Friday, October 29, 2010

Meeting Highlights: Short-Sale and FHA Fraud Are Top Focuses

In order to prevent fraudsters from flipping properties quickly at high appreciation, lenders will be focused in the coming months and year on putting a stop to "flipping" by putting processes in place to eliminate short-sale fraud.

Going forward, there may be some sort of "seasoning requirement" implemented, such as a policy where the property can't be flipped within 90 days, according to Frank McKenna, vice president of fraud strategy for analytics provider CoreLogic.

"Lenders will be focused on trying to get the FHA to increase their seasoning to 90 days as well, because the FHA lifted the 90-day retail requirement of the property where you couldn't resell a property within 90 days," McKenna said in a phone interview following the CoreLogic Mortgage Fraud Consortium Members' Meeting in Chicago.

"They will be focused on closing fraud—fraud that occurs after the transaction funds by closing agents. They've done a lot of good work on the origination side, but they don't have any visibility into what happens after the loan closes. There's a lot of embezzlement by closing agent fraud."

While fraud risk had trended down dramatically through 2008 and even into early 2009, in mid-2009 and 2010 it started to creep back up again, McKenna told National Mortgage News.

The increase is a result of high-risk government lending programs like FHA and the Home Affordable Refinance Program.

"A lot of those programs are bringing risk back into the market," he said.

"Lenders said their biggest concern this year is 'flipping' again. They are concerned with all of the distressed properties out there like short sales and foreclosed properties. There are a lot of investors that are taking advantage and flipping the properties the same day for sometimes 50% to 100% more than the property sold for. They are seeing that as a very big problem right now."

Government experts from the Federal Bureau of Investigation, Financial Crimes Enforcement Network, Internal Revenue Service and Financial Fraud Enforcement Task Force were on hand to discuss policies and trends.

Lenders indicated that in 2010 FHA fraud is "the area that they are focusing in on," McKenna said.

While there is strong underwriting, it doesn't stop the fraud from happening. FHA is "still very attractive" to the fraudsters and fraud rings because they like to recruit straw borrowers.

"FHA guidelines, in terms of who qualifies and how much they have to put down, are a lot more lenient than the typical type of conforming programs. They can recruit young college graduates who don't have a lot of credit history or people who don't have great credit history and they only have to put 3% down."

In order to help lenders prevent fraud, CoreLogic has launched a short sale monitoring solution, which it will most likely extend to foreclosure monitoring in the future. Through the technology platform, lenders can share their information on what properties they are short-selling.

"If there are any subsequent loans that are made on those properties, we will notify the lender so they can stop them," McKenna said.

"It's less about the technology and more about the sharing of data. The big piece of it is that lenders agree to share their information with each other to stop fraud. Most of the big lenders are involved. Just last week, five of them sent in their data to pilot the solution. We are getting a lot of traction in the sharing concept."

The rate of fraud or suspicious sales is about five to 10 times higher on REO properties than for short sales.

Foreclosure moratoriums could impact fraud by "not putting these types of properties on the market" for a period of time, McKenna told NMN.

"Everything gets backlogged. There may be more of a flood of foreclosures in a flip. This might create more opportunity for fraudsters. Fraud rings love to operate in an environment of a lot of volume because there's more of an opportunity to flip things very quickly."

CoreLogic started data sharing a couple of years ago for shot-gunning fraud through a multiclosing alert program. Lenders shared their data to be notified in home equity lines of credit when there were other loans being made on the same property concurrently with their own.

"To date, known dollars saved is something over $300 million in loans that were stopped because of the fraud ring activity. It basically eliminated the problem."

Among other highlights from the meeting, HVCC requirements are something lenders want to know if the fraud rate is lower when the appraiser is independent from the broker. There are certain loan programs that are not requiring that independence, McKenna said, and brokers are allowed to pick appraisers.

"They want to know the difference in the fraud rate. They believe that independence creates a much lower rate of fraud. They want us to investigate that for them," McKenna added.

"They are noticing a lot more appraisal fraud in today's market because of the distressed real estate market"

By Jennifer Harmon

Friday, October 15, 2010

Economic Highlights for the Week Ending October 15, 2010

MONDAY, October 11th.

