UPDATE: Comments from Sen. Schumer’s office now are included below.

Pasadena-based mortgage lender IndyMac Bancorp, battling fresh rumors that it is near collapse, conceded today that its financial position “has deteriorated since last quarter,” and said it was working on a plan with its regulators to improve “the safety and soundness” of the bank.

The company’s statement, put up on its corporate website, follows a weekend that saw depositors line up at some of its San Gabriel Valley branches to pull their money, as they reacted to news reports questioning the company’s survival.

It’s no secret on Wall Street that IndyMac has been ailing in the wake of huge losses on its loan portfolio as borrower defaults surge. The company’s stock price has been hammered down to mere pennies, and the plunge in the shares has accelerated over the last week. They ended at a record low of 62 cents today, down 23% from Friday’s close of 81 cents.

But depositors may have been spooked by a letter late last week from Sen. Charles E. Schumer (D-N.Y.) to the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Federal Home Loan Bank of San Francisco, saying he was “concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers.”

The letter stunned some Wall Street analysts, who said Schumer was in effect sealing the lender’s fate by raising the prospect of its failure. Schumer’s response? Don’t kill the messenger. “Make no mistake about it: IndyMac’s problems were caused by IndyMac’s management and no one else,” Schumer spokesman Brian Fallon said in an email. “The home loan bank system has an obligation to lend responsibly and police its members. But it has not been doing its job. We have found the only way to get the home loan bank system to act appropriately and positively is to make public the concerns we’ve already expressed privately.”

In its statement today, IndyMac said that after the Schumer letter appeared in the media, “we did experience elevated customer inquiries and withdrawals in our branch network last Friday and on Saturday of roughly $100 million.” IndyMac said that amounted to about 0.5% of its total deposits of $19 billion.

“While branch traffic is somewhat elevated this morning, it is substantially lower than on Saturday,” the bank said. It added that more than 96% of its deposits were fully insured by the FDIC (meaning the accounts were within federal insurance limits, and therefore should be safe no matter what happens to the company).

But the final part of IndyMac’s statement sounds more like a plea than a declaration that it will survive: “We are hopeful that this issue appropriately abates soon,” the bank said about the deposit outflows, “so that we can focus, with our regulators’ involvement, on the important issue of continuing to keep IndyMac Bank safe and sound through this unprecedented crisis period.”

Separately today, the non-profit Center for Responsible Lending published a report slamming  IndyMac’s lending practices in recent years. Read it here.

Photo: Nick Ut/Associated Press

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Reggie Middleton on the Asset Securitization Crisis and Consumer Finance

As with the mortgage market, the consumer lending market reported significant growth since the beginning of this decade largely due to lax lending standards of financial institutions, imprudent lending and poor assessment of payback abilities of customers and more importantly, securitization!!!

Consumer credit is generally classified as revolving and non-revolving. Revolving consumer credit includes credit card lending, lines of credit, home equity line of credit (HELOC) and similar products. These types of lending products do not have a fixed number of payments; there is a limit assigned to the borrower up to which he can borrow and pay the principal and interest within a certain period. The method of functioning in this case is very similar to that of a credit card.

On the other hand, non revolving consumer credit includes loans such as automobile loans, loans for mobile homes, education, boats, trailers, vacations, etc. Unlike revolving credit, these require fixed number of payment over a period of time. Over the last 27 years, non revolving credit on an average has constituted 68.8% of the total consumer credit market.

Consumer credit outstanding (US$ bn)

Source: Statistical Releases of the US Federal Reserve

Growth in consumer credit registered its peak during the S&L crisis, as it grew 18.4% y-o-y to US$517.2 billion at the end of 1984. Over the last 20 years (1988 to 2007), total consumer credit outstanding in the US economy has grown at a CAGR of 6.7%, making it a US$2.57 trillion industry at the end of 2007.

The growth proceedings were dominated by revolving consumer credit (CAGR of 9.0%) due to the rising demand for HELOCs over the years, a result of the booming housing market. Moreover, with low interest rates in the earlier years, borrowers found it easy to get their credit limits enhanced. As opposed to this, non revolving credit grew at a lower CAGR of 5.7% over the same period simply due to the dominance of mortgage lending over other lending forms. The faster growth in revolving credit led to a change in the composition of the market. Revolving consumer credit constituted 37.3% of total consumer credit outstanding in 2007, from 25.2% in 1988.

However, since the growth in the consumer credit market was based on extremely fragile assumptions – which cracked as soon as interest rates went up – increasing number of defaults hindered the performance of the consumer credit industry.

