Monday, October 11, 2010

10 Reasons Why Ordinary Hard-Working Americans Are About To Really Start Feeling The Squeeze

10 Reasons Why Ordinary Hard-Working Americans Are About To Really Start Feeling The Squeeze

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American families better get ready to tighten their belts again. There is every indication that we are all going to really start feeling the squeeze in the months ahead. The price of gas is starting to spike again. The price of food is moving north. Health insurance premium increases are being announced coast to coast and a whole slate of tax increases is scheduled to go into effect in 2011. Meanwhile, household incomes are down substantially all over the nation and the U.S. government is indicating that there will not be an increase in Social Security benefits for the upcoming year once again. So if the cost of most of the basic things in our monthly budgets is going up and our incomes are going down what does that mean? It means that average American families are about to be squeezed like nothing we have seen in decades.

The reality is that it is getting really hard to make it out there. Not only do most households have both parents working, but in many cases both parents are getting second or even third jobs. Things have gotten so bad that millions of Americans have felt forced to turn to the government for assistance just to survive.

It can be really disheartening to come to the end of the month and realize that despite your best efforts you have less money than you did at the beginning of the month. But that is where millions upon millions of American families now find themselves.

The economic despair in the air is almost palpable. Already hordes of Americans are truly and honestly hurting and things are only going to get worse.

The following are ten reasons why ordinary hard-working Americans are about to really start feeling the squeeze....

#1 Gas prices are going up again. AAA says that the average price of a gallon of regular gasoline in the United States was $2.80 on Sunday. That is 32.6 cents higher than it was during the same time period in 2009. As oil and gas prices continue to go up, that is also going to have a significant impact on utility bills for American families this winter.

#2 The price of food is poised to rise substantially. Bloomberg is reporting that the the cost of meat in the United States is going nowhere but up. But meat is not the only thing that you will soon be paying much more for at the supermarket. Wheat, corn, soybeans and almost every other major agricultural commodity is absolutely soaring this fall. As this continues, it is inevitable that ordinary Americans will see much higher food prices at their local grocery stores.

On a previous article, a reader named Erica left a comment in which see detailed the stunning food inflation that she is seeing where she lives....

Food inflation is real, and it is here. Just yesterday I compared my receipt from a grocery run to prices I have from the same exact store from September 15, 2009. Bacon? Up 52% to $13.69 from $8.99 for 4 lbs. Butter? Up 73% to $9.99 from $5.79 for 4 lbs. Pure vanilla extract up 14% to $6.79 from $5.95. Chopped dried onions up a mere 2% but minced garlic (wet) was up 32%.

#3 It looks like those receiving Social Security are not going to be seeing cost-of-living increases again. The Associated Press is reporting that the U.S. government is expected to announce some time this week that the tens of millions of Americans that receive Social Security will go through yet another year without an increase in their monthly benefit payments. You see, Social Security cost-of-living adjustments are tied to the official government inflation numbers, and according to the U.S. government there is basically very little inflation right now. Of course we all know that is a lie, but it is what it is.

#4 The cost of health care continues to soar into the stratosphere. Americans already pay more for health care than anyone else in the world, and yet costs continue to spiral out of control. The cost of health care increased a staggering 9.6% for all U.S. households from 2007 to 2009. Now, health insurance companies from coast to coast are announcing that they must raise health insurance premiums substantially due to the new health care law that Barack Obama and the Democrats have pushed through. So in 2011 it looks like the average American family is going to have to carve out an even bigger chunk of the budget for health care.

#5 American families could desperately use a recovery in the housing industry, but that is simply not going to happen. Foreclosure-Gate is getting worse by the day, and it threatens to bring the U.S. real estate industry to a complete and total standstill. If it is ultimately proven that the paperwork for millions of mortgages in the United States is seriously deficient, it could push hordes of mortgage lenders into bankruptcy and render mountains of mortgage-backed securities nearly worthless. Regardless, it is now going to be much more difficult to get a mortgage, much more difficult to buy a home and much more difficult to sell a home. We could very well be looking at the next stage of the housing crash. Ordinary Americans could end up losing trillions more in home equity.

#6 More Americans than ever find themselves unable to pay their bills, and an increasing number of frustrated creditors are actually resorting to wage garnishment. Yes, you read the correctly. Creditors are starting to ruthlessly go after the weekly paychecks of debtors.

