Fed Funds Vs Libor

Here we see an even better example of the relationship between the Federal Reserve Fed Funds Rate and LIBOR (London Interbank Offer Rate). LIBOR more precisely gives a measure of risk in lending to commercial banks. Note the fed funds rate has a direct impact on the overall risk to the credit system. So this begs the question, who would allow 17 rate hikes in a housing boom that was a direct result of a credit boom when the result could only be the destruction of the entire system? As uncomfortable as the answer might be its worth being answered. It doesn't take a rocket scientist to figure this out.

Money As Debt

Lets try to understand what money really is. This is the main reason no one in this country can understand how this all really happened. THIS VIDEO PUTS IT IN THE MOST SIMPLISTIC TERMS BUT REVEALS THE GREATEST TRUTHS YOU MUST KNOW IF YOU ARE A PATRIOTIC AMERICAN.



U.S. Constitution - Article 1 Section 8
Article 1 - The Legislative Branch
Section 8 - Powers of Congress

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

This law is being violated and its what Ron Paul has been trying to get people to listen too for years it really is time to wake up.

Deflation vs Inflation (DEBT DOLLARS)

Months ago we spoke about de-leveraging of banks and how dangerous this could be.

Well here it is we are in the Grip of deflation now. Our banks are leverage 9 to 1 as dictated by the Federal Reserve's Fractional Reserve Banking Policy. Meaning a bank can lend 9 times what they actually have on deposit in the bank. The money they lend is actually just digital credits it doesn't exist. This is why now that the FED has started the proverbial elephant down a hill side in its wave of defaults created since the 17 rate hikes its has run over every bank in its path.

Prices are dropping in every market; gas prices, commodities, equities, and currencies all falling in unison. The US dollar recently being the strongest currency out there in the G8 is perceived to be that we are the safest of the G8 to be but this is not true.

This USD strength is a false strength; it is actually a result of deflation or the scarcity of US Dollars in the system that is causing it as the leveraged US debt vanishes from the system. THE FACT IS EVERY DOLLAR WE HAVE IS A DOLLAR CREATED AT INTEREST OR DEBT MONEY.

What happens when the deflation runs its course? There won't be any money left. Gas might be cheaper but you will also have relatively less dollars to work with thereby keeping the benefits of price drops from truly being realized.

Once deflation runs its course then the remaining inflationary pressures of the central banks' money creation will take over. Since we must continue to finance defense, fight on going global conflict/wars with dubious origin and rational, and protect the people that pay the central bank's interest, the citizens of the nations, well enough for them to get their money back from us through government taxation. They will continue to flood the system with this fiat tsunami. This will put us at risk of mirroring the Pre-World War 2 era in Germany when the Mark was pretty much worthless. This is the future we face if the powers that be are left to their own devices.

Problem Reaction Solution

How can this model work so effectively on people? I can only say I wish it did not but it just does. Like cattle with a cattle prod poke them in the right place and they will rush toward their certain doom.

Nobody noticed the 17 rate hikes in the housing boom (see chart from January 2008 post) and the fact George Bush out of no where close the Bankruptcy loop hole while the FED was increasing global default risk. Now in 2008 The treasury under the leadership of Henry Paulson former Goldman Sachs CEO has come to rescue with his trusted ally Ben Bernanke to save us.

Lets see now the Glass-Stegall Act has been repealed Henry Paulson or Hank has turned his old company into a bank holding company and plans to buy all bad US debt off of bank balance sheets with our own money they just created and give good bank assets back to his old company.

Doesn't this set off any alarm bells in anyone's head anywhere? If this is the only thing I heard I would be at high alert. Goldman Sachs was the one company that seemingly knew to stay away from the entire Mortgage Backed Security business even when it was booming, now their ex leader is handing over all the assets of all the institutions that were caught due to the rate hikes and changes to LIBOR by his ally Ben Bernanke in the FED, and buying the bad debt from those institutions using our own money...... No body else out there sees this as a little too close to home.... Seriously no one out there caught on to this. Humor me.

We have been backed in to a corner and given only one solution. GIVE THE FED EVEN MORE POWER THAN THEY ALREADY HAD OVER EVERYTHING YOU NEED TO LIVE, The creation of money, INSURANCE (AIG), HOUSING (FANNIE & FREDDIE CONSERVATOR SHIP) and basically your souls. Remember this is a private bank not part of the US government.

