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"When Larry Summers, Obama's chief economic
advisor, piously tells us that the administration's hands are tied because we
all must abide "by the rule of law," perhaps it's time to ask:
What rule and for whom?" - Tim
Rutten March 18, 2009 LA Times
Economics is defined
as:
The science of household affairs, or of domestic
management.
The social
science that deals with the
production, distribution and
consumption of
goods and
services
as well as the
theory and management of
economic
systems.
It is the
duty of those who are in charge of the
organization of society to give every
individual the
opportunity of acquiring the
necessary talent or skill and the means of utilizing such a
talent so that that
individual may exercise their
inherent talent in the pursuit of a
livelihood.
"There's only one kind of leadership malpractice:
wasting the lives of those we lead." - Susan Cram
"Wherever politics
intrudes upon economic
life, political
success is readily attained by saying what
people like to hear rather than what is demonstrably
true. Instead of safeguarding
truth and honesty, the
State then tends to become a major
source of insincerity and mendacity."
–
Hans F. Sennholz "The
Federal Reserve's
attempt at a quick fix for the economy through lowered
interest rates to
encourage personal borrowing will put pressure on a Treasury Department that
has to offer competitive worldwide
interest rates to
attract money used to finance the $9 trillion national
debt.
Karl Marx, whose
economic analyses
are strikingly prescient and relevant today, demonstrated how the credit
economy is one way that central
banking systems attempt to stretch out and soften the boundary where the
private accumulation of profit from production runs up against the waning
purchasing power of the
consuming public. This is exactly
what we see here on both a domestic and international scale, where - ironically
for a country that coerces all others
into central banking systems -
America is
effectively bankrupt.
In a
nation whose governing parties and
increasingly wealthy corporate elite
can't restrain themselves from devastating and costly
imperialist wars overseas while at
the same time impoverishing ever-growing numbers of the struggling and poor at
home, there isn't going to be any good
economic
news for most people." - Eric Brill
01/08
"Asset-price inflation fueled by the
Federal Reserve
– is giving way to debt deflation. The
United States and other countries have reached a limit in which scheduled
interest and
amortization absorb the entire
economic surplus of
so many individuals, corporations
and government bodies that new construction, investment and employment are
grinding to a halt. Families,
real estate investors and
corporations are obliged to use
their entire disposable income to pay their creditors or face
bankruptcy." -
Michael Hudson 06/08
"Why is it that promising help to
ordinary people is pandering
but giving aid to
corporations is serious
economic
policy?" - Jean Lecuyer
The
savings and loan debacle began the regression of the
American republic into a "plutonomy" - a society
in which the largest economic gains flow to
an ever smaller portion of the population creating a decadent social order that poorly rewards human labor. (Could this be
an explanation for why 'Americans will not
work' - meager wages?)
At the
end of the century this trend continued. From 1999 to 2004, the inflation
adjusted income of the bottom 90% of all American households grew by 2%, compared with a
57% jump for the richest 10%.
"We must abandon the weird notion that
the wealthy can only be motivated by
huge sums of money but workers' behavior
will not change if they are paid less than it costs to live." - Robert Lee
Hotchkiss
"In times past,
bankruptcy would have wiped out the bad
debts. The problem
with debt write-offs
is that bad savings go by the boards too. But today, the very wealthy hold most
of the savings, so the government doesn’t want to have them take a
loss. It would rather wipe out pensioners,
consumers, workers, industrial
companies and foreign investors. So
debts will be kept on
the books and the economy will slowly be strangled by
debt deflation." -
Michael Hudson 06/08
American
workers losing the most
economic ground are
those with high school, community college and
four-year degrees. {Tuition and fees increased 439 percent from
1982 to 2007 - median family income rose 147 percent.}
Globalization, automation,
outsourcing and
illegal immigration have hurt
technicians, mechanics, mid-level managers, engineers and software programmers
with more than 700,000 middle
class information industry jobs lost between 2001 and 2004.
During
the 1930s American
government put 3 million unemployeed
workers to work building roads, bridges
and dams and planted millions of trees to
prevent soil erosion. The transportation networks helped cities increase
industrial productivity. Rural electrification programs lifted sections of the
Midwest and South out of darkness
bringing television (and reduced birth
rates).
In the 1950s, under the Dwight Eisenhower administration, the
interstate highway system reduced travel times increasing economic efficiency.
An unprecedented growth in home ownership for
working and
middle class
families occurred as they were able to borrow
against the money they had on
deposit in their local
savings and loan.
The capital investment in
infrastructure and communities, not in securitized commercial over-the-counter
(OTC) paper, created one of the most prosperous
periods in American
history.
"The government needs to
invest in America. To receive government
funding, cities should be required to use local contractors and workers.
Corporations that
outsource should be taxed at much
higher rates than those that contribute directly to the
American economy by maintaining their
operations within America." - Elizabeth
Eyerman
A comprehensive program to rebuild the nation's highways and
bridges, upgrade its ports, construct and expand energy lifelines, build
renewable energy genearting capacity, enlarge public transportation systems
while renewing, reclaiming and revitalizing deteriorated mono-cultured land and
industrialy stressed natural habitats in an
ecologically sustainable manner could generate millions of good-paying
jobs, but instead the rulers of America,
American aristocracy have sunk all the money
into hedge funds betting on OTC
derivatives in the hopes of ever increasing share of the ever decreasing
tangible wealth of a stripped Earth. (Used to be
natural wholesome apple pie now it is
whipped soy-product sweetened with high
fructose corn syrup and flavored with yummy chemical flavorings!)
American
leadership has largely abandoned
policies that led to balanced prosperous
economic expansion
beneficial to the average working
American
citizen in
favor of short sighted
manipulation of resources gains or by betting
on the future value of intangible assets.
Earth's population overall is exploding,
and the best idea American aristocracy can come up with to
solve the
economic
problem of an aging
populace is to increase the
population through
illegal immigration?
"As the
middle class continues to flee the
increasingly expensive Southland, and the rich
wall themselves up on hills and in towers, the city of Los Angeles grows each
year more congested, degraded and balkanized. How will millions more people,
most of whom are poor and undereducated, halt this decline?" - John L.
Murphy
"Unchecked population growth from our nation's
unofficial open-borders policy is contributing not, only to gridlock but is
stressing our schools, emergency rooms, the environment and our overall quality
of life. It's completely unsustainable." - Maria Fotopoulos
"Elites are less likely to be inconvenienced by
illegal immigration. They are hiring
illegals, not competing against them for
work." - Wayne Cornelius, director of the
Center for Comparative Immigration Studies, UC San
Diego
"George W. Bush has said that these
illegal immigration will "do the jobs
that Americans won't do." I have a question.
Who did these jobs before 12 million people sneaked into the country? Crops got
picked, lawns got mowed, construction was done, hotels had housekeeping
services, trash was hauled away,
your house got cleaned. Those things all got done by somebody. This is about
low wages, not "jobs Americans won't do."
Please come up with a better excuse to justify these people who broke the
law staying in the country." - Pat
Parrish
"We are often told that ‘Americans won't do that job,' but never does a
businessman or politician add the
other half of that argument, namely,
‘at the meager wage that I am willing to pay.'" - Gary Peters
"The
blame for our illegal immigration mess
belongs squarely in the laps of power hungry
politicians and
greedy corporate fat cats. If it weren't
for those who supposedly represent all Americans kowtowing to
big business interests that, over the years,
have threatened to withhold all important dollars from the
politicos' campaign war
chests unless they were guaranteed an endless supply of cheap labor from south
of the border, we wouldn't have the catastrophic immigration situation that we
have today." - Blake Kleckner
"Victor Hugo correctly
stated, "There is one thing stronger than all the kings and queens, and all the
armies of the Earth combined, and that is the
power of an idea
whose time has come."
And that
idea is that no society can indefinitely allow a relentless
flood of illegal immigrants to contravene its
laws, violate its borders,
overwhelm its infrastructure and
social systems, diminish job possibilities for its
indigenous uneducated and poor and degrade
its way of life as is happening throughout
America.
Whenever we
hear smaltzy blather about 'the jobs that
nobody wants' what is really at stake are 'jobs that pay less than most
Americans need to support their
families'." - Michael Scott
Why don't we try to fix
our economic
systems in question rather than simply procreate until
the Earth's resources are reduced to the point at
which they can no longer support human
life?
Rampant
materialistic consumerism must give
way to a more
balance view of life on Earth, in which
everyone has the right to a
reasonable standard of
living and in which
resources are
conserved.
"The Senate
has again (June 22, 2006) voted against raising the minimum wage, which has
been stuck at $5.15 an hour since 1997. This would provide a full-time employee
with an annual salary of $10,712. On the other hand, congressional salaries have
gone from $133,600 in 1997 to $165,200 now, an annual average raise of about
$3,500. Isn't there something wrong with this picture?" - Donna Le
Blanc
The Center for Housing Policy study found that from 1996 to
2006 all major types of homeowner-related expenses rose faster than incomes.
The National Housing Conference, a research affiliate, reported mortgage
payments rose 46%, utilities 43%, property taxes 66% and homeowner insurance
83%, while homeowner incomes increased only 36.3%. During the same period rents
rose 51% while renters' incomes rose only 31.4%.
When the need for justice and social
equality is universally recognized
then the reality that "all must prosper for one to prosper" will have been recognized.
Civilization is created by a implied social
contract between the participants that requires all participants to be
treated fairly and receive sustenance. The withholding of sustenance from those
on the bottom tier of the social pyramid
breaches the social contract. When the
social contract of
civilization is abnegated by those in the
upper echelon of the pyramid the
collapse of the
civilization bound by the
implied social contract inevitably occurs as those
on the bottom tier find the social contract to
be null and void.
"The concept of "us" and "them" is no longer
relevant, as our neighbors' interests are ours as well. Caring for our
neighbors interests is essentially caring for our own future." - Tenzin Gyatso,
the Dalai Lama
"Poverty is the root of all
evil." - Diane Dixon
"While my experience
as Assistant Secretary cleaning up significant mortgage fraud that lost the
government billions during the 1980s confirmed that HUD’s financial
reputation was deserved, leading the FHA provided invaluable insight into how
government management of the economy one neighborhood at a time really harms
communities." - Catherine Austin
Fitts
{One example of HUD's failure is the
Dollar Program. HUD would sell a foreclosed home in it's possession to the
local city government for a dollar. Local city government was supposed to sell
the home to a low income family but typically sold it to a speculator who later
sold it at a substantial profit.
In the mid 1990's the Hamilton
Securities Group designed software titled Community Wizard that mapped the
financial flows of HUD government money to specific communities. The Hamilton
Securities Group, a HUD contractor, was attempting to create value out of
repossessed HUD properties. The idea was to return any excess market value to
the community in which the repossession took place. Instead of selling
repossessed properties at below market value where investment bankers could
pick them up for pennies on the dollar and resell them at substantial profits
thanks to HUD regulations the idea was to allow people in the community to
purchase the distressed property creating equity value for the new community
based property owners. Once the flow of government funds became transparent it
quickly became apparent that departments of the federal government were
complicit in the laundering of massive quantities of money from criminal
activities. During the criminal investigation of the Hamilton Securities Group
the departments of the federal government acted in a normative manner - normal
for a fascist police state.
" We were later to discover that the
Department of Justice was using CACI International Inc as a litigation support
contractor on our case. CACI was the leading supplier of Geographic Information
Systems software and services to the U.S. government who later was in the
headlines as a result of their connections to the prison at Abu Grahbi in Iraq.
This begs the question whether DOJ was paying our competitor to help themselves
to our proprietary software and databases. Some time after our entire digital
infrastructure was taken over, DOJ came out with a geographic information
systems mapping tool to help support increased community policing and
enforcement product. You had to wonder if this was the "Sheriff of
Nottingham's" answer to Community Wizard - rather than using software to allow
citizens to understand what government was doing, why not use software to
provide increased surveillance of citizens by government.
While in
possession of our offices, the HUD OIG investigators took empty shredding bins,
filled them up with trash and then - from a separate floor - found and added
corporate accounting files and then staged photo-taking by the HUD IG General
Counsel, Judith Hetherton, who then sent us a letter alleging obstruction of
justice as evidenced by our "throwing out" corporate accounting records. We
were saved by a property manager who witnessed this charade and decided to help
us out after he saw the intentional - and very disgusting - trashing of the The
Hamilton Securities Group offices and was touched by our efforts to clean it
up. The property manager had come to the U.S. from Latin America - presumably
to find freedom from lawless government. One of our attorneys went into the
office when the federal investigators were there and came out shaking. He said
to me, "My parents left Germany to get away from these people. Now they are
here. Where do I go?"
When we were next allowed in our offices one
evening in mid-March, we took the main server and brought it back to my home.
The next day, a HUD auditor was stunned to see it gone - he assumed that
everything would be wiped clean and sold. He asked where the server was and one
of my partners said, "we took it last night." At which point the HUD auditor
said, "You can't do that. My instructions are you are not allowed to have any
of the knowledge." He then could not come up with a rational reason or lawful
basis as to why that was so and why The Hamilton Securities Group was to be
denied access to its own property.
The fastest way to connect the dots
would have been for me and my teammates to have looked at the maps of high HUD
single family defaults contiguous to areas of significant narcotics trafficking
that we had posted on the Internet and then use the Hamilton Securities
software tools and databases to dig deeply into government financial flows in
the same areas, including patterns of
potential mortgage and mortgage securities fraud. The destruction, suppression
and theft of our software tools, databases and computer system was arranged by
a series of events between late 1997 and early 1998 that was orchestrated
throughout government." - Catherine Austin Fitts
CACI International Inc,
motto Ever Vigilant, provides services and solutions to federal clients
"for national security, improve communications and collaboration, secure the
integrity of information systems and networks, enhance data collection and
analysis, and increase efficiency and mission effectiveness." According to the
CACI paper Assymetric Threat Global Snapshot, November 2009 the greatest
future terrorist threats will emanate from within from disgruntled radicalized
Americans who are sympathetic with Islamic jihad. "There is consensus that
asymmetric threats, including acts of terrorism, will be a prominent feature of
the threat environment." - asymmetricthreat.net, National Security Strategy
Herb Karr and Harry Max Markowitz* founded California Analysis Center
Inc., precursor to CACI International Inc., in Santa Monica, California. Harry
Max Markowitz, a University of Chicago graduate, received the Sveriges Riksbank
Prize in Economic Sciences in Memory of Alfred Nobel.}
By the
late 1970's, with interest
rates raised to stratospheric heights by Paul Adolph Volker* in an attempt to reign in inflation, most
savings and loans fixed rate assets
rate of return were considerably below the prevailing rate of
Federal Reserve
funds. In
other words the loans were upside down. The
savings and loans were paying,
let's say 12 percent, for loan
capital but their return on previous released capital was only 6 percent.
In 1980 deregulation legislation to address the
problem created by a portfolio full of
long-term, low fixed-rate assets, so the federal government sought to offer
savings and loans additional
investment opportunities and
adjustable rate mortgages were allowed. No longer was the
savings and loans looked upon as a
neighborhood financial asset - now Wall Street saw the
savings and loan "cash cow" as a
valuable asset to be "levered" accordingly. The Wall Street financial
institutions that controlled the
Federal Reserve began
their assault on the wealth of the American middle class.
The
deregulation legislation
known as the Gain-St Germain Depository
Institutions Act of 1982 expanded acceptable
savings and loans
investments by permitting
savings and loans to make
short-term consumer
loans, issue credit cards, and make
commercial
real estate
loans, among
other things. This was the
Federal Reserve's,
following orders of the international monetary
cartel, suggested method of stoking the fires of
American (and international) commerce after dumping water on the entire economy
by increasing the prime loan rate to 21.5% on December 12,
1980.
Financial egineers and experts claimed that broader
investment opportunities would allow
savings and loans to better
diversify their portfolios enabling them to increase their short-term earnings
and financial stabilty.
"A major increase in US
monetary pumping began in the early 80's with the advent of financial
deregulation, which, for all its merits in permitting financial
entrepreneurship, also removed various restrictions on banks' lending
"out of thin air."" - Frank Shostak
Orginally
savings and loans
executives set out with the intention of
restoring their
institutions to financial health.
A fundamental
reality faced the management of newly insolvent financial
institutions.
Beginning from a situation where liabilities
exceed assets, managers cannot overcome
financial problems by pursuing a conservative
investment course. In the absence of
a capital infusion to boost assets past liabilities (and return the
institution to solvency),
managers must substantially increase portfolio
risk if they are serious about regaining financial health. (Short sale contracts and futures options for sale! Replayed in 2008
with OTC derivatives.)
In the 1980 and 1982
deregulation legislation, the federal
government provided the means for increased
risk taking while ignoring the need for capital
investments (on purpose!). The
legislation lowered capital requirements and revised the accounting
rules so that the
savings and loans reported
fractional reserve equity was artificially boosted.
Savings and loans
executives began to look for new lending
and investment opportunities that
promised high rates of returns. (Fast forward 2004 - ARM's,
option ARM's, buydown, flexible, interest-only, 50 year, reverse, negative
amortization leading to - mortgage securitization, credit default swaps,
etc.)
If all went well, the institution would regain its financial
health, and savings and loans
owners had nothing left to lose if the new
investments soured.
When
investments soured,
savings and loans
executives responded by raising rates
paid on certificates of deposits - CDs - to garner
more deposits and to
make new investments which promised
still higher returns. The industry's
interest rate problem,
stemming from the syndicate of the soulless' agent Paul Adolph Volker's attempt
to reign in inflation, thus became a credit quality problem. (Paul Adolph Volker played a central role in implementing the first
stage of financial deregulation, which was conducive to
mass bankruptcies,
mergers and acquisitions, leading up to the 1987 financial crisis.)