The following is an excerpt from a recent New York Times article that discussed the rise of wage garnishment as a weapon against debtors....

After winning, creditors can secure a court order to seize part of the debtor’s paycheck or the funds in a bank account, a procedure called garnishment. No national statistics are kept, but the pay seizures are rising fast in some areas — up 121 percent in the Phoenix area since 2005, and 55 percent in the Atlanta area since 2004. In Cleveland, garnishments jumped 30 percent between 2008 and 2009 alone.

So if you are getting behind on your debt, you better watch out - your creditors may soon decide to garnish your wages.

#7 Americans now owe more on student loans than they do on credit cards. As hard as that is to believe, that is actually true. Americans now owe more than $849 billion on student loans, which is a new all-time record.

Student loan payments can be absolutely crippling to a household budget. This is especially true for young Americans that have just gotten out of school. Sadly, student loan debt is nearly impossible to get rid of. Once you are committed, it will follow you around for the rest of your life.

#8 Even as expenses rise, incomes are down from coast to coast. Median household income in the U.S. declined from $51,726 in 2008 to $50,221 in 2009. There are very few areas that have not been affected. In fact, of the 52 largest metro areas in the United States, only the city of San Antonio did not see a decline in median household income during 2009.

#9 If all of this was not bad enough, now there are rumblings that the U.S. Federal Reserve is actually thinking that we need more inflation. A number of top Federal Reserve officials have come out recently and have publicly supported the notion that the Fed needs to purposely create more inflation in order to stimulate the economy. Of course what they don't tell the American people is that inflation is a hidden tax on every single dollar in our wallets and in our bank accounts. More inflation would be really bad news for ordinary Americans, because they are already having a tough time getting their dollars to stretch far enough.

#10 Apparently the U.S. government (and many state and local governments) think that this is a great time to stick it to the American people by hitting them with a slew of new taxes. There are so many tax increases scheduled to go into effect in 2011 that it is hard to keep track of them all. In fact, there are many (myself included) that are calling 2011 "the year of the tax increase". But the Americans that are going to get it the worst of all are those that are going to get hit with the Alternative Minimum Tax. One out of every six American households is going to be hit with a tax increase averaging $3,900 (thanks to the AMT) and most of them don't even know that it is coming.

So did you think that 2010 was bad?

Well, you haven't seen anything yet.

2010 was a Sunday picnic compared to what is coming.

Get ready to get squeezed.

Get ready for higher food prices, higher gas prices, higher health insurance premiums and higher taxes.

Get ready to try to do a lot more with a lot less.

Inflation is already here, but it is going to get a whole lot worse. Meanwhile, the U.S. government (along with state and local governments) is going to continue to have a voracious appetite for more revenue.

Average Americans are going to be squeezed until they have nothing left to give. Then they are going to be squeezed just a little bit more.

Are you ready?

Foreclosuregate

Foreclosuregate

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If you work in the mortgage industry or for a title insurer, you might not want to make any plans for the next six months. Foreclosuregate is about to explode. It is being alleged that many prominent mortgage lenders have been using materially flawed paperwork to evict homeowners. Apparently officials at quite a few of these firms have been signing thousands upon thousands of foreclosure documents without even looking at them. In addition, it is being alleged that much of the documentation for these mortgages that are being foreclosed upon is either "improper" or is actually "missing". As lawyers start to smell blood in the water, lawsuits challenging these foreclosures have already started springing up from coast to coast. In fact, some are already calling Foreclosuregate the biggest fraud in the history of the capital markets. JPMorgan Chase, Ally Bank's GMAC Mortgage and PNC Financial have all suspended foreclosures in the 23 U.S. states where foreclosures must be approved by a judge. Bank of America has actually suspended foreclosures in all 50 states. Now, law enforcement authorities from coast to coast are calling for investigations into this controversy and it could be years before this thing gets unraveled.

This thing just seems to escalate with each passing day. It is being reported that the attorneys general of up to 40 U.S. states will be working together on a joint investigation into this foreclosure crisis. Lawmakers in both houses of the U.S. Congress, including Nancy Pelosi and Christopher Dodd, have called for an investigation to begin on the national level. U.S. Attorney General Eric Holder said last week that he is looking into the issue. Things are certainly getting very serious out there. Never before has there ever been such a national focus on foreclosure paperwork.