COLUMBUS DAY

Equities and Futures Markets Open
TUESDAY, October 12th

The minutes from the September 21 FOMC meeting showed that policy makers, concerned about the sluggish pace of the recovery, considered initiating quantitative easing measures at this meeting but decided to wait. The data since that time has most definitely confirmed still weak labor market conditions with the release of the September employment report and very weak inflation readings. The Fed will probably act November 2, announcing plans to purchase more securities and using the policy statement language perhaps, to raise inflation expectations.

WEDNESDAY, October 13th

The MBA mortgage applications index jumped 14.6% to 897.2% for the week ending October 8. This was the first increase in six weeks, its largest gain since mid-June and its highest level since mid-May 2009. Mortgage activity is now 20.8% above its year ago level. The purchase index sank 8.5% last week and remains down 37.5% over the last year. The refinance index surged 21.0% on the week and is up 50.0% from a year ago. Refinancing activity now accounts for more than 80% of total new mortgage activity. Contract mortgage rates fell again this week with the 30-year fixed down 4 basis points to 4.21%.

THURSDAY, October 14th

Jobless claims increased 13k to 462k for the week ending October 9. The disturbance in the recent downward trend in claims suggests an elevated pace of layoffs. A declining number of continuing claims last week suggests that many people collecting unemployment have exhausted their benefits rather than finding a job. For the most part hiring remains anemic.
The producer price index rose 0.4% in September as food prices jumped 1.2% and energy costs increased 0.5%. Excluding food and energy from the index, the core PPI gained 0.1% on the month and was up a mild 1.5% on the year. Core producer inflation remains subdued although it has been slowly climbing over the last six months. Core prices at the crude and intermediate stages of production are elevated although they are not being passed through to the finished stage at this time because of limited pricing power related to weak demand and slow economic conditions.

The international trade deficit on goods and services widened to $46.3 billion in August from a shortfall of $42.6 billion in July. The larger trade gap was a result of a much stronger gain in imports during the month compared to exports. Both imports and exports hit bottom in April/May 2009 and have bounced back significantly since then. This has led to a widening of the trade deficit and much weaker net exports. Net exports will once again subtract from Q3 GDP but at a slower pace than in Q2.

FRIDAY, October 15th

Retail sales rose 0.6% in September better than an expected gain of 0.4%. Moreover, retail sales in the previous two months were revised higher. Over the past year retail sales have increased a strong 7.3%. Some of the sales strength last month was based on an increase in unit vehicle sales. Excluding motor vehicles, core retail sales rose 0.4%, in line with expectations. Based on these data, consumers continue to shop despite high unemployment, sluggish income growth and relatively tight credit. Real consumption will be a positive contributor to Q3 GDP.

The consumer price index rose 0.1% in September less than an expected increase of 0.2%. Food prices rose 0.3% while energy prices jumped 0.7%. Excluding food and energy prices from the index, core consumer inflation was unchanged on the month and up a very mild 0.9% on the year, its lowest yearly gain in nearly 50 years. Soft final demands, slack in the economy combined with financial deleveraging contribute to disinflationary tendencies, the point at which inflation is too low. The quantitative policy moves the Fed is contemplating for their meeting will likely result in higher inflation expectations.

Week in Review

The whole financial world here and abroad is positioning itself for the second round of  "quantitative easing" by the Fed to begin on November 3.

Last week, bond markets overshot hopes for the impact of Fed purchases of Treasurys with invented money, and this week yields have bounced back up. However, everything is on hold until we learn the duration, magnitude, and actual effect of QE2.

Adding to expectant tension: China's August exports to the US rose to $35.3 billion, and its imports from us fell to $7.3 billion. One effect of QE2 may be a currency war; despite the vulnerability to China feared by so many, these trade figures beg the question: Who exactly, needs whom?

The media, politicians, consumer advocates, ambitious state Attorneys General, and hungry lawyers everywhere have seized on RoBoForeclo, the nation's newest self-destructive mania.

Substance. Foreclosure resembles pregnancy in that one either has a mortgage in public record against real property collateral, or not; and one is either current on that obligation, or not. Every state and many counties have different statutes and procedures, but all have extensive time periods for the mortgagor to bring current a default, or to deny the existence of the obligation.