The rapid expansion experienced by
savings and loans bent on
outgrowing their problems would not have been possible when computer
technology was limited,
deposit
interest rates were
strictly controlled and
deposit
markets were local
markets.
In the past
depositors had no reason
to send funds to
savings and loans halfway across
America. Deregulation of
deposit
interest rates coupled
with rapidly advancing computer technology changed that by making
possible a nationwide market in
deposits - the overnight
transfer. Expansive federal deposit
insurance (FDIC) put insolvent
savings and loans in a position to
abuse the new market. (The
FDIC, after nearly becoming insolvent, asked to be bailed out by the banks in
2009.)
Weak institutions
needed continued infusions of funds to pay
operating expenses and to support increased
investments.
Federally
insured
depositors were largely
unconcerned about the health of the institutions in which they placed their
money - federally insured
deposit,
no worrys.
Undercapitalized
savings and loans assured
themselves a continuous inflow of funds by
simply offering to pay slightly higher
interest rates than
their competitors.
During the 1980s funds
flowed from stronger banks and
savings and loans to the weakest
depositories.
Federal deposit
insurance short-circuited the
market's natural risk-braking mechanisms and for many
savings and loans during the 1980s,
the absence of regulatory supervision was particularly acute. (For depositors placing $100,000
or less in any single institution, all
federally insured banks and
savings and loans represent the
same risk, and rational investors seek to maximize their returns.)
Healthy savings and
loans were asked to pay increasing
deposit
insurance premiums to protect
depositors in failed
institutions and consequently gained
little or no cost advantage from the fact that they were well capitalized. To
retain their customers, more
conservative savings and loans
executives often had to match the
interest rates set by
weak institutions. (This eventually lead to the reduction in capital reserves to all
time lows at the beginning of the 21st century and to leverage rates of up to
33 times fractional reserves.)
When
federal regulators did get around to dealing with insolvent
institutions they would remove bad
assets and inject capital before selling the
savings and loans to
new investors. (See
Stanford L. Kurland)
Savings and loans
executives who had maneuvered through the
worst pitfalls of the period then found themselves competing against
counterparts revitalized by taxpayer funds.
In the late 1970s and early 1980s congressmen's long-time friends and
acquaintances - acknowledged pillars of the community - approached them to seek
relief for the industry. (Think Charles
Keating!)
The widespread tendency of political decision makers to focus on the short
term contributed to their willingness to ignore the growing crisis.
{Instant replay: "Our financial catastrophe, like
Bernard Madoff's* pyramid scheme, required all sorts of important, plugged-in
people to sacrifice our collective long-term
interests for short-term gain. The tyranny of the short term has extended
itself with frightening ease into the entities that were meant to, one way or
another, discipline Wall Street, and force
it to consider its enlightened
self-interest." - Michael Lewis
& David Einhorn 01/09/08
"Bernie was known for his generous
philanthropy, especially to Zionist,
Jewish and Israeli causes. But Madoff was no Robin
Hood, his philanthropic and charity contributions facilitated access to
the rich and wealthy who served on the boards of the
recipient institutions and proved that he was ‘one of them’ a kind of
super-rich ‘intimate’ of the same elite class. The shock, awe and
heart attacks that followed Madoff’s confession that he was ‘running
a Ponzi scheme’ drew as much anger for the money lost and the fall from
the moneyed class as for the embarrassment of knowing that the world’s
biggest exploiters and smartest swindlers on Wall Street, were completely
‘taken’ by one of their own.
Madoff’s swindle and
fraudulent behavior is not the result of personal
moral failure. It is the product of
a systemic imperative and the economic
culture, which informs the highest circles of our class structure. The
paper economy, hedge funds and all
the ‘sophisticated financial instruments’ are all ‘Ponzi
schemes’ – they are not based on producing and selling goods and
services. They are financial bets on future financial paper growth based on
securing future buyers to pay off earlier cash ins." - James
Petras}
It is ironic that
Ronald Reagan's administration,
rhetorically dedicated to
free markets, could have condoned the
policies that short-circuited
market
discipline where
savings and loans were
concerned.
"Imagine learning to play basketball,
except in consecutive decades they changed the surface from hardwood to
AstroTurf, replaced the basket with a painted target and then had dedicated
five-man defensive and offensive specialist squads.
Why learn skills when the
rules keep changing?
Yes, there
are basics, but financial literacy doesn't make
sense when
you have no sense of control over the future of your finances.
I think the wrong people are being
blamed for the problem.
After two horrific housing debacles (in the
'80s and today), it's time the brilliant financial minds
admitted that deregulating the savings and loan industry was a
mistake. Deregulation destroyed a
haven for middle class assets, in
which we essentially funded our
futures with our mortgages and
taxes. It created predictability for us.
Interest rate
differentials were minimized in that controlled
market, and loan decisions were made on the
basis of well-established track records." - Brian Balek 01/08
The best thing you can do
for America is go shopping! When the
cheap money of the post September 11, 2001 economy dried up a significant
percentage of sub-prime mortgages went into default. As
interest rates rose
those who had purchased at the peak in the run up of housing prices or those
who had overextended themselves hoping for a continuing run up in the price of
housing found they could not refinance as there homes had less value at higher
interest
rates.
Mortgages with lower
interest rates have
lower payments. When interest rates go up
mortgage payments increase proportionally. If the increase in income had kept
pace with the increase in mortgage costs then there would not be a problem.
Unfortunately that has not been the case!
"Tight residential real estate
markets and low mortgage rates fueled a five-year property boom as the number
of U.S. households paying more than half their incomes for housing jumped from
13.8 million in 2001 to 17.9 million in 2007." - Brian Louis
From 2004
to 2007, as subprime lending grew from a small corner of the mortgage market
lending standards fell disgracefully, and dubious transactions became common.
In October 2007 the National Association of Realtors predicted
that housing prices would fall 1.5%. By January 2009 prices had fallen 29 % in
20 major cities from their peak in the summer of 2006.
"Sometime
after 2003, as federal regulation folded like a cheap suitcase, the business
press institutionally lost whatever
taste it had for head-on investigations of
core practices of powerful
institutions. We know that the
lending industry from 2004 through 2006 was not just pushing it. It had
become unhinged - institutionally
corrupt, rotten, like a fish, from the head.
Wall Street demand for mortgages became so frenzied that female wholesale
buyers were "expected" to trade sex for them
with male retail brokers. Post-crash reporting has given short shrift to the
breathtaking corruption that overran the
mortgage business - document tampering, forgery, verbal and written
misrepresentations, changing of terms at closing, nondisclosure of fees, rates,
and penalties, and a boiler-room culture." -
Dean Starkman
"Madison Avenue helped drive the expansion of
Americans use of credit cards. There was a lot of money to be made by
collecting fees for debt creation and debt service, and the largest banks
wanted in on the action. Clever marketing campaigns led the public to believe
that it could access luxury items and vacations that were once thought to be
out of reach, and fueled a growing desire among many Americans to live life
like the wealthy.
The 1980s was the age of a paradigm shift in American
politics. The U.S. transformed itself into a country where the profit motive
supplanted the public good. The rich were taking it all for themselves and
letting the good times roll and everyone who wasn't rich wanted to be or act as
if they were rich. Commercial advertisements told viewers that their credit
card was accepted "everywhere you want to be," became omnipresent as did
commercials set to popular music such as the rock band Queen's song, "I Want it
All," promising that if you "want it all" and "want it now," you could in fact
get what you want merely by swiping your credit card.
Commercial
advertisements appeal to the Id that Sigmund Freud defined in his
psychoanalytic theory. The Id acts according to what Freud termed the pleasure
principle, seeking immediate gratification by satisfying psychological needs
without accounting for reason or reality.
Advertisers suggested people
could purchase the 10-day Caribbean cruise or expensive diamond ring that was
once restricted to those with higher income levels creating the illusion that
debt was equal to wealth.
What mattered was how high their credit line
was not how much debt they had. As a result, credit cards were soon at the
heart of a new materialist culture that had people of widely varying income
levels and ages going into debt to fuel their desire for more stuff. Debt drove
a lucrative credit card industry which became even more lucrative for credit
card issuers after it received favorable court rulings in 1978 and 1996. " -
Paul C. Wright
"A few years ago, I discovered that my domicile was
more than a household - it was, and still is, a piggy bank in disguise. This
happened when the mortgage industry began
bombarding me with pitches encouraging me to crack open
the bank. I'll admit I was naive
enough to be taken in by this new financial scheme and used the ready cash to
improve the property. Once hooked, I decided to purchase a better car and
create an investment account. Next, I tapped
into it to bail out a struggling offspring and shore up a retirement portfolio.
All this said, I now have a humongous mortgage and barely enough income to make
the nut on a monthly basis. A house is really a domicile; a place to relax and
embrace the family in a sheltered
environment. It ought not be a
ready source of cash, and it never ought to be a speculative tool subject to
high-risk ploys. The time has come to cover the bets; it's really tragic to see
so many of us unable to do so." - Earl H. Hygh 01/08
"Predatory lenders
deserve a lot of blame for foreclosures and
bankruptcies. If real
wages kept up with rising productivity and inflation over the years, more
working Americans could meet their mortgage
payments. If tax policy had not helped shift
wealth distribution to the
richest, more would be ensconced in their own
living rooms. If labor laws kept pace with the
flourishing corporate
world, maybe a bigger share of those skyrocketing
profits would keep the sheriff from the door. The fact that the
American dream of homeownership is now being exported
abroad or into the pockets of CEOs is not simply the
result of naive purchasers and their unscrupulous lenders. It's also the
result of the way the economy has been working or, more accurately, not been
working. How odd to think that the hopes of
everyone owning a piece of property is now as utopian as the collectivist
dreams of communism." - Doug Doepke
"There
are a lot of empty places in Flint, as well as Detroit and other cities, as
American ideologues pushed
the Corporatists plank of
Free Trade and destroyed the middle class that used to live there. This
serves as the prime example of why Russia took the way of protectionism in the
late 1990s and 2000s and grew its middle class, tripling the average income." -
Mat Rodina, Pravda
"Several years ago, state attorneys general and others involved
in consumer protection began to notice a marked increase in a range of
predatory lending practices by
mortgage lenders. Even though predatory lending was becoming a national
problem, the Bush administration looked the other way and did nothing to
protect American homeowners. In fact, the government chose instead to align
itself with the banks that were
victimizing consumers. . . . Several
state legislatures, including New York's, enacted laws aimed at curbing such
practices. . . .Not only did the Bush administration do nothing to protect
consumers, it embarked on an aggressive and unprecedented campaign to prevent
states from protecting their residents from the very problems to which the
federal government was turning a blind eye to.
Let me explain: The
administration accomplished this feat through an obscure federal [Treasury]
agency called the Office of the Comptroller of the Currency (OCC). The
OCC has been in existence since the Civil War. Its mission is to ensure the
fiscal soundness of national
banks. For 140 years, the OCC examined the books of
national banks to make sure they
were balanced, an important but uncontroversial function. But a few years ago,
for the first time in its history, the OCC was used as a tool against
consumers. In 2003 the OCC invoked a clause from the 1863 National Bank Act to
issue formal opinions preempting all state
predatory lending laws, thereby rendering them inoperative. The OCC also
promulgated new rules that prevented states from enforcing any of their own
consumer protection laws against national banks. The federal government's
actions were so egregious and so unprecedented that all 50 state attorneys
general, and all 50 state banking superintendents, actively fought the new
rules. But the unanimous opposition of the 50 states did not deter, or even
slow, the Bush administration in its goal of protecting
the banks. In fact, when my
office opened an investigation of possible discrimination in
mortgage lending by a number of
banks, the OCC filed a federal
lawsuit to stop the investigation." - Elliot Spitzer, Washington Post, February
13, 2008
"Between 1999 and 2004, more than half
the states, both red (North Carolina, 1999; South Carolina, 2004) and blue
(California, 2001; New York, 2003), passed anti-predatory-lending laws. Georgia
touched off a firestorm in 2002 when it sought to hold Wall Street bundlers and
holders of mortgage-backed securities responsible for mortgages that were
fraudulently conceived. Beginning in 2004 Michigan and forty-nine other states
battled the U.S. Comptroller of the Currency and the banking industry
(and The Wall Street Journal’s editorial page) for the right to
examine the books of Wachovia’s mortgage unit, a fight the Supreme Court
decided in Wachovia’s favor in 2007 - about a year before it cratered." -
Dean Starkman
{According to the New York Times, "on
February 13 [the day Spitzer's Op Ed went up on the Washington Post website]
federal agents of the Office of the Comptroller of the Currency staked
out his hotel in Washington. Elliot Spitizer's dalliance with a prostitute
became headline news on March 10.
Mainstream news never questioned the
actions of the Office of the Comptroller of the Currency.
Elliot
Spitzer's desire to curtail predatory lending was not in the interests of the
syndicate of the soulless.
Elliot Spitzer was forced to resign his governorship because he screwed a girl
from New Jersey who was introduced by "friends".
Shortly thereafter,
according to Greg Palast, the
Federal Reserve, for
the first time in its history, loaned a selected coterie of banks one-fifth of
a trillion dollars to guarantee these banks mortgage-backed junk bonds based on
the predatory loans made.}
"One is
struck by the similarities with the Savings and Loan
scandal which was allowed to continue through the
Reagan 1980s, long after it became
apparent that deliberate
bankruptcy was being used by unscrupulous profiteers to amass illegal
fortunes at what was ultimately public expense. The long drawn-out housing
bubble of the current Bush decade,
and particularly the derivative bubble that was floated upon it, allowed
the Bush administration to help offset the trillion-dollar-plus cost of its
Iraq misadventure." - Peter Dale
Scott
On January 22, 2009 the federal government reported that new-home
construction plunged to an all-time low in December, capping the worst year for
builders on records dating back to 1959.
According to an estimate by the
National Association of Home Builders, at least 20,000 builders - mostly
smaller builders and about a fifth of the total nationwide - went out of
business in 2007 and 2008. Ivy Zelman estimates that losses on land and
construction loans could eventually reach $165 billion. At the 2008 National
Association of Home Builders convention in Washington Ivy Zelman stated that
the perhaps the only way to clear the backlog of foreclosed homes was to "burn
them down."
"The reality is, we're
seeing conditions in home construction and home finance that are the worst
since the Depression." - Steve Fritts, associate director of risk management
policy at the Federal Deposit Insurance Corporation 01/09
"In
California, the median existing single-family home price dropped 37 percent in
April to $256,700 from a year earlier, according to the state Association of
Realtors." - Brian Louis, June 11, 2009
A landmark
ruling in a recent Kansas Supreme Court case may have given millions of
distressed homeowners the legal wedge they need to avoid foreclosure. In
Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court
held that a nominee company called Mortgage Electronic Registration Systems
(MERS) has no right or standing to bring an action for foreclosure. Over 60
million mortgages are currently reported to be held by MERS.
"The
development of "electronic" mortgages managed by MERS went hand in hand with
the "securitization" of mortgage loans chopping them into pieces and selling
them off to investors. In the heyday of mortgage securitizations, before
investors got wise to their risks, lenders would slice up loans, bundle them
into "financial products" called "collateralized debt obligations" (CDOs),
ostensibly insure them against default by wrapping them in derivatives called
"credit default swaps," and sell them to pension funds, municipal funds,
foreign investment funds, and so forth. There were many secured parties, and
the pieces kept changing hands; but MERS supposedly kept track of all these
changes electronically. MERS would register and record mortgage loans in its
name, and it would bring foreclosure actions in its name. MERS not only
facilitated the rapid turnover of mortgages and mortgage-backed securities, but
it has served as a sort of "corporate shield" that protects investors from
claims by borrowers concerning predatory lending practices." - Ellen Brown
"MERS has reduced transparency in the mortgage market in two ways.
First, consumers and their counsel can no longer turn to the public recording
systems to learn the identity of the holder of their note. Today, county
recording systems are increasingly full of one meaningless name, MERS, repeated
over and over again. But more importantly, all across the country, MERS now
brings foreclosure proceedings in its own name even though it is not the
financial party in interest. This is problematic because MERS is not prepared
for or equipped to provide responses to consumers' discovery requests with
respect to predatory lending claims and defenses. In effect, the securitization
conduit attempts to use a faceless and seemingly innocent proxy with no
knowledge of predatory origination or servicing behavior to do the dirty work
of seizing the consumer's home. . . . So imposing is this opaque corporate
wall, that in a "vast" number of foreclosures, MERS actually succeeds in
foreclosing without producing the original note "the legal sine qua non of
foreclosure" much less documentation that could support predatory lending
defenses." - Timothy McCandless
"By statute, assignment of the mortgage
carries with it the assignment of the debt. . . . Indeed, in the event that a
mortgage loan somehow separates interests of the note and the deed of trust,
with the deed of trust lying with some independent entity, the mortgage may
become unenforceable. The practical effect of splitting the deed of trust from
the promissory note is to make it impossible for the holder of the note to
foreclose, unless the holder of the deed of trust is the agent of the holder of
the note. Without the agency relationship, the person holding only the note
lacks the power to foreclose in the event of default. The person holding only
the deed of trust will never experience default because only the holder of the
note is entitled to payment of the underlying obligation. The mortgage loan
becomes ineffectual when the note holder did not also hold the deed of trust."
