America:Losing the Empire

Are ou ready for the future…More foreclosures…this summer April 22, 2009

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Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed. The moratorium was initiated in January to give Obama’s anti-foreclosure program—which is a combination of mortgage modifications and refinancing—a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes, but it’s clear now that the program will fall well-short of its objective.

In March, housing prices accelerated on the downside indicating bigger adjustments dead-ahead. Trend-lines are steeper now than ever before–nearly perpendicular. Housing prices are not falling, they’re crashing and crashing hard. Now that the foreclosure moratorium has ended, Notices of Default (NOD) have spiked to an all-time high. These Notices will turn into foreclosures in 4 to 5 months time creating another cascade of foreclosures. Market analysts predict there will be 5 MILLION MORE FORECLOSURES BETWEEN NOW AND 2011. It’s a disaster bigger than Katrina. Soaring unemployment and rising foreclosures ensure that hundreds of banks and financial institutions will be forced into bankruptcy. 40 percent of delinquent homeowners have already vacated their homes. There’s nothing Obama can do to make them stay. Worse still, only 30 percent of foreclosures have been relisted for sale suggesting more hanky-panky at the banks. Where have the houses gone? Have they simply vanished?

600,000 “DISAPPEARED HOMES?”

Here’s a excerpt from the SF Gate explaining the mystery:

“Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

“We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,” said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. “California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage.”

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity – only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as “shadow inventory.” (“Banks aren’t Selling Many Foreclosed Homes” SF Gate)

If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They’d also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 “disappeared” homes means that housing prices have a lot farther to fall and that an even larger segment of the banking system is underwater.

Here is more on the story from Mr. Mortgage “California Foreclosures About to Soar…Again”

“Are you ready to see the future? Ten’s of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season…Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days….The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium.”

JP Morgan Chase, Wells Fargo and Fannie Mae have all stepped up their foreclosure activity in recent weeks. Delinquencies have skyrocketed foreshadowing more price-slashing into the foreseeable future. According to the Wall Street Journal:

“Ronald Temple, co-director of research at Lazard Asset Management, expects home prices to fall 22% to 27% from their January levels. More than 2.1 million homes will be lost this year because borrowers can’t meet their loan payments, up from about 1.7 million in 2008.” (Ruth Simon, “The housing crisis is about to take center stage once again” Wall Street Journal)

Another 20 percent carved off the aggregate value of US housing means another $4 trillion loss to homeowners. That means smaller retirement savings, less discretionary spending, and lower living standards. The next leg down in housing will be excruciating; every sector will feel the pain. Obama’s $75 billion mortgage rescue plan is a mere pittance; it won’t reduce the principle on mortgages and it won’t stop the bleeding. Policymakers have decided they’ve done enough and are refusing to help. They don’t see the tsunami looming in front of them plain as day. The housing market is going under and it’s going to drag a good part of the broader economy along with it. Stocks, too.

The Tower of Basel April 19, 2009

Posted by tetrahedron in Uncategorized.
Tags: BIS, central bank, conspiracy, g20, global currency, global economy, Imf, private bank, switzerland
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In an April 7 article in The London Telegraph titled “The G20 Moves the World a Step Closer to a Global Currency,” Ambrose Evans-Pritchard wrote:

“A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order.

“We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,’ it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century.

“In effect, the G20 leaders have activated the IMF’s power to create money and begin global ‘quantitative easing’. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it.”

Indeed they will. The article is subtitled, “The world is a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity.” Which naturally raises the question, who or what will serve as this global central bank, cloaked with the power to issue the global currency and police monetary policy for all humanity? When the world’s central bankers met in Washington last September, they discussed what body might be in a position to serve in that awesome and fearful role. A former governor of the Bank of England stated:

“[T]he answer might already be staring us in the face, in the form of the Bank for International Settlements (BIS)…. The IMF tends to couch its warnings about economic problems in very diplomatic language, but the BIS is more independent and much better placed to deal with this if it is given the power to do so.”¹

And if that vision doesn’t alarm conspiracy theorists, it should. The BIS has been called “the most exclusive, secretive, and powerful supranational club in the world.” Founded in Basel, Switzerland, in 1930, it has been scandal-ridden from its beginnings. According to Charles Higham in his book Trading with the Enemy, by the late 1930s the BIS had assumed an openly pro-Nazi bias. This was corroborated years later in a BBC Timewatch film titled “Banking with Hitler,” broadcast in 1998.² In 1944, the American government backed a resolution at the Bretton-Woods Conference calling for the liquidation of the BIS, following Czech accusations that it was laundering gold stolen by the Nazis from occupied Europe; but the central bankers succeeded in quietly snuffing out the American resolution.³

Modest beginnings, BIS Office, Hotel Savoy-Univers, Basel

First Annual General Meeting, 1931

In Tragedy and Hope: A History of the World in Our Time (1966), Dr. Carroll Quigley revealed the key role played in global finance by the BIS behind the scenes. Dr. Quigley was Professor of History at Georgetown University, where he was President Bill Clinton’s mentor. He was also an insider, groomed by the powerful clique he called “the international bankers.” His credibility is heightened by the fact that he actually espoused their goals. He wrote:

“I know of the operations of this network because I have studied it for twenty years and was permitted for two years, in the early 1960’s, to examine its papers and secret records. I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments. … [I]n general my chief difference of opinion is that it wishes to remain unknown, and I believe its role in history is significant enough to be known.”

Quigley wrote of this international banking network:

“[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.”

The key to their success, said Quigley, was that the international bankers would control and manipulate the money system of a nation while letting it appear to be controlled by the government. The statement echoed an often-quoted one made by the German patriarch of what would become the most powerful banking dynasty in the world. Mayer Amschel Bauer Rothschild famously said in 1791:

“Allow me to issue and control a nation’s currency, and I care not who makes its laws.”

Mayer’s five sons were sent to the major capitals of Europe – London, Paris, Vienna, Berlin and Naples – with the mission of establishing a banking system that would be outside government control. The economic and political systems of nations would be controlled not by citizens but by bankers, for the benefit of bankers. Eventually, a privately-owned “central bank” was established in nearly every country; and this central banking system has now gained control over the economies of the world. Central banks have the authority to print money in their respective countries, and it is from these banks that governments must borrow money to pay their debts and fund their operations. The result is a global economy in which not only industry but government itself runs on “credit” (or debt) created by a banking monopoly headed by a network of private central banks; and at the top of this network is the BIS, the “central bank of central banks” in Basel.