Substance. Despite frantic media digging, I have not heard a single documented case in which an owner lost a home who did not owe the money and was not in default.

We are a nation of laws, and hence procedures that must be followed; there should be embarrassment and penalties for bad-faith actors. However, when courts consider damage awards, separating actionable from incidental, culpable from sloppy, they ask who was harmed and to what degree. No one has been harmed in RoboForeclo.

Facts aside, this wounded and confused America, goaded to lash out may do terrible harm to what's left of housing and credit. A nation of scorpions in a bottle.

Mortgage servicers are a pain and have no friends. They don't deserve any. They send to us bales of mail and solicitations for things that we do not want. They make mistakes, and then threaten. They are organized to compress costs, which means -- as so much of the modern world -- they do not answer their phones. These are data-processing people, not underwriters, decision-makers, or "deal" people.

Mortgage bill-collecting ("servicing" void of service) began to separate from lenders and owners of loans with the creation of Ginnie Mae in 1968. Of today's $10.6 trillion mortgage stock, perhaps 75% is serviced by an entity that is merely a contractor to the owner of the promissory note. Servicers have no more to do with stupid and predatory lending than your car mechanic controls GM's design of your Chevy.

The natural rate of mortgage default in the 40 years before this disaster was less than 1% per year. In the 30-million-loan portfolio of Fannie and Freddie alone (no matter what shills and idiots say, the highest quality pool in the US), about half of the nation's total, 4.6% of loans today are 90 days or more past due or in foreclosure, and another 7.5% are delinquent. Perhaps ten times normal, and conditions are vastly worse for sub-prime, Alt-A, and Option Arm servicers. The Fannie-Freddie data resides at

http://www.fhfa.gov/webfiles/16687/2q10fprfinal.pdf

together with their servicers' immense burden to mitigate loans.

No big business can scale up ten-fold in 18 months. Imagine Toyota trying it, or Alcoa, or Exxon, or Microsoft. This RoBoForeclo lynch mob might recall the Fannie-Freddie regulator's demand last summer that servicers move faster to foreclose. Total filings, all loan types in September alone: 347,420 (RealtyTrac).

When I consider all of the real damage done in the Great Recession -- ruined hopes and dreams, honest and hardworking families simply run over, and the cheering at home-price declines by the hard-money liquidationists -- this national rush to pick nits by hangman's noose reflects an angry and pathetic helplessness.

Thursday, October 14, 2010

Rate Hits Low Unmatched Since 1951

Freddie Mac found the latest drop in the 30-year rate brought it to a level that the Federal Housing Administration suggests may have last been seen in 1951 and recent Fed statements suggest more possible downward pressure could be seen.

Although Freddie Mac’s survey for 30-year loans started only in 1971, it has FHA data going back to 1948 showing long-term rates have been not only been at survey record lows, but lows that pre-date Freddie Mac’s formation in 1970 by decades.

Rates could fall even further. Freddie Mac deputy chief economist Amy Crews Cutts told this publication Fed officials’ recent indication that they’re open to the idea of purchasing more securities-likely Treasuries-has likely contributed to downward pressure on rates and may continue to.

But she warned that there also is the possibility that Fed officials may not take further action. “Sometimes they can simply say something and then they don’t have to do anything because they’ve gotten the market to move,” she said.

If the Fed does buy more securities, it could put downward pressure on rates determined by the extent and speed of the purchases—factors that had not been discussed or signaled at press time. If the recent history of Fed securities purchases is any guide, the move will be well-signaled and do little to disrupt the market, and could be followed by a period of moderation and perhaps a slight increase in rates if the Fed were to withdraw from the purchases.

During the week ending Oct. 14, the average 30-year rate fell to 4.19% from 4.27% the previous week and 4.92% a year ago. The 30-year rate has been below 5% for 23 weeks in a row. Average points on 30-year loans, however, are higher than for any other loan product tracked by Freddie Mac except for one-year ARMs-which match it—at 0.8.

The average 15-year rate during the week ending Oct. 14 was 3.62% with average points at 0.7, down from 3.72% the previous week and 4.37% a year ago.