- Kansas Supreme Court
"MERS as straw man lacks standing to foreclose,
but so does original lender, although it was a signatory to the deal. The
lender lacks standing because title had to pass to the secured parties for the
arrangement to legally qualify as a "security." The lender has been paid in
full and has no further legal interest in the claim. Only the securities
holders have skin in the game; but they have no standing to foreclose, because
they were not signatories to the original agreement. They cannot satisfy the
basic requirement of contract law that a plaintiff suing on a written contract
must produce a signed contract proving he is entitled to relief." - Ellen
Brown
LENDING & FORECLOSURE UPDATE NOVEMBER 2009
Nearly one
in 10 homeowners with mortgages, about five million households, was at least
one payment behind in the third quarter the Mortgage Bankers Association said
in its November 2009 survey. The overall third-quarter delinquency rate is the
highest since the association began keeping records in 1972. It is up from
about one in 14 mortgage holders in the third quarter of 2008. The mortgage
bankers expect foreclosures to peak in 2011.
"I've been pretty bearish
on this big ugly pig stuck in the python and this cements my view that home
prices are going back down," said the housing consultant Ivy Zelman.
The Soma Grand, a new 246-unit building in downtown San Francisco where
one-bedrooms cost in excess of $500,000, received F.H.A. certification early in
the summer of 2009 . A half-dozen buyers since then used F.H.A. insurance.
On November 12, 2009 FHA said that its cash reserves had dwindled
significantly since 2008 as more borrowers defaulted on their mortgages. "FHA's
capital reserve ratio, which is determined through findings from the
independent actuarial study, measures reserves held in excess of those needed
to cover projected losses over the next 30 years. The review projects the
capital reserve ratio to be 0.53 percent of total insurance in force this year,
below the two-percent statutory threshold." - Melanie Roussell, HUD Secretary,
FHA COMMISSIONER REPORT ON FHA'S FINANCES
Office of Thrift
Supervision"The Office of Thrift
Supervision championed the thrift industry's growth during the housing boom
and called programs that extended mortgages to previously unqualified borrowers
as "innovations."
- Binyamin Appelbaum and Ellen Nakashima
"Our
goal is to allow thrifts to operate with a wide breadth of freedom from
regulatory intrusion."
- James Gilleran
James
Gilleran of the Office of Thrift Supervision (with the chainsaw) and John Reich
(then Vice Chairman of the FDIC and later at the OTS) and representatives of
three banker trade associations: James McLaughlin of the American Bankers
Association, Harry Doherty of America's Community Bankers, and Ken Guenther of
the Independent Community Bankers of America.
James Gilleran, an
impassioned advocate of deregulation, cut a quarter of the agency's 1,200
employees between 2001 and 2004, even though the value of loans and other
assets of the firms regulated by the Office of Thrift Supervision
doubled over the same period.
The Office of Thrift Supervision
was responsible for regulating Superior (a warning of things to come),
Countrywide Financial, IndyMac Bancorp, Washington Mutual, and Downey Savings
and Loan Association among others.
"The whole Superior episode should
have served as a warning." - Ellen Seidman
Scott M. Polakoff claimed
the Office of Thrift Supervision closely monitored allowances for loan
losses and considered them sufficient.
"Are
banks going to fail when events
occur well beyond the confines of reasonable expectation or modeling? The
answer is yes." - Scott M. Polakoff
The Office of Thrift
Supervision's "reasonable expectations" and "modeling" was based on faulty
assumptions.
The reasonable expectations that Scott M. Polakoff spoke
of were assumptions that even though incomes were stagnant and individuals
could barely afford marked down loan payments those same individuals were going
to earn double or triple their original income within the next 3 to 5 years
when loans reset and mortgage payments were doubled or tripled.
Countrywide
Financial said in an investor presentation it would have refused 89 percent of
its 2006 borrowers and 83 percent of its 2005 borrowers if it had been required
to assure the fact that borrowers could continue to make payments at loan
terms. (Countrywide Financial is now known as Bank of America
Home Loans.)
{Stanford L.
Kurland, Countrywide's former president and 27 year veteran, acknowledges
pushing Countrywide into the type of higher-risk loans - loans that came with
low "teaser" interest rates. Stanford L. Kurland,
a peon in the syndicate of the soulless,
was at the center of that culture shift at Countrywide which started in 2003.
Now through a sweetheart deal with federal banking officials Stanford
L. Kurland is able to purchase deliquent mortgages - in January PennyMac
purchased $558 million of mortgages that the Federal Deposit Insurance Corp.
acquired last year after First National Bank of Nevada failed - for his new
company PennyMac for pennies on the dollar (thus the name PennyMac).
Stanford L. Kurland then renegotiates the mortgage with the mortgagee
writing down the value of the mortgage and reducing the interest rate.
According to Eric Lipton PennyMac stands to make a profit of at least 50
percent on mortgage defaults. Others suggest PennyMac’s investments may
return 15 percent to 25 percent a year.
"Kurland is seeking to
capitalize on a situation that was a product of his own creation. It is tragic
and ironic. But then again, greed is a growth
industry." - Blair A. Nicholas
Stanford L. Kurland pushed loans to
people who could not afford the reset mortgage payment and then, once the
institutions that held those loans could not meet the newly imposed capital
requirements of the Bank of International Settlements and were forced into
bankruptcy, purchases the loans for pennies on the dollar from the federal
government reciever. Then Stanford L. Kurland renegotiates the loans reaping a
second profit from those original high-risk loans - the losses on the original
high-risk loan are then paid by the lender with no resort - the taxpayer.
Bankers, including the peon
Stanford L. Kurland, saw in advance a way to profit on the predatory lending
debacle twice!}
Washington Mutual stated in a
December 2006 securities filing that it was continuing to qualify borrowers
based on their ability to afford a teaser interest rate.
Darryl W.
Dochow, the Office of Thrift Supervision's official in charge of
regulating Washington Mutual, IndyMac, Countrywide Financial and Downey Savings
and Loan Association, played a key role in the collapse of Charles Keating's
Lincoln Savings and Loan by delaying and impeding proper oversight of that
thrift's operations.
Darryl W. Dochow, Ellen Seidman, James Gilleran
and Scott M. Polakoff knew what was happening and let it happen. Washington
Mutual paid 13 percent of the Office of Thrift Supervision's 's budget in the
2007-2008 fiscal year while Countrywide provided 5 percent.
"Americans
aren't financially illiterate. Americans are
willing to work, budget, scrimp and save to achieve the American dream. The trouble is that this
American dream eludes most but the
upper class. Three decades ago, a single income
could purchase a house and pay taxes, utilities, gas, insurance, etc. That was
a time when you could buy a new home for about $20,000. Today, no single-income
earner can afford to buy a house even at the "bargain" price of $400,000. How
does someone purchase a house or even keep up with rent and modern living
expenses earning $30,000 a year? Today,
debt - not hard work
and saving - makes the American dream possible.
Instead of creating an Office of Financial
Education or an Advisory Council on Financial Literacy
(sounds Orwellian), our
government should instead investigate why
home prices,
gas prices,
food prices,
insurance prices and healthcare
prices have skyrocketed over the years while salaries have remained relatively
stagnant." - Regina Powers 01/08
"Why anyone would be surprised by the
growing number of foreclosures is beyond me. Years of unchecked, artificial
inflation of housing prices made homes unaffordable to average Californians or
drove them to suspect financing options. This is less a reflection of a
changing economic
climate and more an end result of a period of unbridled
greed that showed no concern over whether home
buyers could really carry the
debt incurred." -
David D. Manos II
"Entranced by laissez faire-y tales regulators ignored
warnings and let many of the worst subprime mortgages originated outside the
banking system, beyond the reach of any federal regulator. For this litany of
errors, many people in authority owe millions of Americans an apology." - Alan
S. Blinder
{“These bankers got away with murder, and
it’s obscene that close to nothing is being asked of
financial institutions." - Carl
Milton Levin*
"Israel controls the Senate around 80
percent are completely in support of Israel; anything
Israel wants.
Jewish influence in the House of
Representatives is even greater." - Senator J. William Fulbright
1973}
Office of Comptroller of the
Currency and the Office of Thrift Supervision reported on April 3, 2009 that
loan modifications that reduced payments by at least 10% seemed to keep
mortgagees from defaulting. The same report also noted that at least
half of the loan modifications resulted in no reduction from the
original payment amount due to penalties and back interest.
"Economic
history is a long record of government
policies that failed
because they were designed with a bold disregard for the
laws of economics."
– Ludwig von Mises
"The advantages of a
college degree are being erased. The same thing that happened to non college
educated employees during the last recession
is now happening to college educated
employees." - Marcus Courtenay
"American aristocracy long ago sold out our nation
and its people to the international banking
cartel of which the Rockefeller and Morgan interests have been the chief
representatives for over a century. Most of the growth since Ronald Reagan was
elected president in 1980 has been only on paper through
financial bubbles." - Richard C. Cook
After the stock market
crash of 1929, Congress passed a series of laws
designed to restrict the ability of
Wall Street to manipulate markets through the
banking
industry. The Glass-Steagall Act of 1933
separated commercial
banks, which accepted
deposits and issued
loans, from investment
banks, which underwrote stocks and
bonds.
This was the governing
principle for more than half a century.
Then along came Alan
Greenspan*.
The most widely known
role of the Federal Reserve
Board is to set monetary policy.
A
less publicized part of the job is to regulate America's banks.
"Mr. Chairman, we have in this country one of
the most corrupt
institutions the
world has ever known. I refer to the
Federal Reserve Board
and the Federal
Reserve banks. The Federal Reserve Board has
cheated the government of the United States and the people of the United States
out of enough money to pay the national
debt.
The
depredations and the iniquities of the
Federal Reserve Board
and the Federal
Reserve banks acting together have cost this country enough
money to pay the national
debt several times
over.
This evil
institution has
impoverished and ruined the people of the
United States; has bankrupted itself, and
has practically bankrupted our Government. It has done this through the
maladministration of that law by which the
Federal Reserve Board
was created, and through the
corrupt practices of the
moneyed vultures who
control it.
Some people
think the
Federal Reserve
central banks are
United States Government institutions.
They are not government institutions.
They are private credit
monopolies, if not - will the controllers
please step forward - those who prey upon the people of the United States for
the benefit of themselves and their foreign customers; foreign and domestic
speculators and swindlers; and rich
and predatory money lenders.
In that
dark crew of financial pirates
there are those who would cut a man's throat to get a dollar out of his pocket;
there are those who send money into States to
buy votes to control our legislation; and there are those who maintain an
international propaganda for the purpose of
deceiving us and of wheedling us into the
granting of new concessions which will permit them to cover up their past
misdeeds and set again in motion their
gigantic train of crime.
Those 12
private credit
monopolies were deceitfully and disloyally foisted upon this country
by bankers who came here from
Europe and who repaid us for our hospitality by undermining our
American institutions." -
Louis T. McFadden
chairman of the House Banking Committee Congressional Record, House pages 1295
and 1296, June 10, 1932
Congress passed the
Glass-Steagall Act/Banking Act
and Franklin Delano Roosevelt signed it into
law in 1933.
The movement to use the
Federal Reserve Board
to kill Glass-Steagall began in 1986 when the
Federal Reserve Board
reinterpreted the
existing law to
allow commercial
banks to derive a minuscule 5% of
their revenues from investment
banking activities.
In 1989,
Alan Greenspan bumped it
up to 10%.
In 1996, Alan Greenspan basically
obliterated Glass-Steagall when he upped the limit to 25%.
When Citicorp and Travelers Group merged in 1998, forming
the behemoth Citigroup.
In essence Glass-Steagall was
dead.
"What we are seeing is the creation of a highly concentrated
financial oligarchy – precisely the power that the Glass-Steagall Act was
designed to prevent. A combination of deregulation and “moral hazard”
bailouts – for the top of
the economic
pyramid, not the bottom – will polarize the economy all the more." -
Michael Hudson
{Travelers, at the time of merger, was a diverse group of
financial concerns that had been brought together under CEO
Sanford Weill. Its roots came from
Commercial Credit, a subsidiary of Control Data Systems that
Sanford Weill took private in November.
Two years later, Sanford Weill mastered
the buyout of Primerica - a conglomerate that had already bought life insurer A
L Williams as well as stock broker Smith Barney. Travelers then acquired
Shearson Lehman - which was headed by Sanford
Weill until 1985 and merged it with Smith Barney. In November 1997,
Travelers purchased Salomon Brothers in a $9 billion deal.
Sanford Weill, owned almost 17 million
Citigroup shares as of April 2006.
(Lazard Freres- France's biggest investment bank- is owned by the Lazard and
David-Weill families - old Genoese banking scions.)
In the 4th quarter
of 2007 Citigroup posted a $10
billion loss. In 2007 21,200
Citigroup employees were laid off.
Citigroup's single largest
shareholder became Abu Dhabi Investment Authority, the investment arm of Abu
Dhabi government, with a $7.5 billion injection of capital in late 2007 in
exchange for a 4.9 percent stake which pays a $1.7 billion a year dividend.
This capital injection helped cover the $10 billion lose in the subprime
mortgage market. The second largest Citigroup shareholder, with a 3.6
percent stake, is now Kingdom Holding Company owned by Prince Al-Waleed bin
Talal of Saudi Arabia. $6.88 billion of prefered stock was sold to an
investment fund controlled by the government of Singapore.
(In 2005 16
United States Senators and 30 United States Represenatives owned stock in
Citigroup. Did they recuse themselves
from voting on the bailout?)
"The government
injected an additional $20 billion into Citigroup, on top of the $25 billion it
invested a few weeks ago. It also said that it would cover 90 percent of the
losses on those $306 billion in securities after
Citigroup suffers the first $29
billion of losses. Citigroup, like
many others, had sought to insure itself against losses with a variety of
transactions, including the purchase of insurance, only to learn that the
losses were overwhelming those who had promised to pay. Insurance on the assets
was issued both by the bond insurers and by others that wrote what were known
as credit default swaps, which amounted to insurance but were not
regulated in the same way. Those who wrote large amounts of such insurance are
now in trouble, either negotiating to pay claims for less than promised or, in
the case of the American International
Group, still in business only because of a government
bailout. The
AIG officials responsible for writing the
swaps told investors they would never suffer any losses." - Floyd Norris,
November 24, 2008
"Credit default swaps, which are derivatives, are an
unregulated type of insurance in which one side bets that a company will
default and the other side, or counterparty, gambles that the firm won’t
fail." - David Evans and Caroline Salas}
In 1999, the Gramm-Leach-Bliley Act, officially repealing
the Glass-Steagall Act of 1933, was signed into law
by William Jefferson Clinton. The merger of
commercial and
investment
banking once again allowed the
bankers to use FDIC insured personal
deposits to purchase
"financial instruments" from hedge
funds.
"Glass-Steagall is no longer appropriate to the economy in
which we live." - William Jefferson Clinton
"Scores of banks failed in
the Great Depression as a result of unsound banking practices, and their
failure only deepened the crisis. Glass-Steagall was intended to protect our
financial system by insulating commercial banking from other forms of risk. It
was one of several stabilizers designed to keep a similar tragedy from
recurring. Now Congress is about to repeal that economic stabilizer without
putting any comparable safeguard in its place." -
Paul
Wellstone
"Even if we got a return to
positive growth - an economy that was growing at 1 percent would be an economy
with rising unemployment. I don't think we can hold out the prospect we'll
stabilize at the current level." - Larry Summers 4/9/09
{Larry Summers is the man directly responsible for the financial
institution meltdown. As William Jefferson Clinton's Treasury Secretary from
July 1999 - January 2001 Larry Summers shaped and pushed the financial
deregulation that unleashed the present crisis. Larry Summers was Treasury
Secretary after July 1999 when his boss, Robert Rubin left to become Vice
Chairman of Citigroup, where Rubin went on to advance
the colossal agenda of deregulated finance directly. In 2000 Larry Summers
backed the Commodity Futures Modernization Act that incredibly mandated
that financial derivatives, including in energy, could be traded between
financial institutions completely without government oversight. Larry Summers
did consulting work for hedge fund managers Kenneth D. Brody and Frank P.
Brosens of Taconic Capital Advisors from 2004 to 2006. Larry Summers advised an
elite corps of math wizards and scientists devising investment strategies for
the hedge fund D. E. Shaw & Company from late 2006 to late 2008 and
"earned" $5.2 million. Larry Summers circle of friends include the hedge fund
managers Nancy Zimmerman, Laurence D. Fink, H. Rodgin Cohen, Orin S. Kramer,
Ralph L. Schlosstein and Eric M. Mindich. Larry Summers directly profited from
the deregulation he vigorously supported.Larry Summers had Harvard purchase
interest rate default swaps when he was president of Harvard that ended up
costing Harvard over $1 billion.}
"The
mistake most people make in looking at the financial crisis is thinking of it
in terms of money, a habit that might lead you to look at the unfolding mess as
a huge bonus-killing downer for the Wall Street class. But
if you look at it in purely Machiavellian
terms, what you see is a colossal power grab that threatens to turn the federal
government into a kind of giant Enron - a huge, impenetrable black box filled
with self-dealing insiders whose scheme is the securing of individual profits
at the expense of an ocean of unwitting involuntary shareholders,
previously known as taxpayers." - Matt Taibbi
During the first phase of
deregulation the financial
industry had a near-meltdown in 1998
triggered by the collapse of the hedge
fund Long-Term Capital
Management. Although the shareholders lost their assets the creditors were
paid off by the Federal
Reserve. The loss of $4 billion in five
weeks were followed by a precipitous drop in stock value across the board. Sometimes touted as the
'tech bubble' this wiped out much of
the paper wealth of lower echelon
corporate management, members of
the middle class, in the form of
‘under water' stock options. (‘under water' stock options are granted
at a price higher than the price the grantee can now sell the stock for on the
open market thus
returning the wealth to controlling corporate
interests.)