Behind the Curtain

For many years the BIS kept a very low profile, operating behind the scenes in an abandoned hotel. It was here that decisions were reached to devalue or defend currencies, fix the price of gold, regulate offshore banking, and raise or lower short-term interest rates. In 1977, however, the BIS gave up its anonymity in exchange for more efficient headquarters. The new building has been described as “an eighteen story-high circular skyscraper that rises above the medieval city like some misplaced nuclear reactor.” It quickly became known as the “Tower of Basel.” Today the BIS has governmental immunity, pays no taxes, and has its own private police force.⁴ It is, as Mayer Rothschild envisioned, above the law.

The BIS is now composed of 55 member nations, but the club that meets regularly in Basel is a much smaller group; and even within it, there is a hierarchy. In a 1983 article in Harper’s Magazine called “Ruling the World of Money,” Edward Jay Epstein wrote that where the real business gets done is in “a sort of inner club made up of the half dozen or so powerful central bankers who find themselves more or less in the same monetary boat” – those from Germany, the United States, Switzerland, Italy, Japan and England. Epstein said:

“The prime value, which also seems to demarcate the inner club from the rest of the BIS members, is the firm belief that central banks should act independently of their home governments… . A second and closely related belief of the inner club is that politicians should not be trusted to decide the fate of the international monetary system.”

In 1974, the Basel Committee on Banking Supervision was created by the central bank Governors of the Group of Ten nations (now expanded to twenty). The BIS provides the twelve-member Secretariat for the Committee. The Committee, in turn, sets the rules for banking globally, including capital requirements and reserve controls. In a 2003 article titled “The Bank for International Settlements Calls for Global Currency,” Joan Veon wrote:

“The BIS is where all of the world’s central banks meet to analyze the global economy and determine what course of action they will take next to put more money in their pockets, since they control the amount of money in circulation and how much interest they are going to charge governments and banks for borrowing from them… .

“When you understand that the BIS pulls the strings of the world’s monetary system, you then understand that they have the ability to create a financial boom or bust in a country. If that country is not doing what the money lenders want, then all they have to do is sell its currency.”⁵

The Controversial Basel Accords

The power of the BIS to make or break economies was demonstrated in 1988, when it issued a Basel Accord raising bank capital requirements from 6% to 8%. By then, Japan had emerged as the world’s largest creditor; but Japan’s banks were less well capitalized than other major international banks. Raising the capital requirement forced them to cut back on lending, creating a recession in Japan like that suffered in the U.S. today. Property prices fell and loans went into default as the security for them shriveled up. A downward spiral followed, ending with the total bankruptcy of the banks, which had to be nationalized – although that word was not used, in order to avoid criticism.⁶

Among other collateral damage produced by the Basel Accords was a spate of suicides among Indian farmers unable to get loans. The BIS capital adequacy standards required loans to private borrowers to be “risk-weighted,” with the degree of risk determined by private rating agencies; and farmers and small business owners could not afford the agencies’ fees. Banks therefore assigned 100 percent risk to the loans, and then resisted extending credit to these “high-risk” borrowers because more capital was required to cover the loans. When the conscience of the nation was aroused by the Indian suicides, the government, lamenting the neglect of farmers by commercial banks, established a policy of ending the “financial exclusion” of the weak; but this step had little real effect on lending practices, due largely to the strictures imposed by the BIS from abroad.⁷

Similar complaints have come from Korea. An article in the December 12, 2008 Korea Times titled “BIS Calls Trigger Vicious Cycle” described how Korean entrepreneurs with good collateral cannot get operational loans from Korean banks, at a time when the economic downturn requires increased investment and easier credit:

“‘The Bank of Korea has provided more than 35 trillion won to banks since September when the global financial crisis went full throttle,’ said a Seoul analyst, who declined to be named. ‘But the effect is not seen at all with the banks keeping the liquidity in their safes. They simply don’t lend and one of the biggest reasons is to keep the BIS ratio high enough to survive,’ he said… .

“Chang Ha-joon, an economics professor at Cambridge University, concurs with the analyst. ‘What banks do for their own interests, or to improve the BIS ratio, is against the interests of the whole society. This is a bad idea,’ Chang said in a recent telephone interview with Korea Times.”

In a May 2002 article in The Asia Times titled “Global Economy: The BIS vs. National Banks,” economist Henry C K Liu observed that the Basel Accords have forced national banking systems “to march to the same tune, designed to serve the needs of highly sophisticated global financial markets, regardless of the developmental needs of their national economies.” He wrote:

“[N]ational banking systems are suddenly thrown into the rigid arms of the Basel Capital Accord sponsored by the Bank of International Settlement (BIS), or to face the penalty of usurious risk premium in securing international interbank loans… . National policies suddenly are subjected to profit incentives of private financial institutions, all members of a hierarchical system controlled and directed from the money center banks in New York. The result is to force national banking systems to privatize … .

“BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies… . The IMF and the international banks regulated by the BIS are a team: the international banks lend recklessly to borrowers in emerging economies to create a foreign currency debt crisis, the IMF arrives as a carrier of monetary virus in the name of sound monetary policy, then the international banks come as vulture investors in the name of financial rescue to acquire national banks deemed capital inadequate and insolvent by the BIS.”

Ironically, noted Liu, developing countries with their own natural resources did not actually need the foreign investment that had trapped them in debt to outsiders:

“Applying the State Theory of Money [which assumes that a sovereign nation has the power to issue its own money], any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation.”

When governments fell into the trap of accepting loans in foreign currencies, however, they became “debtor nations” subject to IMF and BIS regulation. They were forced to divert their production to exports, just to earn the foreign currency necessary to pay the interest on their loans. National banks deemed “capital inadequate” had to deal with strictures comparable to the “conditionalities” imposed by the IMF on debtor nations: “escalating capital requirement, loan writeoffs and liquidation, and restructuring through selloffs, layoffs, downsizing, cost-cutting and freeze on capital spending.” Liu wrote:

“Reversing the logic that a sound banking system should lead to full employment and developmental growth, BIS regulations demand high unemployment and developmental degradation in national economies as the fair price for a sound global private banking system.”

