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The 25 Billion Dollar Secret: The NY Fed, Goldman & The AIG Cover-Up (GS, AIG)
WOW! Everyday brings new revelations. We've been robbed!
excerpt: Now we know: Geithner and Friedman interceded on behalf of Goldman and Wall Street (Merrill received $6.2 billion, Societe General - a whopping $16.5 billion) to deliver a stealth bailout, one that wouldn't need Congressional approval, and even better wouldn't require the counterparties to pay any of it back NOR would it require that they issue shares, warrants or any other instrument to AIG (taxpayers) in return for more than $32 billion in free money.
In any other time, a sitting Treasury Secretary who interceded on behalf of Wall Street to screw taxpayers out of tens of billions, would not be sitting long. But Democrats control both the House and Senate, so there are no investiagtions (Issa's letter aside). Traditional media is content not to rock the boat for President Banks Obama lest they be shunned by their peers, and ultimately, 99% of TV and print journalists don't understand the issues well enough to complain with any conviciton, especially against the merry backdrop of the Dow rising and their deflated 401ks beginning to show life.
They fall prey to fear and weakly submit to duplicitous hyperbole (Paulson threatening martial law and blood in the streets), when they should instead be consulting with the objective, critical voices who foresaw the crisis and were prepared with alternative solutions when it finally came (Stiglitz said instead of TARP, create new banks).
A pox on Congress, President Banks Obama, Bush, Paulson, Friedman, Bernanke and Geithner (plus Greenspan and Rubin). You may have gotten away with it for now, but I would wager there are a few million of us, roughly, who do understand everything that went down last Fall, and we're not amused. We're not just going to let this one pass, and we will not stop filling the vast interweb with the truth (and our distaste and vitriol for your wretched souls) day after day, week after week, all over message boards and finance blogs, until justice is served.
321energy :: The Greatest Transfer of Wealth in History :: Bob Moriarty
Bob Moriarty from 321 Energy provides a brief explanation of the fundamentals - excerpt: I’ve made it clear for a year that I believe we have entered what will be the most serious depression in history. It also will involve the greatest transfer of wealth in history.
There are two basic classes of assets. There are paper assets and real assets. An ounce of gold is a real asset. A copper mine is a real asset. A house is a real asset. An oil field is a real asset.
Over the counter derivatives now total over $596 trillion dollars, (click here [pdf]) ten times the size of the world economy. Those are paper assets, their value is derived from some other asset. That derivative size is what is going to destroy the world’s financial system, it’s all fraud.
A mortgage is a paper asset. A T-Bill or T-Bond is a paper asset. A $100 bill is a paper asset. It’s pretty easy to see that a $500,000 mortgage on a house now worth $250,000 isn’t worth very much. Latest figures show 9.6 million homes in the US have negative equity. How many of those loans are going to be paid back?
According to an ex-Fed Director, both Fannie Mae and Freddie Mac are bankrupt. They were leveraged 65-1. For those comforted by the thought of the FDIC bailing you out should the banking system fail entirely, you need to realize the FDIC is leveraged at 130-1. We are told that the collapse of Washington Mutual alone could bankrupt the FDIC.
In a depression, no real assets appear or disappear. Paper assets, on the other hand, turn to vapor. But the ownership of real assets will change as the real assets move from weak hands into strong hands.
Fears of a New Bubble as Cash Pours In - WSJ.com
Those bastard banks have taken over $2 Trillion from the taxpayers, and are using this cash to invest in emerging markets instead of the USA. The Feds are providing interest free money to central banks, which then are used to invest in emerging economies. The bankers get the profits and USA taxpayers get stuck with the cost.
<br><br>There is no possible upside for USA taxpayers unless of course you agree with Obama that the USA standard of living and extraordinary economic prosperity must be lowered before global economic equality can be achieved. This isn't just about greedy bankers and self interested international corporations. Wealth redistribution is now the official policy of our government. And the Federal Reserve is carrying it out with unexpected zeal.
