Unbelievable stuff....

Let's start with the Treasury Complex.  Anyone want to argue about "borrow short, lend long, make a big fat positive yield curve to help banks" any more?  No?  Gee, why not, with the TNX now trading down at 2.7%?!

That's a depression print guys, and Bernanke spiked the hell out of the /ZN Treasury Futures when he said what I had suspected now for quite some time, in that he "threatened" to buy the long end of the curve (IMHO he already has been, and the scam here is that we the people don't have the right to know what he is doing with our money.)

The idiocy on display here with the markets unable to parse what is obvious (Ben is buying Ts) is amusing - and amazing.  Either that or our "friends" around the world are quietly sidling toward the door, unloading quietly (or shorting against the box to protect themselves!) as they do so.  I simply do not believe that the curtains being on fire have escaped everyone's notice - ergo, I am forced to conclude that the FTDs in the Treasury Market might be related to this (naked shorts against the box anyone?) and are being intentionally ignored by Treasury because if they force this into the open and stop it then the entire Treasury complex implodes!  Penalizing those who are allowing you to maintain your illusion just won't do - for now - until someone gets an eye poked out in the game (e.g. the Saudis or Chinese), at which point we find out how many chairs there really are.

Paulson and Bernanke continue to talk about "stabilizing prices" in the housing market, but the truth is that housing prices remain too high. 

Paulson and Bernanke continue to dissemble about trying to "address the slowdown" in the economy. 

Nowhere have we seen, however, either of these clowns admit the following facts:

1. The Fed had the authority to prevent the excessive leverage and off-balance-sheet crap in the banking system, along with toxic securitization, that led to the crisis in the first place. They also had twenty years of foreknowledge of the results of NOT regulating same, from the S&L mess to LTCM and ENRON, all of which ended in the same place - bankruptcy. NOW Bernanke claims that he must protect against "too big to fail" knock-in effects and says that regulatory reform must take place but The Fed was in no small part responsible for the original mess by explicitly advocating for the removal of regulatory safeguards and has continued to remove more of them on their own authority, including "23A" exemptions, continuing to this very day!
2. Paulson was personally responsible for lobbying Congress and the SEC to remove the leverage limits that would have (and did, previously) prohibit Goldman Sachs and other firms from getting so far underwater AND so big as to become "too important to fail."  He has steadfastly refused to acknowledge his personal culpability in this matter, nor has he called for these limits to be reinstated.  There is nothing wrong with the regulatory system that was in place originally - it was intentionally circumvented and dismantled!
3. NOBODY in government is willing to admit that the crux of the problem is that there was too much credit granted to people who could not possibly pay.  This can only happen when the government is willing to protect those who go bankrupt when they make these poor decisions, because otherwise the market severely and immediately punishes those who imprudently grant credit, and serves as the appropriate and proper check and balance on this behavior.
4. Statements by people like Rubin that "nobody could have seen this coming" (along with people like Bernanke and Greenspan) are pure lies.  Anyone who has ever done business of any degree anywhere is fully aware that the loss in a bad lending decision happens when the loan is made - not when it defaults.  These people are knowingly lying to you, and both Congress and Americans in general are simply refusing to hold any of these clowns to account!
5. Nearly all of the so-called "prosperity" of the last five years has in fact been excessive credit growth - that is, it has been a fraud.  There has been no material real "prosperity" - that is, real wage and productivity growth - during the 2000 decade thus far.  That sucks and is a direct and proximate consequence of attempting to paper over the 2000 tech market implosion instead of allowing it to run its course and cleanse the system of malinvestment during the 1990s.

The bottom line is that there is no fix for this mess nor will the economy recover until and unless the bad debt is removed from the system.

There are only two ways you can accomplish that goal:

1. You can find some way to magically improve the wages (real earnings power) of Americans.  Not by "inflating" the money supply (which just raises prices, and faster than wages due to slippage!) but the actual productive output per person by 20% or so.  This is impossible.
2. You can force the bad debt to default and thus clear it from the system; once that has taken place lending can resume with a cleaner balance sheet for both borrowers and lenders.

There are no other solutions folks.  #1 is not going to happen unless we discover something that today can only be called "magical thinking" (e.g. practical cold fusion, FTL travel, etc.)

#2 therefore will and must happen, and we have only two options as to how it happens - it can either happen due to being forced into open by the market (that is, the government stops intervening and the market takes care of it) or we continue to screw around as we have and the risk of default extends into the government debt market itself.

Banks are now starting to cut back credit card lines and this is going to get a lot worse.  We are simply not pricing this into the market - not at all - nor can we.  There is absolutely nothing the government can do about this, and we must insist that the government quit lying about the root causes of this mess and what must and will come as a consequence.

The idea that the government can "manage" the way out of this mess is fanciful thinking, equivalent to belief in Santa Claus or The Easter Bunny.

Paulson and Bernanke are both full of crap.

Period.

Oh, and NBER now says we entered Recession in late 2007?  Gee, finally, a year later, they vindicated my call from December 2007 in "The Year In Review" ticker?  Better late than never.... just wait until you see my '08 edition!