But apparently there are good reasons for such scrutiny....

*One GMAC Mortgage official admitted during a December 2009 deposition that his team of 13 people signed approximately 10,000 foreclosure documents a month without reading them.

*One Bank of America employee confessed during a Massachusetts bankruptcy case that she signed up to 8,000 foreclosure documents a month and typically did not look them over "because of the volume".

But the "robo-signing" aspect of Foreclosuregate is just the tip of the iceberg. Apparently there is a whole lot more going on than just a bunch of bad signatures.

Peter J. Henning, a professor at Wayne State University Law School in Detroit, was recently quoted by MSNBC as saying the following about Foreclosuregate....

"You've got so many potential avenues of liability. You don't even know the parameters of this yet."

The sad truth is that potentially millions of foreclosures across the United States could potentially be invalid because the securitization process has muddied the chain of ownership. In fact, an increasing number of judges from coast to coast have been ruling that the "owners" of the mortgage have no right to foreclose on a property because they lack clear title.

At the core of this title controversy is MERS - Mortgage Electronic Registration Systems. MERS is based in Reston, Virginia and it was created by the mortgage industry to enable that big financial firms to securitize and swap mortgages at high speed. MERS allowed these big financial firms to largely avoid the hassle of filling out more forms and submitting new filing fees every time that a mortgage was traded.

But now MERS is facing some very serious legal challenges. A recent article in Businessweek described the situation this way....

A lawsuit filed on September 28th in federal court in Louisville on behalf of all Kentucky homeowners claims that MERS was part of a conspiracy to create false promissory notes, affidavits, and mortgage assignments to be used in mortgage foreclosures. Similar class actions have been filed on behalf of homeowners in Florida and New York. Karmela Lejarde, a MERS spokeswoman, declined to comment on any pending litigation.

The reality is that as millions of U.S. mortgages have been bunched together and traded around the globe at lightning speed, it has become increasingly unclear who actually has title to them and who actually has the right to foreclose on these properties.

Title insurers have backed the titles of millions of these foreclosed properties and now potentially find themselves in a heap of trouble. Some of the biggest title insurers have already begun circling the wagons in an attempt at damage control. For example, one of the biggest title insurance companies in the United States, Old Republic National Title Insurance, has already declared that it will no longer write new policies for homes that have been foreclosed on by JPMorgan Chase and GMAC Mortgage.

So what happens if nearly all title insurers start avoiding foreclosed properties?

Won't that make it much more difficult for the banks to sell the massive backlog of foreclosed properties that they have accumulated?

In addition, Americans that have purchased foreclosed homes may now be facing some serious problems themselves. Millions of Americans may now "own" homes that they do not have clear title for. When it comes times to sell those homes, many Americans may find themselves unable to do so.

Needless to say, this is a complete and total mess.

Already, U.S. banks have a record number of foreclosed properties that they need to clear out, and now all of this scrutiny on foreclosure paperwork and all of these lawsuits are going to grind the process of getting these homes sold off to a standstill.

In fact, the true legacy of Foreclosuregate may be the massive amount of bank failures that it causes.

It would be difficult to understate how much of a nightmare Foreclosuregate is going to be for U.S. mortgage lenders. Having to go back through the paperwork of millions of old mortgages is going to be a complete and total disaster. If banks end up being unable to foreclose on a large number of bad mortgages, it could potentially be enough to put many banks out of commission for good. Not only that, but the legal fees that many of these banks will accumulate defending lawsuits related to Foreclosuregate will be astronomical.

The U.S. mortgage industry was already on the verge of death, and Foreclosuregate may just be the straw that broke the camel's back.

The reality is that U.S. banks are drowning in foreclosures and this current crisis is just going to make things a lot worse. Back in 2005, there were approximately 100,000 home repossessions in the United States. In 2009, there were approximately 1 million home repossessions in the U.S. and RealtyTrac is now projecting that there will be an all-time record of 1.2 million home repossessions in the United States this year.

For the U.S. mortgage industry, Foreclosuregate must feel like someone has dropped a bomb on them after they have already been beaten up and doused with gasoline.

Attorney Richard Kessler, who recently conducted a study that found serious errors in approximately three-fourths of court filings related to home repossessions, says that foreclosuregate could haunt the U.S. mortgage industry for the next ten years....

"Defective documentation has created millions of blighted titles that will plague the nation for the next decade."