The average five-year Treasury-indexed hybrid rate during the week ending Oct. 14 was 3.47%, the same as the previous week and down from 4.38% a year ago. These loans’ points averaged 0.6 in the latest week.

The average rate for a one-year Treasury adjustable-rate mortgage was 3.43% in the latest week, up from 3.40% the previous week but down from 4.60% a year ago.

Thursday, October 7, 2010

U.S. benchmark 30-year mortgage rate falls to record low

The Fed is dead, maybe by 2012

Commentary: A magic metric that predicts America's future

OK, so Nassim Nicholas Taleb, the "Black Swan" author, actually said: "The Fed won't exist in 25 years." Warning: It'll happen much sooner, fallout of the coming Second American Revolution.

It's inevitable: Wall Street banks control the Federal Reserve system , it's their personal piggy bank. They've already done so much damage, yet have more control than ever.

Warning: That's a set-up. They will eventually destroy capitalism, democracy, and the dollar's global reserve-currency status. They will self-destruct before 2035 … maybe as early as 2012 … most likely by 2020.

Last week we cheered the Tea Party for starting the countdown to the Second American Revolution. Our timeline is crucial to understanding the historic implications of Taleb's prediction that the Fed is dying, that it's only a matter of time before a revolution triggers class warfare forcing America to dump capitalism, eliminate our corrupt system of lobbying, come up with a new workable form of government, and create a new economy without a banking system ruled by Wall Street.

Let's reexamine the timeline closely:

Stage 1: The Democrats just put the nail in their coffin confirming they're wimps when they refused to force the GOP to filibuster Bush tax cuts for billionaires.

Stage 2: In the elections the GOP takes over the House, expanding its strategic war to destroy Obama with its policy of "complete gridlock" and "shutting down government."

Stage 3: Post-election Obama goes lame-duck, buried in subpoenas and vetoes.

Stage 4: In 2012, the GOP wins back the White House and Senate. Health care returns to insurers. Free-market financial deregulation returns. Lobbyists intensify their anarchy.

Stage 5: Before the end of the second term of the new GOP president, Washington is totally corrupted by unlimited, anonymous donations from billionaires and lobbyists. Wall Street's Happy Conspiracy triggers the third catastrophic meltdown of the 21st century that Robert Shiller of "Irrational Exuberance" fame predicts, resulting in defaults of dollar-denominated debt and the dollar's demise as the world's reserve currency.

Stage 6: The Second American Revolution explodes into a brutal full-scale class war with the middle class leading a widespread rebellion against the out-of-touch, out-of-control Happy Conspiracy sabotaging America from within.

Stage 7: The domestic class warfare is exaggerated as the Pentagon's global warnings play out: That by 2020 "an ancient pattern of desperate, all-out wars over food, water, and energy supplies would emerge" worldwide and "warfare is defining human life."

In this rapidly unfolding scenario, the Fed cannot survive. Why? Not because the Fed is at the center of America's economic problems, beyond repair, a dying institution. But because the Fed is a pawn of Wall Street's Happy Conspiracy, which is incapable of seeing the train wreck that it set up.

This out-of-control, conspiracy of greedy Wall Street bankers, corporate CEOs, corrupt politicians and Forbes 400 billionaires will, in the near future, trigger the third catastrophic meltdown of the 21st century, a collapse that paradoxically can transform America into a new, stronger post-capitalist economy … but only after a revolution and brutal class warfare. But few will talk about what's coming.

Warning: Never trust the American Treasury Secretary

So who can you trust to tell us the truth? Taleb says it's very simple. His "simple metric" was made clear at a recent "Washington Ideas Forum" in a piece by Atlantic editor Nicole Allan: Unfortunately most fail Taleb's test. Most get it wrong. Many lie, exaggerate, speak half-truths or, worse, say nothing.

Here's Taleb's "simple metric for judging whose economic opinions are worth his time: 'Did someone predict the crisis before it happened" in the past? "If the answer is no, I don't want to hear what the person says. If the person saw the crisis coming then I want to hear what they have to say" about future crises.