"The
Fed assembled a
consortium of banks to rescue
Long-Term Capital
Management, and it took 15 months, from September 1998 to January 2000, to
negotiate their way out of trades tied to more than $1 trillion in bets." -
Richard Teitelbaum and Hugh Son
"The SEC's best
estimate is that there are now approximately 8,800
hedge funds, with approximately $1.2
trillion of assets. If this estimate is accurate, it implies a remarkable
growth in hedge fund assets of
almost 3,000% in the last 16 years. We are also seeing
hedge funds becoming more active in
such varied activities as the market for
corporate
control,
private lending, and the
trading of crude petroleum. Hedge
fund account for about 30% of all United States equity trading volume.
Investment strategies or operations
of hedge fund include their use of
derivatives trading, leverage, and short selling. The number of enforcement
cases against hedge fund
advisers has grown from just four in
2001 to more than 90 since then. These cases involve
hedge fund
managers who have misappropriated
funds assets; engaged in insider trading;
misrepresented portfolio performance; falsified their
experience and credentials; and lied about
past returns."
- Securities and Exchange Commission Chairman Christopher
Cox, July 25, 2006 (Yet they missed Bernie Madoff!)
{Short-sellers attempt to profit from an expected decline in the
price of a fungible financial instrument. Typically, the short-seller will
"borrow" fungible financial instruments - bonds, securities, stock, futures
contracts, OTC's, CDS', ad infinitum - at a certain price and resell them. The
short-seller then hopes to be able to purchase identical fungible security
instruments to repay the loan at a lower price than originally purchased
shortly before the loan comes due. Profit comes when the fungible financial
instrument declines in value.}
"I continue to be concerned
about the influence of pooled
vehicles in the marketplace. I see it as a
ticking time bomb that is going to blow at some point." - Securities and
Exchange Commission Chairman William H. Donaldson, May 24, 2007
Those "pooled vehicles" were used for
leveraged buyouts, by
hedge funds and as a source of quick
profit in investment banking industry for
both issuers and sellers of the securitized commercial
paper, in other words collateralized debt obligations (CDO).
"With
the Long-Term Capital
bailout as a precedent,
creditors came to
believe that their loans to unsound
financial institutions would be
made good by the Fed - as long
as the collapse of those institutions would threaten
the global credit system. Bolstered
by this sense of security, bad loans mushroomed. The
major creditors of the fund included
Bear Stearns, Merrill
Lynch and Lehman
Brothers, all of which went on to lend and invest recklessly. The ad hoc
aspect of the bailout created a
precedent for what has come to be called “regulation by deal” -
now the government’s modus
operandi." - Tyler Cowen, December 26, 2008
A
good solution to the too-big-to-fail problem
is to
break up any monopolistic institution that becomes
too-big-to-fail!
"We can't let them fail because
it would bring the entire banking
system down." - Barack Obama
The
Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914 should be
enforced as written!
Interdependence in huge systems is what allowed
the financial engineers to rape
the people of the Earth!
De-centralized
systems have no such systemic flaws!
hedge funds and earned
incomeA
hedge fund is a
private
investment fund.
Hedge funds are not currently
subject to any direct regulation by
the SEC, the NASD, or any other federal regulating commissions.
Hedge funds may hold long or short
assets, may enter into futures, swaps, short selling schemes, security
investment vehicles or other derivative contracts. Some
hedge funds focus on other financial
instruments including commodity futures, options, and emerging market
debt.
Hedge funds focus on and may place
funds in anything that is touted as a "security." (Note: A security may be
simply an electronic entry in a software system that is
fungible, ie. you can
trade it for an electronic entry in a different software system.) As
hedge funds typically use
leverage/gearing or
debt to invest, the
positions they can take in the financial markets are larger than their assets
under management. At the end of 2006 it was estimated that
hedge funds had $1.9 trillion of
assets.
"Assets held by hedge
funds surged to nearly $2 trillion as of the start of 2008, from $375
billion in 1998, according to estimates from Hedge Fund Research. Two
out of three hedge funds lost money
in 2008. The number of hedge funds
peaked in 2008 at 10,233, according to Hedge Fund Research, and fell
just 4 percent during the year. Hedge
funds still manage $1.6 trillion. Of the
hedge funds that lost money last
year, the average loss was 29 percent, according to estimates from
HedgeFund.net, a research firm."- Louise Story 01/17/09
"I believe
there's been a near-consensus that hedge
funds can cause systemic risk."
- Carolyn B. Maloney, member of the
House Financial Services Committee
Hedge fund managers are the best paid
individuals on
Earth.
(Hedge fund managers hold their capital
assets one year and one day by using Dick Cheney's creative accounting methods.
Short term assets magically become long term assets!)
Edward Lampert "earned" managing
hedge funds $1.02 billion in 2004
and $1.3 billion in 2006.
James
Harris Simons "earned" managing hedge funds $1.6 billion in 2005 and
$1.7 billion in 2006.
T. Boone
Pickens "earned" managing hedge
funds $1.5 billion in 2005.
Ken
Griffin "earned" managing hedge
funds $1.5 billion in 2005.
George
Soros "earned" managing hedge
funds $1 billion in 2007.
Managing
hedge funds in 2007 -
Stephen Cohen "earned" $900 million,
Bruce Kovner "earned" $715 million,
Paul Tudor Jones "earned" $690 million,
Tim Barakett "earned" $675 million, David
Tepper "earned" $670 million, Carl
Icahn "earned" $600 million.
"Wall Street has many decent, honorable
people, but they work in a system that fundamentally compromises people's
ethics. The high pay is like an anesthetic that numbs you from feeling how you
are being corrupted. Not only that, many honest people who work there would
agree with an even more extreme statement: It's hard to make a living legally
on Wall Street. The goal of investing is to get an edge, whereas the securities
laws presume all investors should have the same information at once. If ever
there was a recipe for a system rife with abuse, this is it. The harder that
money managers, traders and analysts must work to get information that gives
them that edge, the more likely some are to cross a legal line. The tippees
feel self-righteous about using the information, no matter how it was obtained.
They see themselves as leveling a playing field skewed by lying company
managers who are aided and abetted by cynical investment bankers and
invertebrate analysts who (still) do bankers' bidding out of concern for their
careers. It goes without saying (because it can't be publicly acknowledged)
that the millions of dollars of business that an institutional client is doing
with an investment bank means they will be treated much better than a small
retail client who is paying a 1 percent wrap fee on a $50,000 account. Victims
of their own success, the banks have severely aggravated this situation by
going public, then taking on too many masters to "diversify" earnings:
institutional money managers, retail investors, investment-banking clients,
prime brokerage clients, "financial sponsors" (private-equity and buyout
funds), their own asset-management arms, and proprietary traders. It is all but
impossible for people at investment banks to serve all these clients - whose
interests conflict - while doing their real job: to satisfy the quarterly
earnings expectations of the banks' investors. " - Alice
Schroeder
{According to Bloomberg billionaire hedge fund manager John
Paulson made $3 billion by shorting financials in anticipation of the American
housing market collapse. John Paulson is also believed to have made 311 million
pounds ($428 million) from September to February by short selling Lloyds
Banking Group Plc and HBOS Plc.}
Self-employed small
businessmen paid 15.3% in social security taxes alone!
15.3% paid on every dollar earned by carpenters, plumbers, florists,
dentists, mechanics, ad infinitum!
In the reality of the tax code: gamblers
pay less on their winnings than breadwinners do on their
labor!
"Congratulations on pointing out the outrage
of tax-breaks for hedge fund
managers." - Robert Siebert
"Truth is, when those who have benefitted the
most don't pay their fair share of taxes, the tax burden gets shifted to
workaday people and the shrinking middle class, where it has a far
bigger effect on the overall standard of living. Perhaps the real question is,
are we going to have a tax structure based on fairness or continue to support
economic
policies that amount to
socialism for the
rich?" - Shawn Casey O'Brien 3/25/08
"Since 1960 each of the
seven previous recoveries ended with a greater percentage of women at work than
when it began. Working women now earn a third of America's total household
income, and by and large, only those homes with a working wife have made real
gains in their standard of living over the last eight years. Yet, over that
same period, the percentage of women employed outside the home has fallen to
where it was 12 years ago. Meanwhile, the median hourly pay of women 25 to 48
years of age has fallen from $15.04 in 2004 to $14.84 last year. This corrosive
pattern holds true, according to the
federal statistics, for all American women, regardless of education, race,
ethnicity or marital or familial status." - Tim Rutten 07/08
"One of the
basic assumptions of capitalism is that anyone paid huge sums of money must be
very smart. Before the crash, much of America had fallen deeply into
unsustainable debt because it had no other way to maintain its standard of
living. That's because for so many years almost all the gains of economic
growth had been going to a relatively small number of people at the top. Had
the people at the top of corporate America, Wall Street banks and hedge funds
not taken a disproportionate share, most Americans would not have felt the
necessity to borrow so much." - Robert B. Reich*, 12/27/09
Even with better than expected job
growth, 373,000 individuals with college
degrees quit job hunting and dropped out of the employed labor
force in February 2005, the
Labor Department reported. The number of long term
unemployed who are college graduates has nearly tripled since the bursting of
the tech bubble in 2000. Nearly 1 in
5 of the long term jobless are college graduates. If a degree holder loses a
job, that worker is now more likely than a
high school dropout to be
chronically unemployed.
In America the average weekly
earnings in 2007 were 15% below the
1972 peak in relative terms according
to the Bureau of Labor Statistics.
"Most working
mothers work
because their families cannot
survive without their paychecks. Therefore, by
definition, families in which the wife is not required to
work are families
feeling a little less crushed by the new economy. Lucky them. The high number
of married women and mothers in the
workforce is not a feminist triumph; it is merely the result of
economic pressures
that have reshaped the American
family since the 1980s. I don't
know any working mothers who wouldn't be
happier if their husbands could support the
family by themselves."- Renee Leask
"The
real argument isn't that the top 1% percent pay 40% of federal income taxes,
but how they are taxed. Wage earners can be taxed up to 35%. Capital-gains
earners generally can be taxed as high as 15%. Under this formula, the
individuals whose wealth works for them, by accruing interest and wealth from
stocks, are rewarded by the government for being wealthy enough not to have to
work. The rest are penalized for showing up to work." - Brain T.
Finney
"The average American family head will
be forced to do twenty years
labor to pay taxes in his or her
lifetime." – James Bovard
"What we have
found over the years in the marketplace is that derivatives have been an
extraordinarily useful vehicle to transfer risk from those who shouldn't be
taking it to those who are willing to and are capable of doing so." -
Alan
Greenspan 2003
Apparently
Alan Greenspan meant
the working American taxpayer was willing and
capable!
“Clearly, derivatives are a centerpiece of the
crisis, and Alan
Greenspan
was the leading proponent of the deregulation of
derivatives.” - Frank Partnoy 10/08/08
"They said they were
ensuring the "efficient allocation of capital," but they were allocating a
suspicious amount of capital to themselves. Wall Street, in short, royally
screwed Main Street."
- Maureen Tkacik
"They were going to take a
lot of sewage and mix it up in a different way and say it's not sewage. The
laws of nature are such that it keeps its
sewage-like qualities." - Charles Thomas Munger
"The derivatives market is $531 trillion, up from $106
trillion in 2002 and a relative pittance just two decades ago.
Alan Greenspan banked on
the good will of Wall Street to
self-regulate." - Peter S. Goodman
10/08/09
"In a market system based on
trust, reputation has a significant economic value." -
Alan
Greenspan
“You will go down as the greatest
chairman in the history of the
Federal
Reserve.”- Phil Gramm to
Alan Greenspan, Senate
Banking Committee, hearing February 1999
"The banks are trying to win back
their losses by arbitrage operations,
borrowing from the Federal Reserve at a low
interest rate and
lending at a higher one, and gambling on
options. But options and derivatives are a zero-sum game: one party’s gain
is another’s loss. So the banks
collectively are simply painting themselves into a deeper corner. They hope
they can tell the Federal
Reserve and Treasury to keep bailing them out or else they’ll fail and
cost the FDIC even more money to make good on insuring the “bad
savings” that have been steered into these bad
debts and bad
gambles. The
Federal Reserve and
Treasury certainly seem more willing to bail out the big financial institutions
than to bail out savers, pensioners, Social Security recipients and other small
fry. They thus follow the traditional “Big fish eat little fish” principle of
favoring the vested interests." - Michael Hudson 06/08
“The sudden failure or abrupt withdrawal from trading of
any of these large United States dealers could cause
liquidity problems in
the markets and could also pose risks to
others, including federally insured banks and the financial system as a whole.
In some cases intervention has and could result in a financial
bailout paid for or guaranteed
by taxpayers.”
- Charles A. Bowsher, Comptroller General,
Government Accountability Office 1994
In 1997, the Commodity
Futures Trading Commission chairwoman Brooksley E. Born, concerned that
unfettered, opaque trading could "threaten our regulated markets or, indeed,
our economy without any federal agency knowing about it," called for greater
disclosure of trades and reserves to cushion against
losses and sought to extend the Commodity
Futures Trading Commission regulatory reach into derivatives. Brooksley E.
Born's opinions incited fierce opposition from
top officials of the Treasury
Department, the Federal
Reserve and the Securities and
Exchange Commission including
Alan Greenspan and
Robert E. Rubin* who claimed traders
would take their business overseas.
"While OTC derivatives serve
important economic functions, these products, like any complex financial
instrument, can present significant risks if misused or misunderstood. A number
of large, well-publicized financial losses over the last few years have focused
the attention of the financial services industry, its regulators, derivatives
end-users and the general public on potential problems and abuses in the OTC
derivatives market." - Commodity Futures Trading Commission, May 1998
Lawrence Summers, deputy secretary of the Treasury, Robert Rubin, the
secretary of the Treasury, and Alan Greenspan, the chairman of the Federal
Reserve at that time worked overtime to insure that derivatives would not be
regulated. Lawrence Summers testified before Congress that "the shadow of
regulatory uncertainty over an otherwise thriving market - raised risks for the
stability and competitiveness of American derivative trading." Lawrence Summers
blasted the Commodity Futures Trading Commission for having raised" the
possibility of regulation over this market." Even "small regulatory changes,"
Lawrence Summers cautioned, could throw the whole system out of whack.
In November 1999, senior regulators - including
Alan Greenspan and
Robert E. Rubin - recommended that Congress permanently strip the
Commodity Futures Trading Commission of regulatory authority over
derivatives.
{"The Madoff*
scandal finally revealed the SEC for what it has become. Created to protect
investors from financial
predators, the commission has evolved into a mechanism for protecting
financial predators with
political clout. The SEC.seldom penalizes
serious corporate and management malfeasance - out of some misguided notion
that to do so would cause stock prices to fall, shareholders to suffer and
confidence to be undermined. The commission's most recent director of
enforcement is the general counsel at JPMorgan Chase; the enforcement chief
before him became general counsel at Deutsche Bank; and one of his predecessors
became a managing director for Credit
Suisse before moving on to Morgan Stanley. A casual observer could be
forgiven for thinking that the whole point of landing the job as the SEC's
director of enforcement is to position oneself for the better paying one on
Wall Street." - Michael Lewis & David
Einhorn
JPMorgan Chase generated $5.6 billion profit in 2008. Matt
Zames, a Long-Term Capital
Management veteran, ran the JPMorgan Chase derivatives trading desk.
JPMorgan Chase profited from the collapse of
Lehman Brothers and the
takeover of Bear Stearns. JPMorgan Chase dominates
derivatives trading - $87.7 trillion worth of outstanding contracts as of
September 30, 2008.
On March 11, 2009 Jamie Dimon, chief executive
officer of JPMorgan Chase & Co., said the federal government can rescue
the financial system by the end
of the year if officials start cooperating and stop
the “vilification” of corporate
America.}
"Chicago's laissez-faire
imprint underpins everything from Ronald
Reagan's 1981 tax cuts and the fall of communism that decade to
quantitative investment strategies. In 1972,
Milton Friedman helped
persuade Treasury Secretary George Shultz, former dean of Chicago's business
school, to approve the first financial futures contracts in foreign currencies.
Such derivatives grew more complex after Chicago economists created the
mathematical formulas to price them, helping spawn a $683 trillion derivatives
market that's proved to be a root of today's financial system breakdown." -
John Lippert 12/23/08
a trillion = $1,000,000,000,000
$683,000,000,000,000 worth of collateralized
debt?According to
quarterly report
issued by the Bank of
International Settlements in December 2008 , the total outstanding notional
amount of over-the- counter (OTC) derivatives in the world was $683 trillion
while the gross market value for those same instruments was $22
trillion.
Myron
Scholes, the "father" of financial derivatives, won the
Riksbank Prize in
Economics in 1997 for inventing the model that led to financial derivatives.
Myron Scholes has declared that derivatives and credit default swaps have
gotten so dangerously out of hand that authorities should shut down the market
and start over with regulation in place to begin with.