While it may be easy to beat up U.S. mortgage lenders and say that they deserve all this, let us not forget that this is going to impact a whole lot of other people too.

It is going to become much harder to get a mortgage. It is going to become much harder to buy a home. It is going to become much harder to sell a home. The U.S. housing industry is likely to suffer a significant downturn due to all of this. There is even a good chance that the entire U.S. economy could be dragged down for an extended period of time.

So no, Foreclosuregate is not good news for anyone.

Well, except maybe for lawyers.

But for virtually everyone else this is really bad news. Any hope that the U.S. housing industry would experience a quick recovery is completely and totally gone.

Differences widen at IMF meeting

Differences widen at IMF meeting

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The International Monetary Fund semi-annual meeting held in Washington on Saturday was dominated by fears of the impact of a weakening global economy amid mounting currency and trade conflicts among the major capitalist powers. It failed to make progress towards a solution of either. In fact, the meeting revealed that the differences among the major powers, especially between the United States and China, are widening.

As the Financial Times noted today: “The hostility between Washington and Beijing has escalated into something resembling trench warfare.”

On the eve of the meeting, IMF managing-director Dominique Strauss-Kahn warned that worsening global unemployment resulting from low growth in the major industrial countries threatened political stability and could even lead to war.

“During this crisis,” he declared, “the global economy lost about 30 million jobs. On top of that, in the coming decades, 450 million people are going to enter the labour market, so we really face the risk of a lost generation.

“When you lose your job, your health is likely to be worse. When you lose your job, the education of your children is likely to be worse. When you lose your job, social stability is likely to be worse, with a threat to democracy and even peace.”

Speaking directly to delegates, Strauss-Kahn said, they were gathering “at a pivotal moment facing a very uncertain future. Growth is coming back but we all know that it is fragile and uneven.” He warned that history showed that the use of currencies as a weapon did not work and could even lead to a “catastrophe.”

However Strauss-Kahn’s rhetoric failed to bring the major powers closer together on any of the key policy issues, least of all on the question of currency values.

In a campaign to boost exports, the US is demanding that the Chinese renminbi (yuan) be revalued and that China do more to boost its domestic economy. For their part, Chinese authorities have insisted that while they are in favour of increasing the value of their currency it must be carried out gradually and not through “shock therapy.”

The final communiqué of the IMF policy-setting committee pledged to “work toward a more balanced pattern of global growth, recognising the responsibilities of surplus and deficit countries” and vowed to “address the challenges of large and volatile capital movements, which can be disruptive.”

But as Strauss-Kahn acknowledged after the meeting, the language was “ineffective” and would not change things.

Statements presented to the meeting by central bankers and finance ministers underscored the lack of a common approach, as each of the major powers placed central emphasis on its own interests.

A statement by US Treasury Secretary Timothy Geithner warned that the greatest risk to the world economy was that the largest economies “underachieve on growth.” But, without mentioning it by name, the statement then went to criticise China.

“For the recovery to be sustainable there must … be a change in the pattern of global growth. For too long, many countries oriented their economies toward producing for export rather than consuming at home, counting on the United States to import many more of their goods and services than they bought of ours.”

In a further criticism of China, which holds foreign currency reserves of almost $2.5 trillion, Geithner said that countries with large surpluses had to implement policies to boost their domestic demand. “This is particularly important for countries whose currencies are significantly undervalued.”

He went on to call for the IMF to “strengthen its surveillance of exchange-rate policies and reserve accumulation practices.”

Chinese authorities voiced their own criticisms as central bank governor Zhou Xiachuan told the IMF that the high debts, low interest rates and unconventional stimulus measures of the richer nations were a major global problem.

“The continuation of extremely low interest rates and unconventional monetary policies by major reserve currency issuers have created stark challenges for emerging countries in the conduct of monetary policy,” Zhou’s statement declared. While the US was not directly named, there was no doubt about where the central banker’s fire was directed.

Zhou called on the IMF to monitor the policies of the advanced countries that were “more damaging to global economic growth.” The focus on exchange rate policies effectively left developed countries “outside the Fund’s oversight.”

“The most fundamental problems at present are the slow progress of developed countries in repairing and reforming their financial system, and the continued reliance on policy support for the stability of the financial sector,” he said.