Taleb target No. 1: Treasury Secretary Tim Geithner, who spoke just before Taleb at the forum. Of course, experience tells us you really can't trust anyone in government. All politicians fudge the numbers, cherry-pick data to suit their personal goals, biases and political rhetoric.

Remember Hank Paulson, Wall Street's Trojan Horse inside Washington? Earlier he had made over half a billion as Goldman's CEO. Back in July 2007 before the meltdown he bragged to Fortune that this is "the strongest global economy I've seen in my business lifetime." Never trust anything "leaders" like him say. Never.

Worse, he and our clueless Fed Chairman Ben Bernanke later lied to the public that the subprime crisis was "contained." No, my friends, you cannot trust politicians and government insiders. Never.

Warning: Never trust economists and bestselling authors

Allan continues: "Other unlucky economic figures who failed Taleb's test included writers Paul Krugman and Thomas Friedman. 'You have a million people on this planet who call themselves economists,' Taleb said. 'How many people understood the risks of the system" before the crisis? Paul Krugman was not one of them.'"

Taleb warns: Nobel economist Krugman not only supports Keynesian deficit spending, he favors the "transformation of private debt, with all the moral hazard it entails, into public debt" that's toxic from a "risk standpoint." Worse, it's "immoral." Our "grandchildren should not bear the debts of the grandparents." OK, add Nobel economists to the list of people Taleb says you can't trust to speak "the truth.

Actually, using Taleb's "metric," you can't trust any economists. Why? Because all economists, even the best, are capable of making catastrophic errors: Remember Greenspan's sad apologies during congressional hearings after undermining America for 18 years. And remember Michael Boskin's classic $12 trillion error? Bush Sr's chairman of the Council of Economic Advisers, a respected Stanford economist, attempted to justify some cockamamie logic that his newfound Social Security savings would lower America's debt, giving a political boost for his party. He was $12 trillion wrong.

No, folks, you can't trust any economists, they're just average humans. Most have strong political biases. They're hired mercenaries who say whatever their employers ask them to say, pawns working for some Wall Street bank, corporation or politicians.

Yes, Allan reveals another character Taleb can't trust for economic advice. Prize winning authors like NY Times columnist Tom Friedman who's book, The World is Flat is "very bad for society," misleading, having failed to "assess risk." So scratch celebrity authors from the list you can trust to tell you the truth about the future of America.

Warning: Never trust Congress, the Fed chairman or the president

Taleb is merciless when it comes to politicians like President Obama, Congress and The Fed chairman: You can't trust any of them. Earlier Bernanke's reappointment "stunned" Taleb: He "doesn't even know he doesn't understand how things work or that the tools he uses are not empirical," wrote Taleb in HuffPost. But it's "the Senators appointing him who are totally irresponsible ... The world has never, never been as fragile," and we're stuck with an economist running The Fed whose methods make "homeopath and alternative healers look empirical and scientific."

Obama's reappointment of Bernanke left Taleb so distraught he "withdrawing into the Platonic tranquility of my library, to work on my next book, find solace in science and philosophy, and … structure trades betting on the next mistake by Bernanke, Summers and Geithner."

Taleb's "metric" essentially warns Americans to trust no one, certainly not Washington and Wall Street insiders. The vast majority fail his simple metric, "Did someone predict the last crisis before it happened? ... If the answer is no, I don't want to hear what the person says. If the person saw the crisis coming, then I want to hear what they have to say'."

In fact, back in 2008 as the subprime credit meltdown accelerated and it was obvious to virtually everyone worldwide, we reported on the cascading bogus predictions made by well-known gurus flooding prime-time news, highlighted in BusinessWeek, Kiplinger's and USAToday, comments made even as the 2008 crash was spreading worldwide:

Bernanke: "I don't anticipate any serious failures among large internationally active banks." Wow, was he ever wrong.

Billionaire Ken Fisher: "This year will end in the plus column ... so keep buying." Main Street lost trillions on advice like this.

'Mad Money' Jim Cramer: "Bye-bye bear market, say hello to the bull."

Goldman Sachs' Abby Joseph Cohen: "The fear priced into stocks is likely to abate as recession fears fade." Soon after, Goldman was essentially bankrupt.