<br><br>The numbers are coming in. The facts are on the table. The USA is being gutted. The surprise here is that the redistribution of wealth is not from rich Americans to poor Americans. The transfer of wealth is from all Americans, including the yet to be born, to the emerging economies of the world.
<br><br>excerpt: Asian stock prices are shooting up, in part due to low interest rates in the U.S. Investors looking for higher yields are borrowing in U.S. dollars and then pouring that money "into countries that are growing more rapidly," said Stephen Cecchetti, chief economist at the Bank for International Settlements, the central banks' central bank, which warned early of the last asset bubble and is beginning to do so again. "That runs the risk of creating property and equity booms in those countries."<br><br>
\n\nAbout $53 billion has gone into emerging-market stock funds this year, according to data collector EPFR Global. Through Monday's trading, the broad MSCI Barra Emerging Markets Index this year was up 60.7%. Brazil was up 100%, and Indonesia had gains of 102.7%. Over the same period, the Dow Jones Industrial Average was up 11.5%.
GDP Is..... Better Than Expected? - Or Filled With Outright Lies? The Market Ticker
Whoa! Incredible fact filled analysis of the pre election GDP numbers released by Obama.
excerpt: Disposable personal income decreased in nominal terms q/o/q by 5.9% while in real terms (inflation adjusted) it decreased q/o/q by 7.4%! That is an enormous swing in purchasing power and not in the right direction!
Personal outlays increased $148.2 billion (5.8 percent) in the third quarter, compared with an increase of $8.2 billion (0.3 percent) in the second. Personal saving -- disposable personal income less personal outlays -- was $364.6 billion in the third quarter, compared with $533.1 billion in the second.
The personal saving rate -- saving as a percentage of disposable personal income -- was 3.3 percent in the third quarter, compared with 4.9 percent in the second.
So into decreasing personal income and disposable personal income people tried to spend anyway. Best guess: most of this was "cash for clunkers", which is the worst sort of "spending" - it is the taking on of more debt by replacing a paid-off car with one that now comes with a shiny (and nasty) payment book. The Trade: Go long auto repo outfits (aside: as far as I know there are no publicly-traded repo companies.)
Nothing in here I like; to the contrary, this report sucks and on a drill-down appears to be full of outright lies.
Fed Held Back as Evidence Mounted on Subprime Loan Abuses - washingtonpost.com
In depth story about the Federal Reserve failure to act as an unregulated subprime mortgage industry raced out of control, and major banking and financial institutions bought into the wild wild west of high interest rate - predatory lending.
excerpt: during the years of the housing boom, pleas from consumer advocate groups failed to move the Fed, the sole federal regulator with authority over subprime mortgage businesses. Under a policy quietly formalized in 1998, the Fed refused to police lenders' compliance with federal laws protecting borrowers, despite repeated urging by consumer advocates across the country and even by other government agencies.
The hands-off policy, which the Fed reversed earlier this month, created a double standard. Banks and their subprime affiliates made loans under the same laws, but only the banks faced regular federal scrutiny. Under the policy, the Fed did not even investigate consumer complaints against the affiliates.
Killing the Golden Goose: How a pile of government debt destroys us | Thoughts from the Frontline
Excellent read. The financial crisis is examined in an informative but breezy way. The conclusion however isn't good. We're out of options, and there doesn't seem to be anyway of stopping the explosion of government debt that will, sooner or later, crush us. Great read!
The Right Way To Reform Wall Street: Let Stupid Firms Fail!
Let stupid firms fail.
We need to get back to that.
Yes, the fact that the "stupid firms" this time around included most of Wall Street shows that special rules of financial bankruptcy should apply so the whole system doesn't collapse. But the firms need to be allowed to fail.
What should the special rules of financial bankruptcy be?
managements should be tossed
compensation contracts and other liabilities should be torn up,
bonus pools should be zeroed until the firms return to annual profitability
equity and preferred holders should be wiped out, and
junior bondholders should get a major haircut through the immediate, forced conversion of debt to equity.
