Moody's Cuts Rating for Portugal

The debt crisis in Europe continues to worsen. Now, Moody's has cut the ratings on debt held by the Portuguese.

Moody's credit rating agency downgraded Portugal's debt on Tuesday, casting fresh doubt on the country's ability to weather its debt crisis as the economy weakens.

Moody's Investors Service cut Portugal's government bond ratings to A1 from Aa2. The move deepens the country's financial woes because foreign lenders will likely demand higher interest returns for the risk of loaning it money.

Portugal's financial ordeal is part of a government debt crisis that has engulfed the euro zone and weighed on the shared currency. The cuts in Portugal's rating by international agencies in recent months have stoked market concerns that the crisis, which led Greece to the brink of bankruptcy and a bailout, could spread to other financially troubled countries in the euro zone.

It's only a matter of time before the US faces a similar fate. No one framed the issue better than Erskine Bowles.

"This debt is like a cancer," Bowles said in a sober presentation nonetheless lightened by humorous asides between him and Simpson. "It is truly going to destroy the country from within."

That's where we are at and the President simply isn't willing to acknowledge it yet. He continues to claim that he inherited this deficit and that he has worked to reduce it. Markets don't respond to nonsensical rhetoric and ignoring reality won't solve it. That seems to be the only thing that Obama is doing so far.

Financial Reform Back on the Brink

Only a couple days after announcing a big breakthrough on financial reform, the same package may be back on the brink. First, Senator Feingold announced that he would vote against the measure.

In case you haven't caught this bombshell yet, Senator Feingold announced that he won't support the FinReg bill as negotiated. This means the bill needs to go back to square one unless there's a Republican defector in the next day or two, which is extremely unlikely.

Hours later, Senator Scott Brown announced the same.

I am writing you to express my strong opposition to the $19 billion bank tax that was included in the financial reform bill during the conference committee," wrote Brown. "This tax was not in the Senate version of the bill, which I supported. If the final version of this bill contains these higher taxes, I will not support it."

This only leaves four undecided Senators: Grassley of Iowa, Snowe and Collins of Maine and Senator Cantwell of Washington. All would have to vote for the measure for it to get sixty votes.

Dow Futures Down: Progressive Economics Feared

The DJIA will test four digits again as its hovering near 10000 again today. The Eurozone is again worried that everyone will be bankrupt soon.

Two days of little movement for U.S. stocks is likely to end Tuesday, with renewed worries over euro zone debt pushing overseas markets lower, as well as U.S. stock index futures.

The Dow, the S&P 500 and the Nasdaq all registered single-digit moves both Friday and Monday, but this morning's worries likely mean a sharply lower opening, and those worries have also sent many investors to U.S. Treasuries. The 2-year yield hit a record low in overnight trading, while the benchmark 10-year note's yield hit a 14-month low.

Let's all remember that the president attended the G20 and demanded that everyone else continue to spend.



Yet, the entire rest of the G20 rejected this idea wholesale. The only person at this point that thinks that Obama should continue to borrow and spend, besides Obama, is Paul Krugman.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

The rest of the world has realized that endless spending of money the government doesn't have is not only inefficient but leads to borrowing and/or taxation and both of those are contractionary. As such, the rest of the world gave Obamanomics a chance and now it's being rejected entirely.

Totally Free Checking Going Away

Bank of America may lead the banking revolution away from totally free checking.

Bank of America Corp. and its rivals are moving away from free checking accounts as they grapple with losing millions in fee revenue from new regulations on overdrafts.

BofA is quietly testing new pricing plans on checking accounts nationwide, The Wall Street Journal reported Thursday. The newspaper said the Charlotte-based bank

(NYSE:BAC), which ranks fifth in Raleigh-Durham market share, is considering tiered pricing plans that encourage customers to do more business with BofA to avoid charges, rather than imposing flat monthly fees for all.

Overdraft fees were touted by the administration as one part of their crackdown on banks.

Banks will have to secure their customers' consent before charging large overdraft fees on ATM and debit card transactions, according to a new rule announced Thursday by the Federal Reserve.

The rule responds to complaints from consumer groups, members of Congress and other regulators that the overdraft fees are unfair because many people assume they can't spend more on a debit card than is available in their account. Instead, many banks allow the transactions to go through, then charge fees of up to $25 to $35.

For small purchases, such as a cup of coffee, the penalty can far exceed the actual cost of the transaction.

