http://investorshub.advfn.com/boards/board.aspx?board_id=1948

The Government Doesn't Want You to Read This Article About the Financial Crisis
by Robert Prechter
December 02, 2008


Editor's Note: This article has been excerpted from a free issue of Robert Prechter's monthly market letter, The Elliott Wave Theorist.

The full 10-page market letter, Be One of the Few The Government Hasn't Fooled, can be downloaded free from Elliott Wave International.

"Who Will Benefit From The Housing Act?"

This question is an actual headline from a national daily paper. The real answer is: mortgage lending corporations, developers, real estate agents, speculators and politicians. The government is also pledging tax money to providers of "financial counseling" and grants for speculators who want to "buy and renovate foreclosed housing"; in other words, it will hand tax money to charlatans and unfunded wheeler-dealers. But a far better headline would have been, "Whom Will the Housing Act Hurt?" The answer to that question is: (1) prudent people, i.e. savers, earners, renters and people who have waited to buy a house at a reasonable price; and (2) innocent people, i.e. taxpayers.

Government action (unless it is aimed at destruction) always causes the opposite of its stated effect. If taxpayers ultimately have to shoulder the burden for all the bad mortgage debt, those who are on the edge of being able to make their mortgage payments will be forced over the edge, causing more missed mortgage payments and more foreclosures.

There is never any need for a law granting privilege except when the goal is to reward the undeserving and to punish the innocent. If the goal were otherwise, there would be no need for a statutory law, because the natural laws of economics, when unencumbered, serve to reward the deserving and punish the imprudent and the guilty. Populists loudly challenge this idea, but they are wrong.

I thought the Fed was created to "help manage the economy."

After a secret meeting on Jekyll Island (GA), Congress and a handful of bankers created the Federal Reserve System for two purposes. The first one was to allow the government to counterfeit money, thereby letting it steal value from savers through inflation. The second was to allow bankers to make profits through debt creation, also at the expense of savers. Any other claim is a smokescreen.

So shouldn't we blame the Fed for the country's financial problems?

That's like blaming the collapse of your house on the biggest termite. The Fed is only one of the monsters that Congress has created. In the financial realm, others include Fannie Mae, Freddie Mac, Ginnie Mae, Sallie Mae, the FDIC, the FHA, the FHLBs and the income tax. But there are also a hundred other havoc-wreaking agencies of the federal government. Congress is to blame for ruining America. The Fed is only one of the mechanisms it created along the way. It's a big one, and it's fine to campaign against it, but to blame it for everything is to give its creator a free pass.

This is an important distinction, because many people seem to think that abolishing the Fed will cure America's money woes. They seem to think that once the Fed is abolished, Congress will behave responsibly. One website even calls for abolishing the Fed in favor of giving money-printing power directly to the federal government! Abolishing the Fed is a worthy goal, but Congress will work tirelessly to create one disastrous institution after another, because that's what campaign donors pay for. Whom Will the Housing Act Hurt?

Going to College & Grad School Looks Like a Disaster
By Nan Mooney, AlterNet
Posted December 2, 2008.



Thinking about going back to school in a weak jobs market? Students face a plague of loan problems, less aid and higher tuition and fees.

With the job market tanking, have you been thinking that now is the perfect time to go to school, or go back to school, to shore up those job skills and make sure you have an edge in the market?

Think again.

The economic crisis has hit higher education with a triple whammy. Students and their families will need more help paying for school just as colleges struck by financial crises begin charging higher tuition and have less means to provide financial aid.

Already, 37 lenders have stopped making private loans and 168 have stopped offering federally guaranteed loans. Though money is still available -- only 25 of the top 100 lenders, although responsible for 91.5 percent of loans, have dropped out -- increasingly there are conditions attached. Lenders are pulling back from the community college and trade school markets -- where there are higher default rates, lower graduation rates and lower job placement -- at the same time, community colleges are seeing an increasing number of applicants seeking an affordable education option.

