot and our fiscal position continues to decay.

As the saying goes, we get the government we deserve.

There Were Many Reasons For the Housing Meltdown; Fraud Was One of Them

When things start melting down and trouble ensues, its a natural human tendency to blame. People seek to shift responsibility from themselves and onto others. Scapegoats make people feel good. It's nice to have a whipping boy, someone or something on which to out take your frustrations.

In the case of the housing meltdown, many people still blame sub-prime borrowers. But so called Alt-A borrowers also defaulted in mass, and even prime borrowers lost jobs and were foreclosed upon. Commercial real estate went bust as well. That certainly wasn't the fault of sub-prime borrowers.

The problems in housing were related to a credit binge, or "irrational exuberance", as Alan Greenspan so famously referred to it. There was far too much cheap money available, and everyone seemed to think that home prices could only escalate — indefinitely.

If people couldn't really afford their mortgage in the long term, the feeling was that their house would continually appreciate, offering them greater equity and a stronger position for refinancing down the road.

There were no money-down loans, negative amortization loans, stated-income loans, interest-only mortgages, adjustable-rate mortgages (ARMs) and options that let buyers choose their payment (including interest only) on loans that would reset within five years.

Option ARMs were still being granted by banks as late as 2007, which means those particular mortgages will continue to have problems through at least 2012. If people are defaulting even now on low-rate teaser mortgages, what happens when those rates reset higher?

Lots more foreclosures, that's what.

But these problems did not suddenly creep up on us, or jump out of nowhere in 2007 and 2008. They were a long time coming, and the FBI knew this as early as 2004.

Back then, the FBI was investigating the mortgage-lending industry and warned that mortgage fraud was "epidemic". And the Bureau gave notice that if these practices — perpetuated by unscrupulous professionals and organized crime groups — were not curtailed, the fallout would be worse than the S&L Crisis, which cost taxpayers $132 billion.

The nations' chief law enforcement officers said they were investigating the dealings of suspect mortgage brokers, appraisers, short-term investors, and loan officers.

The FBI also noted that the number of open investigations had increased more than fivefold in the period from 2001 to 2004, reaching more than 500 by June of that year.

The mortgage industry clearly knew that there was trouble afoot, noting that there had been 12,000 cases of suspicious activity in just the first nine months of 2004 alone.

However, the Bureau had just 250 agents investigating these crimes, compared to the more than l,000 who handled the S&L crisis in the 1980s.

The FBI was utterly overwhelmed, saying, "The thousands of financial fraud investigations now underway are putting a strain on the bureau's ability to fight other crimes. An explosion of mortgage fraud cases has stretched the FBI so thin it's having a hard time investigating other white collar crime."

Ultimately, many of the FBI's corporate crime experts were reassigned to investigate and fight terrorism, leaving the Bureau even more shorthanded.

What this makes clear is that the problems in housing were brewing for quite some time before the eventual and ongoing meltdown, and that the FBI and mortgage industry were all well aware of it.

Clearly, there was fraud. But there was also greed, complacency and a blatant disregard for sound business and lending practices.

The money coming from the Fed was so cheap. It was easy for the banks to make money selling mortgages. And once the Big Banks came up with the idea of bundling and then securitizing millions of mortgages, the risk was sold off to unwitting investors around the world, many of whom got wiped out in the ensuing tsunami brought on by Wall Street's financial crisis.

It's easy to blame sub-prime borrowers, the Community Reinvestment Act, the Republicans, the Democrats, Fannie Mae, Freddie Mac, etcetera, etcetera. But it's obvious that there were many culprits here, not the least of which were the banks themselves.

There is something sweetly ironic about the fact that the fraudsters in the banking industry were themselves being swindled by equally unscrupulous industry insiders and organized crime groups.

If the whole house of cards hadn't fallen down on so many millions of decent and hard-working Americans, you'd call it poetic justice.

But ultimately, the bankers are never left holding the bag. It is always long-since passed along to some unwitting suckers.

Top Stories To Watch In 2011: Growing Risk of Eurozone Contagion

Aside from the housing and state budget crises, the other big story to monitor in 2011 is the fallout from the evolving sovereign debt crisis on the other side of the Atlantic.

Citigroup has warned of a fresh wave of bank failures in Europe. These banks are heavily invested in the bonds of nations that may be unable to pay them back, which puts those banks at risk.

Professor Willem Buiter, Citigroup's chief economist, said the risk of contagion is growing in the eurozone.

"The market is not going to wait until March for the EU authorities to get their act together. We could have several sovereign states and banks going under. They are being far too casual," Buiter said.

That is a chilling prediction and it frames the magnitude of this debt crisis. Any sovereign failures would have massive reverberations around the world. And any large bank failures would be felt across Europe, and even in the US, since the banking systems are so interconnected.

Mark Schofield, Citigroup’s global head of interest rate strategy, said Portugal would need an EU rescue soon and that it was "highly likely that Spain will go the same way."

Moody's said it might downgrade Portugal's A1 rating by one or two notches on growth worries, but said the country’s solvency was “not in question”.

"Restructuring of some sovereign debt is inevitable. There is a chance that Spain could still make it, but the debt trajectory looks unsustainable if a broader EU-wide solution isn't found," Schofield said.

A bailout of Portugal's relatively tiny economy (49th) would be manageable, but would be very damaging to market confidence. And confidence means everything in global markets.

However, Spain has the world's 13th largest economy. If it needs a bailout, such a move would result in significant ripple effects reverberating through world markets. After Greece and Ireland, investors will be left asking, Who's next?

There is only so much money to go around. The bailouts cannot continue indefinitely, and the rich countries of the north cannot continue to carry the weaker nations in the south and on the periphery.