Congressman Barney Frank: "Freddie Mac and Fannie Mae are fundamentally sound."

Barron's: "Home prices about to bottom." Three years later they still haven't

Worth: "Emerging markets are the global investors' safe haven."

Kiplinger's: "Stock investors should beat the rush to the banks." Costly advice.

Bernie Madoff: "It's virtually impossible to violate the rules." But it'll happen again.

Bad calls? Yes, very bad. Back in mid 2008 we reviewed 20 who would meet Taleb's "metric" and earned our trust for the future. These twenty did warn America between 2000 and 2008. Although few listened: We reported on warnings from economists Gary Shilling, Marc Faber and Nouril Roubini, the St. Louis Fed president (Greenspan ignored him, just as Bernanke is ignoring the Kansas City Fed president today), former Nixon Commerce Secretary and SEC chairman, billionaires Warren Buffett and oilman Richard Rainwater, institutional portfolio managers Jeremy Grantham, Bill Gross and Robert Rodriguez, and major cover stories in Fortune, Harper's, Vanity Fair, The Economist and The Wall Street Journal.

But for every one warning back then, there were hundreds of happy-talkers inside the Happy Conspiracy's propaganda machine, conning the public, either unconsciously denying reality or consciously lying about it.

Remember: Bloomberg Markets magazine reported that even Paulson predicted a meltdown was coming. But all he did was privately warn Bush two years earlier, in 2006, then he and the Fed chairman failed to tell the truth to the public for two years. That's immoral, dishonest, a lie.

So who can you trust? Nobody, not me, not even Taleb. Why? In the final analysis the Buddha said it best: "Believe nothing, no matter where you read it or who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense."

Unfortunately, America is losing its capacity to reason, its common sense, its values, its vision of the future. More of us need to trust Taleb's "simple metric."

By Paul B. Farrell, MarketWatch

Wednesday, October 6, 2010

Bond prices are going crazy... Buffett doesn't like bonds... Paulson back in black

"That doesn't make any sense..."I called Porter earlier today to discuss the massive bubble forming in the bond market. We've been warning our readers about this event for years, but it's now coming to a head.

I checked a few blue-chip issuers on Bloomberg, and bond prices are officially losing touch with reality. Investors are paying a premium to hold corporate bonds with paltry yields. Microsoft paper yielding 4.5% and maturing in 2039 trades for more than $110. ExxonMobil paper yielding 3.6% due in 2021 trades for more than $144. Johnson & Johnson paper yielding 4.35% and due in 2029 trades for $133.

As Leon Cooperman said yesterday... When investors are scrambling to lock in low yields for long periods of time, you don't want to be buying bonds. Would you loan money to anyone right now for 20 years at 4%? And would you pay a premium for the opportunity? Remember, your principal is returned at par (or $100). You eat the rest.

Today's trading is just bizarre in general... Treasury's are up, the market is flat, and gold and oil are up. Nothing makes sense. You would at least expect bonds to fall after Warren Buffett's announcement yesterday, putting him firmly in the "bond bubble" camp... At Fortune's Most Powerful Women Summit, Buffett said it's "quite clear stocks are cheaper than bonds." He added he "can't imagine" why anyone would buy bonds at current prices.

While other investors have been piling into bonds, John Paulson has loaded up on stocks. After two correct bets that made him billions (shorting housing followed by long financials), Paulson's hedge fund had a bad 2010, down around 10%. The recent stock rally has pushed his largest fund back into the black... Paulson's flagship Advantage Plus fund jumped 12% in September. He's received a lot of flak for buying gold and stocks, but we think he's playing this market right.
Real-estate slump could last eight years: IMF

Tuesday, October 5, 2010

Australia central bank keeps policy rate steady; Aussie dollar drops
Bank of Japan lowers policy-rate range, says recovery pace weakening

America on the brink of a Second Revolution

Commentary: 2010 elections guarantee gridlock, anti-capitalist class war

"What's distinctive about the Tea Party is its anarchist streak -- its antagonism toward any authority, its belligerent self-expression, and its lack of any coherent program or alternative to the policies it condemns," warns Jacob Weisberg in Newsweek. But why not three cheers for the Tea Party Express?

