SOROS: Geithner plan won't solve crisis; in fact it will perpetuate Zombie Banking

SHOOT: Soros of course is spot on here. If an engine is broken you need to get a new engine (or risk losing all your new investments on your already broken engine). Of course not everyone agrees that the engine of international investment banks is broken (which is abundantly clear looking at the comments made here). I guess we will find out whether what we want to believe is true, or whether another reality exists that may be quite painful to accept.

Essentially, Soros believes we should be following the so-called Swedish solution but fears we are heading down the same policy path as Japan. "We're effectively keeping zombie banks alive," he says.

To those who rail about the dangers of nationalizing banks, Soros says: "You have to recapitalize the banks for them to function. As it is, we are nationalizing the debt of the banks, but not the banks themselves."

The Crisis of Credit Visualized [VIDEO EXPLANATION]

This is an excellent video, and well worth watching. The cardinal truth though is espoused in the last 5-10 seconds. That is that investors made the risks on the assumption that rising property prices was given, guaranteed, and thus associated risks could always be recouped, no matter how risky the sub prime mortgage undertaking.

In theory there is nothing wrong with this psychology, except that is exceedingly naive. The idea that property prices would appreciate forever is grandiose. It's based on a childish hope that you can get 'something-for-nothing', and somehow escape the laws of gravity, entropy etc.

The reality of course is that property prices like human beings rely on something very basic to continue operating - they need energy. Without fresh air, people start succumbing to cancer and other respiratory diseases. The property markets - and suburbia in particular - relied on cheap and abundant energy to expand (and to maintain their inflating price tags). With energy becoming neither cheap nor abundant, property prices could simply not be justified. For example, if you can no longer afford to drive long distances from home to work, to Wal-Mart, to drop the kids off at school, and other costs are rising simultaneously (food for example) then the value of your home is going to drop. Houses simply become less affordable when everything else is becoming expensive.

And this is what happened as more and more money was based on property-based credit. In fact, much of the economy of America is based on Americans selling houses to one another (and all the associated accoutrement's). Take this away, and you really push that nation into economic collapse, which is what we're seeing.


US home price drops set records in Jan.

Mortgage Crisis Spreads Past Subprime Loans

The credit crisis is no longer just a subprime mortgage problem.

As home prices fall and banks tighten lending standards, people with good, or prime, credit histories are falling behind on their payments for home loans, auto loans and credit cards at a quickening pace, according to industry data and economists.

The rise in prime delinquencies, while less severe than the one in the subprime market, nonetheless poses a threat to the battered housing market and weakening economy, which some specialists say is in a recession or headed for one.

Until recently, people with good credit, who tend to pay their bills on time and manage their finances well, were viewed as a bulwark against the economic strains posed by rising defaults among borrowers with blemished, or subprime, credit.

“This collapse in housing value is sucking in all borrowers,” said Mark Zandi, chief economist at Moody’s Economy.com.

Like subprime mortgages, many prime loans made in recent years allowed borrowers to pay less initially and face higher adjustable payments a few years later. As long as home prices were rising, these borrowers could refinance their loans or sell their properties to pay off their mortgages. But now, with prices falling and lenders clamping down, homeowners with solid credit are starting to come under the same financial stress as those with subprime credit.

“Subprime was a symptom of the problem,” said James F. Keegan, a bond portfolio manager at American Century Investments, a mutual fund company. “The problem was we had a debt or credit bubble.”

More.


NVDL: The problem was caused by giving out 'step-up' loans. They are given out with very low pay back rates for the first year or two. Then they 'step-up' by a large margin, 15% or 30%. Suddenly the borrower finds he can't afford payments. The other factor that is an issue is the average American has been living from paychech to paycheck. This is an Ivoism: a scenario that assumes permanent/limitless growth. It is naive, and is the root of the problem. As soon as some of these limits manifest, minimum payments can no longer be made, and the limits to borrowing then take effect. Not a pretty picture.

Drought could force nuke-plant shutdowns

LAKE NORMAN, N.C. - Nuclear reactors across the Southeast could be forced to throttle back or temporarily shut down later this year because drought is drying up the rivers and lakes that supply power plants with the awesome amounts of cooling water they need to operate.

Utility officials say such shutdowns probably wouldn't result in blackouts. But they could lead to shockingly higher electric bills for millions of Southerners, because the region's utilities may be forced to buy expensive replacement power from other energy companies.

Already, there has been one brief, drought-related shutdown, at a reactor in Alabama over the summer.

"Water is the nuclear industry's Achilles' heel," said Jim Warren, executive director of N.C. Waste Awareness and Reduction Network, an environmental group critical of nuclear power. "You need a lot of water to operate nuclear plants." He added: "This is becoming a crisis."

By MITCH WEISS, Associated Press Writer
More.

NVDL: Notice how frequently we see the ord 'crisis' appearing?

U.S. dollar falls to all-time low vs euro (CNN)

BERLIN, Germany (AP) -- The U.S. dollar fell to an all-time low against the 13-nation euro Tuesday as traders awaited housing data from Washington.

The dollar has been falling steadily against the euro since August.
In morning European trading the euro bought $1.4767, up from $1.4667 late Monday in New York.
The British pound rose to $2.0597 from $2.0497 in New York, while the dollar rose to purchase 110.42 Japanese yen from 109.85.
The euro and the pound have been climbing steadily against the dollar since August amid fears for the health of the U.S. economy, stoked by the subprime credit crisis.