Earlier this year, German Chancellor Angela Merkel declared that this is the biggest financial crisis that Europe has faced in more than a half-century.

"The current crisis facing the euro is the biggest test Europe has faced for decades, even since the Treaty of Rome was signed in 1957," Merkel stated.

Watch this story over the coming months; it has the potential — even likelihood — of being one of the biggest stories of the year.

Health Care Costs Consume Nearly 18% of US Economy

According to Medicare/Medicaid Services annual report, health care costs grew to 17.6% of the US economy in 2009, or more than $1 out of every $6 spent in America. That's a new record, and it's also the greatest share of GDP dedicated to healthcare by any nation in the world.

Despite the fact that GDP declined 1.7% in 2009, health care spending continued to increase anyway.

In 2009, industrialized nations spent an average of 8.9% of GDP for healthcare expenditures, according to the OECD. Yet, in the US, it approached 18%.

This figure is beyond inefficient and is simply unsustainable. All of this spending takes money away from other vital sectors of the economy.

Americans spent $2.5 trillion on health care in 2009—or $8,086 per person—a 4% increase from 2008. That is more money spent per person than any other country in the world, by far.

The 4% growth in 2009 was down from 4.7% in 2008, the second slowest rate of growth in the history of the National Health Expenditure Accounts (NHEA) going back to 1960.

The recession led to slower growth in private health insurance expenditures and out-of-pocket spending by consumers, and to a reduction in capital investments.

However, health spending as a share of the nation's GDP increased by 1.0 percentage point, up from 16.6% in 2008, the largest one-year increase in the history of the NHEA.

One in seven Americans did not have health coverage in 2009, and Texas has the highest percentage of uninsured residents amongst all states (26%).

The one in seven figure is the same as the number of people officially listed as living in poverty in 2009, as well as the number of people receiving food stamps last year. So there is likely overlap here; there may be many of the same people in all three groups.

The good news in the report is that private health insurance premiums grew 1.3 percent in 2009, a deceleration from 3.5 percent growth in 2008 and the slowest rate of growth in the history of the NHEA.

From 1999-2009, health insurance premiums for families rose 131%, while the general rate of inflation increased 28% over the same period.

While Americans widely believe that our health system is the best in the world, the evidence says otherwise.

Life expectancy is an excellent measure of a nation's health. Yet, last year researchers at Columbia University report that the US is now 49th in life expectancy, putting it lower than a dozen other developed nations. We're even lower than many third world nations. And the US has been dropping in life expectancy tables for decades.

Infant mortality is good measure of a nation's health care system. In 2009, the National Center for Health Statistics ranked the US 30th in global infant mortality rates, behind most European countries, Canada, Australia, New Zealand, Hong Kong, Singapore, Japan, and Israel.

And out of 20 “rich countries” measured by UNICEF, the US ranks 19th in “child well-being”.

If it's not bad enough that the US has a failing health care system, it is also an inefficient system that just so happens to be the world's most costly.

Last June, the Commonwealth Fund, which researches and advocates for healthcare reform, reported that Americans spend twice as much on healthcare as residents of other developed countries, but get lower quality and less efficiency.

These problems are not new. They have existed for many years.

In 2000, the World Health Organization ranked the US 37th of 191 countries for "overall health system performance," 72nd for "level of health," and first for "health expenditures per capita."

When it comes to health care, Americans do not get what they pay for.

Ultimately, these costs are yet another albatross hanging on the necks of the US and its citizens. There are no signs that the spiraling costs of health care will slow down, much less regress.

The US is on the threshold of becoming the first-ever mass-geriatric society. For the first time in history, people 85 and older are the fastest growing segment of the population. Over the next 25-30 years, the number of people over the age of 65 will double to more than 70 million, or 20% of the population.

People that age use a disproportionate amount of health care. However, Medicare cannot sustain such a large population of people using such an enormous amount of health care. The system simply cannot sustain such massive expenditures.

The US is the fattest country in history. Fully two-thirds of Americans are overweight or obese. The nation is plagued by lifestyle diseases, such as heart disease, Type II diabetes, high blood pressure and high cholesterol.

Put all of this together and you have an aging, overweight, diseased nation and a health care system unable to cope with all of it.

Sooner than later, the cost of ill health, brought on by poor lifestyle choices, will overwhelm the nation's economy, which cannot sustain such a disproportionate amount of its spending on healthcare.

Mass Supreme Court Ruling On Foreclosures May Have National Implications

We now have more evidence that many bank foreclosures are fraudulent and often made on homes that banks don't even own.

Last week, the Massachusetts Supreme Judicial Court affirmed a 2009 ruling that invalidated foreclosure proceedings involving two houses in which the lenders did not hold clear titles to the properties.

“We agree with the judge that the plaintiffs . . . failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,’’ Justice Ralph Gants wrote in the decision.

This ruling is a major development and it will likely have national implications. Case law is all about precedent, and that precedent has now been set.

In Massachusetts — at least — lenders will now have to prove they own mortgages before beginning foreclosure proceedings.

Imagine that. A reasonable person would have suspected that this was mandatory all along.

The ruling puts in question the ownership of hundreds, possibly thousands, of foreclosed properties in Massachusetts. Lawyers say previously foreclosed homes will revert back to the homeowners who lost them, at least temporarily.

If banks cannot show clear title, and that the foreclosure process was done according to the law, it means that a property was improperly taken. In those cases, banks would have to return homes to former owners.

The already clogged foreclosure pipeline could be overwhelmed as foreclosure proceedings are painstakingly reconstructed and reattempted.

Because of the way that millions of home loans were sliced and diced—before being bundled into bonds that were sold to investors during the housing boom—there are often lengthy and wildly confusing paper trails that obscure ownership.