Admit it, something historic is brewing. And yes, it's good for America, even the anarchy. Revolution is renewal. Tea-baggers want to take on both parties, "restore honor" and "take back the country." Bring it on, the feeling's mutual.

OK, maybe most Americans just silently mimic the words, "we're mad as hell, won't take it any more." But watch out: After November the campaign's shrill rhetoric explodes into action.

Tea-baggers are kicking the revolution into high gear. Debt is sinking America. Both parties are to blame. So vote out incumbents. Spare no one. We need new leadership, another Reagan or Truman. Congress better get the message: Cut that budget, or they'll dump the rest of you in the coming Great Purge of 2012.

Unfortunately they're tone deaf. Congress cannot see past the election. All that changes in November.

So thanks Tea Party, Vegas odds must favor a Second American Revolution. Actually, the revolution is already roaring, hot, it's about time. The GOP and the Dems had more than a decade. But America's worse off. We need a real revolution to restore sanity … or we can kiss democracy and capitalism good-bye, permanently.

Warning: Another revolution will cost investors 20% more losses

Yes, big warning, the Second American Revolution will extract painful austerity, not the "happy days are here again" future touted by tea-baggers. For years it'll be impossible for most of America's 95 million investors to develop a successful investment or logical retirement strategy.

Why? Political chaos will translate into extreme volatility and a highly unpredictable stock market. Result: Wall Street will lose another 20% of the value of your retirement portfolio in the next decade, just as Wall Street did the last decade. So if you think you're "mad as hell" now, "you ain't seen nuthin' yet!"

Here's the timeline:

Stage 1: The Dems just put the nail in their coffin by confirming they are wimps, refusing to force the GOP to filibuster the Bush tax cuts for America's richest.

Stage 2: The GOP takes over the House, expanding its war to destroy Obama with its new policy of "complete gridlock," even "shutting down government."

Stage 3: Obama goes lame-duck.

Stage 4: The GOP wins back the White House and Senate in 2012. Health care returns to insurers. Free market financial deregulation returns.

Stage 5: Under the new president, Wall Street's insatiable greed triggers the catastrophic third meltdown of the 21st century Shiller predicted, with defaults on dollar-denominated debt.

Stage 6: The Second American Revolution explodes into a brutal full-scale class war rebelling against the out-of-touch, out-of-control greedy conspiracy-of-the-rich now running America.

Stage 7: Domestic class warfare is compounded by Pentagon's prediction that by 2020 "an ancient pattern of desperate, all-out wars over food, water, and energy supplies would emerge" worldwide and "warfare is defining human life."

What's behind our 2010-2020 countdown? It became obvious after reading the brilliant but bleak "Decadence of Election 2010" report by Prof. Peter Morici, former chief economist at the International Trade Commission. He sees no hope from America's political parties, just a dark scenario ahead.

Here are the 10 points we see in his message:

1. Expect nothing positive from Dems, the GOP or Tea Party

Yes, we're all "justifiably ticked off." But "Democrats, Republicans, and yes the Tea Party offer little that is encouraging." Earlier Morici warned: "Democratic capitalism is in eclipse. … Politicians have deceived voters," and are "suffering from delusions of grandeur, self deception and good old-fashioned abuse."

2. Democracy has become too-big-to-govern … by anyone

"The current economic quagmire is a bipartisan creation." Bush failures led to a "Great Recession … reckless Wall Street pay and fraud, a breakdown in sound lending standards by Fannie Mae, Freddie Mac … Countrywide, and a huge trade deficit with China and on oil" leaving "Beijing and Middle East royals with trillions of U.S. dollars that they invested foolishly" in bonds "financing the housing and commercial real estate bubbles."

3. Clinton, Bush, Obama policies all feeding revolutionary flames

Even before Bush, "all was set in motion by bank deregulation engineered by Clinton … Secretaries Robert Rubin and Lawrence Summers … Clinton's deal to admit China into the World Trade Organization" handed "China free access to U.S. markets" while blocking exports. Earlier Dems blocked "domestic oil and gas development" and froze "auto mileage standards." Obama "finally imposed higher mileage requirements," but after pushing offshore drilling, he "punished the entire petroleum industry" for the BP disaster.