Constitutionally the FED should not exist exactly as Senator Ron Paul states that bank is illegal and is conducting extremely illegal activities in broad daylight.

The media is completely complicit in the scam as any amount of research will turn up the fact that the FED should not exist by the US Constitution and only one Law Maker Ron Paul will acknowledge it. The power own you do you all just not mind? Even the money in your pocket isn't truly yours, it is an interest dollar owed to someone else and to pay it back our Central Bank will create more money out of thin air and depreciate your own money without your permission essentially robbing us of buying power.

The Truth Will Set You Free (Part 3)

So who benefits from a contrived global financial collapse? Well let me think for 2 seconds, OK I GOT IT!! EUREKA!

Who's business has been enhanced by this you ask? THE CENTRAL BANKERS!! Wow that was so easy. The Federal Reserve like the other Central Banks aren't part of the governments of their respective countries. The Bank of England is no more a part of England's governing body than Bank of America is part of the US governing body. Its just a deceptive name like the Federal Reserve or Federal Express....neither of these are Federal.

The FED lends AIG $85 Billion to bail them out but take an 80% stake in the company and gives them a loan at %12 does that sound like help or a hostile take over. The FED creates money out of thin air as a direct tax on the people we call inflation or the devaluation of the money in your pocket.

12% is a hard money interest rate not a bail out interest rate period.

The FED lends $437.5 Billion dollars a day to US banks at the discount window. Or $2 Trillion in a week. Listen to these numbers again. For a private for profit bank such as the FEDERAL RESERVE this must be a dream come true. Their business has skyrocketed. The housing mortgage market is approximately $10 Trillion. The FED was able to lend 1/5 of this in a week to our banks at interest/profit.

Now add this to all Central Banks of all G8 nations simultaneously capturing all banks in a nationalist take over inside a weak and you have an ominous picture.

The fiat money system they have trapped us in gives them total control of all nations and all its people. They can arbitrarily create booms and bust by the artificial manipulation of interest rates which is completely contra to any free market operation. It is a contrived market in which you are allowed to play but its not your market its theirs.

The Truth Will Set You Free (Part 2)

Who does the financial crisis benefit?

If you asked this question about the IRAQI war you would have realized what was going on long long ago. Dick Cheney gave $100 Billion dollar contract non compete to his former company Halliburton and even now the Oil Minister of Iraq has been in talks to reintroduce Exxon, Shell, BP, Total and Chevron after some 36 after being forced out by Saddam's nationalization of the industry. IN A NUTSHELL THE WAR USED OUR SONS AND DAUGHTERS FOR A VERY LUCRATIVE OIL DEAL WORTH TRILLIONS OF DOLLARS OVER THE LONG HAUL to invade and steal another countries natural resources. Very simple it wasn't because they hate your freedoms we felt the need to murder 1 million civilians to help them out, that ridiculous and just plain stupid if you even considered that a possible rationale.

Corporate America controls Congress and the president so then its easy to assume a business motivation behind anything this large scale that requires the spending of $10 billion dollars a month. That's a large market to not have a financial motivation to be a part of. War makes money just not always for us.

The Truth Will Set You Free

It is boarder line ridiculous how well the media has help to disguise what is going on so let me clarify the simplistic nature of what you have all witnesses.

Nothing in this world truly occurs at the top levels as a surprise. The world is incredibly well directed. This is an important point when considering 1% of Americans control 90% of the wealth. That means 90% of us are not in any position to make any decisions about the wealth of our nation we are just the moving parts of their machine.

Libor and the FED

Ok lets talk education and the lack thereof in the USA today. Its all over the news now that LIBOR is sky high. LIBOR is a measure of credit risk, in normal times LIBOR is usually within 15 to 30 basis points or bps of the FED target rate.

However now that the FED rate is back down to 1.5% the LIBOR is lingering 300 bps plus above LIBOR signaling the complete destruction of the entire credit system. Why is this important? Or a better question what exactly is important about this whole thing?

