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   Daily Blog - Tiger Software

                 December 2, 2008



TigerSoft Charts Here:  MA, BAC, C and JPM

William Schmidt, - Tiger Software's Creator
      (C) 2007 William Schmidt, Ph. D.  - All Rights Reserved. 

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                                   by William Schmidt, Ph.D. of www.tigersoft.com  

                See also our earlier Blogs:
                      TigerSoft Blog - 10/23/2008 - "A Deflationary Spiral Is The Biggest Risk Nowl".
TigerSoft Blog and News Service - 11/1/2008 - NYU Professor Nouriel Roubini"
                      TigerSoft Blog - September 20, 2008 - Paulson Takes Corruption To Dizzying New Heights"

                                           Bush and The Biggest Bankers Go Way Back.

                            The degree to which the Bush Administration dangerously gave the biggest banks whatever they asked
                for is a story still to be told.  More and more is coming out.   Bush's people ignored dire warnings about the
                housing bubble and its dangers.  They consistently let their banking buddies recklessly make more money
                when prudence should have stopped them.  In 2005 and 2006, "The Bush administration backed off proposed
                crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to
                pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings
                that foretold the financial meltdown, according to an Associated Press review of regulatory documents
                                           (Source: http://news.yahoo.com/s/ap/20081201/ap_o... )

                                              THROWING ROCKET FUEL ON THE FIRE

                           Republican Congressment and the White House shielded banks by not establishing legal liability
                 for failed mortgages that they were selling.  That "fueled these firms' avarice,  While Wall Street financiers
                 stoked today's financial meltdown with explosive investing in high-risk mortgage loans, politicians,
                 federal officials and lobbyists shielded them from lawsuits that would have protected borrowers and
                 tempered the frenzy. A principle known as assignee liability would have allowed borrowers to sue
                 anyone holding paper on their loan, from the originators who sold it to them to the Wall Street
                 investment bankers who ultimately funded it.  Without the measure in place, Wall Street increased
                 by eightfold its financing of subprime and nontraditional loans between 2001 and 2006, including
                 mortgages in which borrowers with no proof of income, jobs or assets were encouraged by brokers to
                 take out loans, according to statistics provided by mortgage trackers. The Bush administration and
                 members of Congress -- including a key Republican subcommittee chairman who was later sent to
                 prison for political corruption -- sided with lending-industry lobbyists and free marketers who hotly
                 and successfully opposed blanket liability for Wall Street firms selling mortgage-backed securities,
                 according to congressional testimony, other records and interviews.
                                           (Eric Nalder - http://seattlepi.nwsource.com/business/3... )


                        The Housing Bubble
                         March 14, 2008   
        Eliot Spitzer, Governor of New York    wpe13A.jpg (2451 bytes)

"When history tells the story of the subprime lending crisis and  recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still  unfolding, but when the dust settles, it will be judged as a willing   accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal  government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers."

Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.

Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.


                                    PAULSON AND BERNANKE HAVE NOTHING TO SHOW

                            Treasury Secretary Paulson and Federal Reserve Chairman have been giving away trillions
                of dollars in taxpayer money to banks without any strings requiring them to make loans, and, in the
                case of the Federal Reserve, ZERO public accountability.  Surely, they knew what they were doing. 

                This is THE BIGGEST THEFT of PUBLIC MONEY IN ALL HISTORY.  The banks are
                now saying that they are not only not bound to increase regular loans, but that they are also going to
                cut back credit card loans by trillions over the next 18 months.  This will devastate the American
                economy.    How are people supposed to buy things or make normal business transactions?  

  "The U.S. credit-card industry may pull back well over $2 trillion of lines over the next
               18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer
                spending, prominent banking analyst Meredith Whitney said.  The credit card is the second key
                source of consumer liquidity, the first being jobs, the Oppenheimer analyst noted.
  "In other words,
                we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent
               ( Source: http://www.cnbc.com/id/27993643 )

                           Three banks, that's right, just three banks control more than half the credit card credit
                 in the US!    Bank of America (BAC) (12.85 -3.40), Citigroup*6.45 -1.84)  and JPMorgan-Chase
                 (26.12   -5.54), in effect, control the destiny of the US economy.  These banks have way too
                 much power.  They hve a stranglehold over all Americans.  Surely, they must be broken up!  
                 I have to ask just what is the public function of these monster banks?  The money should be
                 taken back and they should be denied their charters.   If they won't make loans and no one
                 else will, the Federal Government should set up its own national bank, at least for the duration
                 of this Recession-Depression, to make these loans!  