4. Bush's biggest mistake: Goldman CEO Hank Paulson

Morici admits: If Bush is "culpable for anything, it was to not see the gathering storm on Wall Street." Worse, his Treasury picks were disasters: [John] Snow was clueless, Paulson devious. He conned a clueless Congress into bailout trillions, "believing banks could borrow at 3% and lend at 5 and pay MBAs three years out of school five-million-dollar bonuses to create mortgage backed securities." Greed drove the Bush Treasury.

5. All partisan political leaders are destined to sabotage America

One thing is clear to Morici: Not only were America's leaders a "bunch of second-rate incompetents" on both the Clinton and Bush teams, "Obama's ratcheting up government spending and taxes won't fix what's broke, and neither will the GOP prescription of tax cuts and deregulation." Get it? Democracy is in a classic double-bind, no-win scenario.

6. America's democratic capitalism trapped in systemic failure

Morici simply dismisses "Obama's two signature initiatives -- health-care reform and financial services reregulation." They "simply don't work." Why? Politicians "failed to address the root problem, Americans pay 50% more for doctors, hospitals and drugs, than subscribers to national health plans in Germany, France and other decadent socialist European countries." Yet, insurers hate reform, will self-destruct America first.

7. Wall Street's insatiable greed is a virus that never sleeps

Wall Street banks are "back to their old tricks," warns Morici, "hustling municipal governments into the kind of quick-fix budget schemes, like selling parking meters and airport fees." Why? Wall Street's "hustling shoddy corporate bonds that lack adequate collateral and may never be repaid" to justify their absurd mega-bonuses. And they'll keep doing it till the revolution creates a new non-capitalist banking system.

8. New political leaders offer no hope -- Wall Street rules America

GOP's next leaders will fail: "Cutting taxes and mindless deregulation are not the answer." We need the revenue. They have no real plan to trim "$1 trillion from federal spending … few believe deregulation will fix health care or Wall Street." The GOP has no "effective government solutions to health care, Wall Street, fixing trade with China, and dependence on foreign oil." And the Tea Party "only offers a purer form of failed Republicanism. Tax and spend less, and turn the country over to the robber barons."

9. Praying for a messiah, we're sleepwalking till the revolution

Morici's solution: America "needs a prophet, another Harry Truman or Ronald Reagan." But we'll never get one, until a catastrophe hits. Wall Street's so greedy, so corrupt, so untouchable, so much in control, they will bankroll and control all future "prophets."

10. The Second American Revolution coming

Yes, extreme austerity: "Americans must accept fewer government-paid benefits -- for the rich, the poor and those in between -- and must acknowledge the market works best most of the time, but it is not working in health care, banking, China, and oil." Huh? Sounds like classic economist's double-speak: "The market works most of the time" … except the market doesn't work at all in the four biggest economic sectors? Fuzzy thinking?

Morici warns, we need "new approaches to regulating, yes regulating, what the medical industry charges, bankers pay themselves, what Americans tolerate and buy" and "guiding big oil and car companies to sustainable solutions."

Holy cow, he suddenly sounds more like a liberal politician than conservative economist. Yes, he's reflecting the total chaos coming on the short road to the Second American Revolution.

In the end, however, you have to admit the good professor does make a lot of sense: "Sounds radical but running the world has never been a choice between statism and anarchy," says Morici.

Choice? Unfortunately, he offers a false choice: Running America effectively means accepting "that the private sector is not the enemy and government is not evil, but neither can serve the other, and us, if value is not seen in each."

Laudable, but impossible because once the GOP Tea Party of No-No is back in power, compromising is not on their agenda, "gridlock" is. So anarchy is the only choice -- they will never, never work with Democrats … until forced by the Second America Revolution when the middle class finally rises up and overthrows the greedy wealth conspiracy of Wall Street, Washington, CEOs and the Forbes 400.

Till then, anarchy rules as the conspiracy keeps looting Treasury, stealing from taxpayers, conning us all.

By Paul B. Farrell, MarketWatch

Monday, October 4, 2010

Dow industrials have worst day since Sept. 7; AmEx, off 6.5%, is worst performer