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Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

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  • Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

    Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

    Who better to run the US Treasury Department than a poster child for debt serfdom?
    Little is known about Geithner's finances, other than tax problems

    The couple bought a home in the Washington suburb of Bethesda, Md., in 1992 for $275,000, taking a mortgage of $202,300. Through a series of refinancings and the sale of two properties, they climbed the economic ladder until they bought a house for $1.6 million in Larchmont, N.Y., in 2004.

    All of the Geithners' mortgages - from big banks including Nationsbanc, which is now Bank of America; Chase Manhattan, which is now J.P. Morgan Chase; and Wells Fargo - carried adjustable-rate mortgages with the risk that annual rate increases could raise their interest payments to as much as 11.25 percent, though the couple tended to refinance or sell their homes before they faced a rate adjustment.

    They also took out second mortgages, now known as home equity lines of credit, borrowing a total of nearly $1 million in 2002 on their second Bethesda home, which they bought a year earlier for $1,085,000.

    In 2004, they sold that house for $1.45 million and bought their current house in the New York suburb of Larchmont with a $1 million Wells Fargo mortgage, later adding a $400,000 home equity line of credit, also from Wells Fargo.
    (Hat tip to member BK)
    Don’t know about you, but I want my Treasury Secretary to either own his house outright or if he is going to hold a mortgage at least show that he knows a lot more about household finance than Gary Coleman, by putting 20% down and taking out a 30 year fixed rate mortgage, to demonstrate that he is not financially illiterate. Taking out an ARM when mortgage rates are near historic lows and home prices are falling indicates he thinks either mortgage rates will remain low or decline from near 40 year lows over the course of the next 30 years, or housing prices will rise before his ARM adjusts so that he can refinance into a lower fixed or adjustable mortgage, or both. Anyone with half a clue about what is happening in the housing market knows that the likelihood of either happening is close to zero. Why can't he?

    The latest government bailout plan revealed by Timmy on Tuesday did not go over well with stock market investors.





    Tim Geithner in 30 seconds

    Stock investors are still gagging on the details, which contains not a single politically inconvenient provision to address the source of the problem -- private sector debt that is inflating against collapsing real estate prices – yet promises further increases in public debt.
    White House may move to buy bad mortgages

    New proposal could break logjam of foreclosure relief efforts

    The White House is considering a proposal to head off potentially millions more home foreclosures by using federal funds to buy up at-risk loans and then refinance them with more affordable terms.

    What they heard from all segments of the industry is nearly universal support for going in and purchasing these loans,” said [president of the National Community Reinvestment Coalition] John Taylor.

    What's not to like if it's your assets receiving the government price protection? In 1930 is was gold, its price maintained by government fiat at $20.67 per ounce. In 2009 the asset receiving government price supports is real estate.

    This plan might possibly be helpful, or at least not destructive, if by “refinance them with more affordable terms” they mean lower not only the interest rate of mortgages but – and this is key – also reduce the principle amount of loans, too, to reflect pre-bubble home values, which remain 40% over market prices based on ROI on rental income, as real estate consultants to iTulip tell us. That at least is a form of actual debt reduction, but we are not holding our breath, and neither are precious metals investors.

    Even as stock investors pushed the DOW down to 1997 levels, precious metals investors were busy girding themselves for the long-term destination for global currencies with as world’s governments take the path of least resistance to avoid the politically impossible task of debt repudiation, a geopolitical game of Who Takes the Loss as Global Economies Crash?

    Besides hoarding cash in US Treasury bonds for fear of further banking system collapse, investors are hedging their cash hoard from loss of purchasing power of the monetary units of debt. They are purchasing the Fourth Currency and its precious metal bretheren silver and platinum. The debt overhang continues to weigh on the global economy like a stuck anchor of a sinking ship in a rising tide. Before governments finally give in and cut the chain to let the debt anchor go, we remain on track to reach a Gold/DOW ratio we have been tracking since August 2001, at approximately 2:1 by, more or less, 2015.



    With gold rising 21% against the DJIA so far this year, we're still on track for a rendezvous with 2:1, with the DOW around 5000 and gold around $2,500. (See DOW/Gold forecast 2006.) We did not expect a straight shot up from $270 when we decided to plunge into the gold market in 2001, and for certain we did not get one, nor do we expect a continuous rise to $2,500 from here. In fact, buying gold at these prices defies a simple principle we follow here at iTulip: buy cheap. The only truly cheap assets we see today are early stage technology deals. We are told that the pre-money on a typical follow-on round is now $0, meaning the money-in is the valuation. Ouch. But it takes far bigger brass ones to buy stock in a start-up company today than gold in 2001 at $270; gold is always going to be worth something, whereas stock in a start-up can go to zero in a heartbeat.