                          Make no mistake about it, if the banks take $2 trillion from the $13.8 trillion US economy,
                we will have another Depression.
  The multiplied effect will work its deadly magic.  Millions
                will be laid off.  Their consumption will drop sharply.  That will cause more lay-offs and so on.

                Credit card companies are already reducing their lines of credit and canceling credit
                cards that are not used.   Discretionary spending is dropping sharply.  Many well-known
                retail stores have filed for bankruptcy protection:

                                       Circuit City (bankruptcy  protection)
                                       Sharper Image (bankruptcy protection)
                                       Ann Taylor - 117 stores nationwide are to be shuttered
                                       Lane Bryant, Fashion Bug,and Catherine’s to close 150 stores nationwide
                                       Eddie Bauer to close stores 27 stores and more after January
                                       Cache will close all stores
                                       Talbots closing down all stores
                                       J. Jill closing all stores
                                       GAP closing 85 stores
                                       Footlocker closing 140 stores more to close after January
                                       Wickes Furniture closing down
                                       Levitz closing down remaining stores
                                       Bombay closing remaining stores
                                       Zales closing down 82 stores and 105 after January.
                                       Whitehall closing all stores
                                       Piercing Pagoda closing all stores
                                       Disney closing 98 stores and will close more after January
                                       Home Depot closing 15 stores 1 in NJ (New Brunswick)
                                       Macys to close 9 stores after January
                                       Linens and Things closing all stores
                                       Movie Galley Closing all stores
                                       Pacific Sunware closing stores
                                       Pep Boys Closing 33 stores
                                       Sprint / Nextel closing 133 stores
                                       JC Penney closing a number of stores after January
                                       Ethan Allen closing down 12 stores
                                       Wilson Leather closing down all stores
                                       Sharper Image closing down all stores
                                       K B Toys closing 356 stores
                                       Loews to close down some stores
                                       Dillards to close some stores
                                      (Source: http://1stnews.org/249/ann-taylor-store-closings/ _

                                 If credit is not extended consumers, things will get even worse. Prices will spiral down. 
                         This is very deflationary.  The deflationary spiral will be quickened dramatically.  Cash will be
  This will be awful!  Perhaps, unprecedented.  They Credit Cards is the second source of
                           consumer buying power and liquidity, after pay checks.  In effect, consumer will have 45% less
                           buying power.  The economy will suffer even more because of the muliplier effect.

                                MA (Master Card) remains in a steep decline since peaking in May when the DJIA did.
                                It is now down 50%.  We watch the declining (blue) Closing Power especially closely.
                                That will need to break its downtrend to start to show confidence and normal credit
                                conditions are returning.  The purple OBV Line is downtrending, showing aggressive selling
                                continues.   The Accumulation Index has been (red) negative for two months.  There
                                are no bullish signs here and the stock is on a Red Sell. wpe13A.jpg (69033 bytes)


                            This is more than was spent on WWII.  It is astronomical.  It is the equivalent of all
                   the goods and services produced in one year by the US.  This fantastic sum is a "complicated
                   cocktail of budgeted dollars, actual spending, guarantees, loans, swaps and other market
                   mechanisms by the Federal Reserve, the Treasury and other offices of government taken
                   over roughly the last year.  The bulk of the sum falls under the Federal Reserve's umbrella,
                   while another good chunk ($700 billion) is the under the Troubled Asset Relief Program
                   (TARP) as defined under the Emergency Economic Stabilization Act, signed into law in early