The Last Domino to Fall

While banks in developing nations were being penalized for falling short of the BIS capital requirements, large international banks managed to escape the rules, although they actually carried enormous risk because of their derivative exposure. The mega-banks succeeded in avoiding the Basel rules by separating the “risk” of default out from the loans and selling it off to investors, using a form of derivative known as “credit default swaps.”

BIS Tower Building, Basel

Botta 1 Building, Basel

However, it was not in the game plan that U.S. banks should escape the BIS net. When they managed to sidestep the first Basel Accord, a second set of rules was imposed known as Basel II. The new rules were established in 2004, but they were not levied on U.S. banks until November 2007, the month after the Dow passed 14,000 to reach its all-time high. The economy was all downhill from there. Basel II had the same effect on U.S. banks that Basel I had on Japanese banks: they have been struggling ever since to survive.⁸

Basel II requires banks to adjust the value of their marketable securities to the “market price” of the security, a rule called “mark to market.”⁹ The rule has theoretical merit, but the problem is timing: it was imposed ex post facto, after the banks already had the hard-to-market assets on their books. Lenders that had been considered sufficiently well capitalized to make new loans suddenly found they were insolvent. At least, they would have been insolvent if they had tried to sell their assets, an assumption required by the new rule. Financial analyst John Berlau complained:

“The crisis is often called a ‘market failure,’ and the term ‘mark-to-market’ seems to reinforce that. But the mark-to-market rules are profoundly anti-market and hinder the free-market function of price discovery… . In this case, the accounting rules fail to allow the market players to hold on to an asset if they don’t like what the market is currently fetching, an important market action that affects price discovery in areas from agriculture to antiques.”¹⁰

Imposing the mark-to-market rule on U.S. banks caused an instant credit freeze, which proceeded to take down the economies not only of the U.S. but of countries worldwide. In early April 2009, the mark-to-market rule was finally softened by the U.S. Financial Accounting Standards Board (FASB); but critics said the modification did not go far enough, and it was done in response to pressure from politicians and bankers, not out of any fundamental change of heart or policies by the BIS.

And that is where the conspiracy theorists come in. Why did the BIS not retract or at least modify Basel II after seeing the devastation it had caused? Why did it sit idly by as the global economy came crashing down? Was the goal to create so much economic havoc that the world would rush with relief into the waiting arms of the BIS with its privately-created global currency? The plot thickens … .

April 19, 2009

Posted by tetrahedron in Uncategorized.
Tags: aig, auto industry, bank of america, ben bernanke, chase manhattan, citigroup, collapse, fraud, jp morgan, larry summers, ponzi scheme, scam, tim geithner, Wall Street
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Wall Street is in the midst of a huge rally, primarily sparked by two recent occurrences.

The first was the “surprising” announcement that Citigroup, JP Morgan Chase and Bank of America — major “zombie” banks laden with “toxic assets,” on the verge of collapse, and the recipients of billions in government (US taxpayer) bailout money — mysteriously posted profits this year. Wells Fargo, regarded as one of the healthier big banks, and a recipient of $25 billion, also reported a profit last week, rallying the stock markets again before the Easter holiday.

We now know, based on insider reports from securities traders, that a massive fraud and manipulation by AIG funneled “bailout” funds (US taxpayer money) to AIG’s counterparties, the very same big “toxic” banks that are now posting profits: Exclusive: Big Banks’ Recent Profitability Due to AIG Scam?

The second big event occurred when the Obama administration and Congress threw out the “Mark to Market” rules. Banks and financial institutions, which by law were previously obligated to price, or “mark,” the toxic holdings to the current market price (honestly take huge losses), now have carte blanche to magically erase all of these losses, and price these toxic assets however they wish.

In other words, Wall Street has been given the green light to lie — with the full blessing of the Obama administration and Congress. “Toxic assets”? Gone, just like that.

In yet another example of collusion and cover-up, federal regulators have told the nation’s largest banks to “keep quiet” about their performance in the Obama administration’s “stress tests”: Feds tell banks to keep quiet on outcome of stress tests

This blatant cover-up, ordered at the top, prevents negative news from spoiling the bogus Wall Street rally. Obama himself will announce the results later, after he and his economic minions have had a chance to “manage” the data.

So much for accountability. So much for transparency and disclosure. So much for the populist hot air and propaganda gases spewing from the Obama administration, Ben Bernanke’s Federal Reserve, Tim Geithner, and Larry Summers.

The momentum from the latest fabrication and the latest fraud must not be broken. The worst is over, according to the new noise, and the constant “are we there yet?” yammering from CNBC. No, it’s already time for The Recovery, despite the fact that the worst economic crisis since the Great Depression began mere months ago, and despite the fact that the “toxins” — the magnificent bubble of derivatives, leverage, hedging and other interlocking Ponzi finance schemes that began the crisis to begin with — are still out there, still unpopped.

The books are cooked and the numbers are faked anyway. Why not? Who’s going to know?

So while the US auto industry is strong-armed into massive restructuring, and the common people of Main Street are told to get used to the suffering, Wall Street is not only given a free pass, but the additional gift of back-door swindles and a massive cover-up.

Want the truth…The Real Economy? Ookaay! March 3, 2009

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Financial manipulation is an integral part of the New World Order. It constitutes a powerful means to accumulate wealth through this, hyper-inflationary delusion.

Under the present political arrangement, those responsible for monetary policy are quite deliberately serving the interests of the financiers, to the detriment of working people, leading to economic dislocation, unemployment and mass poverty. This article has focused on how financial manipulation has served to shatter the structure of US public expenditure.

This restructuring of global financial markets and institutions (alongside the pillage of national economies) has enabled the accumulation of vast amounts of private wealth – a large portion of which has been amassed as a result of strictly speculative transactions.

This critical drain of billions of dollars of household savings and state tax revenues paralyses the functions of government spending and spurs the accumulation of a public debt, which can no longer be be financed through the emission of US dollar denominated debt. To understand what has happened: follow the money trail of electronic transfers with a view to establishing where the money has gone.

What we are dealing with is the fraudulent transfer and confiscation of lifelong savings and pension funds, the fraudulent appropriation of tax revenues to finance the bank bailouts, etc. The monetary system, which is integrated into the State budgetary process has been destabilized. The fundamental relationship between the monetary system and the real economy is in crisis.