Remember in January we discuss the fact the FED raised rates 17 times and with those hikes LIBOR correlated with the FED hike better than 90% from 1.5% to the upper 5% range. Now the FED knows this is a measure of credit default. Further more the FED also knows very well that 80% of the purchase money mortgages used in the peak of the housing market from 2003-2006 were adjustable rate mortgages (ARMs) that were set to LIBOR upon adjustment. This would indeed make the FED guilty of deliberately triggering a default way by changing the future credit worthiness of all mortgage backed securities, CMOs, and CDOs that package these adjustable mortgage products by knowing full well that all those purchase money mortgages will then adjust higher. This is very simple. They new what they were doing all along these are Harvard educated business men with intimate knowledge of this system. Where exactly are they cutting rates from to increase liquidity to save us. From the 5.25% they cranked it in the largest debt boom in history. 17 hikes and no accountability how is this possible unless the media is helping to hide the problem.

98% of Americans have no idea about this and this is the single most important aspect of the financial crisis gripping the planet today. The FED has extensive knowledge of the system they regulate and are aware most Americans and Congress don't get it. Now the FED has absolute authority over the entire banking and credit system with the unchecked power. This doesn't bother any out there?

Another Tent City in Cali....Is Florida next?

http://www.latimes.com:80/news/local/orange/la-me-tents18mar18,1,7073495.story

Yet another reprecussion from the foreclose fallout in California. Can a situation like this be far off for other hot housing markets that are now facing escalating foreclosure rates?

Bear Stearns....A Story of Leverage

Bear Stearns this week has demonstrated clearly my earlier point about leverage and what it can do when it works against you. There will be a few more shoes to drop they will not be the last. What you have just witness is a $170 last year, and one of Wallstreets darlings, reduce to $2 a share in literally and instant.

Lenders and banks are not aware of their own sickness. It took Bear 24 hours from the CEO saying their balance sheet was fine to being insolvent. That is the nature of being leveraged to hill with debt you have lent out that you don't actually have. Fractional Reserve banking compounds bank returns, but in in reverse can snuff them out of existance literally overnight. It is a shame our banking system is built on this "ponzi scheme" but that is the nature of big business I guess. Try to understand that every bank that lends in America is structured this way and all of them lack the visibility to give adequate warning to impending doom on the horizon. Who is next? Keep your eye on the birdie.

FED Injects More Liquity (Round 2 or is it 3?...)

So here we go again, another attempt to prop up the collapsing credit system. Will it work? It is indeed a good thing that the FED is stepping in to take on Mortgage Backed Securities and provide liquidity to the market. However, something must be done to stop the sweeping tide of defaults that is causing the severe dislocation in the credit markets. Deleveraging in the credit system is more destructive than folks realize. The fact of the matter remains that in our "fractional reserve" banking system, where banks only hold 1/9th of what they are willing to securitize and lend out, means massive credit defaults will be magnified. Leverage is a double edge sword. During an expansion it will allow you to realize far larger gains with less capital, but in a contraction it will have the very same implications to the downside. In a nutshell it won't take much to erase a banks book value and make them insolvent.

It appears to me we are on the verge of seeing a very large bank (dare I say a Citigroup or Washington mutual) implode right out of existence. I believe it to be a certainty that before this pandemic of the credit markets runs its course there will be one more shoe to drop, and it will be the a very well known financial institutions total collapse. Stay tuned!!

Ron Paul vs Ben Bernanke on the Dollar and Inflation..

Listen to some of the key point made by congress man Ron Paul in relation to inflation, controlled recession, and deliberate debasing of the US Dollar.

"Conforming" vs "Non-Conforming"

In order to understand what conforming and non conforming means you must first have an understanding of the secondary mortgage market. The secondary markets provides liquidity to lenders to make loans by purchasing mortgages from originators thereby replenishing thier credit lines and giving the lenders the continued ability to originate new loans.


So what does it mean when you hear "conforming" and "non-conforming?" A "conforming" loan simply means it’s a loan that meets Fannie Mae and/or Freddie Mac guidelines. For instance, a "conforming" loan maximum limit currently is $417,000, anything larger than this limit is considered "non-conforming" or "jumbo." Another example would be borrowers who acquire loans exceeding 80% LTV (loan to value) are required to carry private mortgage insurance. The guidelines set forth by Fannie Mae and Freddie Mac in the Conforming market defines the risk that these secondary market investors are willing to take for their products. When you walk into a Washington Mutual, Wells Fargo, Bank of America or Chase and you see them advertise 30 or 15 year mortgage rate, those rates are Fannie and Freddie Conforming loan rates for a 30 year or 15 year fixed with an 80% LTV ratio and full documentation of income and assets. In short, a "conforming" loan is one that meets the requirement to be purchased by Fannie Mae or Freddie Mac on the secondary market.