       Financial Crisis Balance Sheet

Government Entity Amount Allocated in Millions of Dollars Spent/Lent In Millions of Dollars
Federal Reserve:
(TAF) Term Auction Credit (allocated) 900000 415302
Discount Window Lending 139256
Banks (other loans primary credit) 92645
Investment Banks (other loans Primary dealer and other broker-dealer credit) 46611
Loans to buy ABCP (other loans Asset-backed commercial paper money market mutual fund liquidity facility) 661923
AIG (allocated minus Treasury 40B) 112500 87397
Bear Stearns (initial loan to JPMorgan) 29500 26919
(TSLF) Term Securities Lending Facility 225000 200524
Swap Lines (other federal reserve assets) 601963
(MMIFF) Money Market Investor Funding Facility (allocated) 540000
(CPFF) Commercial Paper Funding Facility *upper limit from Reuters 1800000 270879
(TALF) Term Asset-Backed Securities Loan Facility 200000 200000
GSE MBS NO NAME Program 600000 600000
(TARP) Treasury Asset Relief Program 700000 330000
Exchange Stabilization Fund to guarantee principal in money market mutual funds 50000
Treasury direct purchases of MBS since Sept. 26570
Citigroup (Treasury+FDIC guarantees) 238500
Guarantees for Banks 1900000
Automakers 25000
(FHA) Federal Housing Administration 300000
Fannie Mae/Freddie Mac 350000
TOTAL 7361917

Note: Figures as of Nov. 28, 2008

                               BANKS STOCKS

       ------------------------------------- BAC ----------------------------------------------
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       ------------------------------------- C -------------------------------------------------
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        ------------------------------------- JPM ---------------------------------------------
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                                THE DYNAMICS OF A DEFLATIONARY SPIRAL

                      This is a recent quote from NYU professor Nouriel Roubini.
   "1) Aggregate demand falls sharply below aggregate supply, price deflation sets in.
    There is already massive price deflation in the U.S. in the sectors -- housing, autos/motor
     vehicles and consumer durables -- where the inventory of unsold goods is huge. The fall
     in prices and the excess inventory forces firms to cut back production and employment;
     the ensuing fall in incomes leads to further fall in demand -- and induces another vicious
     cycle of falling prices and falling production/employment/income and demand.

    "2) When there is deflation, there is no incentive to consume/spend today as prices will
     be lower tomorrow. Buying goods today is like catching a falling knife and there is an
     incentive to postpone spending until the future: Why buy a home or a car today if its price
     will fall another 15% and purchasing today would imply having one's equity in a home or a
     car wiped out in a matter of months? Better to postpone spending. But this postponing of
     spending exacerbates the vicious cycle of falling demand and supply/employment/income
     and prices."

                               Assume I am a lender
                  Zero Inflation ... I loan 100,000 to X at 5% for 5 years.  I get 100,000 + 25,000. or 125,000 back.
                  5% inflation   .... I loan 100,000 to X at 5% for 5 years. I get back 100,000 +25,000 that has
                                                                                                                 the buying power of $100,000
                  -5% inflation .... I loan 100,000 to X at 5% for 5 years.  I get back $125,000 + 25,000 +25,000
                                                                                                                new buying power because of deflation.

                People will not borrow money so much in a deflationary period, because they will have
         pay back in dollars worth more than when they initially borrowed them.  Banks want deflation.
         Only when there is ample deflation, will they again be happy to make more loans, provided
         the borrower has the capacity to pay back the loan.  "Debt  deflation sharply increases the risk
         that borrowers will be forced to default on real obligations that they cannot service. Thus, debt
         deflation is associated with a sharp rise in corporate and household defaults that create a spiral of
         deflation, debt deflation and defaults.

Central banks that used to be the "lenders of last resort" have become the "lenders of first and
          only resort," as banks don't lend to each other, banks don't lend to non-bank financial institutions
          and financial institutions don't lend to the corporate and household sectors.

              "Banks and other financial institutions are still not lending to each other in spite of lower spreads
           as they need the liquidity received by the Fed and they worry about the solvency of their counterparties;
           only banks and major broker dealers have access to these facilities and thus most of the shadow
           banking system does not have access to this Fed liquidity

            Japan's 1990's deflationary experience is not encouraging. "Once you are in a liquidity trap and
           there are fundamental deflationary forces in the economy as the excess aggregate supply of goods
           faces a falling aggregate demand, it is very hard -- even with extreme policy actions -- to prevent
           deflations from emerging."


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