From Hussman Funds via Mish‘s:
…Bloomberg reported last week that “Citigroup and J.P. Morgan Chase & Co. are hoarding cash as if another crisis were on the way.” Notably, a week after CIT and Advanta filed for bankruptcy, Citigroup has sent letters raising the finance charge on some of its credit cards to 23.99% annually – even for creditworthy customers who pay their balances in full on a monthly basis. This is a bit of deja vu, given that Advanta did virtually the same thing in August of 2008, raising rates to 25% on its cards. This is not the type of development that encourages debt-financed economic activity (which has historically been the primary driver of early economic expansions).
Since June of this year, outstanding bank credit (loans and leases) has plunged at the steepest rate observed in the available post-war history, while at the same time, bank cash reserves have soared. This surge in reserves is a mirror image of the Fed’s balance sheet, which has taken on over a trillion dollars in new assets – primarily mortgage backed securities. The problem here is that the underlying quality of agency paper continues to deteriorate, which means that Fannie Mae, Freddie Mac and other agencies will likely sustain major additional losses – eventually footed by the public – because they accepted a negligible fee from mortgage lenders in return for slapping the government’s Good Housekeeping Seal of Approval on these garbage loans.
I’ve seen this in personal experience – and not just from Citigroup. And not only rate hikes, but large reductions in credit lines, in to the bargain. The banks know what is coming and are preparing for it.
Meanwhile, Obama and Co are still living in a Geithner-induced dream world. If you go to the linked article, you’ll note that Hussman is holding that the actions of the Fed and Treasury amount to an unconstitutional abuse of power – and I agree. The sad part is that Obama either doesn’t see it, or refuses to see it. Bottom line, we’re being taken for a ride where we, the people, get to bail out the bankers and bureaucrats who got us in to this mess – another crash is impending, where we’ll have to foot the bill, but the bankers have already ensured that their personal wealth is protected.
How’s that hope and change thing working out for you?
Blogs For Victory 