There is no way to overstate the implications this will have on the foreclosure industry and the banks/lenders behind it. For the banks, this ruling is an utter disaster.

The additional problem for the banks is that the ruling will likely unleash a wave of lawsuits from the buyers of bank-owned properties. Those folks will want evidence of clear title, which will be hard to come by in numerous cases.

What's more, there will also be lawsuits from the holders of mortgage-backed securities who have already taken huge losses that are soon to become even worse. Many of them are huge, institutional investors with deep pockets and teams of lawyers.

The securities in question were fraudulently constituted. The banks didn't even own the mortgages in many of the securities they sold.

What is particularly stunning is that it was the banks, not the homeowners, who filed this case in the first place. This decision is certainly not the one that the banks were expecting.

The court said that its ruling applies to all foreclosures in Massachusetts — no matter when they took place — because laws governing proper foreclosure procedures have remained constant over time.

“All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities,’’ Justice Gants wrote in the decision.

The reverberations from this decision have only just begun. They will be felt far and wide, and they will be historic.

However, since the banks are the masters of those in Congress and the White House, there is always the possibility that all of this will somehow be smoothed over by our lapdog government.

After all, America has long since become an oligarchy.

Congressional Millionaires Get Government Healthcare Paid For By Taxpayers

In the last Congress, more than half of all members (261) were millionaires. About 1 in 5 of had average calculated wealth of at least $10 million in 2009. And eight of the 261 were in the $100 million-plus range.

However, only about 1 percent of the overall US population qualify as millionaires.

The median wealth of a representative was $765,010, while that of a senator was almost $2.38 million.

And, even during a deep recession, the collective personal wealth of congressional members increased by more than 16 percent between 2008 and 2009.

In contrast, U.S. median household income dropped 3 percent to $50,221 between 2008 and 2009, the second straight decline, according to the Census Bureau.

These findings were detailed in a report by the Center for Responsive Politics back in November.

The study also indicated that a significant portion of Congress owned shares of major players in the health-care and financial-services sectors, which were the subject of major reform legislation during the period.

Meanwhile, this body of millionaires, who all get government-sponsored health care — which many of them vigorously oppose — have decided that their first act in the new term will be to vote to repeal the health care reform that gives affordable care to 32 million Americans.

According to the Office of Personnel Management, the federal government pays 69 percent of the health care premiums for members of Congress.

This isn't an argument in favor of the health care law, which is riddled with problems; the bill is 2,400 pages long and was written by/with the insurance and pharmaceutical industries.

But it is quite ironic that politicians who have derided the health care law as 'socialist', or 'fascist', or any number of derogatory names, see this system as perfectly acceptable for themselves.

So, government-sponsored health care is good enough for the millionaires in Congress, but not for anyone else. Got that?

With this in mind, Senator Charles Schumer (D-NY) is calling on his colleagues to give up their government-sponsored health care.

"It was a central value to us when we passed health care, and a central value to the American people, that members of Congress should get the same health care as everyone else. It seems unfair that house Republicans want to deprive middle-class Americans of the same health care as members of Congress but to keep it for themselves."

While this may be viewed as grandstanding by Schumer, the simple fact is... he's right.

US Defense Secretary Is A Master Illusionist

Defense Secretary Robert Gates seemed to perform the impossible today when he announced $100 billion in defense spending cuts, while also unveiling a plan to grow military spending.

How's that for amazing?

The money the armed forces save from their budgets by canceling projects can be plowed back into their budgets for other programs. Gates found $100 billion in savings over five years, but allowed the Pentagon to keep that money.

Cory Shockey, who served on the National Security Council under President George W. Bush, sees Gates as somewhat of a magician.

"My sense is that he's actually pulled off one of the great Houdini acts of our time. Everybody's talking about this $100 billion cut in the budget. But what Gates has actually done is moved $100 billion from his existing budget, to his existing budget," says Shockey.

The Military-Industrial Complex is dedicated to its own self-preservation. There are numerous people in government, even elected officials, who will fight to no end for its survival — even if it means sinking the federal budget, and America itself.

Case in point; just days ago, Senator Lindsay Graham (R- South Carolina) said he wants American officials to consider establishing permanent military bases in Afghanistan.

Apparently, Sen. Graham hasn't seen the federal budget, the deficit, or the $14 trillion national debt.

Believing that the US can continue to spend more on its military than every other nation in the world — combined! — is plainly delusional.

The combination of defense spending and Homeland Security amounts to the single largest expenditure in the federal budget.

To truly save this nation from financial ruin, that simply cannot continue.

Anyone who is serious, and sincere, about reducing the deficit and the debt, must admit this.

And they must also take steps to thwart people in government like Robert Gates and Lindsay Graham.

The Military-Industrial Complex must be broken in order to save America.

Texas Is In Trouble, With A Capital 'T'

According to the Center on Budget and Policy Priorities, 39 states have projected budget gaps for the 2012 fiscal year.

With its projected $28 billion deficit, California has gotten most of the national attention. Illinois, New York and New Jersey have also received plenty of press.

However, another state — one that hasn't gotten nearly as much attention — also faces an enormous and troubling debt.

Texas has long prided itself on its low-tax, business-friendly model. And its governor, Rick Perry, has boasted that this has led to a more robust economy and sounder finances than other states.

However, the Texas budget deficit may have now spiked to level as high as $25 billion. The actual figure will be announced this month.

The state budgets in two-year cycles. It's next budget will be around $95 billion. So, a $25 billion deficit is just massive.

Texas is among seven states with no personal income tax, and raising taxes is not an option for its Republican, anti-tax governor. Sales taxes, which are falling, account for about 65 percent of revenue.