FYI...LTV mean Loan to Value ratio or the ratio of the loan size versus the value of the home/collateral.

Bush Stimulus To The Rescue!

Could it be our noble leader has actually done something that may benefit the American people and their pursuit of the "American Dream?" Forget about the $600 to everyone and $1200 to married couples (which if my math serves me correctly is the samething) the revision to Fannie Mae and Freddie Mac loan limits to me is the among the most important parts of the stimulus package.

The economic stimulus package includes a very important change to our conforming loan market that may be the key to putting a bottom into this runaway stage coach. The package includes and upgrade to the conforming loan limits which will change the conforming loan limit from $417k to $700k. This may not mean much to the average homeowner but in terms of options to help struggling homeowners this is huge. The Jumbo non-conforming market is all but dead as with the Alt-A and subprime markets that catered to the newly included loan sizes and represent a serious hole in the Florida and national loan markets. If Fannie Mae and Freddie Mac can truly fill the void, in the markets in that loan bracket, some of the most underpressure upper middle class foreclosure may indeed be averted by these homeowners finally having an option. This will in turn lead to a decelaration in falling home prices and help us put in a bottom.

FED Rate Cut....Guilt By Association

Many people associate a FED interest rate cut with automatically lower interest rates in mortgages this is a misconception. The interest rates on conforming mortgage products are determined by the the underlying bonds and their yeilds. The best gauge the public has to really track the directionality of mortgage interest rates comes from the 10 year BOND yield.

Adjustable Rates and Index

Most Americans do not understand how (ARMs) Adjustable Rate Mortgages work here it is in a nutshell. Your teaser rate which can be fixed for 2 years 3 years or 5 years will adjust based on 2 things; a banks margin + an index....In the case of most adjustables that would be the LIBOR INDEX, then there is COSI and COFI and MTA indexes which are all relatively correlated in the same fashion to the FED Funds rate. When the FED moves the FED rate up it also increase the the index that will determine where your adjust can adjust which will be a higher rate. For example in 2003 the LIBOR INDEX was 1.25% lets say you have a 2yr fixed rate 28 year adjustable and your intial rate was a 6.75% your banks margin was 4.25% and the index is 1.25%. You will not adjust out of your teaser rate because after the teaser rate your bank margin plus index is only 5.5%....

Now lets take the same scenario with the FED moving rates up 4 points and you will have this this to look forward to; a bank margin of 4.25% plus and index of 5.5% (the high the LIBOR INDEX reached). Adjustables are capped on how much they can adjust above the intial teaser rate on the first adjustment, 2 points for 2yr fixed 28 year adjustables and 3 points for 3 year fixed 27 year adjustable....your new rate would equal 4.25+5.5=9.75%. This would allow your bank to adjust both 2 yr and 3 yr teaser rates to the maximum of their respective caps. Higher rates mean higher rate of default unless your income is adjusting upward hundreds of dollars to offset this hit to your mortgage payment which it is not.

In a nutshell the FED giving us higher rates means they are giving Americans higher payments on various forms of debt mortgages the largest, credit cards, and lines of credit. Remember the FED Rate also controls Prime rate which is equal to the FED FUNDS rate plus 3%.....currently the FED RATE Is 3.5% plus 3% which gives you prime rate at 6.5% most credit cards are also pegged to prime rate with a bank margin. Higher rates means higher defaults this is know to the FED so why I ask would a 4 pt rate hike in the largest American Debt/Housing boom be a good thing for achieving the "American Dream?"

CRISIS INDEED!!!

Please Click the link below:




Shanty towns and tent cities in Southern California why isn't this on prime time news....I wonder. California is the nations largest economy and where they go we all tend to go to varying degrees. I am not saying that in Florida this scenario looms on the horizon necessarily, but if this is the fallout from our current mortgage crisis in the nations hottest housing market it warrants a certain amount of attention. What does this really say about the "American Dream?"