The creation of money “out of (Notebook school paper)… thin air” threatens the value of the US dollar as an international currency. Similarly, the financing of a mammoth US budget deficit through dollar denominated debt instruments is impaired as a result of exceedingly low interest rates. Moreover, the process of household savings is undermined with interest rates close to zero.

What we have dealt with in this article is one central aspect of an evolving process of global financial collapse. The international payments system is in crisis. The economic prospects are terrifying. Bankruptcies in the US, Canada, the European Union are occurring at an alarming rate. Country level exports have collapsed, leading to a contraction of international trade Reports from the Asian economies indicate a massive increase in unemployment. In China’s Pearl River basin in Southern Guangdong province’s industrial export processing economy, some 700,000 were laid off in January. In Japan, industrial output has collapsed by more than 20 percent since December. In the Philippines, a country of 90 million people, exports collapsed by more than 40 percent in December.

Financial Disarmament

There are no solutions under the prevailing global financial architecture. Meaningful policies cannot be achieved without radically reforming the workings of the Internationale banking system.

What is required is an overhaul of the monetary system including the functions and ownership of the central bank, the arrest and prosecution of those involved in financial fraud both in the financial system and in governmental agencies, the freeze of all accounts where fraudulent transfers have been deposited, the cancellation of debts resulting from fraudulent trade and/or market manipulation. .

People across the land, nationally and internationally must mobilize. This struggle to democratise the financial and fiscal apparatus must be broad-based and democratic encompassing all sectors of society at all levels, in all countries. What is ultimately required is to disarm the financial establishment: Source: Michel Chosssudovsky.

-confiscate those assets which were obtained through fraud and financial manipulation.

-restore the savings of households through reverse transfers

-return the bailout money to the Treasury, freeze the activities of the hedge funds. .

- freeze the gamut of speculative transactions including short-selling and derivative trade.

Is it “Change” I don’t think so! February 16, 2009

Posted by tetrahedron in Uncategorized.
Tags: 2trillion dollars, bankcruptcies, banks, barack obama, Change, clintons, derivatives, economy, financial times, free, mortgages, subprime, timothy giethner, Wall Street, Washington
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Martin Wolf started off his Financial Times column today (February 11) with the bold question: “Has Barack Obama’s presidency already failed?”[1] The stock market had a similar opinion, plunging 382 points. Having promised “change,” Mr. Obama is giving us more Clinton-Bush via Robert Rubin’s protégé, Tim Geithner. Tuesday’s $2.5 trillion Financial Stabilization Plan to re-inflate the Bubble Economy is basically an extension of the Bush-Paulson giveaway – yet more Rubinomics for financial insiders in the emerging Wall Street trusts. The financial system is to be concentrated into a cartel of just a few giant conglomerates to act as the economy’s central planners and resource allocators. This makes banks the big winners in the game of “chicken” they’ve been playing with Washington, a shakedown holding the economy hostage. “Give us what we want or we’ll plunge the economy into financial crisis.” Washington has given them $9 trillion so far, with promises now of another $2 trillion– and still counting.

A true reform – one designed to undo the systemic market distortions that led to the real estate bubble – would have set out to reverse the Clinton-Rubin repeal of the Glass-Steagall Act so as to prevent the corrupting conflicts of interest that have resulted in vertical trusts such as Citibank and Bank of America/Countrywide/Merrill Lynch. By unleashing these conglomerate grupos (to use the term popularized under Pinochet with Chicago Boy direction – a dress rehearsal of the mass financial bankruptcies they caused in Chile by the end of the 1970s) The Clinton administration enabled banks to merge with junk mortgage companies, junk-money managers, fictitious property appraisal companies, and law-evasion firms all designed to package debts to investors who trusted them enough to let them rake off enough commissions and capital gains to make their managers the world’s highest-paid economic planners.

Today’s economic collapse is the direct result of their planning philosophy. It actually was taught as “wealth creation” and still is, as supposedly more productive than the public regulation and oversight so detested by Wall Street and its Chicago School aficionados. The financial powerhouses created by this “free market” philosophy span the entire FIRE sector – finance, insurance and real estate, “financializing” housing and commercial property markets in ways guaranteed to make money by creating and selling debt. Mr. Obama’s advisors are precisely those of the Clinton Administration who supported trustification of the FIRE sector. This is the broad deregulatory medium in which today’s bad-debt disaster has been able to spread so much more rapidly than at any time since the 1920s.

The commercial banks have used their credit-creating power not to expand the production of goods and services or raise living standards but simply to inflate prices for real estate (making fortunes for their brokerage, property appraisal and insurance affiliates), stocks and bonds (making more fortunes for their investment bank subsidiaries), fine arts (whose demand is now essentially for trophies, degrading the idea of art accordingly) and other assets already in place.

The resulting dot.com and real estate bubbles were not inevitable, not economically necessary. They were financially engineered by the political deregulatory power acquired by banks corrupting Congress through campaign contributions and public relations “think tanks” (more in the character of Orwellian doublethink tanks) to promote the perverse fiction that Wall Street can be and indeed is automatically self-regulating. This is a travesty of Adam Smith’s “Invisible Hand.” This hand is better thought of as covert. The myth of “free markets” is now supposed to consist of governments withdrawing from planning and taxing wealth, so as to leave resource allocation and the economic surplus to bankers rather than elected public representatives. This is what classically is called oligarchy, not democracy.

This centralization of planning, debt creation and revenue-extracting power is defended as the alternative to Hayek’s road to serfdom. But it is itself the road to debt peonage, a.k.a. the post-industrial economy or “Information Economy.” The latter term is another euphemistic travesty in view of the kind of information the banking system has promoted in the junk accounting crafted by their accounting firms and tax lawyers (off-balance-sheet entities registered on offshore tax-avoidance islands), the AAA applause provided as “information” to investors by the bond-rating cartel, and indeed the national income and product accounts that depict the FIRE sector as being part of the “real” economy, not as an institutional wrapping of special interests and government-sanctioned privilege acting in an extractive rather than a productive way.

“Thanks for the bonuses,” bankers in the United States and England testified this week before Congress and Parliament. “We’ll keep the money, but rest assured that we are truly sorry for having to ask you for another few trillion dollars. At least you should remember our theme song: We are still better managers than the government, and the bulwark against government bureaucratic resource allocation.” This is the ideological Big Lie sold by the Chicago School “free market” celebration of dismantling government power over finance, all defended by complex math rivaling that of nuclear physics that the financial sector is part of the “real” economy automatically producing a fair and equitable equilibrium.