"In terms of
conventional economics, it may actually be in an individual's rational
self-interest to engage in activities that render the earth uninhabitable. This
is potentially true even on the collective level: given the exponential nature
of future cash flow discounting, it may be more in our "rational self-interest"
to liquidate all natural capital right now - cash in the earth - than to
preserve it for future generations. After all, the net present value of an
eternal annual cash flow of one trillion dollars is only some twenty trillion
dollars (at a 5% discount rate). Economically speaking, it would be more
rational to destroy the planet in ten years while generating income of $100
trillion, than to settle for a sustainable level of $3 trillion a year." -
Charles
Eisenstein
David X. Li's Gaussian copula
function
"Li's formula, known as a Gaussian
copula function, looked like an unambiguously positive breakthrough, a piece of
financial technology that allowed hugely complex risks to be modeled with more
ease and accuracy than ever before. With his brilliant spark of mathematical
legerdemain, Li made it possible for traders to sell vast quantities of new
securities, expanding financial markets to unimaginable levels." - Felix
Salmon
{The financial engineers of profit-driven
innovation agree that mathematical models of risk simply failed to take into
account all of the variables. According to expert consensus risk models proved
myopic, too simple-minded. The financial engineers focused on variables
concerned with expected returns and the default risk of financial instruments.
Mathematical models failed to take into account the reality that financial
instruments in the final analysis must be based on actual assets that exist in
reality as objects within the biosphere. The variables neglected include an out
of control debt spiral based on never ending growth within a closed finite
biological system experiencing catastrophic environmental degradation world
wide at a rapidly increasing pace.}
"The Chicago School bears the
blame for providing a seeming intellectual foundation for the
idea that markets are self-adjusting and the best role
for government is to do nothing." - Joseph Stiglitz
Perhaps Chicago
School of Economics ideologues can
explain to America how the
churning of stocks,
futures, swaps, options,
short selling schemes, security investment vehicles, structured investment
vehicles, collateralized debt obligations, credit derivative contracts, credit
default swaps, mortgage-backed securities, collateralized loan obligations,
auction rate securities, commodity futures, guaranteed investment contracts,
auction-rate securities, off-balance-sheet finance and emerging market
debt helps strengthen
America?
"By allowing money to flow in the direction of
less impedance the invisible hand of the free market effectively balances the
economy." - Chicago
School of Economics ideologue
Chicago School of Economics
MBA's: Jon Stevens Corzine began his career in banking and finance, Senator,
former CEO of Goldman Sachs, the 54th Democratic Governor of New Jersey from
2006 to 2010, estimated he won $400 million during the 1999 initial public
offering of Goldman Sachs, $1.2 billion disappeared like magic from his
investment fim IM Global in 2011 and know one seems to know were it went ;
Peter Peterson, David Booth
Simply churning
financial instruments does not wealth
create!!!
"In the last quarter of a century the whole
American
economic system has
lived off the speculations generated by the financial sector - sometimes given
the acronym FIRE (for finance, insurance and real estate). FIRE has grown
exponentially while, in the country's industrial heartland in particular, much
of the rest of the economy has withered away. FIRE carries enormous weight and
the capacity to do great harm. Its growth, moreover, has fed a proliferation of
financial activities and assets so complex and arcane that even
their designers don't fully understand how they operate.
Today's Wall Street
fabricators of avant-garde financial instruments are actually called "financial engineers." They got their training in
"labs" much like Dr.
Frankenstein's, located places like Wharton, Princeton, Harvard and
Berkeley which is based upon the laissez-faire
economic
ideology of
Milton Friedman and the
Chicago School of
Economics. Each time one of their concoctions goes south, like the
bewildering "security investment vehicles" that
helped precipitate the mortgage industry collapse, they scratch their heads in
bewilderment - always making sure, of course, that they have financial life
rafts handy, while investors, employees, suppliers and whole communities go
down with the ship.
This tsunami of bad business is about to wash over
an already very-sick economy. While the old regime, the Reagan-Bush
counterrevolution, has lived off the heady vapors of the FIRE sector, it has
left in its wake a deindustrialized nation, full of
super-exploited immigrants and millions
of families whose earnings have suffered steady
erosion. Two wage-earners, working longer hours, are now needed to (barely)
sustain a standard of living once earned by one. And that doesn't count the
melting away of health insurance,
pensions and other forms of protection against the vicissitudes of the
free market or
natural calamities." - Steve Fraser
01/08
"Neoliberal (neo-con in America)
economists in the last three decades have denied the possibility of a replay of
the worldwide destructiveness of the Great Depression that followed the
collapse of the speculative bubble
created by unfettered US financial markets of the 'Roaring Twenties'. They
fooled themselves into thinking that false prosperity built on debt could be
sustainable with monetary indulgence. Now history is repeating itself, this
time with a new, more lethal virus that has infested deregulated global
financial markets with 'innovative' debt securitization, structured finance and
maverick banking operations flooded with excess liquidity released by
accommodative central banks. A massive structure of phantom wealth was built on
the quicksand of debt manipulation." - Henry C. K. Liu 11/15/08
"Until the last year, the biggest growth industry within the
U.S. had been the financial
sector, producing profits of over $500 billion as late as 2006. In other
words, the U.S. has replaced working for a living with the
manipulation of money and the
extraction of interest, either by
lending it or by brokering the lending and investment by foreigners. In
order to enrich themselves, the
financiers, with a lot of help from the government, created the
merger/buyout
bubble of the 1980s, the
dot.com bubble of the
1990s, and the housing/equity/hedge fund/derivative
bubble of the 2000s." - Richard C.
Cook 03/02/09
"In all, the finance, insurance, and real estate
industries spent a record $475 million on campaign contributions to
congressional candidates in the 2008 cycle. The finance industry –
including companies that got billions in taxpayer bailout money because they're
"too big to fail" – spent more than $300 million in 2009 on lobbying to
influence regulatory reforms. Finance retains nearly five lobbyists for every
member of Congress." - Gail Russell Chaddock
The 34 Congressional House
representitives who offered amendments to weaken consumer protections
collectively received $3.8 million in campaign funds from the financial sector
in 2009, according to analysis by Consumer Watch and the Center for
Responsive Politics.
"Between 1973 and 1985, the
U.S. financial sector accounted for about 16 percent of domestic
corporate profits. In the 1990s, it ranged from 21 percent to 30
percent. After 2000 it soared to 41 percent." - David
Brooks
"God
gave us a brain to think, to think naturally and in simple terms, and not in a
complicated way.
When we
think naturally and use common sense to address
problems we will be able to arrive at simple solutions. Unfortunately
our education system tortures us mentally and
forces us to think in complicated ways. Our teachers,
economists, politicians and so-called
experts in God and religion make mountains out of mole-hills, turning
simple truths into
complex arguments.
These "experts" need to make things
look difficult to survive
and to make sure that we have to rely upon them
for solutions.
When I explain in
simple terms, they refused to accept the explanation.
Consider the
following simple explanation:
1. Financial engineering: new ways of
gambling
2. Investors:
gamblers
3. Stock & Futures Markets:
casinos
4. Financial Analysts: casinos' salesmen / women
5. Bonds: I.O.Us.
6. Banks:
Dishonest Money-lenders (actual
money-lenders cannot create "money out of thin air"!)
7. Currencies: fiat
money toilet paper
8. Derivative markets: Ponzi schemes
Common sense
tells us that if our income is only $X and we borrow 30 times in excess of $X,
there is no way that we can repay the debt, unless our gambling bets pay
out in excess of 30 times the original amount of $X.
Common sense tells
us that the banks, fearing a systemic banking collapse will lie and cover up
the con-game." - Matthias Chang
"To call banks casinos, as is
often done, is actually unfair to casinos, which are required to hold certain
levels of capital because they must be able to cash in a customer's chips.
Banks have not been required to do that for their key derivatives contract,
credit default swaps." - Fareed Zakaria
"Auction-rate preferred
securities is the largest fraud ever perpetuated by Wall Street on investors."
- Harry Newton
"Let's hope we are all
wealthy and retired by the time this house of
cards falls."
- Standard & Poor analyst 'texting' about collateralized
debt obligations
{The preceeding text message was
submitted to a congressional oversite committee questioning the need for a $700
billion bailout! }
{Note:
Congressmen (and women) have substantial sums invested in the current system -
they can not be impartial! }
"During the bull market of the
1960s, finance and insurance
together accounted for less than 4 percent of G.D.P. Until 1982 Dow Jones
Industrial Average contained not a single financial company. After 1980, in the
deregulation-minded Reagan era, old-fashioned banking was increasingly replaced
by wheeling and dealing on a grand scale. The new
system was much bigger than the old regime: On the eve of the current crisis,
finance and insurance accounted for
8 percent of G.D.P., more than twice their share in the 1960s. By early last
year, the Dow contained five financial companies - including A.I.G., Citigroup and Bank of America.
Underlying the glamorous new world of finance was the process of
securitization. Loans no longer stayed with the lender. Instead, they were sold
on to others, who sliced, diced and puréed individual debts to
synthesize new assets. Subprime mortgages, credit card debts, car loans - all
went into the financial system's juicer. Out came sweet-tasting AAA
investments. And financial wizards were
lavishly rewarded for overseeing the process.
But the
wizards were
frauds and their magic turned out to be no
more than a collection of cheap stage tricks.
Above all, the key promise of securitization - that it would make the financial
system more robust by spreading risk more widely - turned out to be a lie.
Banks used securitization to increase their risk and in the process they made
the economy more, not less, vulnerable to financial disruption." - Paul
Krugman* 03/26/09
"Look
what casino
corporatism has brought us.
Giant corporations
arose early in the last century followed by
wars,
depression, and more
wars. After
World War II,
corporatism was fully consolidated,
particularly within the United States, the most advanced
corporatist economy, and for some
years thereafter the only healthy major one unravaged by war.
As a
result, corporate America
flourished, grew larger and more dominant. Profit-making oligopolies and
monopolies resulted
competing not on price but mainly in the areas of cost-cutting and the sales
effort. Out of this grew surpluses, and the economy's problem was to absorb it
to avoid stagnation. It led to overcapacity, so key was to find additional
outlets beyond materialistic consumption and investment or face "economic
malaise."
Beginning in the late 1960s and 1970s, financialization came
to the rescue, and "to some extent (shifted) control over the economy from
corporate boardrooms to the
financial markets. Corporations
were increasingly seen as bundles of assets, the more liquid the better.
A new "monopoly finance"
corporatism was advanced to exploit it.
It produced new outlets for surplus in the FIRE sector (finance,
insurance, and
real estate), mostly for
speculation, not capital goods investments in plant and equipment,
transportation, and public utilities that earlier fueled business cycle
expansions.
The 1980s saw
an unprecedented upsurge
of debt in the economy. In the 1970s, it was about one-and-a-half times
GDP. By 1985, it was double, and by 2005 it was three-and-a-times GDP, rising,
and approaching the $44 trillion (level) for the entire world. Ever since, the
way was open for a proliferation of financial instruments and markets, which
(until the present) proved to be literally unlimited.
Keynes warned about "enterprise becoming the
bubble on a whirlpool of speculation"
like in the 1920s, the price being the
Great Depression.
Unable to find profitable outlets within the
productive economy, corporatists sought opportunities through financialization,
speculation, casino
corporatism, while the financial
system responded with a bewildering array of new financial instruments -
including stock futures, options, derivatives, hedge funds, etc.
As a
result, a financial superstructure took on a life of its own that today is
consuming world economies.
Bubbles eventually grow and always
burst. Minor by comparison, the 1997-98 Asian crisis showed how fast contagion
can spread. Today it's global and out-of-control. No one's sure how to contain
it, so bankers are printing trillions in a desperate attempt to socialize
losses, privatize profits, and pump life back into a corpse through a sort of
shell game or grandest of grand theft
process of sucking wealth from the public.
Speculation and debt need
more of it to prosper, but in the end it's a losing game." - Stephen
Lendman
"Over the years bank services and bank
risks migrated outside of the regulatory safety net.
Wall Street securities firms, for example,
developed the commercial paper market, which replaced much of banks' short-term
corporate lending. Investment
banks like Merrill Lynch were
never subject to the same kind of safety and soundness
regulation as commercial banks. Newer market participants, like
hedge funds, were not subject to any
regulation at all. Even regulated banks were gradually allowed to own
securities and insurance businesses
within a holding company structure, and they were allowed to hold highly-risky
speculative positions in off-balance-sheet
"special purpose" entities." - Mark Jickling
"Since the beginning of
the last decade, required reserve balances have fallen dramatically. The
decline stems in part from regulatory action: the Federal Reserve eliminated
reserve requirements on large time deposits in 1990 and lowered the
requirements on transaction accounts in 1992. But a far more important source
of the decline in required reserves has been the growth of sweep accounts. In
the most common form of sweeping, funds in bank customers' retail checking
accounts are shifted overnight into savings accounts exempt from reserve
requirements and then returned to customers' checking accounts the next
business day. Largely as a result of this practice, today only 30 percent of
banks are bound by a reserve balance requirement." - Federal Reserve Bank of
New York, 2002
Investment
banks were able to "balance" and prove adequate reserves by "securitizing"
loans which allow those investment
banks to move those loans off their balance sheets.
There are two
ways to securitize a loan: sell the securitized loan as a bond (originally made
popular by Michael Robert Milken* as junk bonds); or "synthetic"
securitization: use derivatives to get rid of the default risk (with credit
default swaps) and lock in the interest rate due on the loan (with
interest-rate swaps).
Once a investment bank securitizes a loan
that loan is moved off the balance sheet. Once a loan has been moved off the
balance sheet the capitalization ratio improves and the
investment banks can make even
more loans.
Investment banks created trillions
of dollars of credit without maintaining adequate capital reserves (leveraged
up to 33 to 1, 3.3 times higher than the traditional fractional reserve of 10
to 1) by providing mortgages, student loans and credit card loans to millions
of loan applicants who had no documentation, no income, no collateral and a bad
credit history for enormous short term profits!
Investment banks did this
without tying up any of their capital reserves while con-vincing the purchasers
of the securitized commercial paper (toxic debt) that there was no risk of
default! (and the gods of
Washington made sure of that!! - after the fact!!?? -
on the taxpayers dime!!!)
In
2004 the Securities and Exchange Commission allowed
financial institutions/securities
dealers to raise their leverage sharply from a typical leverage of
12-to-1to around 33-to-1. Under 33-to-1 leverage, a mere 3 percent decline in
asset values wipes out a financial
institution/securities dealer.
(Under
the repeal of the Glass-Stegal Act under William
Jefferson Clinton
financial
institutions could deal securities/commercial paper and issue
insurance.)
On March 23, 2009 Treasury
Secretary Timothy Franz
Geithner, a protégé of Henry Kissinger*, announced his latest plan which
seeks to harness government and private resources to purchase an initial
half-trillion dollars of off-balance-sheet toxic debt of
investment banks. Timothy
Geithner held out the expectation that the
program eventually could grow to $1 trillion. At the end of 2008
off-balance-sheet assets, much of it securitized credit-card debt, at just the
four biggest U.S. banks - Bank of America Corp., Citigroup Inc., JPMorgan Chase
& Co. and Wells Fargo & Co. - were about $5.2 trillion, according to
their 2008 annual filings.
{On April 24, 2009 JPMorgan's
nonperforming on-balance-sheet assets assets grew 185 percent in the past year
to $14.7 billion. Bank of America's bad assets increased 229 percent to $25.7
billion. Problem assets at New York-based Citigroup Inc. rose 128 percent to
$27.4 billion, and San Francisco-based Wells Fargo & Co.'s jumped 180
percent to $12.6 billion.}
"Bank-like investment strategies -
such as the use of leverage (or borrowed
money) and financing long-term investments with short-term debt - became
common outside the safety net provided by
deposit insurance and
strong regulation. As a result, nonbank institutions became vulnerable to runs
- if markets lost confidence in them, their sources of funds could dry up. And
these nonbank runs could also be contagious, although this was not widely
recognized before the current crisis.
Another notable development of
the past two or three decades is the development of complex and hard-to-value
financial instruments. For example, simple debt contracts like home mortgages
were sold by the original lenders and packaged into bonds with a wide range of
risk and reward characteristics. These bonds were often pooled again and sliced
and diced into even more complex packages. Synthetic securities were created
based on derivative instruments that replicate the price changes of an asset
without requiring actual ownership of the asset itself. The
relationship between the performance of an
underlying financial asset and the complex security or derivative based on it
was never simple, and under crisis conditions has proved to be completely
unpredictable.
Complexity reduces transparency. Neither regulators nor
market participants can easily assess the true financial condition of firms
that hold or trade these newer instruments. Since large parts of derivatives
markets are unregulated, there is a global web of financial
claims and counterclaims that is essentially invisible to financial supervisors
and market participants alike.
Key characteristics that produced
this systemic vulnerability include: the use of complex financial instruments,
whose value is often linked by complex formulae to the value of other
instruments or financial variables, and for which no active trading markets
exist; extensive use of leverage, or
borrowed funds, which permits institutions to take larger market positions
with a given capital base, increasing potential profits (but also losses); and
the practice of moving risky financial speculation off the books, into
nominally independent accounting entities, so that the results do not appear in
the financial accounts of the parent financial institution." - Mark
Jickling
"More than 100 securities cases involving losses of $400
billion were filed against financial firms last year, according to
Cornerstone Research." - Vikas Bajaj 01/19/08
"In its latest
push to compel confidence the authorities are placing enormous pressure on
the Financial Accounting Standards Board to suspend "mark-to-market" accounting. Basically, this means that
the banks will not have to account for the actual value of the assets on their books but can claim
instead that they are worth whatever they paid for them.
The Treasury,
the Federal Reserve
and the SEC all seem to view propping up stock prices as a critical part of
their mission - indeed, the
Federal Reserve
sometimes seems more concerned than the average
Wall Street trader with the market's
day-to-day movements." - Michael Lewis & David Einhorn 01/03/08
On December 12, 1980
Federal Reserve Board chairman
Paul Adolph VolkerBB /CFR/TC raised the prime loan rate to
21.5% which set the stage for the Savings and Loan
Debacle and later the Global Financial Meltdown.