Source: The American Bankruptcy Institute

Rising interest rates led to higher loan payments, which most borrowers could not afford as they were never truly ineligible to bear such heavy burdens of loan paybacks in the first place when they were granted these loans. As a result, the number of individual bankruptcy filings in the US has grown at a CAGR of 2.1% in the last 20 years, from 549,612 in 1988 to 822,590 in 2007. The total bankruptcies in the US totaled 850,912 at the end of 2007, registering a CAGR of 1.7% over the last 20 years. If you

Jul 2 2008 1:30PM

Global Inflation: The Next Major Obstacle

One thing we find truly amazing about the markets is that they’re much more than just investments. Markets provide a way of peeking into the future, if you understand what they’re trying to tell you.

These lessons are ongoing but it’s fascinating and like a giant puzzle.

MARKETS TELL THE STORY

Sometimes the messages are pretty subtle. But other times they’re major, signaling massive economic, political or geopolitical shifts.

Most interesting is that the markets lead. So it’s important to recognize that whatever a market is telling you, it’s not going to be obvious when that market gives the signal. The message will become obvious later.

Let’s take gold as an example. It started moving up in a major bull market in 2001, and it’s been rising strongly and consistently ever since. Gold always leads inflation, so it was telling us that inflation was eventually going to head higher. That didn’t happen for quite a while, but now it’s another story. Plus, gold’s been telling us much more…

INFLATION ON THE AGENDA

We’ve been writing about inflation for a long time and why we thought it was coming back in a big way. As the years passed,

Table of Contents

1. General Information
2. National Budget
3. The National Debt
4. The National Debt and the Consumer Price Index
5. The National Debt and the Gross Domestic Product
6. Foreign Debt (added December 8, 2004)
7. The Gold Standard
8. Raw Numbers
9. Sources of Information & Links

I also wrote an article on The U.S. Trade Deficit that should be read alongside this one for a more complete picture of our place in the world.

1. General Information

Money for debt is raised by the Treasury, and limited by Congress. Each time the limit is reached, Congress either has to approve of a new debt ceiling, or close / limit branches of government to ensure that the United States can meet it’s debt obligation and repay it’s debts.

This is part of the checks and balances built in to the Constitution. In practice, Congress has almost never in recent history denied an increase (with an incident in 1995 being a notable exception).

The current US Debt is close to 7.4 Trillion dollars. In November of 2004, Congress will vote on whether or not to increase the debt ceiling. This vote was pushed back from October to avoid it becoming an election issue.

U.S. Treasury - FAQs: National Debt

The total public debt is largely a legacy of war, economic recession, and inflation. It represents the accumulated deficits in the Government’s budgets over the years. The United States first got into debt in 1790 when it assumed the Revolutionary war debts of the Continental Congress. At the end of 1790, the gross public debt was approximately $75 million. For a brief period in the mid-1830’s the public debt was virtually zero. At the start of World War I in 1916, the public debt was $1 billion. It then rose to a peak of $26 billion in 1919 to finance the war. The debt declined for the next decade. During the Great Depression of the 1930’s, however, the debt increased from $16 billion to $42 billion. During the Second World War the public debt rose sharply to a peak of $279 billion in 1946. From its postwar low in 1949, the outstanding public debt grew gradually for nearly the next two decades. Then, beginning at the time of the Vietnam War in the mid-1960’s, the rate of the debt’s increase accelerated sharply.

There are three ways of measuring government spending. One is simply to look at the actual dollars, but this doesn’t take into account inflation (the how much more things costs today than yesterday), or the economy as a whole (all of the goods and services produced in the country, GDP).

So I’ve provided 3 graphs for the budget and debt. The first is in “nominal dollars” (not inflation adjusted) the second is in “real dollars” (inflation adjusted), and the third is as a percentage of the GDP, or Gross Domestic Product.

Any numbers beyond 2003 are projections by the US Government.

2. National Budget

Receipts, Outlays, Surplus and Deficit in Current Dollars (amounts in millions)

This chart represents is income and expenses of the US Government from 1913 to 2009.

Receipts, Outlays, Surplus and Deficit in Constant (FY 2000) Dollars (amounts in millions)

This is the same graph as above, but takes into acount inflation. In the previous graph you saw that the government was spending more money every year, but you couldn’t tell whether or not it was just keeping pace with inflation. Here you can see that the actual value of the income and expenses of the US Government has increased.

Receipts, Outlays, Suprlus and Deficit as a % of GDP

So while in the previous graph you saw that the government was receiving more and spending more in constant dollars, here you can see that in terms of the economy as a whole, spending has been more-or-less constant since WWII.

Receipts by Source

This chart is not adjusted for inflation.