The Texas constitution requires a balanced budget, so the state faces scaling back already lean budgets for education, healthcare and public safety — all of which previously underwent cuts in 2003.

Education accounts for 55 percent of state spending. Healthcare accounts for 25 percent of spending. And public safety accounts for roughly 10 percent.

Further cuts would be devastating. At present, 26 percent of Texans are uninsured — a higher percentage than in any other state. The estimated average salary of public school teachers ranks 39th among states, with state and local expenditures per pupil in public schools ranking 44th.

There simply isn't much lower to go in each of these categories.

The Lone Star State is in big trouble.

Texas appears poised for a fiscal meltdown, and that has the potential to rock the bond markets in 2011.

State Budget Crises: A Storm On The Horizon

Back in August, the Independent Report featured a story about the tattered balance sheets of the states. Even then, it was quite obvious that trouble was brewing.

However, the dire condition of state budgets across the nation is something the mainstream media has largely ignored — until now. The problem has reached such catastrophic proportions that it can no longer be disregarded.

In fact, 60 Minutes recently featured a story highlighting the unfolding crisis.

Meredith Whitney, one of the most respected financial analysts on Wall Street, warned 60 Minutes about the next financial meltdown — in state and local governments.

Whitney, who made her reputation by warning that the big banks were in big trouble long before the 2008 collapse, was blunt.

"It has tentacles as wide as anything I've seen. I think, next to housing, this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy," she told 60 Minutes.

New Jersey Governor Chris Christie concurs.

"It's not like you can avoid it forever, 'cause it's here now," said Christie. "And we all know it's here. And the federal government doesn't have the money to paper over it anymore, either, for the states. The day of reckoning has arrived. That's it. And it's gonna arrive everywhere. Timing will vary a little bit, depending upon which state you're in, but it's comin'."

Nationwide, state and local governments are now sitting on a mountain of debt that has reached an all-time high of 22 percent of U.S. GDP.

Historically, municipal bonds have been viewed as the safest of investments. However, many analysts are now openly talking about the possibility of a municipal bond market crash in 2011.

If such an event does occur, things such as roads, sewer systems, water systems, etc., would no longer be repaired, much less constructed. State and local governments would have to raise taxes significantly. Even then, it's likely that many would still be unable to meet their funding needs.

New Jersey faces a $10 billion deficit.

California faces a $19 billion budget deficit next year and its credit rating approaches junk status. It now spends more money on public employee pensions than it does on the state university system.

And Illinois spends twice much as it collects in taxes and is unable to pay its bills. The state currently owes about $5 billion and has no credible solution to its problems. State Comptroller Dan Hynes calls Illinois "a deadbeat state".

Nationwide, the generous retirement and health care packages given to public employee unions are now grossly underfunded. Two prominent university professors have calculated that the combined unfunded pension liability for all 50 U.S. states is approximately 3.2 trillion dollars.

According to Whitney, no one really knows how deep the holes are. She and her staff spent two years and thousands of man hours trying to analyze the financial condition of the 15 largest states. She wanted to find out if they would be able to pay back the money they've borrowed and what kind of risk they pose to the $3 trillion municipal bond market, where state and local governments go to finance their schools, highways, and other projects.

"The lack of transparency with the state disclosure is the worst I have ever seen," Whitney says. "Ultimately we have to use what's publicly available data and a lot of it is as old as June 2008. So that's before the financial collapse in the fall of 2008."

The deficit problems of the states have become the problems of local governments, which depend on their state for a third of their revenues. Whitney is convinced that some cities and counties will be unable to meet their obligations to municipal bond holders who financed their debt.

"There's not a doubt in my mind that you will see a spate of municipal bond defaults," Whitney predicted. "You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults."

That's a frightening prospect. Since huge numbers of municipal bonds are held by big banks, even a few defaults could affect the entire financial market.

According to Whitney, there's a gathering storm on the horizon.

"It'll be something to worry about within the next 12 months," she warns.

This spring, the $160 billion in federal stimulus money that has helped states and local governments limp through the great recession will run out. The states will need additional help and will almost certainly ask for another bailout.

However, right now, bailouts are political dynamite in Washington. That's because the federal government is also broke and facing a national debt that has now reached $14 trillion.

These problems have been mounting for many years and now the moment of reckoning has finally arrived.

We're in for some rather ugly political battles, and even worse outcomes. A total economic collapse is quite likely, if not inevitable.

Home Prices Continue To Decline, Threaten Overall Economy & Recovery

The latest news from the housing sector continues to be bad. Home prices declined sharply in October.

The non-seasonally-adjusted S&P/Case-Shiller 20-city composite home-price index fell 1.3% on a monthly basis and 0.8% on an annual basis in October.

Prices hadn’t dropped on an annual basis since January and are 29.6% below their 2006 peak.

Six cities — Atlanta, Charlotte, Miami, Portland, Seattle and Tampa — hit their lowest levels since home prices started to fall in 2006 and 2007.

The Case-Shiller report is based on prices over a three-month period, so this report included prices from August, September and October. That makes it more accurate in revealing trends than a single month report.

According to Bank of America Merrill Lynch, there’s an inventory of 7.2 million homes, or roughly 21 months of supply, nationwide. That includes homes that are in, or close to, foreclosure.

Think about that; there's nearly a two-year supply of foreclosures either on the market or headed to market. What will that do to home prices? Imagine what this portends for stable owners seeking to sell their homes? There's a lot of competition from very cheap foreclosures out there.

And then consider the fact that banks are holding onto foreclosed properties without listing them for sale. They're doing this with the hope that these homes will recover their lost value. The banks are hoping to at least break even, if not make a profit.