All of this should happen not over years in the courts, but overnight--in the manner in which the FDIC seizes failing banks.
In such proceedings, all of Wall Street's idiocy enablers will lose their shirts: The folks who work the at the firms, the folks who lend money to the firms, the folks who invest in the firms and trust the firms' managements to be something other than morons.
Losing your shirt generally has a sobering effect on decision-making. As long as managers, lenders, and shareholders know they will lose their shirts, the next generation of Wall Street enablers will likely be far more careful and demanding than their predecessors, at least for a little while (and don't hallucinate that the Fed's new policy is anything other than temporary).
The Most Corrupt Members Of Congress
A slide set featuring the corruption bio of the top 16 most corrupt members of congress. Incredible. Seems like the longer these clowns serve, the more corrupt and innovative they become. Kudos to the
This top tier listing must have been very competitive. Missing are criminals like Chris Dodd, Kathleen Sebelius, and Barney Frank. Frank and Dodd are almost single handedly responsible for the Fannie Mae - Freddie Mac mortgage crisis that tripped the entire global economy.
Not What They Had in Mind: A History of Policies that Produced the Financial Crisis of 2008
Not What They Had in Mind: A History of Policies that Produced the Financial Crisis of 2008.
GMU economist and popular blogger Arnold Kling has released a new paper titled: "NOT WHAT THEY HAD IN MIND: A History of Policies that Produced the Financial Crisis of 2008."
Kling is very much of the view that if you had to choose between blaming private sector greed and public policy, the fault lies in the latter:
As this paper will illustrate, the seeds for much of the current crisis were sown in the policy “solutions” to previous financial and economic crises. Any attempt to dissect and understand the current crisis that does not account for the complex history, evolution, and integrated nature of financial regulations will not yield meaningful lessons for today’s policy makers.
Among the topics he addresses: housing policy, bank capital regulations, monetary policy, and bank capital regulations. Incredible
Americans Have Been Taken Hostage | Dylan Ratigan
A system where bank lobbyists have been spending in record numbers to make sure it stays that way.
A system that corrupts the most basic principles of competition and fair play, principles upon which this country was built.
It is a system that so far has forced the taxpayer to provide the banks with the use of $14 trillion from the Federal Reserve, much of the $7 trillion outstanding at the US Treasury and $2.3 trillion at the FDIC.
A system partially built by the very people who currently advise our President, run our Treasury Department and are charged with its reform.
And most stunningly -- it is a system that no one in our government has yet made any effort to fundamentally change.
American Thinker: Whose Mess?
Economic comparison that describes the prosperity differences between a Republican led congress and a Democratic controlled congress.
Excerpt: If you want to give Bill Clinton credit for economic results during his terms, you have to link those results to his policies. If you want to give him credit for those policies, you must admit that they were virtually all in line with Republican rhetoric and antithetical to modern liberalism.
But here's what you can't do and remain intellectually honest: praise Clinton and damn Bush, and then encourage Obama to do the exact opposite of what Clinton did and to add multiple trillions of dollars to Bush's spending and deficit levels.
Conservatives like me have always encouraged tax rate cuts, spending cuts, free trade and eliminating government programs like welfare and the byzantine farm program. Reagan did what he could (with a Democrat-controlled House the entire time), and the economy grew 3.5% annually over his eight years. Clinton did these things as well (with Republicans controlling both houses of Congress his last six years), and the economy grew 3.8% annually over his eight years.
This is not hard: cut taxes, cut spending, cut programs. Oh, and elect Republicans to the Senate. At least that's what the facts say.
Why Banks Bought So Many Toxic Mortgage Bonds
Half of all subprime mortgage backed securities wound up on the balance sheets of banks. This fact surprises many people who think that the problem with securitization is that it let banks off-load risky loans onto investors. If that was the strategy, however, banks wouldn’t have wound up with such huge holdings of subprime securities.