"I was working in
the Carter White House in 1979-80. Unbeknownst to the president,
Federal Reserve
Chairman Paul Volcker, another Rockefeller protégé, suddenly
raised interest rates to fight the inflation the bankers had caused by the OPEC
oil price deals, and plunged the nation into recession. Carter was made to look
weak and uninformed and was defeated in the election of 1980 by Republican
candidate Ronald Reagan.
It was
through the "Reagan Revolution" that the
regulatory controls over the banking industry were lifted, mainly in allowing
the banks to use their fractional reserve privileges in making mortgage loans.
Volcker's recession shattered American manufacturing and hastened the
flight of jobs abroad.
Under the "Reagan Doctrine," the U.S. military embarked
on an unprecedented mission of world conquest by attacking one small nation at
a time, starting with Nicaragua. Global
capitalism was also on the march, with
the U.S. armed forces
its own private police force." - Richard C. Cook {Actually the US has been
doing work for the syndicate of the soulless since 1833.}
In
1987 Alan Greenspan* inherited an economy primed for
expansion after the severe downturn caused by
Paul Adolph Volker
historically high interest rates.
Alan Greenspan's greatest
accomplishment was using oblique statements to create an aura of
mysticism around monetary
policy that never actually
existed.
When Eric J. Weiner
interviewed Harvard economist
John Kenneth Galbraith for his
book, "What Goes Up: The Uncensored
History of Modern Wall street", John Kenneth
Galbraith described Alan
Greenspan's management of the publicity surrounding the movement of
interest rates as "one
of the brilliant theatrical exercises of all time."
"Former
Federal Reserve Board chairman
Alan Greenspan defined his
role rather narrowly. Rather than being the custodian for the
American economy, he encouraged - or at the
very least did not discourage boom-and-bust cycles, enriching a few people at
the expense of everyone else. Perhaps he couldn't have done more, but to gush
over his legacy when our economy is facing a bursting housing
bubble, ever increasing budget and
trade deficits and the impending retirement of the baby boomers is simply
premature." - Sridhar Subramanian
"The idea that we’re even in a business
“cycle” is whistling in the dark. If we’re in a cycle, then that
implies there’s an automatic recovery in store. This happy free-market
idea was developed at the National Bureau of Economic Research by
opponents of government regulatory policy. But
the economy doesn’t move by a sine curve. There is a slow buildup, and a
sudden plunge, so the shape is ratchet-shaped. This is why 19th-century writers
didn’t speak of economic cycles, but
rather of periodic financial crises." - Michael Hudson
"The Federal
Reserve Board allowed the growth of an $8 trillion housing
bubble ($110,000 of housing
bubble "wealth" for every homeowner) in the years from 1996
to 2006. While this bubble was easily
recognizable to competent economists, the entire political and
financial establishments managed
to ignore the housing bubble until it
began to burst last year." - Dean Baker, March 24, 2008
"One
sign of a newly assertive Wall Street emerged recently when a bevy of
bailed-out firms, including Citigroup, JPMorgan and Goldman Sachs, formed a new
lobby calling itself the Coalition for Business Finance Reform.
Its goal: to stand against heavy regulation of "over-the-counter" derivatives,
in other words customized contracts that are traded off an exchange. Companies
like these kinds of contracts, which are agreed to privately between firms,
because they allow them to tailor a hedge perfectly against a firm-specific
risk for a certain time period. But in order to preserve its right to negotiate
these cheaper private contracts, Wall Street is apparently willing to argue for
the same lack of public transparency and to permit the systemic risk that led
to the crash." - Michael Hirsh 04/10/09
"What's astonishing to me is
that the special interests opposing reform contributed to the failure of the
financial system. They're trying to preserve the system that failed, and
Congress is listening to them." - Ed Mierzwinski
"The
injunction of Jesus to love others as ourselves is an endorsement of
self-interest."
- Brian Griffiths, Goldman Sachs public relations
man
{In November 2009 Goldman announced it was
going to help 10,000 small business' by teaching them how to run a business as
Goldman would. To apply for special funding small business revenues must be
between $150,000 and $4M in most recent fiscal year, there must be at least
four full-time employees, the business must have been operating for at least
two years and must be willing to take on more debt to create more jobs in
predominantly underserved markets. And when the your business can no longer pay
the interest on the new debt that Goldman so obligingly gives to those that
meet their criteria then you can turn over the keys to
Goldman.}
In 2006, Wall Street introduced a new index, called the
ABX, that became a way to bet on the value of mortgage securities. The index
allowed traders to bet on or against pools of mortgages with different risk
characteristics, just as stock indexes enable traders to bet on whether the
overall stock market, or technology stocks or bank stocks, will go up or down.
Goldman, among others on Wall Street, has said since the collapse that it made
big money by using the ABX to bet against the housing market.
"The
simultaneous selling of securities to customers and shorting them because they
believed they were going to default is the most cynical use of credit
information that I have ever seen." - Sylvain R. Raynes
It is widely and
correctly understood that Wall Street, with Goldman as a leader and with
regulators in thrall, helped to inflate and profited from a credit
bubble that burst and cost tens of
millions of Americans their jobs, incomes, savings and home
equity.
meltdown and bailout
"There was nothing accidental about the crisis."
- Paul Krugman
"This has gone beyond Greece, at this point, the
markets smell the blood, and they're picking off each weak link." - Win Thin,
senior currency strategist at Brown Brothers Harriman committing of the Greek
meltdown of 2010"I think that virtually everybody
associated with the financial world contributed to it. Some of it stemmed from
greed, some from stupidity, some from people saying the other guy was doing
it." - Warren Buffet on the meltdown
From the
start of 2007 until September 2008 Moody's Investors Service downgraded more
than $449 billion in securities similar to Gemstone VII or 82 percent of all
those outstanding. Moody's also downgraded more than three-quarters of
collateralized debt obligation securities that it once rated
AAA.
"The bond is backed by 9,000 second
mortgages used by borrowers who put down little or no money to buy homes.
Nearly a quarter of the loans are delinquent, and losses on defaulted mortgages
are averaging 40 percent. The security once had a top rating, triple-A." -
Vikas Bajaj and Stephen Labaton
Bonds backed by second mortgages where
purchasers put no money down were rated triple-A? The rating agency must have
expected prices to keep spiraling upward. For prices to keep spiraling upward
it would be necessary for incomes to keep spiraling upward. Oh now I get it -
the Wall Street investment bankers looked at their own income history and
expected all Americans to have the same kind of upwardly spiraling income!
Golly gee whillikers I thought they had access to the latest economic
data!
S&P, Moody’s and Fitch control 98
percent of the market for debt ratings in the U.S.. The three credit rating
corporations graded Lehman debt A-1 the day it filed for bankruptcy. State
regulators depend on credit grades to monitor the safety of $450 billion of
bonds held by U.S. insurance companies. The rating companies reaped a bonanza
in fees earlier this decade as they worked with financial firms to manufacture
collateralized debt obligations.On Sept. 16, one day after the three credit
rating firms downgraded AIG’s double-A score by two to three grades,
private contract provisions that AIG had with banks around the world based on
credit rating changes forced the insurer to hand over billions of dollars of
collateral. Credit raters are paid by the companies whose debt they analyze so
the ratings reflect a bias. Credit raters are likely to charge $400 million in
fees to taxpayer's for TALF credit ratings.
"To promote competition, in
the 1970s ratings agencies were allowed to switch from having investors pay for
ratings to having the issuers of debt pay for them. That led the ratings
agencies to compete for business by currying favor with investment banks that
would pay handsomely for the ratings they wanted. Wall Street paid as much as
$1 million for some ratings, and ratings agency profits soared. This new
revenue stream swamped earnings from ordinary ratings." - Kevin G. Hall "In
2001, Moody's had revenues of $800.7 million; in 2005, they were up to $1.73
billion; and in 2006, $2.037 billion. The exploding profits were fees from
packaging . . . and for granting the top-class AAA ratings, which were supposed
to mean they were as safe as U.S. government securities." - Lawrence McDonald
"Everyone else goes out and does factual verification or due diligence.
The credit rating agencies state that they are just assuming the facts that
they are given. This system will not get fixed until someone credible does the
necessary due diligence." - John Coffee
“Ratings agencies abjectly
failed in serving the interests of investors. They’ve benefited from the
monopoly status that they’ve achieved with a tremendous amount of
assistance from regulators.” - SEC Commissioner Kathleen
Casey
“We’ve hung the entire global
economy on ratings.” - Eric Dinallo
Major banks and other
financial institutions around the world reported losses of approximately $435 billion as of July
17, 2008. The ability of corporations
to obtain funds through
the issuance of commercial paper was affected as liquidity concerns drove
central banks around
the world to
refuse to re-negotiate
commercial paper or renew loans to banks and financial institutions that
no
longer could meet the newly revised central banking regulatory
standards of
the Bank of International
Settlements.
In June
2008,Merrill Lynch seized $850 million
worth of the underlying collateral from Bear Stearns but only recouped $100
million in auction. In March of 2008 the Federal Reserve forced the sale of
Bear Stearns to JPMorgan Chase for ten
dollars per share, a price far below the previous 52-week high of $133.20 per
share.
On July 9, 2008, IndyMac bank's shares
closed at $0.31 in trading on the New York Stock Exchange, a
loss of over 99% from its high of $50 in
2006. IndyMac Bank was seized on July 11, 2008 and was the fourth largest bank
failure in United States history. IndyMac Bank held $32 billion in assets.
On September 25, 2008 the Office of Thrift Supervision (OTS)
seized Washington Mutual and placed it into the receivership of the Federal
Deposit Insurance Corporation (FDIC). The FDIC sold most of Washington
Mutual's assets and liabilities, including covered bonds and other secured
debt in a 2007 SEC
filing valued at $327.9 billion, to JPMorgan Chase for $1.9 billion.
On
October 7, 2008, the Federal Reserve
announced that it was using its emergency authority under Section 13(3) of the
Federal Reserve Act
to establish a Commercial Paper Funding Facility. By the end of October,
the Federal Reserve
had purchased more than $100 billion in commercial paper.
On November 23, 2008, the Fed and Treasury announced a
rescue package for Citigroup to provide
insurance against large losses on bundled securities and derivatives of
approximately $306 billion backed by residential and commercial real estate.
Citigroup agreed to
absorb the first $29 billion in losses on the bundled securities and
derivatives; the government will then cover 90% of losses that exceed that
figure. Citigroup
spent $1.77 million on lobbying fees in the fourth quarter of
2008.
“The last six months have made it abundantly
clear
that voluntary regulation does not work." - Christopher
Cox
The director of the Federal
Housing Finance Agency (FHFA), James B. Lockhart III on September 7, 2008
announced his decision to place two privately operated government sponsored
enterprises, Fannie Mae (Federal National Mortgage
Association) and Freddie
Mac (Federal Home Loan Mortgage
Corporation), into conservatorship run by FHFA. Even though over 98
percent of Fannie's loans were paying timely during 2008, $270 billion in loans
that Fannie Mae had purchased or
guaranteed between 2005 and 2008 were now considered risky.
Fannie Mae and
Freddie Mac each had a positive net
worth as of the date of the takeover which was triggered by credit default
swap derivative contracts.
"Credit default swaps are essentially
insurance policies covering the losses on securities in the event of a default.
Financial institutions buy them
to protect themselves if an investment they hold goes south. It's like bookies
trading bets, with banks and
hedge funds
gambling on whether an investment (say, a pile
of subprime mortgages bundled into a security) will succeed or fail.
Because of the swap-related provisions of Gramm's
bill - which were supported by Fed chairman
Alan Greenspan and
Treasury secretary Larry Summers - a $62 trillion market (nearly four times the
size of the entire United States stock market) remained utterly unregulated,
meaning no one made sure the banks and
hedge funds had the assets to cover
the losses they guaranteed." - David Corn
In the credit default swap
market, the standard contracts typically used between parties to a swap define
the action of placing Fannie Mae and
Freddie Mac into conservatorship to
be equivalent to bankruptcy, because of the change in
corporate control.
In credit default swap parlance, this is termed a credit
event, and that triggers the settling of outstanding contracts for the
derivatives, which are used to hedge or speculate on the
potential risk that a company will default on its bonds.
Fannie
Mae and Freddie Mac had
approximately $ 1.5 trillion in bonds outstanding, and since the market in
credit default swaps is not public, there is no central reporting mechanism to
verify how many credit default swaps are linked to those bonds. (In effect these derivative contracts for credit default swaps
rewrite applicable jurisprudence and negate existing national laws in favor of
criminal international elite's
jurisprudence. On April 22, 2009 David Kellermann, CFO of Freddie Mac,
committed suicide. A fitting and honorable end for a financial
wizard!)
To avoid increased loses of as much as $2.4 billion in
credit default swaps in 2008 Fannie
Mae unveiled the "HomeSaver Advance" plan to provide "foreclosure
prevention assistance to distressed borrowers." About 71,000 cash advances to
forestall foreclosure with an average value of $6,500 for a total of $462
million were made in 2008. As of spring 2009
Fannie Mae valued those loans at
$8 million.
"Credit-default swaps may not be Exhibit No. 1 in the
case against financial complexity, but they are useful evidence. Whatever
credit defaults are in theory, in practice they
have become mainly side bets on whether some
company, or some subprime mortgage-backed bond, some municipality, or even the
United States government will go bust. In the extreme case, subprime mortgage
bonds were created so that smart investors, using credit-default swaps, could
bet against them. Call it insurance if you like, but it's not the insurance
most people know. It's more like buying fire insurance on your neighbor's
house, possibly for many times the value of that house - from a company that
probably doesn't have any real ability to pay you if someone sets fire to the
whole neighborhood." - Michael Lewis & David Einhorn 01/03/08
"On
September 7, 2008, the Federal Housing Finance Agency (FHFA) placed
Fannie Mae and
Freddie Mac, two
government-sponsored enterprises (GSEs) that play a critical role in the United
States home mortgage market, in conservatorship. As conservator, the FHFA has
full powers to control the assets and operations of the firms. This means that
the United States taxpayer now stands behind about $5 trillion of GSE-issued
debt." - Mark Jickling, November 24, 2008
"When Fannie Mae and Freddie
Mac were taken into conservatorship by the government, they were leveraged at
an eye-popping 100 to 1." - Mike Whitney
On March 11, 2009
Freddie Mac asked for $31 billion
in additional aid after posting a gargantuan loss of more than $50 billion last
year. The loss' were driven by $13.2 billion in hedged trades, $7.2 billion in
credit losses from the declining housing market conditions and $7.5 billion in
write-downs of the value of its mortgage-backed securities. The company also
took a charge of $8.3 billion for now-worthless tax credits.
By the end of September of 2008
Lehman Brothers went into
bankruptcy, Merrill Lynch acquired
Lehman Brothers and was
in turn acquired by Bank of America while Morgan Stanley and
Goldman Sachs changed
their corporate structures to become bank holding companies. (Until
September 2008, the month of the
Lehman Brothers collapse,
the Federal Reserve
had held the expansion of
the Monetary Base virtually flat. US Treasury Secretary Tim Geithner,
participated in the decision to let
Lehman Brothers fail "to
teach a lesson" when he was president of the New York Federal
Reserve.)
"Hedge funds are
now targeting each other. Morgan Stanley and
Goldman Sachs, who made
obscene profits by shorting stocks in the past, are vociferously against the
practice now that their stocks are the ones being destroyed." - Bruce
Goodman
{At
Goldman Sachs Group, Inc.
employees earned an avarage of $622,000 in 2006 on a profit of $9.4 billion.
Morgan Stanley CEO John Mack bonus for 2006 was $40 million. Much of the
commercial paper wealth (over-the-counter derivatives) in
2006 was made on takeovers and leveraged
buyouts.}
Between March and September 2008, a seven month
period, the five largest investment bankers on Wall Street effectively went
bankrupt.
Merrill Lynch was sold
to Bank of America for 0.8595 shares of Bank of America common stock for each
Merrill Lynch common share, or about $50
billion or $29 per share. The market valuation of
Merrill Lynch was about $ 100 billion one
year earlier.
{Bank of America purchase of Merrill Lynch
closed January 1. During the final quarter of 2008 Merrill Lynch lost $15.3
billion. Part of that loss included annual bonuses to employees before the deal
closed as well as a $1.2 million office redecoration with a $87,000 rug and a
$68,000 credenza for CEO John A. Thain who requested a $30 million to $40
million bonus for his stewardship of Merrill Lynch.}
In August 2008, Morgan Stanley was contracted by the
United States Department of the Treasury to advise the government on
potential rescue strategies for Fannie
Mae and Freddie Mac. On
September 21, 2008, it was reported that the
Federal Reserve
allowed Morgan Stanley to change its status from investment bank to bank
holding company in order to survive the global
economic meltdown of
2008.
In 2005, Goldman
Sachs received approximately $1.6 billion in
taxpayer subsidies (mostly
through Liberty Bonds) from New York City and state taxpayers to finance the a
new headquarters near the World Financial Center in Lower Manhattan.