3. The National Debt (Nominal Dollars)

The National Debt, 1940 - 2009

The debt reached a peak during WWII (More on this later),

CNN Reports that the subprime crisis is for real. Take a position, not a little bit of GOLD but at least 35-40% of your current portfolio and transition into protection not later but NOW!

Iran withdraws $75 billion from Europe: report

Mon Jun 16, 2008 4:58am EDT

TEHRAN (Reuters) - Iran has withdrawn around $75 billion from Europe to prevent the assets from being blocked under threatened new sanctions over Tehran’s disputed nuclear ambitions, an Iranian weekly said.

Western powers are warning the Islamic Republic of more punitive measures if it rejects an incentives offer and presses on with sensitive nuclear work, but the world’s fourth-largest oil exporter is showing no sign of backing down.

“Part of Iran’s assets in European banks have been converted to gold and shares and another part has been transferred to Asian banks,” Mohsen Talaie, deputy foreign minister in charge of economic affairs, was quoted as saying.That is why smart money investor’s are purchasing and transitioning their assets and personal wealth into protection now by securing GOLD and precious metals in their portfolio. Call The Superior Gold Group now and inquire as to how you can do the same by Building Wealth You can touch with People you can Trust at 888-969-6465.

Iranian officials were not immediately available to comment on the report in Shahrvand-e Emrouz, a moderate weekly, which did not specify the time period for the withdrawals which it said were ordered by President Mahmoud Ahmadinejad.

“About $75 billion of Iran’s foreign assets which were under threat of being blocked were wired back to Iran based on Ahmadinejad’s order,” the weekly said.

Iran’s Etemad-e Melli newspaper, also quoting Talai, last week also reported the country was withdrawing assets from European banks but did not give any figures.

On Saturday, Iran again ruled out suspending uranium enrichment despite the offer by six world powers of help in developing a civilian nuclear program if it stopped activities the United States and others suspect are designed to make bombs.

The offer — agreed last month by the United States, Britain, Russia, China, Germany and France — is a revised version of one rejected by Tehran two years ago.

Iran’s refusal to suspend nuclear enrichment, which can provide fuel for power plants or material for weapons if refined much more, has drawn three rounds of U.N. sanctions since 2006. Tehran says it aims only to generate electricity.

“The economy is in an inflationary recession denied by most central banks and in our market manipulation capitals of Washington and New York. Traders and investors need to pay attention to actual stats not those with a mainstream, Keynesian agenda. We find their goofy defense stunningly remarkable and replete with nonsense. Jawboning (shoveling you know what) has become the greatest indoor, totally imperfect sport for Chopper Ben Brenanke and Hank Paulson. We are not calling them liars but perhaps they are fibbing slightly more than usual around the edges. Benny hides it as he appears half asleep most of the time. Paulson on the other hand cannot hide his appearance of naked fear and desperation. On one occasion, we thought he would have a heart attack.” - Traderrog

Keeping Score On Nonsense Is A Full Time Job

• We should have been building a file on market reporting nonsense over the past few five years but it would have been a full time job and we don’t have the time. Instead of a librarians list, we summarize today some critical reasons as to why traders and investors should not give-up on gold and silver. We simply lost control while producing this list and wrote 20 instead of 10. This list took only 15 minutes and we do have time and space constraints.
• We had a credit crunch caused by derivatives but now it’s structurally contained and mostly over. Greenspan’s give-away cash in the US spread to other nations through origination of derivatives. The contagion has only begun to spread and the 10% pittance of acknowledged bad paper allegedly managed at the banks leaves 90% lurking, hidden in banks’ balance sheets.
• The American banking system is sound as a dollar. Bear Stearns was
  More...

Dollar crisis looms, China ponders reform: Mundell

Tue Jun 03 12:23:41 UTC 2008

By Jason Webb,

VALENCIA, Spain (Reuters) - A major dollar crisis could come within five years and China is discussing reforms to the global monetary system to protect its $1.6 trillion reserves pile, says Nobel Prize-winning economist Robert Mundell.

Mundell, who has regular contacts with Beijing officials, said they are considering proposing ways to to fix major currencies including the dollar and the euro, in a system similar to the one which operated under the Bretton Woods agreement from the end of World War Two until the 1970s thereby putting America back on the Gold standard.

“There’s no doubt about it that inside the Chinese government there’s a lot of discussion going on. I’m not sure how they’re doing it but I know they’re going to get an input from me,” Mundell told Reuters in an interview.

Without reform, the global monetary system is headed for a dollar crisis within years, Mundell believes.

However, he thinks the United States will avoid a technical recession during the current downturn and that