“Considering the enormous amounts of maturing debts and fiscal deficits in developed countries in the current and coming year, sovereign risks could deteriorate at any time, producing systemic effects on global financial stability,” Zhou said.

Other leaders, likewise, advanced the interests of their own nation. The Japanese finance minister, Yoshihiko Noda, sought to counter criticism of the Bank of Japan’s intervention into foreign exchange markets to lower the value of the yen, saying that it was aimed at stabilising the market, not at weakening the currency to gain an advantage in export markets.

The chairman of the euro-zone finance ministers, Jean-Claude Juncker, would clearly like a return to the days when the old powers held sway in the financial world. “In the G20 framework there are too many people and too many interests to be able to find a currency arrangement,” he told Reuters. “The ideal forum would by G7 [the US, Britain, Canada, France, Germany, Italy and Japan] plus China.”

Some engaged in wishful thinking. Brazil’s Finance Minister Guido Mantega, who last month warned of an international “currency war”, said he was optimistic a battle could be avoided. “I think in the G20 meetings we can arrive at an agreement something like the Plaza Accord,” he said, referring to the 1985 agreement reached by five major countries to push down the value of the US dollar.

Australian Treasurer Wayne Swan, his eyes firmly fixed on the news cycle at home and seemingly incapable of considering any wider issues, went out of his way to emphasise how much better the Australian employment situation was than the United States where a further 95,000 jobs were lost last month.

Attention will now turn to the meeting of the G20 scheduled to be held in the South Korean capital Seoul next month. But proceedings at the IMF meeting make it clear that the differences may well have sharpened by then.

The New York Times defends assassinations

The New York Times defends assassinations

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In its main editorial Sunday, the New York Times, the major voice of what passes for liberalism in America, openly defends the right of the US government to assassinate anyone it pleases. The only restriction the Times suggests is that the president should be required to have his selection of murder victims rubber-stamped by a secret court like the one that now approves 99.99 percent of all electronic eavesdropping requests.

The apologia for killing begins with a blatant lie about the US assassination program using missiles fired from CIA-operated drone aircraft flying along the Afghanistan-Pakistan border. The Times claims, citing official US government sources: “The drone program has been effective, killing more than 400 Al Qaeda militants this year alone, according to American officials, but fewer than 10 noncombatants.”

Actually, Pakistani government officials estimated the number of civilians killed by drone attacks in 2009 alone at more than 700, with an even higher figure this year, as the Obama administration has rained missiles and bombs on the Afghanistan-Pakistan border region.(See “US drone missiles slaughtered 700 Pakistani civilians in 2009” .)

A report in the Pakistani newspaper Dawn concluded, “For each Al-Qaeda and Taliban terrorist killed by US drones, 140 innocent Pakistanis also had to die. Over 90 per cent of those killed in the deadly missile strikes were civilians, claim authorities.”

The Times editors cannot be unaware of these well-established figures, since their own journalists have reported a civilian death toll from US missile strikes in Pakistan of some 500 by April 2009, and 100 to 500 more through April 2010. They lie shamelessly and deliberately in order to conceal the significance of their endorsement of such widespread killing.

The editorial claims that US drone missile attacks are legal under international law as self-defense, but this is flatly rejected by human rights groups and legal experts, except those who work as paid apologists for the CIA and Pentagon. The United States is not at war with Afghanistan, Pakistan, Yemen or Somalia, but US missiles have struck the territory of all these countries and annihilated their citizens.

In a 29-page report to the United Nations Human Rights Council in June, the UN Special Rapporteur on extrajudicial executions, Philip Alston, rejected the doctrine of “preemptive self-defense” employed by the Bush and Obama administrations, as well as the state of Israel, and declared that a targeted killing outside actual warfare “is almost never likely to be legal.”

In an accompanying statement, Alston pointed out the consequences if such a doctrine were to become universal. He declared: “If invoked by other states, in pursuit of those they deem to be terrorists and to have attacked them, it would cause chaos.”

The Times concedes, “it is not within the power of a commander in chief to simply declare anyone anywhere a combatant and kill them, without the slightest advance independent oversight.” The editorial argues that such arbitrary killings can be prevented through procedural safeguards of a purely cosmetic character.

