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The Fiscal Cliff is a Mole Hill Compared to This

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

Everyone is afraid of falling off the "fiscal cliff." But there's another dangerous countdown clock about hit to zero.

And no one is talking about it, even though it will spell even more financial problems for us all.

At midnight on December 31, 2012, the Transaction Account Guarantee (TAG) program will expire.

The TAG program was initiated at the height of the credit crisis when depositors were fleeing banks for fear they would go under.

To quell what was turning into a run on banks, the FDIC upped regular deposit insurance from $100,000 to $250,000 and under the TAG banner initiated unlimited insurance for all non-interest bearing transaction accounts.

It's the second part that's important because that's the piece that will soon come to an end.

When the unlimited insurance expires, corporations, businesses and depositors -- whose soon- to- be- uninsured deposits, which total some $1.4 trillion, are likely to flee smaller banks -- will rush into money market funds and seek the safety of short-term U.S. Treasuries.

This will create serious negative repercussions affecting our economic future.

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What's Next for the Fiscal Cliff?

By , Money Morning -

With both parties viewing the results of Tuesday's election as a mandate from the American people to address the major economic problems, Congress and the Obama administration will focus first on not having to cross the fiscal cliff.

Clearly, neither party wants the American economy to ever look anything like it did in 2008 and 2009. Towards this end, Congress has gone back into session to reach an agreement to move the economy forward.

Drawing a line, House Speaker John Boehner, R-OH, said Thursday that, "Raising tax rates is unacceptable. Frankly, it could not pass the House. I'm not even sure it could pass the Senate."

Democrats have taken upon the victory on Tuesday to urge a strong line be taken in budget negotiations.

Speaking today (Friday), President Obama kept his call for greater taxes on higher income earners.

"As I've said before, we can't just cut our way to prosperity," President Obama said Friday. "If we're serious about reducing the deficit we have to combine spending cuts with revenue. That means asking the wealthy to pay a little more in taxes." //

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How to Fix the U.S. Housing Market

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

If this week's economic reports showed us anything, it's the fact that two years into what's supposed to be an economic recovery, the U.S. housing market remains on life support.

But here's what those reports didn't tell you: If the housing market isn't fixed soon, it's going to drag the rest of the economy down into a hellish bottom that will take years, if not decades, to crawl out of.

The housing market is our single-most important generator of gross domestic product (GDP) and, ultimately, national wealth.

It's time we fixed what's broken and implemented new financing and tax strategies to stabilize prices.

Contrary to the naysayers - and in spite of political pandering and procrastination - we can almost immediately execute a simple two-pronged plan to fix mortgage financing and stabilize U.S. housing prices.

I call it a not-so-modest proposal.

The Worst Since the Great Depression

The facts are frightening: We are in a bad place. The plunge in housing prices we've seen during the current downturn is on par with the horrific freefall the U.S. housing market experienced during the Great Depression.

And without an effective plan to arrest the double-dip in housing, there's no bottom in sight.

Hope Now, an alliance of lenders, investors and non-profits formed at the behest of the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, counts 3.45 million homes being foreclosed from 2007 through 2010. Current estimates of pending and potential foreclosures range from another 4 million to as many as 14 million.

According to RealtyTrac, a real-estate data provider, the country's biggest banks and mortgage lenders are sitting on 872,000 repossessed homes. If you add in the rest of the nation's banks, lenders and mortgage-servicers, the true number of these REO (real-estate owned) homes is closer to 1.9 million.

These shocking statistics illustrate just how large the current overhang of bank-owned properties actually is (at current sales levels, REO properties would take three years to unload). And they help us to understand how the staggering number of yet to-be-foreclosed, repossessed, and sold homes will depress U.S. housing market prices for years to come.



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Special Report: How the Government is Setting Us Up for a Second Subprime Crisis

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

[Editor's Note: Shah Gilani, a retired hedge fund manager and noted expert on the global credit crisis, predicted this developing FHA debacle in a July 2008 Money Morning essay.] Is the government creating another subprime-mortgage bubble? The first time around, the three-headed federal serpent - the Bush administration, the Treasury Department and the U.S. Federal […]

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The Slow Death of General Motors

By , Money Morning -

By Martin Hutchinson Contributing Editor Money Morning U.S. President Barack Obama's firing of General Motors Corp. (GM) Chief Executive Officer G. Richard Wagoner Jr. may be the beginning of the final act of a long and sad drama - the slow death of GM. The company nameplate may soldier on in some form, but it […]

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