"These days the financial aid office is the busiest on campus," says Patricia Hurley, the financial aid director at Glendale Community College in California. "We're working nights and weekends just trying to get all the applications processed."

Though Hurley says the fallout of the financial crisis is only beginning to be reflected on campus, she has seen an increase in students who, due to layoffs and foreclosures, are filing for appeals to reevaluate student loans based on family income from the prior year. Some major lenders have exited the industry entirely or have stopped lending to community colleges, but the number remains small enough that remaining lenders can pick up the slack.

For Hurley, and for financial aid officers in public institutions across the country, the real challenge will be balancing increased demand with major budget cuts. California Gov. Arnold Schwarzenegger recently proposed a midyear budget cut of $65.5 million for the University of California system, in addition to the $48 million cut already factored into the budget.

"We're having to cut classes and professors," says Hurley. "Tuition will go up. And our outreach efforts to high schools and into the community are being hampered because we no longer have the financial resources. All this is happening at a time when it's critical to get the word out that college is still affordable."

Colleges across the board are hurting. At least 20 states have handed down budget cuts or face tuition increases in their higher-education systems. The University of Florida has already eliminated 430 faculty and staff positions and plans to increase in-state tuition by 15 percent. The University of Massachusetts system has cut $24.6 million for the current fiscal year. And with more students likely to apply to lower-cost public universities, admission will grow even more competitive.

Both private and public universities have watched their endowments plummet. The University of Washington has seen a $400 million drop in assets due chiefly to the faltering stock market. Harvard, Columbia and Duke are all reportedly looking to unload private-equity holdings in an effort to shore up cash. Schools are reporting hiring freezes and postponement of new-construction plans. Even more alarming are the murmurings of midyear tuition hikes and of smaller colleges, with limited endowments and relatively low graduation rates, being forced to close their doors.

As any recent graduate can confirm, college wasn't cheap to begin with. A 2008 College Board report, based on numbers drawn before the credit crunch, revealed tuition hikes of 6.4 percent for public in-state tuitions and 5.9 percent for private colleges in the 2008-2009 academic year. The average in-state tuition and fees at four-year public colleges are $6,585, up $394 from last year. At private universities, published tuition and fees average $25,143, a $1,398 increase over last year.

With mounting financial pressures, students now worry they may have to withdraw from school because their parents can no longer afford the tuition and student loan money will be harder and harder to find. Already, private loans have become difficult to secure, with some major lenders exiting the student loan arena entirely and others, like industry giant Sallie Mae, requiring higher credit scores and more stringent qualifications for cosigners. Student Lending Analytics, an independent research firm, estimates that $5.8 billion to $7.1 billion of private loan capacity has left the market, 31 to 37 percent of available funding. In the past, parents may have counted on taking out home-equity loans to help finance their children's educations, but the mortgage crisis has all but dried up that source of cash, too.

The good news is that schools are doing what they can to shore up resources and stem the panic.

"We're doing our best not to pass the budget cuts on to students," says Nancy Coolidge, a legislative and policy analyst in the University of California Office of the President.

The UC system foresees making major administrative cuts, putting off building and maintenance projects, and freezing faculty and staff salaries rather than reducing financial aid.

"There will be a tuition increase," says Coolidge, "but one-third of that is automatically recycled as need-based aid. We'll also stagger the tuition hikes so lower-income students aren't hit as heavily."

Like Hurley, Coolidge says the major challenges now will revolve around how to accommodate the increase in students without reducing the quality of their education experience.

The federal government has also stepped in to help. In September, Congress passed the Ensuring Continued Access to Student Loans Act, authorizing the government to buy federally guaranteed loans from lenders unable to meet them through the 2009-2010 school year. The idea is to encourage both large lenders, some carrying billions of dollars in student loans made before the financial crisis hit, and smaller nonprofit lenders to stay in the student loan business. The bill also extends the cap on the amount students may borrow, from $23,000 to $31,000, making it less likely they'll have to turn to the volatile private market to secure loans.