Of course, ironically enough, this was part of a populist push to take on the banks on behalf of the middle class. Totally free checking has become a staple among all the major banks for the last decade. If that goes away, that's a fee on everyone that has a checking account (though the plan is to only charge those with only a checking account and waive fees on this with multiple accounts) That would bring pain to far more of the middle class. That appears to be the end result of yet another regulation.

Obama To Ask for More Stimulus

Saying that the economy is in a fragile state, President Obama will ask the Congress for $80 billion in more stimulus funds.

President Barack Obama and his aides are stepping up a push for further government spending to boost the economy as signs grow of the recovery's fragility.

The White House is calling for Congress to urgently pass measures to extend jobless benefits, aid cash-strapped states and provide targeted tax breaks to encourage research and development by businesses.

There's a few things of interest here. First, the president is claiming that teachers and cops will be laid off without this stimulus. That's been the M.O. of the president every time he's asked for money. In fact, the first action of Governor Quinn in Illinois was to hike the income tax and he made a similar argument. In Cook County, the President Todd Stroger said that without his massive sales tax hike there would be serious cuts to Cook County Hospital. It seems that whenever a politician wants to spend money or raise taxes they trot out teachers, cops, and doctors to justify.

Second, wasn't this what the original stimulus was for? If $787 billion wasn't going to keep cops, teachers, and hospitals working, how can an extra $80 billion do the job? In fact, estimates put the unspent portion of the stimulus between $300 and $450 billion and another $200 billion in TARP. So, why is it necessary for there to be a new stimulus?

Third, and more importantly, this will test the clout of President Obama. Already, there are high ranking Democrats that are pouring cold water on the idea. Here's what Steny Hoyer said about it on ABC's this week.

I have asked the White House to look at the package we already passed. I personally believe if we have dollars not yet expended in the recovery act we could apply to this immediate need.

Hoyer said the country is suffering from "spending fatigue". Hoyer understands that the deficit will be a major issue in the fall and more spending will continue to paint the Democrats as out of control. Obama has called this package "critical" and so if his own party doesn't support him, that will be an indication that his clout is seriously waning.

May Jobs Report

The jobs report in April was fairly positive and in May it's a stinker.

Employers in the U.S. hired fewer workers in May than forecast, showing a lack of confidence in the recovery that may lead to slower economic growth.

Payrolls rose by 431,000 last month after a 290,000 increase in April, figures from the Labor Department in Washington showed today. The gain was smaller than the 536,000 median forecast in a Bloomberg News survey and reflected a 411,000 jump in government hiring of temporary help for the 2010 census. Private payrolls rose a less-than-forecast 41,000. The unemployment rate fell to 9.7 percent as Americans dropped out of the labor force.

Doing the quick math, this means that only 20,000 jobs were gained in the private sector. Meanwhile, the census jobs are temporary and so most of those jobs will be over by the end of July.

The unemployment rate fell to 9.7% and the pool of workers actually shrank by 286,000 people. That means that people again have stopped looking and gone back to being considered "discouraged workers".

Not surprisingly, equities are getting crushed in the pre market. The Dow may again test 10000 today. On the bright side, mortgage rates will again test all time lows. We're below 5% on the 30 year fixed and it's now pushing 4.75%. The ten year U.S. treasury is at 3.27%. That's at the very low end of the range. Watch to see if that breaks through a floor and heads toward 3%.

Some have said that the recession ended in July of last year. So, we're ten months into a recovery and jobs are nowhere to be found. This unemployment rate will continue to hover around 10% for the indefinite future. There is no spinning this. The economy continues to be stalled.

There's more coverage here. The spin is here and here.

Is the U.S. A Sub Prime Borrower?

Financial analyst Peter Schiff makes the comparison.

Euro Pacific Capital president Peter Schiff says it's better to have an inflexible currency — and that the ability to print money is making the U.S. a subprime borrower.

“The U.S. government is making the same mistakes that subprime borrowers made when (banks) were making teaser rates on their mortgages,” Schiff says.

“What happens if interest rates go up to 10 percent, which is half of what they were in 1980? All of a sudden, we’re paying $1.5 trillion a year (in interest),” Schiff told CNBC.

Sub prime was always a house of cards. It was done with no money down loans where income was stated but not verified. This lead to all sorts of fraud and abuse. On top of this, sub prime was almost exclusively financed by Adjustable Rate Mortgages. This house of cards was masked because the hot real estate market allowed for refinancing and sales before there was too much trouble.