{Some of the people employed by
Goldman Sachs includes
George Herbert Walker Bush (managing director at
Lehman Brothers), Robert
Zoellick (World Bank president)BB
CFRTC, Henry Paulson (United
States Treasury Secretary), Robert Rubin* (ex-United States Treasury Secretary,
ex-Chairman of Citigroup, mentor of United States Treasury Secretary is Tim
Geithner), John Thain (Chairman and CEO, Merrill Lynch, and former chairman of the
NYSE), Henry H. Fowler, (58th United States Secretary of the Treasury), Edward
Lampert (hedge fund manager), Michael Cohrs (head of Global Banking at Deutsche
Bank), Mark Carney (current governor of the Bank of Canada), Robert Steel (CEO
of Wachovia), Ed Liddy (CEO of AIG), Neel Kashkari, Stephen Friedman (chairman
of the President's Foreign Intelligence Advisory Board and of the Intelligence
Oversight Board, board member of Memorial Sloan-Kettering Cancer Center, The
Aspen Institute and the Council on Foreign Relations, Chairman Emeritus of the
Executive Committee of the Brookings Institution, director Federal Reserve Bank
of New York), Mark Patterson (Treasury chief of staff), Gary Gensler (Commodity
Futures Trading Commission), ... Barack Obama received $981,000 for his
campaign from Goldman employees.}
"AIG, in addition to being one of the largest
providers of traditional lines of insurance, was a leading participant in the
market for credit default swaps (CDS), instruments that are linked to corporate
credit conditions. In the aftermath of the
Lehman Brothers
bankruptcy and the Fannie and
Freddie takeover,
AIG was exposed to significant CDS losses.
" - Mark Jickling
On September 16, 2008
American International Group (AIG), an
insurance corporation received an $85 billion infusion from the
Federal Reserve for
an 80% non-voting equity stake. AIG, at the
time the 18th-largest publically traded
corporation on
Earth, was delisted from the Dow Jones Industrial Average on September 22,
2008. The AIG
family of corporations, the largest
underwriter of commercial and industrial insurance, held at this time a $447
billion portfolio of credit-default swap contracts.
"Now AIG's
solvency and liquidity is in our national interest. It operates in 130
countries. There's no entity like it in the world. It serves many, many
purposes for the United States. So to have AIG go down would be very negative
to the United States' interest, and business in those countries. They won't
understand our government let this happen to it. I think it would undermine the
credibility of our own government. When you're starting to unwind counterparty
transactions worldwide in a company the size of AIG, it will take about ten
years to do. What was happening was short-sellers would short AIG stock, so
that would make the stock go down. And because of the stock going down they
would have to put up more collateral on their credit default swap business. The
governor of New York has worked with the insurance department to modify the
regulations permitting AIG subsidiaries to move up about $20 billion of excess
assets as a means of helping. That will help. But on the regulatory front,
other than a bridge loan, that's all they need." - Maurice R. Greenberg,
September 17, 2008, Council of Foreign Relations interview
Maurice
Raymond "Hank" Greenberg, previous chairman and controlling owner of AIG
insurance, manager of the third largest capital investment pool in the world,
was floated as a possible CIA Director in 1995.
"Between July and
September of 2008, (AIG) spent more than $2
million to lobby Congress, the Treasury Department, the
Federal Reserve and
the White House." - Ben Protes
By May 2009 The federal
government had injected $182.5 billion into American International Group (AIG) to pay off
credit-default swap contracts. The following banks received bailout funds
through AIG on defaulting securties:
Deustche Bank ($5.4 billion), Société
Générale ( $11 billion), Goldman Sachs ($8.1 billion), Citadel
Investment Group, Calyon, Barclays, Bank of America, Merril Lynch, UBS, DZ
Bank, Bank of Montreal, Rabobank, Royal Bank of Scotland, HSBC and Barclays
Global Investors
"There was no reason to pay the contracts in
full." - Janet Tavakoli
"Tens of billions of dollars of government money
was funneled directly to A.I.G.'s counterparties." - Neil M.
Barofsky
"The big banks' profits are totally bogus. The new accounting
rules, the stress tests: They're all part of a major effort to put lipstick on
a pig." - Martin Weiss
{Three trustees, Jill Considine (NY Fed,
Depository Trust & Clearing Corp., Ambac Financial Group Inc.), Chester
Feldberg (NY Fed, Barclays Americas) and Douglas Foshee (NY Fed, Halliburton
& El Paso Corp.), were appointed to control AIG in January 2009 by the New
York Federal Reserve Bank to oversee the federal government’s 77.9 percent
equity stake. The New York Fed retained the right to remove the trustee. New
York Fed President William Dudley worked until 2007 as Goldman Sachs’s
chief economist. Stephen Friedman, who resigned as New York Fed chairman May 7,
was once CEO of Goldman Sachs. JPMorgan Chase & Co. CEO Jamie Dimon and
Richard Carrion, chairman and CEO of Banco Popular de Puerto Rico, are also on
the New York Fed board, along with General Electric Co. CEO Jeffrey
Immelt.}
"Few observers outside Wall
Street understand that the hundreds of billions of dollars pumped into by
the Fed of NY and Treasury, funds used to keep the creditors from a default,
has been used to fund the payout at face value of credit default swap contracts
or “CDS,” insurance written by AIG against senior traunches of collateralized
debt obligations or “CDOs.” The Paulson/Geithner model for dealing
with troubled financial institutions such as AIG with net unfunded obligations
to pay CDS contracts seems to be to simply provide the needed
liquidity and hope for
the best. Fed and AIG officials have even been attempting to purchase the CDOs
insured by AIG in an attempt to tear up the
CDS contracts. But these efforts only focus on a small part of
AIG's CDS book. Until we rid the markets of
CDS, there will be no restoring investor confidence in
financial institutions." - Chris
Whalen
"When AIG finally got up from
its seat at the Wall Street casino, broke and busted in the afterdawn light, it
owed money all over town - and that a huge chunk of your taxpayer dollars in
this particular bailout scam will be going to pay off the other high rollers at
its table. Or that this was a casino unique among all casinos, one where
middle-class taxpayers cover the bets of billionaires." - Matt Taibbi
American International Group (AIG) has four public relations firms on its
payroll" - Kekst & Company, Sard Verbinnen,
Hill & Knowlton and
Burson-Marsteller - in addition to its own PR staff.
AIG's "public relations army" hasn't seemed
to make its executives PR savvy. On a conference call,
AIG chief restructuring officer Paula
Reynolds unwisely quipped that it might be 'better to go to jail' than have to
deal with the intricacies of securities laws as they apply to
AIG's situation. Michael Weisskopf reports
that Sard Verbinnen & Co. "helps to structure statements on the bailout,
Kekst & Co. focuses on sales of assets to pay back federal loans,
Burson-Marsteller handles controversial issues and Hill & Knowlton fields
inquiries from Capitol Hill and prepares congressional testimony for company
officials."
AIG announced on March 15, 2009 it would be paying $218
million in bonuses. 73 AIG employees were promised over $1 million each.
American Investment Group (AIG) is suing the federal government to recover
$306.1 million of taxes, interest and penalties from the Internal Revenue
Service. Defense contractors in Iraq were required to buy life and casualty
coverage for their workers. AIG estimated the cost of insurance would be $73.1
million from 2003 to 2006 but charged Kellogg, Brown & Root nearly four
times that amount $284.3 million.
"Recent developments in finance make
it possible to unbundle the risks embedded in traditional financial
instruments. A mortgage, for example, carries credit risk, interest rate risk,
and prepayment risk, but with derivatives and CDOs, each of these risks can be
disaggregated and made the basis of a financial
bet. That a strategy is likely to fail spectacularly every ten or twenty
years is not a disincentive to the leveraged trader: he will probably receive
several large annual bonuses before the bad year comes." - Mark
Jickling
"Wall Street's pay
structure, in which bonuses are based on short-term profits, encouraged
employees to act like gamblers at a casino - and
let them collect their winnings while the roulette wheel was still spinning. To
earn bigger bonuses, many traders ignored or played down the risks they took
until their bonuses were paid. Their bosses often turned a blind eye because it
was in their interest as well." - Louise Story
"U.S.
taxpayers may be on the hook for as much as $23.7 trillion to bolster the
economy and bail out financial companies." - Neil Barofsky, special inspector
general for the Treasury's Troubled Asset Relief Program July,
2009
"Sovereign wealth funds operated by China, Singapore, Abu Dhabi,
and other countries have taken large equity stakes in
Citigroup,
Merrill Lynch, Morgan Stanley, and other
firms, including leading European financial institutions." - Mark
Jickling
"We are mortgaging the future of our children and grandchildren
at record rates, and that is not only an issue of fiscal irresponsibility, it's
an issue of immorality." - David Walker, former Comptroller General of the
United States
"Recovery will fail unless we break the financial
oligarchy that is blocking essential reform."
- Simon Johnson, former chief
economist at the International Monetary Fund
"The most recent
report from the
Comptroller of the Currency seems to have gone unnoticed in Washington
and the press. If banks are not
lending because of increased capital requirements in the face of credit default
swaps, other derivatives and loan defaults then the report goes a long way in
describing exactly why. The assets are comprised largely of real estate,
residential mortgage, student, car and credit card loans. With the rise in
defaulting mortgages, delinquent credit card and other debt the problem can
only get worse. To recapitalize the
banks to the point where exposure is low enough to encourage lending would
take trillions and that's before any more fallout from the collapsing economy.
Lending also requires creditworthy borrowers, the number of which is in a
nosedive. The $165 trillion in notional derivatives and the associated credit
risk related to $15 trillion in credit default swaps illustrated below is the
poison apple that the taxpayer has been forced to bite into." - Andrew Hughes,
01/27/09
According to Jan Hatzius, chief American economist of Goldman
Sachs, as of January 2009 banks had absorbed about $1 trillion in losses on
mortgages and other bad debt and still needed to absorb another $1.1 trillion
in losses.
Credit Exposure to Capital ratio. Amounts in
$Millions
|
Bank |
Assets |
Derivatives |
Credit Exposure to Capital
Ratio |
|
J.P. Morgan Chase |
$1,768,657 |
$87,688,008 |
400.2 |
|
Citi |
$1,207,007 |
$35,645,429 |
259.5 |
|
Bank Of America |
$1,359,071 |
$38,673,967 |
177.6 |
|
HSBC |
$181,587 |
$4,133,712 |
664.2 |
"America's five
largest banks, which already have received $145 billion in taxpayer bailout
dollars, still face potentially catastrophic losses from exotic investments if
economic conditions substantially worsen, their latest financial reports show.
"Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan
Chase reported that their "current" net loss risks from derivatives
insurance-like bets tied to a loan or other underlying asset surged to $587
billion as of Dec. 31. Buried in end-of-the-year regulatory reports that
McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90
days.
The banks' quarterly financial reports show that as of 12/ 31/09:
J.P. Morgan had potential current derivatives losses of $241.2 billion,
outstripping its $144 billion in reserves, and future exposure of $299 billion;
Citibank had potential current losses of $140.3 billion, exceeding its $108
billion in reserves, and future losses of $161.2 billion; Bank of America
reported $80.4 billion in current exposure, below its $122.4 billion reserve,
but $218 billion in total exposure; HSBC Bank USA had current potential losses
of $62 billion, more than triple its reserves, and potential total exposure of
$95 billion; San Francisco-based Wells Fargo, which agreed to take over
Charlotte-based Wachovia in October, reported current potential losses totaling
nearly $64 billion, below the banks' combined reserves of $104 billion, but
total future risks of about $109 billion." - McClatchy newspaper
3/08/2009
"In the minds of too many , not only regular people but also
top politicians , the financial crisis is already behind us. That way of
thinking is dangerous. The global economic crisis continues." - Dominique
Strauss-Kahn, IMF Managing Director, 09/12/09
"After spending a
lifetime denouncing socialism as inherently unfair,
Wall Street is now doing a hideous parody as if "socialism for the rich" were not
an oxymoron in the first place. Take into account the appointments of Larry
Summers* at the White House and the
conspicuous leadership role in the bailout played by Barney Frank*
in the House and Chuck Schumer* in
the Senate. Families, businesses and government have to spend more wage income,
profits and tax revenues on debt service instead of buying goods and services.
So why is the solution to this debt overhead held to be yet MORE debt? Is there
not something crazy here? It would take only $1 trillion or so to simply let
"the market" work its magic in the context of renewed debtor-oriented
bankruptcy laws to cure the debt problem. But that the government wants to make
creditors whole - creditors who are the largest political campaign contributors
and lobbyists these days." - Michael Hudson
"The entire economic
growth system, where one regional center prints money
without respite and consumes material wealth, while
another regional center manufactures inexpensive
goods and saves money printed by other governments, has suffered a major
setback.
Protectionism will prove inevitable during the crisis, all of
us must display a sense of proportion. Excessive intervention in economic
activity and blind faith in the state's omnipotence is a mistake. The
concentration of surplus assets in the hands of the state is a negative aspect
of anti-crisis measures in virtually every nation. In the 20th century, the
Soviet Union made the state's role absolute. In the long run, this made the
Soviet economy totally uncompetitive.
Unjustified swelling of the
budgetary deficit and the accumulation of public debts are just as destructive
as adventurous stock-jobbing. This means we must assess the real situation and
write off all hopeless debts and bad assets. The economy of the future must
become an economy of real values. A system based on
cooperation between several major centers must replace
the obsolete unipolar world concept. It is
necessary to return to a balanced prices based on an equilibrium between supply
and demand, to strip pricing of a speculative element generated by many
derivative financial instruments." - Vladimir Putin, 01/29/09
Davos
On April 2, 2009 the Financial
Accounting Standards Board relaxed the "mark-to-market" rule.
Financial institutions were
given the go ahead to value their derivative assets (toxic debt) in a
"mark-to-model" manner. For the first quarter of 2009 financial institutions
were given the go ahead to use Dick Cheney's creative accounting methods to
value their toxic debt at whatever value their mathematical models predicted.
In other words financial
institutions were allowed to value their toxic debt at whatever value they
felt they should be as opposed to their actual value in the market.
"The
announcement April 2, 2009 by the Financial Accounting Standards Board
(FASB) weakening "mark-to-market" accounting rules allowing banks to value
their toxic debt at inflated prices. This was not only an immediate boost to
banks' balance sheets and reported profits, it also showed that the government
will give Wall Street a green light to continue the same methods of fraud and
double bookkeeping that triggered the breakdown of the financial system in the
first place." - Tom Eley
{On October 30, 2008 the American
Securitization Forum met to discuss the future of their $10.7 trillion
industry. George Miller and other members were concerned that Financial
Accounting Standards Board was going to create new rules to govern
off-balance sheet securitization.
"Miller was trying to preserve an
accounting rule for off-the-books assets that helped U.S. banks export toxic
debt around the world." - Alan and Ian Katz
If the Financial
Accounting Standards Board had listened to George Miller the worldwide
economic meltdown due to toxic debt marketing sales and off-balance sheet
securitization could have gone on a little longer before the devil took his
due. Maybe the new rules of the Financial Accounting Standards Board
will revitalize the sale of toxic debt.
"Government cannot prevent nature from taking its
course."
- David Rosenberg, chief North American economist
at Merrill Lynch
"When we look at the financial calamity that
brought down Bear-Stearns and Lehman Brothers, some are fond of saying that
"moral hazard" is still at play because stockholders lost money and employees
lost jobs. But tell that to the stockholders and employees. They were not the
ones deciding to take the outsized risks on loans that were nothing more than
scams to create short-term wealth from long-term disaster." - Curtis White
"Threats of
martial law were used to get
this reprehensible bailout
legislation passed."
- Peter Dale Scott
“We see TARP as an insurance policy. No
matter how bad it gets, we’re going to be one of the remaining
banks.”- John C. Hope III, Whitney National Bank chairman
"The Wall Street banks - which are the recipients
of the bailout
money - are also the brokers and
underwriters of the United States public debt. We are dealing with an absurd
circular relationship: To finance the
bailout, Washington must borrow
from the banks, which are the recipients of the
bailout." - Michel
Chossudovsky "The bailout plan promoted by Secretary of
the Treasury Henry "Hank" Paulson amounts to a sum of money that is superior to
the Louisiana Purchase, the New Deal, the Marshall Plan, the Apollo Lunar
Project, the Korean War, the Vietnam War, the invasion of Iraq and other large
government expenditures - combined!" - José Miguel Alonso
Trabanco
"Under the Paulson plan, the government
would buy mortgages and mortgage-backed securities for more than they are
worth. The Paulson plan returns to the wondrous fiction that assets are worth
what someone says they are worth, rather than what someone will actually pay.
Financial companies have been saying for months now that market prices for
mortgage securities were unreasonably low, although none of them seemed eager
to buy at those prices. Among the companies that most vigorously pushed the
idea were the American International Group (AIG)and
Freddie Mac. The
Federal Reserve and
the Treasury think that the prices have fallen too far. The plan proposed by
the Bush administration did not call for buying such securities at "current low
prices." Ben Bernanke,
the Federal Reserve
chairman, explained to legislators this week, the price the government would
pay is to be the "hold-to-maturity price" of these securities, not the
"fire-sale price" they would now fetch in an open free market.
