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This post debunking the myth of deleveraging in the U.S. economy was on ZeroHedge yesterday and was written by Jim Quinn of TheBurningPlatform.com. It’s a must-read for anyone who’d like to test the credibility of financial chatter on TV. Here’s a couple of excerpts and two key charts, and go read the full story for some great commentary on mainstream financial media:

Below is a chart that shows total credit market debt as a % of GDP. This chart captures all of the debt in the United States carried by households, corporations, and the government. The data can be found here. During the Great Depression of the 1930′s Total Credit Market Debt as a % of GDP peaked at 260% of GDP. As of today, it stands at 360% of GDP. The Federal Government is adding $4 billion per day to the National Debt. GDP is stagnant and will likely not grow for the next year. The storyline about corporate America being flush with cash is another lie. Corporations have ADDED $482 billion of debt since 2007. Corporate America has the largest amount of debt on their books in history at $7.2 trillion. more…

As financial markets froze this very week in 2007, the real-time media market was catching fire. So instead of summarizing it all with a 140 character Tweet, below we offer some broader perspective by bringing everyone’s favorite obsessions together: mortgage rates, Twitter, and iPhones. Stat-filled timeline and rate chart are included.

Home prices started falling in 2006 but it wasn’t until 2007 that the full impact of loose credit was felt. Loans made to unqualified (mostly U.S.) borrowers underpinned bond funds around the globe and countless derivatives were created from those bonds. Because of this, Nouriel Roubini was one of the first economists to note that “we have a subprime financial system, not a subprime mortgage market.” more…

Can The Fed Stimulate Economy Better Than Congress?
It seems that Congress is tied up in knots and compromises lately, so Federal Reserve officials may be taking matters into their own hands for improving the economy. The Fed has a limited set of tools with which to work, especially with its overnight Fed Funds target rate already near 0%. It would appear that massive infusions of cash are not in the cards, but that risks of the recovery losing steam have increased. There is certainly little chance of the Fed selling off its holdings of MBS’s – much of which has been going away with lower rates leading to some refinancing – and discussion has actually begun about the chances of the Fed buying more MBS’s. The Fed could change the wording of its statements to make sure that the market knows that rates will stay low for a long period of time. It could also cut the interest rate paid to banks for extra money they keep on reserve at the Fed from 0.25% to 0%, which would give banks more incentive to lend money to customers rather than leave it with the Fed.

From the mortgage industry’s view point, the Fed buying mortgage backed securities certainly help push home loan rates down – but few people at this point believe that rates are the big issue with housing. Just ask anyone who has had a loan fall through due to the property not qualifying, the borrower’s credit being an issue, or the borrower’s debt loan being too great. more…

Half of Nation’s 7800 Credit Unions Reported 2009 Losses
The National Credit Union Administration (NCUA) approved a $1 billion charge to pay for the corporate credit union bailout. This follows last year’s charge of $1.1 billion, $337 million of which went to the corporate bailout and the remainder to replenish reserves for the National Credit Union Share Insurance Fund. These monies must be accrued by credit unions for the second quarter, and paid by August 30th. Unfortunately the corporate assessment is expected to push over a thousand credit unions into the red for the second quarter, over five hundred into the red for the year, and 60 credit unions into undercapitalized territory. According to NCUA almost half of the nation’s 7,800 credit unions reported losses for fiscal 2009.

Fed Analysis of How Banks Pay Employees
If you’d like to see cutting edge news on compensation in large banks, you’re in luck. The Federal Reserve completed its first round of in-depth analysis of bank compensation practices, especially at large, complex banking organizations. Apparently many large banks have already put these changes in place, especially to ensure that incentive compensation plans do not encourage excessive risk-taking. The next step, of course, is for our government to study compensation in specific business lines and financial firms – like mortgage companies. I can hardly wait. more…

George Soros just published a speech he gave today on how market bubbles are formed, and the regulatory implications of his theory. Full speech below, with some bold highlights we added as markers. Well worth the read.