75 Basis Point Rate Cut So What...

This week the FED stunned with a 75 basis rate cut but does that really change things? No not really, what is happening here in our housing market is so much larger than the average citizen and most savvy analysis have manage to grasp. Imagine that our housing downturn can have a global impact on all banks in all countries. That in itself should raise so many questions as to how this could really be possible and what it will take to stop it. The emergency rate cut really amounts to a pebble getting in the way of a run away bus down a mountain. What the FED put in motion with its rate hikes and rapid escalation of the LIBOR INDEX and subsequent increasing defaults in adjustable rate mortgages in both Subprime and Prime markets has cause a chain reaction of events that cannot be turned off overnight. Most Americans do not understand how adjustables work here it is in a nutshell. Your teaser rate will adjust based on 2 things; a banks margin + an index....In the case of most adjustables that would be the LIBOR INDEX, then there is COSI and COFI and MTA which are all relatively correlated in the same fashion to the FED Funds rate. When the FED moves the FED rate up it also increase the the index that will determine where your adjust can adjust which will be a higher rate. Higher rates mean higher rate of default unless you income is adjusting to your mortgage payment which it is not. In a nutshell the FED giving us higher rates means they are giving Americans higher payments on various forms of debt mortgages credit cards and lines of credit.

Subprime is not the disease but merely the symptom of an epidemic that has now infected all markets everywhere. Put it this way, when rates where at 1.25% if the FED went on television and told Americans they think there going to go ahead and raise rates 4% to 5.25% during your housing boom people would have been up in arms about such a proposition. The bottom line is the default rate in adjustable rate mortgages increased lock step with the rate hikes until it put in motion these downwardly cascading home prices which removed the equity in homes necessary to refinance out of teaser rates while teaser rates where now adjusting more aggressively due to the rate hikes. In effect trapping other home owners in there homes strapped to a chair just watching the clock on the adjustable time bomb countdown to zero with no escape..The rate hikes where the kindling for this bonfire and now they are trying to put it out with squirt guns.

The fact of the matter is the the foreclosure surge has a created reduction in home equity, an increase in LTV/Risk to lenders, destruction of the Subprime and ALT-A markets, a reduction of mortgage products to service a market that grew based on there availability, a surge in home inventory, and compromised the entire credit markets liquidity globally. If you can turn that off with a 75 basis cut I'm a monkey's uncle....and I'm not.

Most Important

What do homeowners consider the most pressing matter regarding the current housing situation?

Countrywide

Countrywide saved by Bank of America now the consolidation phase is underway in the banking world will this mean less choice in the future? I would think so with the decimation of Sub-Prime and Alt-A markets it seems conforming and FHA are here to stay once more. There are still a number of ailing companies out there that need to close and help this problem wash out. A lender that comes to mind as the next biggest problem is Washington Mutual who I expect will follow the path of Countrywide to either being acquired for pennies of the dollar or closing their doors outright.


Take a look at the winners that made this list. www.mortgageimplode.com

Interest Rates

3 Month LIBOR

3 Month CMT

Federal Funds

The LIBOR Index, which is the index that controls the adjustment of most all adjustable rate mortgages and thusly a direct contributer to the rampant foreclosure problem, is depicted here.

Note the correlation to the Fed Funds Rate.

Did our own Central bank knowingly sabotage our raging housing market. 17 consecutive rate hikes in a massive debt boom what would you expect to happen. The escalation of the LIBOR Index which now is forcing very high adjustments to teaser rates on adjustable rate mortgages did not happen by itself. Now the FED is here to save the day with rate cuts if the market needs it. What!?! Does anyone want to ask them why they cranked it up in the first place and are now trying to play hero to a problem it appears they were in direct control of creating? Your thoughts....

"Sub-prime"

Due to the recent freezing in the credit markets many "Sub-Prime" mortgages products that are key for home owners with less than perfect credit seemed to disappear over night. Luckily though it seems that investors that are seeking higher returns on their funds are returning to the markets and sponsoring a new wave of more aggressive mortgage products that are desperately needed to stabilize the housing market. Liquidity had all but dried up recently in mortgage products geared toward borrowers having credit scores 620 and below. Now they are fixed and adjustable options back in the market again for borrowers with less than perfect payment history on their mortgages and with scores as low as 530. This is a critical development given that with out this, these borrowers will have no where to turn to try to avoid foreclosure brought on by the current wave of mortgage resets. If the trend continues we may indeed be in for a better 2008 as this will help curb the foreclosure problem that has been depressing property values nationwide and disenfranchising our home owners.