These would include the Obama administration making public “its standards for putting people on terrorist or assassination lists,” limiting targets to “only people who are actively planning or participating in terror, or who are leaders of Al Qaeda or the Taliban”; capturing instead of killing, where possible; and “oversight outside the administration,” i.e., the aforementioned judicial review by a body like the Foreign Intelligence Surveillance Court. Yes, if only the Nazis had followed “proper procedures.”

In the mealymouthed language that has become typical of the Times as it provides “liberal” justifications for the crimes of US imperialism, the editors insist that in the case of US citizens, “the government needs to employ some due process before depriving someone of life,” adding that, “If practical, the United States should get permission from a foreign government before carrying out an attack on its soil.”

The Times editorial admits that in the much-publicized case of Anwar al-Awlaki, the US-born Muslim cleric now living in Yemen, the Obama administration has acted in a manner diametrically opposed to the procedure the newspaper claims to favor. Awlaki has been targeted for assassination, based on criteria that are secret and unreviewable. The Justice Department has gone to court to assert the “state secrets” privilege to quash a lawsuit brought by the American Civil Liberties Union, on behalf of Awlaki’s father, seeking to compel the government to justify or rescind its death sentence.

No evidence has been presented that Awlaki, a longtime publicist for Islamic fundamentalism, has engaged in actual terrorist actions. And as the Times itself admits, “If the United States starts killing every Islamic radical who has called for jihad, there will be no end to the violence.” But the editors are nonetheless willing to place their confidence in the Obama administration, even to the point of giving it powers of life and death over citizens of the US and other countries alike.

The Times editorial reeks of cynicism. It advances arguments that convince no one, and are not intended to convince, only to provide a screen of words for a policy of imperialist barbarism and reaction. It is one more demonstration that, within the US financial aristocracy, there is no constituency whatsoever for the defense of democratic rights.

The open reactionaries like the Wall Street Journal and Fox News display their bloodlust unashamedly. The “liberals” like the Times prefer a dose of hypocritical moralizing and legalistic quibbling. The consequences for humanity are the same.

Did GMAC Try to Bury Its Foreclosure Smoking Gun?

Did GMAC Try to Bury Its Foreclosure Smoking Gun?

The deposition the lender really, really doesn't want you to see.
Links:
[1] http://www.nlpc.org/stories/2009/11/05/consumers-beware-ally-bank-gmac
[2] http://bailout.propublica.org/entities/236-gmac
[3] http://www.bloomberg.com/news/2010-09-20/gmac-mortgage-halts-home-foreclosures-in-23-states-including-florida-n-y-.html
[4] http://motherjones.com/files/deposition-of-jeffrey-stephan---gmac-s-assignment-affidavit-slave_0.pdf
[5] http://mattweidnerlaw.com/blog/2010/06/new-robo-signer-deposition-jeffrey-stephan/
[6] http://www.responsiblelending.org/media-center/press-releases/archives/Maine-Homeowners-Bring-Class-Action-Lawsuit-Against-GMAC-Foreclosure-Abuses.html

The Fed's Magic Money-Printing Machine, Act 2

The Fed's Magic Money-Printing Machine, Act 2

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It’s amazing, given the attention the Tea Party allegedly is paying to government waste and government spending, that there hasn’t been more controversy about the now-seemingly-inevitable arrival of “QE2” – a second massive round of money-printing cooked up by the Fed to prop up both the government and certain sectors of the economy. A more overtly anticapitalist and oligarchical pattern of behavior than the Fed’s “Quantitative Easing” program could not possibly be imagined, but the country is strangely silent on the issue.