But despite the efforts of the federal government and the schools, the economic fallout is already trickling down to the students. The California State University system -- the nation's largest, with nearly 450,000 students -- has announced plans to trim 10,000 students in the coming school year due to funding problems. It will make the cuts by moving up application deadlines and raising academic standards for incoming freshmen.

What else might this mean for the college admissions process? It could signify a turn back toward the time when college was the province of the wealthy elite. Financial belt-tightening will eventually lead to the end of need-blind admissions policies in all but the wealthiest schools. Therefore, students whose families can pay the full cost of tuition will have an advantage. It also means that fewer institutional grants will be available, forcing more students to turn to loans to cover the full cost of college, even as fewer loans are available. Again, the less money an applicant needs, the more likely he or she will be able to swing college financing.

"Our concern now lies less with current students, whose loans are secured, than with prospective students," says David Levy, director of financial aid at Scripps College, a private school in Southern California. "We worry that, hearing about the financial crisis, they'll disqualify themselves from an education by not applying for financial aid or not applying to college at all. If parents know that schools cost more and that there's less money available, they may decide not to send their kids."

It also means that we will take a serious detour on our path toward becoming a country that provides an education to anyone who wants one.

"We simply don't have the resources to meet the demand," says Hurley of the California community college system. "And that's extremely troubling. If we don't have an educated workforce to deal with this economic crisis, it's going to present a real problem down the line."

For students who do find a way to pay, such financial pressures mean the college experience itself is likely to change. Hiring freezes and layoffs will result in higher student-teacher ratios. Money will be drained from facilities maintenance and improvement to cover gaps in financial aid. More students will have to work to supplement their aid packages, meaning less time for college life. Despite the rapid rise in tuitions and student loans visited upon college students of late, we may find ourselves looking back on recent decades with a wistful sigh for the good old days.

Federal Deficit Forecast
NABE
11/30/2008



The Graph of the Week comes from the November 2008 NABE Outlook, and looks at the forecast of the Federal Deficit for FY 2009. From the survey

The median forecast of the federal deficit soared, due to the weakening economy, portions of the Emergency Economic Stabilization Act, and rising expectations for further stimulus. The shortfall is now expected to hit $765 billion during fiscal year 2009.

A Textbook Example Of Gold Manipulation
By Patrick A. Heller, Market Update
December 02, 2008


Those who really understand what happens in the gold market have long observed the following pattern:

If there is some significantly poor economic or financial news that will be released during the day, invariably there is an unexpected decline in the price of gold either before or at the same time that the news is released to the public.

Many times the assault to drive down the price of gold begins in the London market at 3:00 AM Eastern Time zone, when the traders acting on behalf of the US government begin their day. If the news isn't quite so bad, the manipulation may hold off until after the US Comex opens.

That this pattern occurs so consistently is no longer a surprise. When the US government is preparing to release an economic report such as unemployment rates, inflation levels, trade statistics, and the like, this information is available to several top government officials well before the information is made public. There is ample time to prepare countermeasures for damage control.

Events on Monday, Dec. 1 were a perfect example. When Federal Reserve Chair Bernanke and Treasury Secretary Paulson had to publicly admit that the United States had already slipped into a recession, they knew that the news would spook stock market investors. It doesn't matter that pretty much everyone already knew the US was in a recession, but a lot of denial was possible as long as the government pretended otherwise.

When stock investors want to leave the stock market, they look for safe havens to park their assets. If the price of gold is falling, investors will be less inclined to pull money out of the stock market and buy gold. Knowing this, it is not hard to envision that the US government would put forth the effort to make sure that the price of gold dropped on December 1.

Since there was so much horrible economic and financial news released on Dec. 1, the price of gold needed to be severely clobbered, if you think like the US government. Gold only dropped a few dollars in Asian markets. Then, right on schedule at 3:00 AM Eastern Time, the price of gold was ambushed in the London market. The attack continued when the US markets started trading. The price of gold dropped over 5% by the close of US markets.