This is not bad news for stockholders of more local and relatively healthy banks (healthy in the sense of avoiding negative equity). Their stocks soared and were by far the major gainers on Tuesday’s stock market, while Wall Street’s large Bad Banks plunged to new lows. Solvent local banks are the sort that were normal prior to repeal of Glass Steagall. They are to be bought by the large “troubled” banks, whose “toxic loans” reflect a basically toxic operating philosophy. In other words, small banks who have made loans carefully will be sucked into Citibank, Bank of America, JP Morgan Chase and Wells Fargo – the Big Four or Five where the junk mortgages, junk CDOs and junk derivatives are concentrated, and have used Treasury money from the past bailout to buy out smaller banks that were not infected with such reckless financial opportunism. Even the Wall Street Journal editorialized regarding the Obama Treasury’s new “Public-Private Investment Fund” to pump a trillion dollars into this mess: “Mr. Geithner would be wise to put someone strong land independent in charge of this fund – someone who can say no to Congress and has no ties to Citigroup, Robert Rubin or Wall Street.”[2]

None of this can solve today’s financial problem. The debt overhead far exceeds the economy’s ability to pay. If the banks would indeed do what Pres. Obama’s appointees are begging them to do and lend more, the debt burden would become even heavier and buying access to housing even more costly. When the banks look back fondly on what Alan Greenspan called “wealth creation,” we can see today that the less euphemistic terminology would be “debt creation.” This is the objective of the new bank giveaway. It threatens to spread the distortions that the large banks have introduced until the entire system presumably looks like Citibank, long the number-one offender of “stretching the envelope,” its euphemism for breaking the law bit by bit and daring government regulators and prosecutors to try and stop it and thereby plunging the U.S. financial system into crisis. This is the shakedown that is being played out this week. And the Obama administration blinked – as these same regulators did when they were in charge of the Clinton administration’s bank policy. So much for the promised change!

The three-pronged Treasury program seems to be only Stage One of a two-stage “dream recovery plan” for Wall Street. Enough hints have trickled out for the past three months in Wall Street Journal op-eds to tip the hand for what may be in store. Watch for the magic phrase “equity kicker,” first heard in the S&L mortgage crisis of the 1980s. It refers to the banker’s share of capital gains, that is, asset price inflation in Bubble #2 that the Recovery Program hopes to sponsor.

The first question to ask about any Recovery Program is, “Recovery for whom?” The answer given on Tuesday is, “For the people who design the Program and their constituency” – in this case, the bank lobby. The second question is, “Just what is it they want to ‘recover’?” The answer is, the Bubble Economy. For the financial sector it was a golden age. Having enjoyed the Greenspan Bubble that made them so rich, its managers would love to create yet more wealth for themselves by indebting the “real” economy yet further while inflating prices all over again to make new capital gains.

The problem for today’s financial elites is that it is not possible to inflate another bubble from today’s debt levels, widespread negative equity, and still-high level of real estate, stock and bond prices. No amount of new capital will induce banks to provide credit to real estate already over-mortgaged or to individuals and corporations already over-indebted. Moody’s and other leading professional observers have forecast property prices to keep on plunging for at least the next year, which is as far as the eye can see in today’s unstable conditions. So the smartest money is still waiting like vultures in the wings – waiting for government guarantees that toxic loans will pay off. Another no-risk private profit to be subsidized by public-sector losses.

While the Obama administration’s financial planners wring their hands in public and say “We feel your pain” to debtors at large, they know that the past ten years have been a golden age for the banking system and the rest of Wall Street. Like feudal lord claiming the economic surplus for themselves while administering austerity for the population at large, the wealthiest 1% of the population has raised their appropriation of the nationwide returns to wealth – dividends, interest, rent and capital gains – from 37% of the total ten years ago to 57% five years ago and it seems nearly 70% today. This is the highest proportion since records have been kept. We are approaching Russian kleptocratic levels.

The officials drawn from Wall Street who now control of the Treasury and Federal Reserve repeat the right-wing Big Lie: Poor “subprime families” have brought the system down, exploiting the rich by trying to ape their betters and live beyond their means. Taking out subprime loans and not revealing their actual ability to pay, the NINJA poor (no income, no job, no audit) signed up to obtain “liars’ loans” as no-documentation Alt-A loans are called in the financial junk-paper trade.

I learned the reality a few years ago in London, talking to a commercial banker. “We’ve had an intellectual breakthrough,” he said. “It’s changed our credit philosophy.”

“What is it?” I asked, imagining that he was about to come out with yet a new magical mathematics formula?

“The poor are honest,” he said, accompanying his words with his jaw dropping open as if to say, “Who would have guessed?”

The meaning was clear enough. The poor pay their debts as a matter of honor, even at great personal sacrifice and what today’s neoliberal Chicago School language would call uneconomic behavior. Unlike Donald Trump, they are less likely to walk away from their homes when market prices sink below the mortgage level. This sociological gullibility does not make economic sense, but reflects a group morality that has made them rich pickings for predatory lenders such as Countrywide, Wachovia and Citibank. So it’s not the “lying poor.” It’s the banksters’ fault after all!

For this elite the Bubble Economy was a deliberate policy they would love to recover. The problem is how to start a new bubble to make yet another fortune? The alternative is not so bad – to keep the bonuses, capital gains and golden parachutes they have given themselves, and run. But perhaps they can improve in Bubble Economy #2.

The Treasury’s newest Financial Stability Plan (Bailout 2.0) is only the first step. It aims at putting in place enough new bank-lending capacity to start inflating prices on credit all over again. But a new bubble can’t be started from today’s asset-price levels. How can the $10 to $20 trillion capital-gain run-up of the Greenspan years been repeated in an economy that is “all loaned up”?

One thing Wall Street knows is that in order to make money, asset prices not only need to rise, they have to go down again. Without going down, after all, how can they rise up? Without a crucifixion for the economy, how can there be a resurrection? The more frenetic the price fibrillation, the easier it is for computerized buy-and-sell programs to make money on options and derivatives.