They may be waiting for years.

If banks were required to report the true value of the homes on their books, and thereby report their true losses, many more of them would be insolvent. As it stands, 157 US banks have already gone under in 2010. But even some of the biggest banks, the Mega Banks, are on very shaky ground.

The price declines will inevitably push even more mortgages underwater. At present, nearly a quarter of all homes with a mortgage already have a lesser value than they are mortgaged for. That number will only increase.

The process of price discovery, which is necessary to determine the final value of housing, is still years away. Prices will continue to fall in 2011 and in 2012.

That's because there's still the problem of option-ARM loans that will reset over the next two years. Option ARMs — which became widespread in 2005 — let borrowers choose to make very low payments for the first five years.

During that initial period, borrowers were allowed to pick their payment option, including just the interest. According to Fitch Ratings, 94 percent of option ARM borrowers elected to make minimum payments only.

The bulk of option ARMs reset dates are spread out from 2010 through 2012, meaning the foreclosure waves will drag on for at least the next two years. That has federal and state officials bracing themselves for the next tidal wave of foreclosures

Almost all the homes with mortgages have already lost value, thereby lowering the homeowner's equity. Most of them will have a difficult time refinancing as a result.

The artificially low interest rates set by the Fed are still masking true home values. Easy money is still providing at least some incentive to buy, yet even that cannot thwart the brutal combination of price declines and falling demand.

Eventually, home prices will fall back to levels not seen since the 1990s, the 1980s, and perhaps even the 1970s in some areas.

Millions of prospective buyers are currently sitting on the sidelines, believing that the bottom has not yet been touched. They may be left waiting for a while. And the longer they wait, the longer it will take to see any meaningful sort of recovery.

At best, it is probably still years away.

US Recovery Facing Strong Headwinds In 2011

Though the recession officially ended in June 2009, when the economy started to grow again, many Americans still feel the lingering after effects.

Gross domestic product, the broadest measure of the country’s output, grew at an annualized rate of 3.7 percent in the first quarter of 2010. But then it stalled, with the rate falling to a mere 1.7 percent in the second quarter and 2.6 percent in the third quarter.

Some believe that the $858 billion tax-cut compromise between President Obama and Congressional Republicans will stimulate the economy by putting more cash in the hands of consumers.

Additionally, unemployment insurance benefits for the long-term unemployed were extended, yet again. This will keep these people afloat and recirculate that money back into the economy.

However, these moves have only inflated the government’s huge debt burden (now $13.9 trillion) and pushed onerous decisions further off into the future, when they will be even more difficult to grapple with.

Analysts at large bond brokerages say the extension of the Bush tax cuts will push the federal deficit to about $1.4 trillion in fiscal 2011.

After the tax extension was signed into law, Moody's Investors Service warned that the tax deal raises the chance that it would issue a negative outlook on the U.S. government's AAA credit rating.

Unemployment benefits have overwhelmed many states, who have turned to the federal government for help.

According to the Economic Policy Journal, over 60% of Americans receiving state unemployment benefits are getting these directly from the US government, as 32 states had borrowed $37.8 billion from Uncle Sam to fund unemployment insurance as of May. Obviously, the problem has grown worse since then.

Roughly 15 million Americans do not have jobs, which is cutting into tax revenues, increasing unemployment payouts, and hurting consumer spending. At 9.8 percent, the unemployment rate remains at its highest level since the early 1980s.

Unfortunately, even the optimists recognize that unemployment is likely to remain above 9 percent through all of next year. And even if the economy managed to grow at 4 percent in 2011, that would hardly alter the unemployment picture.

Economists estimate the economy would need to grow by 5 percent for a full year to push down the unemployment rate by a full percentage point.

There are many reasons to question the ability of a recovery to take truly hold.

The US economy is overly reliant on consumer spending, which accounts for a whopping 70 percent of GDP. With so many people out of work, earning less, and working only part-time, spending is strained and will remain so until those problems are rectified.

The housing market remains anemic, and continues to be a drag on the economy. Nearly a quarter of all mortgages are under water. Home ownership continues to decline. Foreclosures are up. Demand is down. And home values are also down; US homes will lose a whopping $1.7 trillion in value in 2010.

Aside from the housing market, financial markets and the US banking system also remain vulnerable to the continued fallout from the European debt crisis. So far, the problems have been limited to the smaller economies of Greece, Ireland, and Portugal. Should a larger economy (such as Spain) reveal similar strains, the ensuing panic could be widespread and the effects crippling.

Then there is the mounting concern about the tattered balance sheets of state and local governments. At least a few — such as California, Illinois, New York, Michigan and even Texas — may eventually require a federal bailout. Given the current political environment, such an outcome would be deeply unpopular.

After gutting budgets, many states have no reasonable way to further reduce deficits and spending. They face a quandary that seems to lack a solution. No US state has defaulted since Arkansas, during the Great Depression. That could change in the next year or so.

States continue to borrow in order to fund their day-to-day operations, continually worsening their already burdensome deficit problems. The states are truly too big to fail, and that is the horrific prospect currently facing the federal government.

The state deficit problems are enormous and unwieldy, making them the next bubble to inevitably burst. The Center on Budget and Policy Priorities estimates that the cumulative state budget shortfalls are somewhere around $425 billion for fiscal 2009 through fiscal 2011.

When this economic domino falls, or any of the aforementioned, the prospects of recovery will fall with it.

Housing Is The Bellwether Of Our Economy, And The News Isn't Good

Ownership Is Down. Foreclosures Are Up. Supply Is Up. Demand Is Down. And Values Are Down.

Housing is not recovering, and until it does there can be no economic recovery in the US.