Of course, the news on Dec. 1 that the Dow Jones Industrial Average did even worse, down almost 8% for the day. The scariest news was the increase in the risk that the US government might default on some of its 5- and 10-year Treasury debt.

The problem for the US government in trying to hold down the price of gold is that there are many people around the globe who jump in to buy gold when it is perceived to be a bargain price. People in India, for instance, have shown extreme eagerness to purchase gold when the price of gold has dipped below $800 in the past few months. Physical gold demand in the Far East, Middle East, Europe, Australia, and many other parts of the globe is much stronger than it is in the US.

About the only way the US government can counter this rising demand is by supplying untraced physical gold to the market. That presents a new set of problems - such sales must be kept secret and can only continue as long as there is any gold to unload. If the general public ever learns of this behind-the-scenes gold activity, the price of gold will explode.

There are those who think that the time for sharply higher prices is drawing closer. In the past week, analysts at both JP Morgan Chase and Citigroup issued reports stating that gold could reach $2,000 in the not-too-distant future.

Last week the U.S. Mint released horrible news about the initial release of 2009 Eagle products. In past years, the Mint has been able to produce the new year's coins for two to four months before the first January sale and been able to cover almost all orders. For the beginning of 2009, the U.S. Mint will only be selling 1 ounce gold American Eagles and Silver Eagles dollars, and only in the quantity that they can strike in two weeks in December. There will not be any sales of Platinum Eagles, fractional size Gold Eagles, or Gold Buffaloes. Since this news was released, premiums on US bullion coins have started to rise. At the Michigan State Numismatic Society convention in Dearborn last weekend, the few dealers who had Gold Eagles in stock were able to sell all they have for more than $100 above the gold spot price.

Industry May Cut $2 Trillion in Credit Card Lines
By Martin H. Bosworth
ConsumerAffairs.com
December 1, 2008


Bad economy, risk aversion causes banks to pull back

Credit cards have become as synonymous with America as baseball and apple pie--but those days may be coming to an end. According to one industry analyst, the financial industry may cut as much as $2 trillion in credit card account lines over the next 18 months in order to reduce risk of damage from increasing delinquencies and defaults.

"We expect available consumer liquidity in the form of credit-card lines to decline by 45 percent," Oppenheimer & Co analyst Meredith Whitney told Reuters news service.

Whitney reported that all three of the remaining major banks--Bank of America, Citigroup, and JP Morgan Chase were planning or considering reducing credit lines across the board.

Whitney said that credit cards were the second source of liquidity available to consumers, behind wages from work. She criticized the banking industry for offering ever fewer choices at a time when consumers would need credit more than ever.

"Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view," Whitney said.

A contraction in available consumer credit has been predicted for several months since the scope of the economic crisis became apparent. Banks and lenders, exposed to enormous potential defaults from the slumping housing market, began cutting back on credit card account lines while simultaneously raising interest rates, even for the best customers who paid on time and exhibited no risky behavior.

Banks and lenders' ability to change the terms of credit card agreements for any reason has shocked many cardholders, who saw their interest rates double or even triple in recent months despite good payment behavior.

Although the credit pullback has had the welcome side effect of reducing the number of credit card solicitations people get in their mailboxes, it still represents a potentially dangerous economic shock that could rival--or surpass--the slump born from the housing market.

Several studies have confirmed that Americans are cutting back on buying luxuries with credit cards, using them to buy necessities instead--and that more cardholders are having trouble keeping up with their payments.

Whitney recommended several solutions for the lending crisis, including a return to local lending and knowing customers' business histories, rather than relying on automated credit scoring systems.

The House of Representatives also passed a "Credit Cardholder's Bill of Rights" that would restrict particularly egregious billing and penalty traps last year in the waning days of Congress. The bill was put aside to focus on negotiations for the financial industry bailout, and no word has emerged as to when it will be taken up again.