What is “QE”? The first round of “quantitative easing” was a program announced by Ben Bernanke last March in response to the financial crisis, ending in March of this year. In what will soon be known as “QE1”(i.e. once QE2 is announced), Bernanke printed over a trillion dollars out of thin air, then used that money to buy, among other things, mortgage-backed securities (MBS) and Treasury Bonds. In other words, the government was printing money to a) lend to itself and b) prop up the housing market, with Wall Street stepping in to take a big cut.
That was QE1. There has long been speculation that another trillion-plus money-printing program called QE2 is coming, but only recently have there been concrete hints from the Fed along those lines. Among other things, New York Fed Vice President Brian Sack just this week squeaked out a comment about how, "In terms of the benefits, balance-sheet expansion appears to push financial conditions in the right direction.” Translating into English, “balance-sheet expansion” means the Fed adding to its balance sheet, i.e. printing money to buy stuff – i.e. QE2.
Thanks to that and other hints, most everyone now expects the Fed to announce a new QE program in November. The big banks have now openly begun to predict this, with JP Morgan Chase among others raising its odds of the Fed buying mortgages in the next 6 months from 10% to 50%. Another effect we’re seeing is that mortgage originators are hiring again, in anticipation of being able to fork out QE-funded mortgages.
QE is difficult to understand and the average person could listen to a Fed official talk about it for two hours right to his face and not understand even the basic gist of his speech. The ostensible justification for QE is to use a kind of financial shock-and-awe approach to jump-starting the economy, but its effects for ordinary people are hard to calculate. Theoretically the entire country has some sort of stake in this program, as (among other things) U the Homeowner may see your home value stay stable or fall less than it would have thanks to this artificial stimulus. You also may be able to buy a house when you wouldn’t before, thanks to declining mortgage rates.
And jobs, I suppose, may theoretically be created by all this dollar meth being injected into the financial bloodstream – although the inflationary effect of printing trillions upon trillions of new dollars would probably wipe out the value of the money you make at that job. When it comes to calculating what QE actually does for you, or how much it harms you, that question is just very hard to answer.

But one thing we know for sure is that big banks and Wall Street speculators are real, immediate beneficiaries of the program, as they suddenly have trillions of printed dollars flowing through the financial system, with endless ways to profit on the new chips entering the casino.
And by an amazing coincidence, many of the biggest players in the financial services industry have a habit of buying up MBS or Treasuries just before these magical money-printing programs of the Fed send their respective values soaring. If you own a big fund, for instance, and you know that the Fed is about to buy a trillion dollars of mortgage-backed-securities through a new Quantitative Easing program, buying a buttload of MBS a few weeks early is a pretty easy way to make a risk-free fortune. One of the worst-kept secrets on Wall Street is that the big bankers and fund managers get signals about the Fed’s intentions about things like QE well before they are announced to the rest of us losers in the public.
A hilarious example of this cozy insiderism popped up just a few weeks ago, when PIMCO bond fund chief Bill Gross let it slip on a live CNBC interview that he was getting inside info from the Fed. The interview is with former Goldman analyst and (now) CNBC anchor Erin Burnett, as well as my slimeball former colleague from the Moscow Times and (now) CNBC bobblehead Steve Liesman, who slobber typically over the bond king in the segment.
Gross at one point says this:
"What is important going into November is the staff forecast for economic growth for the next 12-18 months. Our understanding is that the Fed is about to downgrade their forecast from 3% down to 2%. Which in turn would suggest that unemployment won’t be coming down… and so that would be the trigger to my way of thinking for Quantitative Easing in November.”
The admission is so untoward that the ex-Goldmanite Burnett immediately races to clean up the problem, saying to Liesman, who is also on the panel, "We don't have that forecast yet, right, Steve?”
At which point the ever-helpful Liesman replies, “We won't get that for 3 weeks, Erin. That's when it comes out with the minutes of this meeting ."
Check out 5:20 of this video (courtesy of Zero Hedge):

There are so many different ways for Wall Street guys to make risk-gazillions off of QE, it’s not even funny. When I was researching the “Wall Street Bailout Hustle” story last year, for instance, I learned about one fund that loaded up on MBS before the first QE announcement, then saw their MBS skyrocket in value after QE – at which point the fund sold off a lot of its MBS holdings and bought Treasuries, effectively taking money from the Fed and lending it right back to the government at interest.
Beyond that, QE is a highly dubious idea in general, and probably an indication that the economy is worse off than it seems by far. When the Fed stops being able to stimulate the economy by the traditional method of slashing interest rates, and has to resort to printing money by the trillions, that is a sure indication that things in the economy are seriously FUBAR. If this is what it takes to prop up home values and keep the government liquid and the stock market from collapsing, we’re all in a lot of trouble.
Add to that the nearly infinite possibilities for corruption when one group of private citizens (i.e. big banks) gets concrete info about government stimulus before others, and QE2 has the potential to be a fiasco of oligarchical manipulation, the worst example possible both of government meddling in the market and of corporate cronyism and regulatory capture. It should be a huge political issue for both the left and the right, and yet it is not an issue at all outside of Wall Street, where there are few objections to the impending arrival of this new rush of money – and what few objections there are seem mostly to be intellectual and theoretical.