Home ownership has declined in the US for the third year in a row. And since 2005, home ownership has declined by 3 million households, according to a report from the US Census Bureau.

A combination of spiking foreclosures, high unemployment, falling wages and a lack of savings for a down-payment (once again a required 20 percent) have eroded the American dream of home ownership.

The share of households that own their homes has been sliding since the housing bubble burst in 2006. The rate fell again in the second quarter of this year to 66.9 percent — the lowest since 1999 — from a peak of 69.4 percent in 2004, the Census Bureau says.

However, millions of houses on the verge of foreclosure threaten to send homeownership to its lowest level in 50 years. According to new industry estimates, the rate could plummet to about 62 percent as early as 2012 and almost certainly by the end of the decade. Homeownership rates haven't been that low since they hit 61.9 percent in 1960.

There are not enough first time-buyers, or those with adequate credit, to thwart the slide.

More than half of applicants (53 percent) don't have a high enough FICO score to get the best mortgage rates. Even worse, 35 percent of US consumers—some 70 million people—are now considered sub-prime and simply cannot qualify for credit. This huge segment of Americans cannot get a mortgage and are not participants in the housing market. That, alone, significantly hurts demand.

Some Americans cannot afford to own a home. Others see ownership as a bad investment, at present. And millions more have lost, or are about to lose, their homes. The combination is crushing home ownership.

Yet, even those who own their homes, and who do not appear to at risk of losing them, are facing their own unique struggles.

CoreLogic reports that 10.8 million, or 22.5 percent, of all residential properties with mortgages were in negative equity at the end of the third quarter of 2010, down from 11.0 million and 23 percent in the second quarter. However, this decline is due primarily to foreclosures of severely negative equity properties rather than an increase in home values.

During this year the number of borrowers in negative equity has declined by over 500,000 borrowers. An additional 2.4 million borrowers had less than five percent equity in the third quarter. Together, negative equity and near-negative equity mortgages accounted for 27.5 percent of all residential properties with a mortgage nationwide.

That will eventually spur even more defaults and foreclosures. As it stands, the housing inventory data is muddled due to the number of foreclosures that are not yet listed for sale.

The decline in ownership is having a negative effect on prices. Supply is easily exceeding demand. The Census Bureau reports that 18.8 million homes are currently vacant.

US homes will lose a whopping $1.7 trillion in value in 2010. About $9 trillion has been lost since June 2006, according to report from Zillow.com. These losses are simply stunning.

Worse, Fitch Ratings forecasts that home prices will drop an additional 10 percent next year.

An excess housing supply—due to defaults, pending foreclosures, or vacant homes—is holding down home prices. And, according to many analysts, there is every indication that excess supplies and falling prices will continue into next year. It's not hard to imagine.

The so-called 'shadow inventory' continues to grow. According to Morgan Stanley, 8 million foreclosure-bound homes have yet to hit the market.

Laurie Goodman, senior managing director at Amherst Securities, reports that 1 in 5 distressed homeowners in the US faces, or may face, foreclosure. She says 11.5 million home loans are non-performing or highly distressed at present.

All of that excess inventory will eventually push housing prices even lower than they already are, which will result in even lower equity for millions of homeowners. That could, in turn, make millions of homeowners more vulnerable to foreclosure.

Homeownership has generally built personal assets. But for millions of Americans, that is no longer the case. The most valuable asset of millions of Americans continues to decline.

With unemployment hovering near 10 percent, and housing showing no signs of a bottom, any sort of recovery seems like a very distant prospect.

Is Ben Bernanke a Liar, an Abettor, or Just Wildly Incompetent?

Last week, 60 Minutes conducted an interview with Federal Reserve Chairman Ben Bernanke. At the outset, correspondent Scott Pelley noted that this is the worst recovery the nation has ever seen.

Perhaps that's the reason that Bernanke, who is charged with finding a way out of this mess, decided to do a prime-time interview on national television. It was an unusual event.

As Pelley noted, Fed Chairmen rarely do interviews. But Pelley said that Bernanke feels the need to speak out because he believes his critics may not understand how much trouble the economy is in.

Oh, I think they know, Ben. I think everyone knows.

Bernanke felt the need to get in front of the camera and provide the Fed's spin in order to counter all of the resistance the central bank is simultaneously facing from seemingly all quarters.

It's reasonable to assume that Bernanke never gives an honest assessment of anything, and that the Fed keeps all of its most harrowing data to itself. Whatever dire economic numbers the Fed reveals, it's safe to assume the real numbers are even worse. That's because the Fed, like the government, lies.

For that reason, some of Bernanke's assessments were rather sobering.

"Between the peak and the end of last year, we lost eight and a half million jobs", said Bernanke. "We've only gotten about a million of them back so far. And that doesn't even account the new people coming into the labor force. At the rate we're going, it could be four, five years before we are back to a more normal unemployment rate. Somewhere in the vicinity of say five or six percent."

Got that? The Federal Reserve Chairman was willing to admit on a nationally-televised, prime-time news show that it may take as long as five years before unemployment comes back down to six percent.

It was a stark and stunning revelation. But to readers of The Independent Report, it's not the least bit surprising.

In an effort to jump start the economy, the Fed plans to buy $600 billion in US Treasury securities, with the intention of lowering rates on long term loans for things like cars and homes.

Bernanke wanted to emphasize that this $600 billion quantitative easing program comes from the Fed's own reserves. "It's not tax money. It does not add to the federal deficit."

Bernanke never bothered to mention where the Fed gets those reserves. That was pretty convenient.

"One myth that's out there is that what we're doing is printing money. We're not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way."