The goal is to recapitalize the
banking system by placing a floor under the prices of securities that never
should have been issued." - Floyd Norris
"In the past year there
have been at least seven different bailouts, and six different
strategies. And none of them seem to have pleased anyone except a handful of
financiers. Rather than tackle the source of the
problem, the people running the bailout desperately want to
reinflate the credit bubble, prop up
the stock market and head off a recession." - Michael Lewis & David Einhorn
01/03/08
"A review of investor presentations and conference calls by
executives of some two dozen banks around the country found that few cited
lending as a priority. An overwhelming majority saw the bailout program as a
no-strings-attached windfall that could be used to pay down debt, acquire other
businesses or invest for the future. A Congressional oversight panel reported
on January 9 that it found no evidence the bailout program had been used to
prevent foreclosures. At least seven banks that received TARP money have since
bought other companies." - Mike McIntire, 01/17/09
"The foreclosure plan
carries many of the same drawbacks as the stimulus bill. Both are full of good
intentions and comforting provisions for those who find themselves in financial
trouble. Both pay lip service to words like "stimulus" and "incentives." But in
the end, both of these headline programs rely on government to make the
decisions, to pick the winners and losers, and to subsidize those solutions
with money taken from people who aren't in financial trouble - yet!" - Terry
Savage 02/23/2009
"According to University of Massachusetts economist
Thomas Ferguson the Bush/Obama bank bailouts alone will cause a permanent
addition of interest payments on the national debt of $100 billion a year
forever. That means
every American will pay, during the course of his or her lifetime, over
$20,000 to rescue the banks from their bad loans. To put that number in
perspective, it equates to 2-1/2 years of tuition at a state university that
instead will be paid to the government of China
or a similar foreign investor. Yes, America , that is what your elected
government just decided you will do." - Richard C. Cook
03/02/09
December 2008
At the end of March of 2009, Bloomberg reported
that the federal government and the Federal Reserve have spent, lent or
committed $12.8 trillion. This is $42,105 for every man, woman and child in
America and 14 times the $900 billion of currency in circulation.
America's gross domestic product was $14.2 trillion in
2008.
"The
Federal Reserve is
buying an insurance company? Where exactly is that covered in the
Federal Reserve Act?
This is not your ordinary “nationalization” like the purchase of
Fannie/Freddie stock by the United States Treasury. The
Federal Reserve has
the power to print the national
money supply, but it is not actually a
part of the American government. It is a
private banking corporation
owned by a consortium of
private banks. The banking
industry just bought the world’s largest insurance company, and they
used taxpayer money to do it.
The
bank bailout bill that just
passed the Senate and is being deliberated in the House would
turn the banks' worst assets into
good United States dollars. The covered instruments eligible for conversion
include the black hole of derivatives. Derivatives held by
American banks are now estimated at $180
trillion. How will the Treasury acquire the dollars to buy all these
disastrously bad bank assets? The money
will no doubt come from an issue of United States securities, or
debt; but who will
lend to a nation that already has the highest federal
debt in
the world, one that is growing exponentially? The
likely answer is the Federal Reserve, the
bankers' bank that
acts as "lender of last resort" when there are no other takers. The
Federal Reserve is a
private banking corporation
owned by its member banks. The
Federal Reserve
returns the interest on
the bonds it "monetizes" to the government, but only after deducting its
operating costs and a 6% guaranteed return for each of its many bank
shareholders. The upshot is that we the American people
will be paying interest to the banks
to bail out the banks from their own follies!" - Ellen Hodgson
Brown
“I was telling a friend, ‘this must have been
how the Politburo felt." - Jeb Mason, the Treasury’s liaison to businesses
commenting on the deluge of requests from lobbyists for money on the TARP
announcements
"Some lobbyists, Mr. Mason said, had called him even
though they did not have any clients looking to get into the program or worried
about its restrictions. They were merely seeking intelligence on which
industries would be deemed eligible for assistance. He suspects they were
representing hedge funds that wanted to trade on that information." - Mark
Landler & David D. Kirkpatrick November 11, 2008
"This financial
meltdown involved a broad national breakdown in personal responsibility,
government regulation and financial ethics. So many people were in on it:
People who had no business buying a home, with nothing down and nothing to pay
for two years; people who had no business pushing such mortgages, but made
fortunes doing so; people who had no business bundling those loans into
securities and selling them to third parties, as if they were AAA bonds, but
made fortunes doing so; people who had no business rating those loans as AAA,
but made a fortunes doing so; and people who had no business buying those bonds
and putting them on their balance sheets so they could earn a little better
yield, but made fortunes doing so." - Thomas L. Friedman
"Over the last 20 years American financial institutions have
taken on more and more risk, with the blessing of regulators, with hardly a
word from the rating agencies, which, incidentally, are paid by the issuers of
the bonds they rate. The American International
Group (AIG), Fannie Mae,
Freddie Mac,
General Electric and the municipal bond
guarantors Ambac Financial and MBIA all had triple-A ratings. It's almost as if
the higher the rating of a financial institution, the more likely it was to
contribute to financial catastrophe. These oligopolies, which are actually
sanctioned by the S.E.C., didn't merely do their jobs badly. They didn't simply
miss a few calls here and there. In pursuit of their own short-term earnings,
they did exactly the opposite of what they were meant to do: rather than expose
financial risk they systematically disguised it. " - Michael Lewis & David
Einhorn
Christopher "Kit" Taylor, the former chief regulator and
executive director of the Municipal Securities Rulemaking Board from
1978 to 2007, said the members of the board wouldn't allow the group to set
rules on credit default swaps and derivatives for the $2.69 trillion municipal
bond market.
"The big firms didn't want us touching derivatives. They
said, ‘Don't talk about it, Kit.' I saw more bankers looking out for their
self interest in my last years at the MSRB. The attitude had changed from,
‘What can we do for the good of the market,’ to, ‘What can we I
do to ensure the future of my business.’ The profit wasn’t in the
underwriting, it was in the swap. Right up until the day we went to real-time
disclosure, I was getting calls from bankers wanting to delay it. The only ones
who benefited from delaying transparency were those who profited from the
trades.”- Christopher "Kit" Taylor
Congress set up the MSRB in
1975 to make rules for firms that underwrite trade and sell municipal debt. The
board is funded by fees paid by member firms, which generated revenue of $22.2
million in fiscal 2008. As a self-regulatory organization, members of the
industry are granted the authority to supervise their own practices. A
15-member board oversees the organization and 10 of the directors are from Wall
Street firms. Enforcement is handled by the U.S. Securities and Exchange
Commission. Taxpayers in Detroit ($400 million), Jefferson County ($657
million), Alabama, and local California governments suffered more than $1
billion of losses.
Between November 25, 2008 to July 8, 2009 financial
institutions issued $274 billion of debt under the Temporary Liquidity
Guarantee Program. The program opened a channel of funding for financial
institutions unable to borrow in U.S. markets after the September collapse of
Lehman Brothers Holdings Inc. GMAC Financial Services, formerly
known as General Motors Acceptance Corporation, the auto and home lender
that received $13.5 billion from U.S. taxpayers in exchange for corporate debt
in the form of junk bonds, became a bank in December to qualify for the
Temporary Liquidity Guarantee Program. To protect $10 million of GMAC
junk bonds annually with a five-year credit-default swap contract it costs
$895,000. To protect the entire $13.5 billion in GMAC junk bonds annually will
cost over $1.2 billion annually.
"It's finally dawning on market players and
investors that Wall Street's interest and those of investors have never been
aligned." - Thomas C. Priore, CEO of ICP Capital
For the most excellent job the failed
Wall Street investment bankers
did
in 2008 they collected an estimated $18.4 billion in bonuses for the
year.
{According to a report released July 30,2009 by
Andrew M. Cuomo the nine financial institutions receiving the most federal
bailout money paid at least 4,793 of their
investment bankers/traders bonuses
of more than $1 million apiece for 2008. At Goldman Sachs bonuses of more than
$1 million went to 953 investment
bankers/traders - just 200 people collectively were paid nearly $1 billion
in total. Morgan Stanley awarded seven-figure bonuses to 428
investment bankers/traders with $577
million shared by 101 people. JP Morgan paid 1,626
investment bankers/traders bonuses
of $1 million or more. At Citigroup and Bank of America million-dollar awards
were distributed to hundreds of investment bankers/traders. The bonus
pools at the nine banks that received bailout money was $32.6 billion, while
those banks lost $81 billion.
Bonuses paid to
investment bankers/traders were not
tied to national economic growth or a reasonable percentage of company profits.
Bonuses were generally greater than the net income of the
financial institutions. Morgan
Stanley, for example, had $1.7 billion in earnings and paid $4.5 billion in
bonuses. Goldman Sachs had $2.3 billion in earnings and paid $4.8 billion in
bonuses. JP Morgan Chase had $5.6 billion in earnings and paid $8.7 billion in
bonuses. Citigroup and Merrill Lynch, "zombie banks," paid $5.3 billion and
$3.6 billion in bonuses, respectively - although they lost more than $27
billion each in earnings.
The American people were told by
Wall Street investment
bankers/taders that these bonuses must be paid to retain
talent. The
Wall Street investment
bankers/traders also claim that regulation of derivatives and hedge funds
will cause Wall Street investment
bankers/traders to move their operations overseas. It is really a shame
that the Wall Street investment
bankers/traders did not move overseas many years ago - America might not
have become the dog eat dog culture of the commercial gods of materialism that
it has become - a culture in which everything has a
price!}
living and dying through
cooperation
"We disassociated the source of our financial benefits from what we saw
happening around us that we knew was wrong."
- Catherine Austin Fitts
"We are in the midst of a crash course in economic
inter-connectedness."
- Episcopal Bishop Katharine Jefferts Schori July 12,
2009
"Society itself may
be defined as nothing else but the combination of individuals for cooperative
effort. Without social cooperation man could not achieve the barest fraction of
the ends and satisfactions that he has achieved with it. The realm of
economic cooperation
occupies a far larger part of our daily lives than most of us are commonly
aware of, or even willing to admit. Marriage and family are, among other
things, a form not only of biological but of
economic
cooperation." - Henry Hazlitt
"Man has almost constant occasion for the help of
his brethren, and it is vain for him to expect it from their benevolence only.
He will be more likely to prevail if he can interest their self-love in his
favor, and show them that it is for their own advantage to do for him what he
requires of them." - Adam
SmithAn immoral economic system compels a
society's moral decline.
Through devotion to the current
corporate fiat-money credit-based economic system, American government has
enshrined all the disadvantages and none of the advantages of democracy. We now
have a government based on dissent, in which delay is a common tactic. Secrecy
is regularly employed so imbecilic measures that never produce the results
predicted can be enacted.
Corruption is a moral failure; it is
ubiquitous in societies permeated by immorality. The current corporate
fiat-money credit-based economic system institutionalizes immorality diffusing
it throughout society. Empirical evidence for this claim is pervasive.
The popular conception of the American economic system is this:
individuals, acting in their own self-interest as economic agents, engage in
economic activities that bring them the greatest financial rewards thereby
maximizing the economic well-being of society as a whole.
Experience
does not validate this view.
Congressmen defend the morality of their
actions by appealing to this prevailing popular conception. Congressmen are
doing exactly as popular conception recommends - just like businessmen and
criminals.
The result is that commonly held moral values are dismissed
as irrelevant and society sinks into immorality. An immoral economic system
compels a society's moral decline. Such declines are systemic and not
accidental.
The intellectual and moral failures of the corporatists and
the current corporate fiat-money credit-based economic system reflect the
ideology failure of the economics of corporatism and the credit-based monetary
system.
The inadequate and shoddy economic arguments of corporatist
ideologues parallels the bankruptcy of the military-industrial-entertainment
social cultural system in which they are embedded.
We are told
endlessly that our very civilization is dependent on keeping in check the
violent tendencies of those who envy our "developed" social culture.
But
what about those violent tendencies in human
nature?
With images of tales of
violence on our
television screens and in
our newspapers it may seem a strange to
point out that the truth is humans are becoming less violent.
Recent evidence about
violence among animal
species, such as the chimpanzee, and among
hunter-gatherer and early agricultural
societies shows that mankind has undergone a remarkable pacifist
revolution in the last 10 millenniums.
Humans are unique among
species in their elaborate spreading of labor
among strangers. Unlike that other
uniquely human attribute,
language, our ability to cooperate with strangers did not
evolve gradually during
prehistory. Only 10,000 years ago - a blink of an
eye in evolutionary time -
humans still hunted in
family bands and were suspicious of strangers,
fighting those they could not flee. They were
only cautiously beginning to accept the
rudiments of trade.
Yet today,
we live
and work among strangers and depend upon millions
more.
What has made this possible?
The
answer is both
institutional and
psychological. Once
human beings
settled down to agricultural and could no longer
flee unwelcome strangers, human
beings were forced to develop the
institutions that now
sustain cooperation between strangers -
cities, markets and the law.
Humans
could do so because of two psychological
mechanisms:
First, a capacity for
rational calculation of the costs and benefits of
cooperation and,
Second, a tendency for
reciprocity, the
willingness to repay kindness with kindness
and betrayal with
revenge.
Although neither
emotional condition initially came into being
to help individuals deal
with strangers both allowed us to do so, once
strangers became an inescapable fact of
life.
In many hunter-gatherer and early
agricultural societies archeological evidence suggest that up to
40% of deaths may have been because of
violence.
The worldwide average rate of
violent death (a
little over 1% of all deaths) is almost
certainly as low as it has ever been.
The deadliest
violence is perpetrated not by
individuals but by
groups - gangs, armies, terrorist networks. Human cooperation is double-edged. Not only is it
the foundation of social
trust, it also makes for the most
successful acts of aggression between groups.
Like chimpanzees, though with more lethal refinement,
human beings harness
altruism, solidarity and the skills
of rational
reflection in pursuit of
warfare. Industrialization, networking,
information
technology and
human capital dramatically increase
our efficiency at making
war.
We
must reinforce those law-abiding
institutions and networks that
have restrained the violence to which
our adrenaline and testosterone dispose
us and that have built the
peace and prosperity of modern
society.
"Executives are in the business world for
themselves first, and public
trading of companies' stocks is mostly a thinly disguised mechanism to allow
executives and
directors to
profit from inside knowledge and favors." - Danila Oder "We've
known forever that
idiots and greedy individuals are in
control. Just look at the George W. Bush administration. More and more mergers,
selling American companies and jobs to
foreigners, corporations running
our government, transferring the
wealth of the many to the few, the dumbing down
and muting of the press and on and
on.
Where is the outrage in this nation? Will it all end, finally, when
there is only Walmart and
McDonald's left and there is no
one who can afford its product except those who
stole all the money? These plutocrats
should all be known for what they are -
traitors. "- Michael Boshears, March 2005
"In regards to the reorganization of the
bankruptcy law
I have to confess when the guy with the Indian accent
called to sign up my 13-year-old son for a Visa
credit card, I was somewhat
annoyed. When I called my congressman's office and spoke
to someone who didn't give a you-know-what,
I was more than somewhat annoyed, I
was angry. I guess
we have the best government that credit card
companies can buy." - Karen Weston
"One day after George W. Bush took the nation's
middle class to task for its
free-wheeling ways by signing the bankruptcy reform bill, the
Republican
controlled House votes to give away billions in
tax breaks and incentives to those stalwarts of
fiscal responsibility - the energy
industry. It's so comforting to know
our government has its priorities in order." -David
Silva
"Congress made it more difficult for
the common person to file bankruptcy,
the president signed it into law and now the high
court has made it much more difficult for the common person to sue
corporations and
big business for wrongdoing. That
proves that the old adage, "money returning to its rightful owners, the
rich," is working." - Kenneth Tuxford "With the national
debt at $8 trillion
and growing daily, and a trade deficit of more than $700 billion,
George W. Bush's desire to take $39
million from programs for the poor and give
the rich a $70 million
tax cut, while asking $70 billion more
for Iraq, is not just abject fiscal
irresponsibility. It's totally insane. If a business
operated this way, it would be
bankrupt. If a person
operated this way, he would be
homeless. If a country
operates this way, it's on the
path to
self-destruction." - Tim
Noworyta, 02/2006
See Adam
Smith
See John Maynard
Keynes
See John Kenneth
Galbraith
See Social Control
See
The Global Economy
See
The Evil of Banality
See
American aristocracy
See
The Corruption of the American Dream
See
The Subversion of American Democracy |
|
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contents
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This web site is not a commercial web site and
is presented for educational purposes only.
This website defines a new religious
ideology to which its author adheres. The author feels that the falsification
of reality outside personal experience has created a populace unable to discern
propaganda from reality and that this has been done purposefully by an
international corporate cartel through their agents who wish to foist a corrupt
version of reality on the human race. Religious intolerance occurs when any
group refuses to tolerate religious practices, religious beliefs or persons due
to their religious ideology. This web site marks the founding of the religion
aptly named The Truth of the Way of Life - a rational religion based on reason
which requires no leap of faith, accepts no tithes, has no supreme leader, no
church buildings and in which each and every individual is encouraged to
develop a personal relation with God through the pursuit of the knowledge of
reality in the hope of curing the spiritual corruption that has enveloped the
human spirit. The tenets of The Truth of the Way of Life are spelled out in
detail on this web site by the author. Violent acts against individuals due to
their religious beliefs in America is considered a “hate
crime.”
This web site in no way condones violence. To the contrary
the intent here is to reduce the violence that is already occurring due to the
international corporate cartels desire to control the human race. The
international corporate cartel already controls the world central banking
system, mass media worldwide, the industrial military entertainment complex of
America and is responsible for the collapse of morals, the elevation of
self-centered behavior and the destruction of global ecosystems. Civilization
is based on cooperation. Cooperation does not occur at the point of a
gun.
American social mores and values have declined precipitously over
the last century as the corrupt international cartel has garnered more and more
power. This power rests in the ability to deceive the populace in general
through mass media by pressing emotional buttons which have been preprogrammed
into the population through prior mass media psychological operations. The
results have been the destruction of the family and the destruction of social
structures that do not adhere to the corrupt international elites vision of a
perfect world. Through distraction and coercion the direction of thought of the
bulk of the population has been directed toward solutions proposed by the
corrupt international elite that further consolidates their power and which
further their purposes.
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