So why did banks snap up so many mortgage backed securities? Even banks that were originating mortgage loans preferred to securitize them, and then hold the securities. Why would they do that rather than just hold the loans?
The answer is that bank regulations encouraged them to own securities rather than loans. Under the international Basel capital requirements, a well-capitalized bank was required to hold $4 for every $100 in individual mortgages—a 4% reserve requirement. But if it held the securitized the AAA and AA tranches, the bank only had to hold $1.60 in capital. That’s a huge incentive to trade in a loan for a mortgage backed security.
But the capital regulations did more than just create incentives to own mortgage backed securities. They allowed banks to dramatically increase their balance sheets. The lower reserve requirement allowed banks to buy even more securities than it could make loans. A bank with $4 billion in reserve could hold $100 billion in loans. But that same $4 billion could instead be used to invest in $250 billion worth of mortgage backed securities.
Sell Your House Now! Clusterstock Grapsh on the history of housign and interest rates
Here's the "housing is recovering" story graphically depicted: Anecdotally, breathless stories of the return of multiple bids are filtering into a Mainstream Media anxious to report "proof" of a "recovery in housing."
Incredible graphical depiction of the historical relationship between real estate prices/home values and interest rates.
Taleb: I Have Discovered The Solution To The Global Financial Crisis
Nassim Taleb and his hedge-fund partner Mark Spitznagel weigh in in the FT with an analysis of the world's problem (too much debt) and a reasonable solution (convert some of the debt to equity).
Taleb explains how banks can end the mortgage crisis, lowering monthly mortgage payments by converting mortgage debt to equity:
Excerpt: The only solution is to transform debt into equity across all sectors, in an organised and systematic way. Instead of sending hate mail to near-insolvent homeowners, banks should reach out to borrowers and offer lower interest payments in exchange for equity. Instead of debt becoming “binary” – in default or not – it could take smoothly-varying prices and banks would not need to wait for foreclosures to take action. Banks would turn from “hopers”, hiding risks from themselves, into agents more engaged in economic activity.
Excellent excellent excellent!
Financial Rescue Nears GDP as Pledges Top $12.8 Trillion (Update1) - Bloomberg.com
The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.
this article features a complete break down of where the money went!!!!
New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.
Will The Dollar Standard Collapse?
The Dollar Crisis
Quick Synopsis:
* Abandoning the gold standard in 1971 has resulted in large global trade imbalances and a massive buildup of foreign currency reserves
* These trade imbalances and buildup of foreign reserves have resulted in frequent booms and busts since 1971
* The Japanese bust of 1989, the Asian economic crisis of 1997, and the current US credit market collapse have resulted from the post-1971 paper money monetary system
* Abandoning the gold standard has gradually resulted in a very overvalued US dollar, and that the dollar is headed for disaster
* “The dollar standard is inherently flawed and increasingly unstable. Its collapse will be the most important economic event of the 21st century.”
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Before I begin, I’ll make a prediction, since I’m an investor and my job is to predict. I increasingly believe that the dollar will collapse, and its ramifications could be as violent as when the credit markets cracked in July 2007. Currency collapses are nothing new, just as the bursting of a credit market bubble was nothing new. A dollar collapse could very well lead to carnage in domestic asset markets, whether it be the stock market, bond market, etc. Also, US imports and the overvalued dollar are fueling many of the export-oriented economies abroad, so a dollar collapse could wreak havoc on foreign asset markets as well. And once it happens, we’re going to view the collapse of the dollar as an obvious event that we should have long seen coming. Just as we now view the subprime wreckage and bursting of the real estate bubble as an event we should have easily predicted.