    On the other hand, waiting for gold to get cheaper before buying has not worked since mid 2008. My forecast for a bottom in the last correction down to $780 in August 2008 was exceeded by $40 (5%). Some believe it will fall below $700 still. That is looking more and more like the last "cheap" entry point in the current global economic crisis cycle. After being in and watching the gold market since 2001, the train of logic I follow is that if gold is over $900 with oil down below $40 and the global economy in full-out collapse, the only thing that is likely to bring it back down again is a rapid recovery. Recover is not what we are hearing from our contacts in Japan, China, the UK, Malaysia, Australia, Ireland, and Spain, to name a few conversations this week.

    Here's the latest from the Japanese Ministry of Economy, Trade and Industry (METI):



    To cut the debt deflation process short that is crushing the global economy, in my view, requires a global meeting of the minds among the world's leaders, both to arrange for debt foregiveness within domestic economies and to relieve the foreign debt burden on the world's major economies. As it is, they appear to be headed in the other direction. (Hat tip to member petertribo.) So, I remain long gold and short government.

    News from Iceland

    The latest from Iceland is a move to join the European currency union.
    Iceland minister says adopting euro logical step

    STOCKHOLM, Feb 12 (Reuters) - Iceland's new commerce minister said on Thursday the adoption of the euro was a more logical path towards restoring financial stability than currency cooperation with Norway.

    Iceland's economy collapsed in October after its top commercial banks failed under the weight of foreign debts and trade in its currency effectively ceased.

    In an interview with Reuters TV, Iceland's minister of business affairs, Gylfi Magnusson, noted that joining the EU was a controversial idea, particularly because of its fisheries policy which many Icelanders would not want to subscribe to.

    "But if we want a credible currency with a credible central bank to back it up then the euro seems to be the most logical option," he said.
    Why not? It's worked for Ireland... so far.
    Barroso repeats Ireland- Iceland comparison

    EUROPEAN COMMISSION president Josť Manuel Barroso has repeated his view that Ireland would be in the same position as Iceland if it were not a member of the euro zone.

    “The situation in the euro area countries would be much worse and much more difficult if we didn’t have the euro. I always mention the case of Ireland, comparing it to Iceland, so this is indeed a great demonstration of the success of the euro area,” said Mr Barroso yesterday in comments to the media that are likely to anger Taoiseach Brian Cowen.
    At least the Icelanders can go back to cod fishing. What shall Ireland do, or the UK generally, now the North Sea oil’s running out and the FIRE Economy has collapsed?

    News from Iceland-on-Thames
    Downturn worst for 100 years, says Ed Balls

    The economic downturn is so severe that it would surpass even the Great Depression of the 1930s, Ed Balls said yesterday.

    In an extraordinary admission about the extent of the financial crisis, the Schools Secretary and a close ally of the Prime Minister, declared that the downturn was the most serious global recession for "over 100 years".

    He said: "The reality is that this is becoming the most serious global recession for, I'm sure, over 100 years as it will turn out."

    He added: "I think this is a financial crisis more extreme and more serious than that of the 1930s."
    (Hat tip to member petertribo)
    Incredibly, all of the economic carnage is a consequence of Debt and Delusion as explained ten years ago by Dr. Peter Warburton in his book Debt And Delusion. Ten years later, evidence behind his claims are at last coming to light.
    HBOS whistleblower: statement of evidence

    Memorandum from Paul Moore, Ex-head of Group Regulatory Risk (GRR) at HBOS

    Background and credentials

    I was head of Group Regulatory Risk (GRR) at HBOS between 2002 and 2005. I reported to the chief financial officer (CFO), Mike Ellis. I had formal responsibility for the bank’s policy and oversight of executive management’s compliance with Financial Services Authority (FSA) regulation.

    I believe that we are missing the wood for the trees and that the key solutions to prevent such an event happening again are simpler than we think. In relation to policy changes, I make some short recommendations that the Committee may wish to consider in section 4 below.

    But let’s start with the cause and this fairly obvious proposition: even non-bankers with no “credit risk management” expertise, if asked (and I have asked a few myself), would have known that there must have been a very high risk if you lend money to people who have no jobs, no provable income and no assets.