That house of cards ended when people could no longer refinance and these ARM's adjusted up. The U.S. debt is financed by U.S. Treasury bonds. These are ARM's on steroids. In sub prime, these ARM's had fixed rates for 2, 3, and 5 years. U.S. Treasury bonds adjust day by day and minute by minute.

Schiff's point is that we are already over leveraged. Yet, rates are now low. Soon, we'll be financing 12-15 trillion dollars worth of debt at rates that are much higher. Our debt is already a house of cards. It's financed purely by our reputation. What will happen when that debt is financed at 6-8%? It could be the same trigger that ultimately doomed sub prime.

The Corrosive Power of Entitlements

I was at a diner yesterday morning for breakfast when the subject of Greece came up among the staff. One of the staff suggested that the way to have averted the crisis was to have benefits to many of their public employees benefits packages long ago. After all, the employee reasoned, the budget deficit that is causing the country to be on the verge of collapse is due in large part on sweetheart deals to public employees.

It's a simple solution and it would also solve many of our own "unfunded liability" issues in Medicare, Medicaid, and Social Security. They are taking in less and less in revenues and paying out more and more in benefits. So, we must raise the age of benefits, cut the amount of benefits, and/or raise the taxes on benefits.

I listened as the employee presented a perfectly reasonable idea and I couldn't listen any more. This idea, while perfectly reasonable on a policy level, has no political viability. That's because whenever any politician proposes any cuts to benefits, there is another politician ready to demagogue the issue and claim you're going to take what is rightfully someone's right. Those politicians will proclaim that said entitlements are perfectly solvent and under their plans everyone will get their benefits. That's exactly what happened during the Social Security debate in 2005. Any proposed change to Social Security by Bush was met with attacks by Democrats that he "was taking away your social security".

Furthermore, you can bet your opponents will find some $2000 campaign contribution from some donor that they will then claim will benefit from your cuts. Now, suddenly, you're no longer proposing a fiscal solution but a corrupt politician.

The idea proposed assumed that voters are logical. Voters can see when a program has no long term fiscal viability. Of course, if that were true President Obama would never have been president. He promised everything to everyone: free health care, student loans, to pay your mortgage, and only the really rich would pay. That's not viable and yet he won overwhelmingly.

That's what happens as soon as you give out an entitlement. People feel entitled and anyone that dares to take it away gets eliminated.

HHS Says that Obamacare Will Increase Costs

I'm shocked, shocked I say.

President Barack Obama's health care overhaul law will increase the nation's health care tab instead of bringing costs down, government economic forecasters concluded Thursday in a sobering assessment of the sweeping legislation.

A report by economic experts at the Health and Human Services Department said the health care remake will achieve Obama's aim of expanding health insurance -- adding 34 million Americans to the coverage rolls.

But the analysis also found that the law falls short of the president's twin goal of controlling runaway costs, raising projected spending by about 1 percent over 10 years. That increase could get bigger, however, since the report also warned that Medicare cuts in the law may be unrealistic and unsustainable, forcing lawmakers to roll them back.

While all of these are merely analyses, this obviously hurts Obama's credibility. The study came from an independent HHS committee.

Sixteen Thousand

That's the number of new IRS agents that will be hired just to enforce the new health care bill.

Watch for Republicans to hammer at this number. That's because it tells quite a story. First, we all hate the IRS. So, if it's even more intrusive, that is even more visceral. Those IRS agents will be hired to enforce the individual mandate, the mandate on employers, and to enforce all other parts of the new bill. Now, when the Democrats claim this isn't a government takeover of health care, the Republicans will quickly remind Americans that sixteen thousand new IRS agents will be hired to enforce it.

Quinn's Budget: Heavy Cuts, Borrowing and No Tax Increases

A few weeks back the Civic Federation said that the state of Illinois was facing a long term budget deficit of about $11 billion and proposed a series of spending cuts and tax increases. Today, Governor Pat Quinn has proposed a budget with heavy spending cuts and borrowing but no tax increases.

Gov. Pat Quinn will offer a state budget plan today that relies largely on heavy borrowing and deep spending cuts, his chief of staff said during a briefing Tuesday with reporters.

While Quinn has supported the idea of raising taxes to help the state resolve its massive budget woes, the governor's spending plan won't call for a specific tax increase, chief of staff Jerome Stermer said. Still, he said Quinn believes Illinois needs additional revenue to help pay its bills.

"The governor will propose a budget that doesn't have new revenues," Stermer told reporters. "It's not a budget that he's going to like proposing, I can guarantee you that."