So here’s the situation as I see it. The first objective is to preserve the wealth of the creditor class – Wall Street, the banks and the other financial vehicles that enrich the wealthiest 1% and, to be fair within America’s emerging new financial oligarchy, the richest 10% of the population. Stage One involves buying out their bad loans at a price that saves them from taking a loss. The money will be depicted to voters as a “loan,” to be repaid by banks extracting enough new debt charges in the new rigged game the Treasury is setting up. The current loss will be shifted the onto “taxpayers” and made up by new debtors – in both cases labor, onto whose shoulders the tax burden has been shifted steadily, step by step since 1980.

An “aggregator” bank (sounds like “alligator,” from the swamps of toxic waste) will buy the bad debts and put them in a public agency. The government calls this the “bad” bank. (This is Geithner’s first point.) But it does good for Wall Street – by buying loans that have gone bad, along with loans and derivative guarantees and swaps that never were good in the first place. If the private sector refuses to buy these bad loans at prices the banks are asking for, why should the government pretend that these debt claims are worth more. Vulture funds are said to be offering about what they were when Lehman Brothers went bankrupt: about 22 cents on the dollar. The banks are asking for 75 cents on the dollar. What will the government offer?

Perhaps the worst alternative is that is now being promoted by the banks and vulture investors in tandem: the government will guarantee the price at which private investors buy toxic financial waste from the banks. A vulture fund would be happy enough to pay 75 cents on the dollar for worthless junk if the government were to provide a guarantee. The Treasury and Federal Reserve pretend that they simply would be “providing liquidity” to “frozen markets.” But the problem is not liquidity and it is not subjective “market psychology.” It is “solvency,” that is, a realistic awareness that toxic waste and bad derivatives gambles are junk. Mr. Geithner has not been able to come to terms with how to value this – without bringing the Obama administration down in a wave of populist protest – any more than Mr. Paulson was able to carry out his original Tarp proposal along these lines.

The hardest task for today’s banksters is to revive opportunities for creditors to make a new killing. (It’s the economy that’s being killed, of course.) This seems to be the aim of the Public/Private investment company that Mr. Geithner is establishing as the second element in his plan. The easiest free lunch is to ride the wave of a new bubble – a fresh wave of asset-price inflation to be introduced to “cure” the problem of debt deflation.

Here’s how I imagine the ploy might work. Suppose a hapless family has bought a home for $500,000, with a full 100% $500,000 adjustable-rate mortgage scheduled to reset this year at 8%. Suppose too that the current market price will fall to $250,000, a loss of 50% by yearend 2009. Sometime in mid 2010 would seem to be long enough for prices to decline by enough to make “recovery” possible – Bubble Economy 2.0. Without such a plunge, there will be no economy to “rescue,” no opportunity for Tim Geithner and Laurence Summers to “feel your pain” and pull out of their pocket the following package – a variant on the “cash for trash” swap, a public agency to acquire the $500,000 mortgage that is going bad, heading toward only a $250,000 market price.

The “bad bank” was not quite ready to be created this week, but the embryo is there. It will take the form of a public/private partnership (PPP) of the sort that Tony Blair made so notorious in Britain. And speaking of Mr. Blair, I am writing this from England, where almost every America-watcher I talk to has expressed amazement at Obama’s performance last week idealizing England’s counterpart to George Bush when it comes to unpopularity contests. Blair’s tenure in office was a horror story, not something to be congratulated for. He privatized the railroads and entering into the disastrous public/private partnership that doubled, tripled or quadrupled the cost of public projects by adding on a heavy financial overhead If Obama does not realize how he shocked Britain and much of Europe with his praise, then he is in danger of foisting a similar public/private financialized “partnership” on the United States

The new public/private institution will be financed with private funds – in fact, with the money now being given to re-capitalize America’s banks (headed by the Wall St. bank’s that have done so bad). Banks will use the Treasury money they have received by “borrowing” against their junk mortgages at or near par to buy shares in a new $5 trillion institution created along the lines of the unfortunate Fanny Mae and Freddie Mac. Its bonds will be guaranteed. (That’s the “public” part – “socializing” the risk.) The PPP institution will have the power to buy and renegotiate the mortgages that have passed into the hands of the government and other holders. This “Homeowner Rescue Trust” will use its private funding for the “socially responsible” purpose of “saving the taxpayer” and middle class homeowners by renegotiating the mortgage down from its original $500,000 to the new $250,000 market price.

Here’s the patter talk you can expect, with the usual Orwellian euphemisms. The Homeowners Rescue PPP will appear as a veritable Savior Bank resurrected from the wreckage of Bubble #1. Its clients will be families strapped by their mortgage debt and feeling more and more desperate as the price of their major asset plummets more deeply into Negative Equity territory. To them, the new PPP will say: “We’ve got a deal to save you. We’ll renegotiate your mortgage down to the current market price, $250,000, and we’ll also lower your interest rate to just 5.50%, the new rate. This will cut your monthly debt charges by nearly two thirds. Not only can you afford to stay in your home, you will escape from your negative equity.”

The family probably will say, “Great.” But they will have to make a concession. That’s where the new public/private partnership makes its killing. Funded with private money that will take the “risk” (and also reap the rewards), the Savior Bank will say to the family that agrees to renegotiate its mortgage: “Now that the government has absorbed a loss (in today’s travesty of “socializing” the financial system) while letting let you stay in your home, we need to recover the money that’s been lost. If we make you whole, we want to be made whole too. So when the time comes for you to sell your home or renegotiate your mortgage, our Homeowners Rescue PPP will receive the capital gain up to the original amount written off.”

In other words, if the homeowner sells the property for $400,000, the Homeowners Rescue PPP will get $150,000 of the capital gain. If the home sells for $500,000, the bank will get $250,000. And if it sells for more, thanks to some new clone of Alan Greenspan acting as bubblemeister, the capital gain will be split in some way. If the split is 50/50 and the home sells for $600,000, the owner will split the $100,000 further capital gain with the Homeowners Rescue PPP. It thus will make much more through its appropriation of capital gains (the new debt-fueled asset-price inflation being put in place) than it extracts in interest!

