Monday, May 24, 2010

The Twilight Zone Keeps On

Every Monday Morning James Kunstler author of the book Long Emergency pens a piece over at his blog Clusterf$%k Nation that I never miss. Jim is a very colorful writer and speaker who minces few words, which immediately makes me like him!

In his latest blog post entitled Out of Darkness James relays a very disturbing story from the realm of banking and real estate that was he was told at a conference recently. This story tells you more about the state of the banking and banks today than any Wall St. analyst would ever dare, as it shows you how perverted they have become in their delusional world of extend and pretend, Kudlow-esque, goldilocks delusion.

Here is what James has to say:

"I heard a lot of stories during the meeting in Atlanta last week but one really stood out. It was about the money and revealed a lot about what is going on in our banking system these days. A New Urbanist developer had gotten a small project going for a traditional neighborhood. Despite the global financial clusterfuck, the developer was able to meet the payments of his commercial loan. But the FDIC sent bank examiners around America and they told the small regional banks that if they had more than twenty percent of their loans in commercial real estate (CRE) they would be put out of business. The banks were ordered to reduce their loads of CRE by calling in the loans and liquidating the assets. Ironically, the banks only called in their "performing" loans, the ones that were being regularly paid off, because they were ignoring and even concealing the ones that weren't being paid.

The developer in question had his loan called in when the FDIC descended on his bank. He couldn't pay off the $3 million in one lump, of course. The FDIC's agents are going to seize and sell off his project if he can't get it refinanced in short order. He can't get it refinanced because there is now such a shortage of capital in the banking system that no one can get a loan for anything. Also, since it is now well-known that the bank failed, the vultures are circling above his project hoping to buy it for a discount, so even the few private investors who have money won't throw him a lifeline. By the way, the FDIC agents told him they are doing this because they now expect that virtually all commercial real estate loans in the USA will fail in the months ahead. Pretty scary story, huh? And he was one of the good guys."

Yes, readers we live in a parallel universe or twilight zone as I have called it before where up is down, down is up. Performing loans are called non-performing loans are ....... simply ignored and wished away. Yes, the twilight zone lives on!

Either way one must marvel at this glowing example of banking management at it's finest! They must have studied under the tutelage of Professors the likes of Munnell, Rosen and Farmer. Beautiful !

This story is only one item in an ocean of news but like cockroaches there is never just one. But hey, who am I to question this supposed recovery right. Just another idiot blogger bumbling and babbling on. Do yourself a favor and turn off Larry Kudlow and the rest of the propaganda crowd and tune into another idiot blogger like Charles Hugh Smith over at the blog Of Two Minds.

Now Charles is no run o' the mill idiot blogger like yours truly. No, Charles is the author of the fantastic book Survival + Structuring Prosperity for Yourself and the Nation and had an excellent post the other day entitled Suppressing the Cognitive Dissonance of a Bogus Recovery outlining just a few reasons a person with a room temp IQ and a clean urine sample to boot might question the purported recovery we keep getting reminded about daily by the main stream media (gee, I wonder why?).

Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $42.45
Long 1 unit Ultrashort Real Estate ticker SRS @ $49.10
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $22.52
Long 1 unit ishares Barclays 20yr Treas ticker TLT @ 92.15 stop @ $92.15
Long 1 unit ishares Barclays 20yr Treas ticker TLT @ 93.48 stop @93.48

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