    If you lend that money to buy an asset which is worth the same or even less than the amount of the loan and secure that loan on the value of that asset purchased and, then, assume that asset will always to rise in value, you must be pretty much close to delusional? You simply don’t need to be an economic rocket scientist or mathematical financial risk management specialist to know this. You just need common sense. So why didn’t the experts know? Or did they but they carried on anyway because they were paid to do so or too frightened to speak up?
    Turns out the geeks were paid to shut up (see Jocks and Geeks Theory of Financial System Dysfunction) and a consequence of the securitized debt boom was a global white-collar crime wave.

    Scarce resource in demand: a sense of humor

    As this depressing Depression drags on, we are determined to keep our sense of humor. The following bit of gallows humor, courtesy of a UK based friend of one of our members, fits the bill.
    A lobbyist on his way home from Parliament is stuck in traffic. Noticing a police officer, he winds down his window and asks: "What's the hold-up?"

    The policeman replies: '"The Prime Minister is so depressed he's stopped his motorcade and is threatening to douse himself with petrol and set himself on fire. He says no one believes he can get us through the credit crunch. So we're taking up a collection for him."

    The lobbyist asks: "How much have you got so far?"

    The officer replies: "About 40 litres, but a lot of people are still siphoning."
    (Hat tip to member GRG55)
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    Last edited by FRED; 02-13-09, 12:08 AM.

  • #2
    Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

    You're going to wear out the brim of your hat with all those tips!

    Comment


    • #3
      Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

      If gold is going to $2,500 by 2015, why would now not be a good entry point? Obviously, not as good as 2001, but on an upward trend so a decent option for the longer term.

      And short government? As in Treasuries?

      Comment


      • #4
        Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

        I am glad Geithner is a "normal" American with debt, mortgages, and personal financial challenges/successes. I am tired of multi-millionaires running our country.

        None of our politicians are responsible. None of them have done a good job.
        At least Geithner can feel my pain and perhaps that will lead to a solution that helps me.

        Comment


        • #5
          Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

          Originally posted by aaron View Post
          I am glad Geithner is a "normal" American with debt, mortgages, and personal financial challenges/successes. I am tired of multi-millionaires running our country.

          None of our politicians are responsible. None of them have done a good job.
          At least Geithner can feel my pain and perhaps that will lead to a solution that helps me.
          That is a good point. Ideally the Treasury Secretary is not ultra-wealthy and out of touch, and also shows that he knows how to manage household finances prudently.
          Ed.

          Comment


          • #6
            Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

            Originally posted by energysustainability View Post
            If gold is going to $2,500 by 2015, why would now not be a good entry point? Obviously, not as good as 2001, but on an upward trend so a decent option for the longer term.

            The strong run-up in gold's price recently has me thinking it will take a breather soon before going back above $1000. I'm looking for it to drop back to around $820. If it does, I will buy more then.

            I am basing this on Elliot Wave Theory which I have recently started following. It looks like gold is about to complete the fifth wave of an upward impulse, with a correction to follow.

            I'd be interested to hear from some more experienced technical analysts on gold's current price.

            Comment


            • #7
              Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

              Originally posted by FRED View Post
              also shows that he knows how to manage household finances prudently.
              Humor, yes?

              Comment


              • #8
                Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

                Buy the actual gold (via bullion coins) or funds such as GLD and IAU?

                Comment


                • #9
                  Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

                  Originally posted by FRED View Post
                  That is a good point. Ideally the Treasury Secretary is not ultra-wealthy and out of touch, and also shows that he knows how to manage household finances prudently.
                  Haha, one out of two....But, then again, politics are supposed to be about compromise! Personally, I think I'd prefer a rich guy who hasn't made poor personal finance choices running the Department of Treasury!

                  Comment


                  • #10
                    Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

                    I sense Gold is being "Held" At sub $1,000......suspect that there are people in the back ground wanting to use it for Brent woods 2. Thing is NO ONE in their right mind will invest in either Wall st or "the City".

                    The British were clever enough to finance the world, but without being the world reserve currancy. In Apirl we are going to face it...........from there on wards it down hill all the way!

                    What ever Gold does in $, i know its going MEGA in £!
                    Mike

                    Comment


                    • #11
                      Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

                      Geithner's home buying track record sounds every bit as speculative/flaky as all the rest of the people we don't feel much sympathy for. You know, the ones that used to get slightly hoarse telling you that you were missing the boat by not doubling down on your property holdings, back in 2004-2005. I can remember one or two that got so vehement you could see the vein in the side of their neck bulging slightly as they were talking at you on this theme, while you were haplessly buttonholed at some party.