The problem with heavy borrowing, as proposed in this budget, is that it robs Peter to pay Paul. While the Illinois constitution demands that we have a balanced budget there are many gimmicks. For instance, if you create a one billion dollar bond offering at 7%, and sell it all this year, you would create one billion in cash flows in and only $70 million outflows cash flows. Of course, that $70 million would become a yearly outflow of cash in your budget whereas the one billion would only be written on this year's budget.

So bond offerings, like those proposed by Quinn, are a great way of balancing a budget in a particular year. What it does is further erode the state's long term financial health. The state is already at a critical stage and now we're going to go through another series of borrowing. That will only further erode the state going forward. It's exactly these sort of gimmicks that have put the state in this position to begin with. Now, it will be further made worse by this set of borrowing.

Bunning's Tale is Telling

Jim Bunning is holding up vital funds for hundreds of thousands in desperate need. Don't believe just ask anyone in the MSM.

For four days, he has been on a one-man campaign to cut off unemployment benefits, kick the unemployed off of health insurance, cut Medicare payments to doctors, deny satellite TV to rural Americans, shut down federal flood insurance and highway projects, and furlough thousands of federal workers.

Democrats can hardly believe the gift Bunning has given them by single-handedly shutting down these popular programs. Bunning's fellow Republicans are aghast. If this were baseball, the Hall of Famer would be on his way down to triple-A. But this is the Senate, where any one of the 100 members has the ability to bring proceedings to a halt, and Bunning continues to hurl his wild pitches.

Bunning's tale is telling for just how hard it will be for the government to get its fiscal house in order. Bunning is objecting to $10 billion in extensions for unemployment benefits because the Congress isn't paying for them. $10 billion is about one quarter of one percent of the yearly spending of the U.S. government. Less than a month ago the Congress passed pay go. So, any new spending needed to be offset with a cut somewhere else. (there were of course plenty of exceptions to this but that's another story)

So, Bunning is simply demanding that the Congress do what they have mandated themselves to do. For his trouble, he's created a mini firestorm. He was cornered and harassed by ABC reporters.



Bunning certainly didn't help himself or his case by his abrasive and less than hospitable attitude towards those reporters. Still, Ben Nelson didn't face nearly this much media scrutiny after the Cornhusker kickback.

Bunning is asking for $10 billion spending cuts. That's it. The firestorm would have some believe that he wants to cede the state of Hawaii. What's going to happen when our politicans have to make decisions about hundreds of billions in necessary spending cuts. All politicians are for cuts in spending until you actually have to make specific cuts in spending. Then, they're all about demonization.

The CFPA is Fool's Gold

Paul Krugman used his opinion space to push for broad and tough financial reform with its center piece being the Consumer Financial Protection Agency (CFPA). This is the center piece of President Obama's new financial regulation and Krugman presents the benefits of the CFPA like this.

There’s no question that consumers need much better protection. The late Edward Gramlich — a Federal Reserve official who tried in vain to get Alan Greenspan to act against predatory lending — summarized the case perfectly back in 2007: “Why are the most risky loan products sold to the least sophisticated borrowers? The question answers itself — the least sophisticated borrowers are probably duped into taking these products.”

With all due respect to both Krugman and Greenspan, if they can't answer this question, they should cede from contributing to any debate on financial regulation. To claim that the least sophisticated get the most risky loans because they are "duped" is simply populist fantasy. The least sophisticated among us are also those with the weakest credit score, least in assets, and lowest in income. The reason they got the riskiest loans is because that's the loan they usually qualified for.

Mortgage professionals could make just as much money in prime loans as sub prime. I'm not saying it didn't happen but the overwhelming majority of the time the unsophisticated borrowers were put into risky loans because they simply didn't qualify for the safe loans.

The CFPA would be yet another regulator in an industry that is already hyper regulated. Paul Krugman claims there aren't enough consumer protections but anyone that has ever closed on a home loan knows there's too many protections. The hundred or so pages that everyone signs are the supposed protections.

There continues to be a disconnect between those that want more regulations and reality. Is there anyone that thinks we don't sign enough paperwork in conjunction with getting a home loan? Yet, the Krugman's of the world want more regulations. What exactly does more regulation mean if not more paperwork? Banks and mortgages are already under the perview of at least ten different regulators on the state and federal level. The answer for some is to add another regulator.

Obama Still Wants to Have It All on Health Care

The president unveiled his new health care proposal about half an hour ago.

US President Barack Obama has unveiled new plans to advance legislation to overhaul the US healthcare system.