This would make Bubble 2.0 even richer for Wall Street than the Greenspan bubble! Last time around, it was the middle class that got the gains – even if new buyers had to enter a lifetime of debt peonage to buy higher-priced homes. It really was the bank that got the gains, of course, because mortgage interest charges absorbed the entire rental value and even the hoped-for price gain. But homeowners at least had a chance at the free ride, if they didn’t squander their money in refinancing their mortgages to “cash out” on their equity to support their living standards in a generation whose wage levels had stagnated since 1979. As Mr. Greenspan observed in testimony before Congress, a major reason why wages have not risen is that workers are afraid to strike or even to complain about being worked harder and harder for longer and longer hours (“raising productivity”), because they are one paycheck away from missing their mortgage payment – or, if renters, one paycheck or two away from homelessness.

This is the happy condition of normalcy that Wall Street’s financial planners would like to recover. This time around, they may not be obliged to make their gains in a way that also makes middle class homeowners rich. In the wake of Bubble Economy #1, today’s debt-strapped homeowners are willing to settle merely for a plan that leaves them in their homes! The Homeowners Rescue PPP can appropriate for its stockholder banks and other large investors the capital gains that have been the driving force of U.S. “wealth creation,” bubble-style. That is what the term “equity kicker” means.

This situation confronts the economy with a dilemma. The only policies deemed politically correct these days are those that make the situation worse: yet more government money in the hope that banks will create yet more credit/debt to raise house prices and make them even more unaffordable; credit/debt to inflate a new Bubble Economy #2.

Lobbyists for Wall Street’s enormous Bad Bank conglomerates are screaming that all real solutions to today’s debt problem and tax shift onto labor are politically incorrect, above all the time-honored debt write-downs to bring the debt burden within the ability to pay. That is what the market is supposed to do, after all, by bankruptcy in an anarchic collapse if not by more deliberate and targeted government policy. The Bad Banks, having demanded “free markets” all these years, fear a really free market when it threatens their bonuses and other takings. For Wall Street, free markets are “free” of public regulation against predatory lending; “free” of taxing the wealthy so as to shift the burden onto labor; “free” for the financial sector to wrap itself around the “real” economy like parasitic ivy around a tree to extract the surplus.

This is a travesty of freedom. As the putative neoliberal Adam Smith explained, “The government of an exclusive company of merchants, is, perhaps, the worst of all governments.” But worst of all is the “freedom” of today’s economic discussion from the wisdom of classical political economy and from historical experience regarding how societies through the ages have coped with the debt overhead.

How to save the economy from Wall Street

There is an alternative to ward all this off, and it is the classic definition of freedom from debt peonage and predatory credit. The only real solution to today’s debt overhang is a debt write-down. Until this occurs, debt service will crowd out spending on goods and services and there will be no recovery. Debt deflation will drag the economy down while assets are transferred further into the hands of the wealthiest 10 percent of the population, operating via the financial sector.

If Obama means what he says, he would use his office as a bully pulpit to urge repeal the present harsh creditor-oriented bankruptcy law sponsored by the banks and credit-card companies. He would campaign to restore the long-term trend of laws favoring debtors rather than creditors, and introduce legislation to restore the practice of writing down debts to reflect the debtor’s ability to pay, imposing market reality to debts that are far in excess of realistic valuations.

A second policy would be to restore the power of state attorneys general to bring financial fraud charges against the most egregious mortgage lenders – the prosecutions that the Bush Administration got thrown out of court by claiming that under an 1864 National Bank Act clause, the federal government had the right to override state prosecutions of national banks – and then appointing a non-prosecutor to this enforcement position.

On the basis of reinstated fraud charges, the government might claw back the bank bonuses, salaries and bank earnings that represented the profits from America’s greatest financial and real estate fraud in history. And to prevent repetition of the past decade’s experience, the Obama Administration might help popularize a new psychology of debt. The government could encourage “the poor” to act as “economically” as Donald Trumps or Angelo Mozilo’s would do, making it clear that debt write-downs are a right.

Also to ward off repetition of the Bubble Economy, the Treasury could impose the “Tobin tax” of 1% on purchases and options for stocks, bonds and foreign currency. Critics of this tax point out that it can be evaded by speculators trading offshore in the rights to securities held in U.S. accounts. But the government could simply refuse to provide deposit insurance and other support to institutions trading offshore, or simply could announce that trades in such “deposit receipts” for shares would not have legal standing. As for trades in derivatives, depository institutions – including conglomerates owning such banks – can simply be banned as inherently unsafe. If foreigners wish to speculate on financial horse races, let them.

Financial policy ultimately rests on tax policy. It is the ability to levy taxes, after all, that gives value to Treasury money (just as it is the inability to collect on debts that has depreciated the value of commercial bank deposits). It is easy enough for fiscal policy to prevent a new real estate bubble. Simply shift the tax system back to where it originally was, on the land’s site-rental value. The “free lunch” (what John Stuart Mill called the “unearned increment” of rising land prices, a gain that landlords made “in their sleep”) would serve as the tax base instead of burdening labor and industry with income taxes and sales taxes. This would achieve the kind of free market that Adam Smith, John Stuart Mill and Alfred Marshall described, and which the Progressive Era aimed to achieve with America’s first income tax in 1913. It would be a market free of the free lunch that Chicago Boys insist does not exist. But the recent Bubble Economy and today’s Bailout Sequel have been all about getting a free lunch.

A land tax would prevent housing prices from rising again. It is the most hated tax in America today, largely because of the disinformation campaign that has been mounted by the real estate interests and amplified by the banks that stand behind them. The reality is that taxing land appreciation rather than wages or corporate profits would save homeowners from having to take on so much debt in order to obtain housing. It would save the economy from seeing “wealth creation” take the form of the “unearned increment” being capitalized into higher bank loans with their associated carrying charges (interest and amortization).

The wealth tax originally fell mainly on real estate. The most immediate and politically feasible priority of the Obama Administration thus should be to repeal the Bush Administration’s drastic tax cuts for the top brackets and its moratorium on the estate tax. The aim should be to bring down the polarization between creditors and debtors that has concentrated over two-thirds of the returns to wealth in the richest 1% of the population.

If alternatives to the Bubble Economy such as these are not promoted, we will know that promises of change were mere rhetoric, Tony Blair style.