That's technically true. The Fed doesn't actually need to print any paper currency. It simply extends credit to various banks by electronic transfer. It all amounts to nothing more than key strokes on computers, in which billions in credit are instantly conjured and then moved from the Fed's balance sheet to the balance sheets of numerous banks. It's like magic.

When asked if there was a scenario in which the Fed would commit to more than $600 billion in quantitative easing, Bernanke replied, "Oh, it's certainly possible. And again, it depends on the efficacy of the program. It depends on inflation. And, finally, it depends on how the economy looks."

That surely spooked Treasury markets. The notion of the Fed buying Treasuries and propping up the market with conjured money is certainly unsettling.

Bernanke went on to say that what passes for a 'recovery' may not be self-sustaining.

"It takes about two and a half percent growth just to keep unemployment stable. And that's about what we're getting. We're not very far from the level where the economy is not self-sustaining."

Notice that he said nothing about actually reducing the unemployment rate? Current GDP growth will merely serve to maintain the current unemployment rate and keep it from rising. That's hardly reassuring.

Most disturbingly, this economic collapse occurred right under the noses of Bernanke and his comrades at the Fed. And now they are being entrusted with managing a recovery. It's hardly reassuring.

Even though the Fed was the regulatory watchdog of the largest banks when outrageously risky lending led to a worldwide financial crisis, Bernanke doesn't assume any responsibility or blame.

When asked if there is anything he wishes he'd done differently over these last two and a half years or so, Bernanke replied, "Well, I wish I'd been omniscient and seen the crisis coming, the way you asked me about. I didn't."

In Bernanke's estimation, seeing the oncoming crisis, which was rushing at him like a financial freight train, required the sort of omniscience that only a genie or wizard might possess.

How did the Fed miss the looming financial crisis?

"There were large portions of the financial system that were not adequately covered by the regulatory oversight," said Bernanke. "So, for example, AIG was not overseen by the Fed... Neither [was] Lehman Brothers, the company that failed. Now, I'm not saying the Fed should not have seen some of these things. One of things that I most regret is that we weren't strong enough in putting in consumer protections to try to cut down on the subprime lending problem. That was an area where I think we could have done more."

What a joke.

Bernanke is not committed to consumer protection. In fact, he lobbied against the Consumer Financial Protection Agency.

In 2008, federal regulators had the power to supervise Citigroup, Bank of America, Wachovia, Washington Mutual, Lehman Brothers, Bear Stearns, and Countrywide and force them to pare back their risky activities – and yet they didn’t.

It is absurd to say that regulators didn’t have the authority to manage systemic risk. It was simply a lack of interest.

William K. Black, a former bank regulator and now an associate professor of Economics and Law at University of Missouri as Kansas City, says the Fed was completely derelict in its duties as a regulator.

"The most severe failure was at the Federal Reserve," said Black. "The Fed’s failure was the most harmful because it had unique authority to prevent the fraud epidemic and the resulting economic crisis. The Fed refused to exercise that authority despite knowing of the fraud epidemic and potential for crisis."

The Fed is entirely and completely against regulation. In fact, it can accurately be described as an anti-regulatory, regulating agency.

As Mr. Black further notes, "The anti-regulator policies that Bernanke championed were the principal drivers of the fraud epidemic that have produced recurrent, intensifying crises."

It is true that the Fed wasn't the regulator in charge of insurance giant AIG. That distinction belonged to the Office of Thrift Supervision, which — like the Fed — showed a complete dereliction of duty. Like other US federal bank regulators, the OTS is paid by the banks it regulates. How's that for conflict of interest?

However, Bernanke was a member of the board of governors of the Federal Reserve system for most of the period from 2002 to 2006, when historically low interest rates set by the central bank sparked the housing bubble, the resulting financial crisis, and subsequent recession.

Bernanke, and others like him, prefer to blame the whole financial disaster on sub-prime lending. But the reality is that many perfectly conventional mortgages went bust. And commercial real estate was at least as overblown as housing, and it went bust too.

It's simply stunning to hear the man who failed to supervise regulation blame weak regulation for the financial crisis, but Bernanke did just that while speaking to the American Economic Association in January. And, in his view, low interest rates were not to blame.

“Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates,” said Bernanke.

However, Bernanke's predecessor, Alan Greenspan, rejected advice about the risks of subprime lending. And Bernanke followed the same lax regulatory course when he was appointed to head the Fed. The reality is that the Fed had the authority to regulate in many ways; it simply chose not to.

Bernanke, like Greenspan, believes that self-regulatory mechanisms are inherent in free markets. Both men believe in the "free hand" of the market, which makes outside regulation unnecessary.

In 2006, Chairman Bernanke professed, "Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”

Not exactly.

All along, Bernanke has displayed a continual propensity for getting it wrong.

While speaking at the Federal Reserve Bank of Chicago's annual conference in May 2007, Bernanke famously stated, “Importantly, we see no serious broader spillover to banks or thift institutions from problems in the subprime market; the troubled lenders, for the most part, have not been institutions with federally insured deposits”

That was absolutely, positively, untrue. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed.

And the fallout has continued to be brutal; so far this year, 151 US banks have failed. Yet, the Fed hasn't shown the same mercy to small local and regional banks that it has to the mega banks.

Of particular concern is the recent revelation that the Fed made 21,000 transactions, stretching from December 2007 to July 2010, that totaled $3.3 trillion. These transactions included loans and purchases with financial firms including Citigroup, Morgan Stanley, Goldman Sachs, major industrials companies including GE, and even to foreign corporations and foreign banks, including the Bank of England.

The loans were nearly interest-free. And the revelations of these secret transactions make the Federal Reserve appear to be the Central Bank of the World. None of this would have been known if Congress had not forced the Fed to reveal these transactions. Yet, we now know that the Fed has been acting as a sort of global bailout machine.