One of the key proposals gives the US government new power to block health insurers from imposing excessive premium increases.

Mr Obama has made healthcare reform a centrepiece of his presidency, but has so far failed to get a new law passed.

There's three key features to his proposal. First, almost everyone will be required to have health insurance. Second, there will be very tough restrictions against health insurance companies as far as who they can and can't cover. Third, the Feds can dictate how much a health insurance company can raise rates.

The president still doesn't seem to get it. Think of this as a balloon. If you squeeze one part, another part will balloon. So, if you force insurance companies to cover everyone, they will charge higher rates. If you force them to cover everyone and you don't allow them to charge higher rates, the insurance companies will squeeze from somewhere else.

The insurance companies will simply cover less. They will also reimburse less to doctors. Milton Friedman once said, "there's no such thing as a free lunch". The president is approaching it as though there is. He seems to think that he can force the insurance companys' hands with no consequences. That won't happen. The more he squeezes in some places, the more the insurance companies will squeeze out of other places. This plan is pure fantasy.

Bi Partisan Jobs Bill On the Brink?

The Senate leadership has pulled the rug out from underneath a bi partisan agreement for a jobs bill.

Last night, after Max Baucus and Charles Grassley spent weeks negotiating a bipartisan jobs bill, Harry Reid scuttled their efforts and put forward his own $15 billion plan. Democrats, Republicans, and the White House all were caught off guard. Reid's new plan is limited to the Schumer-Hatch payroll tax credit, highway spending, and a few other measly programs. That bellow you hear is the Obama-isn't-liberal-enough left.

This is a head scratcher. There was bi partisan agreement and the President was on board. Now, Harry Reid has pulled that agreement and scaled it back significantly. As such, both Republicans and Democrats are unhappy.

You can bet that a series of fingerpointing is sure to follow. What should trouble everyone is this. Everyone agrees that a bi partisan jobs bill needs to be done. This is a very uncontroversial piece of legislation. Yet, it's not at all clear that even this will pass. As such, it appears almost all legislation will ground to a halt.

The Coming Small Business Bubble?

The situation seems eerily familiar. Our economy is weak. Money is cheap, and loan standards are then loosening.

President Barack Obama is asking Congress to extend the provisions that helped revive U.S. Small Business Administration lending this year.

The economic stimulus bill provided the SBA with $375 million to increase the loan
guarantee on the agency’s flagship 7(a) business loans to 90 percent, and to reduce or eliminate fees on 7(a) loans and 504 loans, which primarily finance real estate. The higher guarantee brought more than 1,000 lenders back to the SBA’s loan programs, and the lower fees made the loans more affordable to borrowers.

Thanks to these enhancements, SBA lending hit a record high in November.

That was the set up for the real estate boom, bubble, and bust. Our economy was weak. The Fed made money cheap. Banks began to extend mortgage terms to levels never seen before.

What do we have now? Our economy is weak. The Fed Funds Rate is zero and now President Obama has designed a plan so that small businesses will get loans at loan to values and sizes never seen before.

I have been forecasting the creation of a bubble in the economy since Bernanke lowered the Fed Funds Rate to zero. That's no especially astute analysis. Cheap money creates an artificial stimulus to spend and invest. Banks had a lot of cheap money in 2002-2003. They needed a place to put it and they found one in sub prime.

The same is true now only now the administration is determined to make as much of the final place small business loans. That's a set up for a small business loan bubble.

It's the Deficits Stupid

The administration came out with their deficit projections for FY 2011 and they are staggering.

President Obama sent Congress a $3.8 trillion budget Monday for fiscal year 2011, pushing a plan that includes new jobs-creation programs but is projected to add nearly $1.3 trillion in deficit spending on top of the current year's projected $1.6 trillion deficit.

According to the plan, the 2011 deficit of $1.267 trillion would fund nearly the entirety of the year's discretionary spending, which is $1.415 trillion or 37 percent of the government's total outlays. Mandatory spending on items such as entitlements and interest payments make up the rest.

This is the FY 2011 budget so this includes the so called spending freeze. That should put to rest the so called effectiveness of this freeze. If these projections materialize, this will be the biggest deficit ever.

The nexis of the president's problems start and end with this deficit. It's the easiest way to explain his problems. The president claims that these deficits are necessary to stimulate the economy. It's true. Almost everyone agrees that deficits are a natural and necessary parts of recessions. It's not true, however, that deficits must reach these levels.

People are afraid of the consequences, long and short term, of these massive deficits. As a result, they've rejected his entire agenda. As long as we see $1 trillion deficits and more the president will have this as an anchor.