The problem is timing. Does the dollar collapse in 2009, or 2015? And is it a slow depreciation, or a sudden 50% fall? Those are tougher questions. Richard Duncan predicted the dollar’s demise in 2002. His error of timing discredited an otherwise brilliant book. -
In a sentence, “The Dollar Crisis” is about how the world changed in 1971. That was when Richard Nixon dropped the gold standard (or its close cousin, the Bretton Woods international monetary system). Here’s the youtube video: Youtube Bretton Woods. The end of the gold standard ushered in a new era of large trade imbalances and the buildup of foreign currency reserves, and these trade imbalances and large foreign currency reserves have had significant impacts on the global economy that many people don’t realize. Huge trade imbalances and large foreign reserves didn’t really exist during the gold standard. During the gold standard, a country’s money supply was determined by the amount of gold it had. Banks’ reserves were either gold or indirectly tied to gold, and so the amount of money they could lend, and that the nation could print, was backed by the nation’s gold reserves. To see the implications of that sort of monetary system on trade imbalances, let’s take a hypothetical United States and China, where the US is buying lots of goods from China. The US gets goods; China gets dollars. China takes its excess dollars, gives them to the US, and gets gold in exchange. The US gold reserves would decline, causing credit contraction in the US. This would lead to recession; prices would adjust downwards; and falling prices would enhance the trade competitiveness of the US. The US would stop exporting so many goods from China as China’s costs of production begin rising relative to the United States’. The US would stop being a net importer; gold would flow back in; and equilibrium on the balance of payments would be re-established.
Under the gold standard, trade imbalances were unsustainable and self-correcting. - 1 more annotations...
The Problem With Debt | Clusterstock on HomeOwner Equity Loss
"15.4 million homeowners now owe more on their houses than their houses are worth, up from 13.6 million four months ago. The number will probably top 20 million when all is said and done. To mark this sad stat, we've updated our post from last fall on the power of leverage."
Excellent math in this article. Very simple and straightforward explanation. Do the math and weep.
Easy Credit and the Depression - Judge Posner @WSJ.com
What caused this recession? We still don't have a simple explanation. Such is the uncertainty sapping the country's confidence that in a recent Rasmussen Reports poll only 53% of Americans said they prefer capitalism to socialism; 27% were unsure and 20% preferred socialism.
Before seeking political asylum in free-market Hong Kong, consider reading a new book that critiques what went wrong with capitalism, written in order to save it. Judge Richard Posner's "A Failure of Capitalism: The Crisis of '08 and the Descent into Depression" is noteworthy. As a longtime University of Chicago professor and father of the free-market-based law-and-economics movement, Judge Posner makes an unlikely critic of capitalism. But as author of some 40 books and as the most frequently cited federal appeals court jurist, he is also one of our most original and clearheaded thinkers.
Who's to blame and who's responsible for the recession? Judge Posner, who calls it a depression, distinguishes between the roles played by government and the private sector. "Although financiers bear the primary responsibility for the depression," he writes, "I do not think they can be blamed for it -- implying moral censure -- any more than one can blame a lion for eating a zebra. Capitalism is Darwinian." A pragmatic explanation for behavior that looks irrational in retrospect shows that it was logical, based on incentives at the time. Blame lies elsewhere: "The responsibility for building the fences that prevent an economic collapse as a result of risky lending devolves on the government."
Obama's Ersatz Capitalism: Joseph Stiglitz "Heads i win, tales the taxpayer loses" Obama’s Ersatz Capitalism - NYTimes.com
Paying fair market values for the assets will not work. Only by overpaying for the assets will the banks be adequately recapitalized. But overpaying for the assets simply shifts the losses to the government. In other words, the Geithner plan works only if and when the taxpayer loses big time.
Some Americans are afraid that the government might temporarily “nationalize” the banks, but that option would be preferable to the Geithner plan. After all, the F.D.I.C. has taken control of failing banks before, and done it well. It has even nationalized large institutions like Continental Illinois (taken over in 1984, back in private hands a few years later), and Washington Mutual (seized last September, and immediately resold).
What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.
So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.
But we are already suffering from a crisis of confidence. When the high costs of the administration’s plan become apparent, confidence will be eroded further. At that point the task of recreating a vibrant financial sector, and resuscitating the economy, will be even harder.
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Socialism and the End of the American Dream
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