George Soros Speech, Institute of International Finance
Vienna, Austria, June 10, 2010

In the week following the bankruptcy of Lehman Brothers on September 15, 2008 – global financial markets actually broke down and by the end of the week they had to be put on artificial life support. The life support consisted of substituting sovereign credit for the credit of financial institutions which ceased to be acceptable to counter parties. more…

Are Your Sure Home Prices Don’t Always Rise?
According to a study released by the MBA (or the MBAA, depending on if you use “Mortgage Bankers Association of America”), multiple factors including poor data, incomplete performance metrics, and, short-term focus and unrealistic optimism among senior business managers contributed to the collapse in the US housing and mortgage markets.

“As home prices increased, lenders were pressured to offer innovative products that could help borrowers afford a home. The resulting increase and expansion of risk layering and change in borrower behavior, left risk managers unable to offer reliable risk estimates.” more…

Summary of $962b European Bailout
Although recent indicators suggest that the Euro-zone economy (16 countries) is slowly and weekly expanding, a default by Greece or anyone else (PIGS: Portugal, Ireland, Greece, Spain) would slam the European banking system, and in turn ours. As it turns out, the European Union (EU) and the International Monetary Fund (IMF – almost 20% funded by the US) joined forces to create a loan package/bond purchase plan for $962 billion (759 billion euros)—more here and here. Of course, Greece has yet to succeed with its austerity measures – retiring at age 55 with full pay sounds pretty good.

The aid package created this morning in Europe, along with the huge rally in stocks, once again overshadows any “short term” jobs number. But Friday’s unemployment data does point out an interesting feature of the make-up of the employment data. Nonfarm employment rose by 290,000 jobs in April. But the unemployment rate increased, moving from 9.7% to 9.9%. How does that work? Ordinarily, a jump in nonfarm payroll would push the unemployment rate lower. Last month, however, individuals who had previously given up looking for work (and hence were no longer considered to be part of the labor force) sensed improving economic conditions and resumed their job search. So while 805,000 individuals entered (or re-entered) the labor force in April, only 550,000 found jobs. The remaining 255,000 who didn’t find jobs are now added to the tally of the unemployed, hence the unemployment rate increase to 9.9% from 9.7% previously. Many jobs came from relatively low-paying industry classifications, or were part-time jobs, and so hourly earnings were unchanged. In fact, the household data shows part-time jobs have accounted for nearly 65 percent of the jobs added over the past three months. more…

How Lenders Create Rate Sheets
Zero-point rates on loans up to $729k held at record lows for the second week last week even though mortgage bond levels might suggest rates would have dropped further. Jumbos also held steady at very attractive levels. Mortgage bonds benefitted as the EU/IMF’s $140b Greece bailout caused investors to sell European debt and buy more conservative U.S. mortgage and Treasury bonds. When bond prices rise on these buying rallies, rates drop.

But it’s not actual mortgage rates that drop when mortgage bond prices rally, it’s mortgage bond yields (the rate of return on those bonds) that drop. Then lenders re-price mortgage rate sheets based on those lower yields. This lowering of mortgage rates didn’t happen to quite the extent that lower mortgage bond yields might suggest because last week was wildly volatile. Mortgage bond prices swung more than 100 basis points Thursday and Friday—in the bond world, this is similar to the massive swings we saw in the Dow Thursday (when it was down 1000 at one point). more…

Following the EU/IMF’s $140b bailout of Greece last week that came with austerity measures which raise taxes and cut pay for 20% of the Greek workforce, there was rioting in Greece and market turmoil globally. The European Union has now announced a plan to set up a fund that would help prevent the problem from spreading through the 16-country EU. More on this from a Bloomberg report below:

European leaders agreed to set up an emergency fund to halt the spread of Greece’s fiscal woes, seeking to prevent a sovereign debt crisis from shattering confidence in the 11-year-old euro. more…

Rates dropped last Tuesday when S&P downgraded Greece and Portugal debt, which caused bond investors to reallocate to safer mortgage (and Treasury) bonds—when bond prices rise on buying, rates drop. This positive mortgage sentiment generally held throughout the week, and zero-point rates on loans up to $729k ended the week at record lows.

GOOD JUMBO MORTGAGE NEWS
Jumbo rates also improved slightly, and the latest sign of life in the Jumbo marketplace was news Thursday from Wells Fargo: they’ll be expanding their mortgage securities trading team from five to 30 on expectations that the market for mortgage bonds based on pools of Jumbo loans (above $729k) will improve by the end of 2010. This team will build and sell Jumbo mortgage bond products for all eligible lenders and also for Wells. more…