So Bernanke is either a liar, an abettor, or just wildly incompetent. And yet he was reappointed as Fed Chairman by President Obama in January of this year.

However, Bernanke received stiff opposition on the way to confirmation for his second term. The full Senate voted 70–30 in his favor, the narrowest margin for any Fed Chairman in history.

Even before he went on national TV to plead his case, all eyes were on Bernanke, and they will continue to be. The American public is on to him. Before this crisis most Americans had no clue what the Fed was, or what it did. Now nearly everyone knows. The opposition is vast. The doubt and mistrust are massive, and perhaps even historic.

According to a new Bloomberg Poll, a majority of Americans are dissatisfied with the Federal Reserve and say it should either be brought under tighter political control or abolished outright.

Perhaps Congressman Ron Paul put it best when he said, referring to Bernanke:

"There is something fishy about the head of the world’s most powerful government bureaucracy, one that is involved in a full-time counterfeiting operation to sustain monopolistic financial cartels, and the world’s most powerful central planner, who sets the price of money worldwide, proclaiming the glories of capitalism."

A Totally Corrupt and Dysfunctional Government

The Independent Report seeks to analyze economic events in an apolitical manner. The goal is objectivity, an unbiased analysis and, well, independence.

So much of what passes for news these days is highly politicized, and the goal here is to analyze and dissect economic developments minus the political spin, and absent any particular ideology.

Normally, The Independent Report doesn't focus on politics. In fact, politics is typically avoided because of the ugly circus that it is.

It is clear is that our political system is broken in many ways. Washington appears quite divided and highly partisan.

But one political event (or, rather, charade) occurred this week that is worth mentioning because it revealed just how broken, how corrupt, and how dysfunctional our government truly is. And it also revealed that, when push comes to shove, Congress isn't nearly as divided as we're typically led to believe.

Once again, Congress proved that it is an old boys network whose members even include women. And that club takes care of its own, no matter how egregious, how unscrupulous, how unethical, or how illegal its members behaviors are.

This week, the House of Representatives chose to merely censure Rep. Charles Rangel, despite behavior that should have led to his expulsion, arrest and prosecution.

The 80-year-old Democrat admitted he had failed to pay all his taxes, filed misleading financial statements, and improperly sought money from corporate interests in exchange for a college center bearing his name.

That's typically known as tax evasion, taking bribes, a quid pro quo, and an abuse of one's power and authority. And all of it is illegal, in addition to unethical.

Last month, the House ethics committee found Rangel guilty of 11 of 13 charges of financial misdeeds, overwhelming evidence of his misconduct and guilt.

Yet, the chairman of the ethics committee, Democratic Rep. Zoe Lofgren of California, said Rangel simply "violated the public trust." However, it's far more accurate to say he violated the law — in numerous ways.

Despite this fact, Rangel's colleagues chose to merely censure him, which amounts to a slap on the wrist.

It was only the 23rd time in the nation's history that a House member has been censured. Yet, there is no real punishment, other than to say, "Mr. Congressman, this will go down on your permanent record."

What a sham. What an injustice.

Rangel's many friends and staunch allies in the House — including members of the Congressional Black Caucus and the New York delegation — tried to reduce the punishment to a simple reprimand, though that effort failed. But it didn't really matter. The punishment is the same; nothing at all.

Clearly, Congress protects its own, just like cops do.

Even Rangel's constituents seemed to care little about his conduct or the charges against him. Rangel was re-elected to a 21st term last month with more than 80 percent of the vote despite being under an ethics cloud for more than two years.

Despite the overwhelming evidence of his guilt — which was the opinion of his colleagues — Rangel hubristically argued that censure is reserved for corrupt politicians — and he's not one of them. That reveals the height of Rangel's delusion and arrogance.

The reality is that Rangel ignored rules of conduct and avoided paying his taxes despite his knowledge of tax law due to his long service on the tax-writing Ways and Means Committee. In other words, Rangel knew the rules because he helped write them. He also thought he knew how to circumvent them. How precious is that?

Rangel chaired that panel until last March, when he stepped down after the committee — in a separate case — found that he improperly allowed corporations to finance two trips to Caribbean conferences.

That is simply stunning. Rangel was booted from the committee on separate charges! This is a man who is utterly and consistently corrupt, and who is devoid of any decency or ethics.

Rangel shortchanged the IRS for 17 years by failing to pay taxes on income from his rental unit in a Dominican Republic resort. He filed misleading financial disclosure reports for a decade, leaving out hundreds of thousands of dollars in assets he owned.

He used congressional letterheads and staff to solicit donations for a monument to himself: a center named after him at City College of New York. The donors included businesses and their charitable foundations that had issues before Congress and, specifically, before the Ways and Means Committee. That's called a conflict of interest.

Rangel also set up a campaign office in the Harlem building where he lives, despite a lease specifying the unit was for residential use only.

The representative is obviously a man of enormous ego and hubris. He believes he is as important as he is powerful.

But instead of expelling Rangel and ordering his prosecution, his Congressional colleagues chose to merely censure him. Besides the embarrassment, censure carries no practical effect. The next level of punishment was expulsion, and yet Congress stopped short of that. In the process, it stopped short of assuring justice.

It is abundantly clear that Congress is a kangaroo court and that it cannot — will not — police itself. It is an elitist old boys network, where they all watch each others' backs. Congress is a totally corrupt institution and it is plainly despicable.

Like any other American citizen who is convicted of such charges, Rangel should be in jail. But instead he remains a Congressman. How disgusting.

This is what passes for justice in America. It clearly proves that there are two justice systems in the land of the free and the home brave; one for the powerful and connected, and one for everybody else.