                      To read this guy's household budget profile, apparently pulling every scrap of equity out of his properties at the most aggressive rate, to "leverage up" and "climb the socio-geographic ladder" leaves a slightly repugnant aftertaste. Don't like the guy already for the fact he's now in the position to fling my future tax revenue around to "paper over the problems" after having flung his equity around to further an overeager speculation of his own during the go-go years. I'd sooner see you leaving than arriving, Mr. "Eager-Geithner".

                      Comment


                      • #12
                        Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

                        I'm late to the gold party too. I fear just backing up the truck at 930. I have 300 GLD at a cost of 74, own them free and clear. I have 300 more where I wrote a feb call at 99 (boy I hope it does not moon shot before 2/20), and I have 500 more where I sold calls for 81.00, so I'm going to get called out at the end of the month. I have 10 oz physical. I have limit orders to start buying at 850, if we ever see that again.

                        My thoughts are as follows.
                        Own some physical and some GLD. The GLD you can trade up and down to make some profit which can offset your cost of the physical. You can also use GLD as kind of a pre-buy for physical. For example I have a limit order at 85.00 for 100 shares of GLD. If this triggers, I can sit back and think about buying some physical. Maybe wait for further price weakness, or really beat the bushes for physical gold with a low mark up. Once I find the physical, I can sell the corresponding GLD.

                        I dont think it is likely the gvt will confiscate your gold. first of all they are not contrained in printing money by the amount of gold they have like they were on the gold standard. Secondly unless the price of gold goes to nose bleed territory in a hurry i dont think they are going to confiscate GLD.

                        However we live in interesting times. If the wheels do come off the bus all bets are off. That is why I think it is a good idea to have some physical. I dont know what the magical number is, 2K by the end of the year?? I'm hoping I can see it coming and that I will have time to move from GLD to physical, maybe I will get caught with my pants down who knows.

                        I looked over bullion vault that seems interesting. If I keep my gold in swizterland can the gvt get their hands on it? Will I be in trouble with the IRS. I know it does not generate any income, but I think i still have to report it. Can the gvt squeeze bullion vault or me to roll over?
                        They can most likely eliminate the ability for me to repatritate the money. So if disaster strikes, I live in the US and my money is in switzerland. Dont know if that is such a great deal either. I dont have enough gold to relocate, and i dont want to leave this great country either.

                        Ive been looking at the OECD data and some countries are really in trouble. A default by Russia could be the tipping point.

                        Comment


                        • #13
                          Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

                          Originally posted by Lukester View Post
                          Don't like the guy already for the fact he's now in the position to fling my future tax revenue around to "paper over the problems" after having flung his equity around to further an overeager speculation of his own during the go-go years. I'd sooner see you leaving than arriving, Mr. "Eager-Geithner".
                          I second. Furthermore, what the hell was Obama thinking appointing this clown? I never "drank the Obama cool-aide" but I was cautiously optimistic that our new leader might bring some fresh perspective and good decision making to the White House. So far, not so much.

                          I have a feeling that we're about out of chances to try the right solution to the crisis but all we are getting is more of the same from policy makers. The political stranglehold FIRE interests enjoy in Washington seems so overwhelming that no progress can be made. I don't see a light at the end of the tunnel yet.

                          Comment


                          • #14
                            Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

                            You forgot to take your blue pill this morning MercerBear. Please remember to regularly take your medication, or we'll have to call Nurse Ratchet. You may become contagious to the other inmates.

                            Originally posted by mercerbear View Post
                            I second. Furthermore, what the hell was Obama thinking appointing this clown? I never "drank the Obama cool-aide" but I was cautiously optimistic that our new leader might bring some fresh perspective and good decision making to the White House. So far, not so much.

                            I have a feeling that we're about out of chances to try the right solution to the crisis but all we are getting is more of the same from policy makers. The political stranglehold FIRE interests enjoy in Washington seems so overwhelming that no progress can be made. I don't see a light at the end of the tunnel yet.

                            Comment


                            • #15
                              Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

                              Yes i want a politician to feel our pain, but on the other hand this guy is a moron. I sort of understand the first time home buyers, buying their first modest houses in the 2000's seeing them rapidly run out of sight, and stretching themselves to get in, but this guy is a high end speculator at the worst time. If one would just look at rent vs. own, or price to income it was very apparent this bubble was going to pop. I forgive J6P. I do not forgive mr. smarty-pants, college educated, financial guy.

                              Comment

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