The president in his remarks again tried to blame Bush for this. He claimed, again, that he inherited this deficit. That's of course non sense. This is the FY 2011 budget. This is a full year after Bush left office. This has nothing to do with Bush. These deficits are his responsibility and his alone. The folks aren't stupid and still blaming Bush is now just boring.

Obama's Goofy Bank Tax

President Obama must be realizing that the populism that he rode into the White House has turned into cynicism, and most people think he's far too cozy with Wall Street. That's the only thing that can explain this goofy idea.

President Barack Obama on Saturday pitched his proposed tax on banks to recover the cost of bailing them out during the financial crisis, saying if they can afford billions more in bonuses, they can pay back the taxpayers, too.

The banks and Republican lawmakers oppose the tax, which Obama announced this week.

"We're going to pass this fee into law," the president said in his weekly radio and Internet address.

There are so many problems with this, Constitutionally that is. This would be an ex post facto law. This wasn't part of the deal when banks took the money. You can't give someone money with one set of rules and then change it after the fact. That's an ex post facto law and it's clearly prohibited in the Constitution. Furthermore, many of the financial institutions targeted have paid the money back WITH INTEREST. How can you tax them on money they've paid back?

Worse yet, both Fannie/Freddie and the auto makers are exempt from this even though they have barely paid anything back yet. It's also a clear violation of the fourteenth amendment, which says that the law must apply to everyone equally. Clearly, this law would not.

I haven't seen any polling on this idea but I suspect this polls about as well as most of the ideas Obama has come up with. (meaning not all that well)

Making Home Affordable Now Officially a Disaster

I say that because even the New York Times has noticed.

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

Now, if you're a long time reader of this site, you know that the New York Times is largely echoing things I've been predicting for more than a year. Before I give myself too big a tap on the shoulder, let's remember that I predicted all sorts of calamities for mass loan modification. Given that I predicted everything, I couldn't help but be right.

This was a disaster from the start and I was talking about the corossive nature of loan modifications even before President Obama made them policy, in fact even before there was a President Obama.

The first problem is that as recently as 2007 almost no one had heard of loan modifications. Then, President Obama wanted several million done in 2009. That's just not how things work. The main problem is that they're fraught with moral hazards. If you're behind on your mortgage, you're rewarded with a new loan with a rate as low as 2%. You can see where everyone would want that deal. As it turns out, banks were wise to this problem and that's one of the main reasons that so few have been done. They're desperate to avoid the flock from asking for this deal.

It's created the perfect storm of a program that was supposed to be a savior but it has turned into a total waste.

Rogers V Roubini

As I, along with most of the financial media, have reported, Nouriel Roubini, the famed economist who predicted our current crisis, has predicted the mother of all asset bubbles. By this, he believes that investors are using the cheap dollar to invest in assets. These investments are being driven not by fundamentals but by the weak dollar and so this is creating a bubble. One of the assets that Roubini has targeted for a bubble is gold. Now, another famed investor has taken issue with that. Jim Rogers, no slouch himself, believes that Roubini doesn't know what he's talking about.

I am most perplexed about this alleged bubble which is out there.

Rogers told Wall Street Cheat Sheet.Rogers has been bullish on gold and other commodities for the long term, often arguing that the weakening U.S. dollar will make commodities a better investment, pushing gold toward $2,000 an ounce, hundreds of dollars higher than where it is now.

Roubini, on the other hand, says investors are borrowing dollars to buy emerging market stocks and commodities, which is inflating the value of those assets.

Now, the beauty of debates like this is that while all sides have mammoth intellect they are ultimately worthless. Only time will tell whether or not there is a bubble. Both men will emerge wealthier whether they're right or not.

Roubini has earned a lifetime's worth of a reputation for predicting this crisis. He could get everything wrong moving forward and still make millions speaking and teaching. Rogers has already made his money.

For me, I'm perplexed by two things. This isn't the first criticism of Roubini's theory. Most simply dismiss Roubini's theory without giving much explanation for why. It's true that we may still be years away from the bubble popping. There's plenty of money to be made until then, presumably. Roubini's theory is based on a simple logic. Our fiscal and monetary policy is weakening our currency. Investors are using that weak currency to invest in assets they otherwise would not. That is forming a bubble. That's the theory.

We'll see if he's right but so far no one has challenged the theory. For my money, I don't know if Roubini himself is right but I do know that our policies are forming a bubble somewhere.