Black History, What…? February 6, 2009

Posted by tetrahedron in Uncategorized.
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Of all the things, why do we need a month for black people to be recognized for their contribution to america? If black people can have a month out of the year to honor and appreciate their deeds, then why can’t white people have one; too! And if you feel that others have not made a contribution to our society, collectively speaking, for the sake of “American change” let’s stop the nonsense, the brow beating, and the hypocritical blundering , where you gotta have a day for this and a day for that, hell, it means nothing if some-body’sgotta tell ya when to acknowledge someone for the good they’ve done, or the bad, and if you’re going to acknowledge some, you shouldn’t be so hypocritical and undermine the accomplishments of others. They too, have made their contributions and have feelings as well. if you are one that’s bothered by the illegitimacy and the hypocrisy of our democracy, then let me hear from you, or am I the only one with the ability to see how this climate… hurts us as a nation, and a people. Are you willing to take a stand and be ostracized whether you are black or white or any other color on the color spectrum.

High School Seniors…gotta read this January 16, 2009

Posted by tetrahedron in Uncategorized.
Tags: blackout, bridges, bush, crisis, economic growth, education system, laissez-faire, life, mid life, new york, roosevelt
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The United States is entering a phase of its

existence that is not too dissimilar to a

man’s mid-life crisis. Over its time to date,

the nation has become very accomplished.

And yet, it is searching ardently — and

with a hint of despair — for a vision that

will continue to engage its ambitious spirit.

America is also confronted with a growing

sense of vulnerability — and a certain dose

of self-doubt.

ome of these feelings were triggered by the events

of September 11, 2001 — and reinforced by the

great Blackout, which crippled parts of the nation’s East

Coast and Midwest in August 2003.

Beware the 40s

These internal and external threats to the nation’s

self-confidence are akin to a

man’s recognition of his own

mortality, once he reaches his

forties.

For the United States as a whole,

these experiences also translate

into unprecedented existentialist

fear on a personal as well as on a

national level.

Yet, unlike people, nations have

the capacity to reverse the

effects of the “aging” process.

America can reinvent itself,

change course — and prepare the

way for greater stability,

economic growth and prosperity.

This nation’s resourcefulness and creativity have been

the main drivers of what made the 20th century

“America’s century.”

Patchy record

President Bush was right when he described the

blackout fiasco as a wake-up call. Of course, the

President has been consistently wrong. His record to

date is distinguished by the pursuit of the most

laissez-faire economic policies since the disgraced period

of Manchester capitalism during the 19th century.

This unfortunate track record will — in the long term —

only further aggravate matters. President Bush’s

solutions are aimed to serve special interests, simplistic

in nature — and generally unrelated to the real problem

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$$$Banks can give you as …$$$ you need ! January 15, 2009

Posted by tetrahedron in Uncategorized.
Tags: banks, borrowers, create money, currency, deficitsreserve bank, derivatives, loans, money, reserves, securities
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Bankers will tell you that they do not create money. At a 10% reserve requirement, they simply lend out 90% of their deposits. The catch is that their “deposits” include the money they have written into their customers’ accounts as loans. That is how loans are made: numbers are simply written into the accounts of borrowers, as many reputable authorities have attested. Here are two of them, dating back to when officials were either more aware of what was going on or more open about it:

“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.”

– Robert B. Anderson, Treasury Secretary under Eisenhower, in an interview

reported in the August 31, 1959 issue of U.S. News and World Report

“Do private banks issue money today? Yes. Although banks no longer have the right to issue bank notes, they can create money in the form of bank deposits when they lend money to businesses, or buy securities. . . . The important thing to remember is that when banks lend money they don’t necessarily take it from anyone else to lend. Thus they ‘create’ it.”

– Congressman Wright Patman, Money Facts (House Committee on Banking and Currency, 1964)

The process by which banks create money was detailed in a revealing booklet put out by the Chicago Federal Reserve titled Modern Money Mechanics.² The booklet was periodically revised until 1992, when it had reached 50 pages long. It is written in somewhat difficult prose, but here are a few relevant passages:

“The actual process of money creation takes place primarily in banks.” [p3]

Translation: banks create money.

“In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency.” [p3]

Translation: banks can create as much money as they want by writing loans into their borrowers’ accounts, limited only by (a) legal reserve requirements (money that must be held in reserve – traditionally about 10% of outstanding deposits and loans) or (b) the amount of money they will need to keep on hand to pay any depositors who might come for their money (also traditionally about 10%).

“Banks may increase the balances in their reserve accounts by depositing checks and proceeds from electronic funds transfers as well as currency.” [p4]

Translation: the “reserves” that count toward the reserve requirement include currency, deposited checks, and electronic funds transfers. (Note that the “deposits” created as loans are excluded from this list of allowable reserves: the bank cannot just keep bootstrapping loans on top of loans but must have money from external sources backing up its liabilities equal to about 10% of its loans and deposits.)

“The money-creation process takes place principally through transaction accounts [accounts that can be drawn on without restriction].” [p2]

“ With a uniform 10 percent reserve requirement, a $1 increase in reserves would support $10 of additional transaction accounts.” [p49]

Translation: $1 deposited by a customer can be fanned into $10 in loans.

“In the real world, a bank’s lending is not normally constrained by the amount of excess reserves it has at any given moment. Rather, loans are made, or not made, depending on the bank’s credit policies and its expectations about its ability to obtain the funds necessary to pay its customers’ checks and maintain required reserves in a timely fashion.”

Translation: In practice, banks issue loans without worrying too much about whether they have the reserves to cover them. If they come up short, they can just borrow them:

“[Since] the individual bank does not know today precisely what its reserve position will be at the time the proceeds of today’s loans are paid out. . . . many banks turn to the money market – borrowing funds to cover deficits or lending temporary surpluses.” [p50]

“[A] bank may [also] borrow reserves temporarily from its Reserve Bank. . . .

[However], banks are discouraged from borrowing [Reserve Bank] adjustment credit too frequently or for extended time periods.” [p29]

Translation: If the bank finds at the end of the accounting period that its reserves do not come to the required 10% of its outstanding loans and deposits, it can simply borrow the reserves it needs from the money market or its Federal Reserve Bank.

A 2002 article posted on the website of the Federal Reserve Bank of New York noted that today, few banks are constrained by reserve requirements at all:

“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.”³

Even without official reserve requirements, however, banks must keep enough money on hand to meet withdrawals or checks written against the accounts of their depositors; and that generally means about 10% of outstanding deposits and loans, as moneylenders discovered centuries ago. But if the banks come up short, they can borrow this money from the money market or the Federal Reserve; and if the Fed comes up short, it can create new reserves.⁴ So why the current credit crunch? What is limiting bank lending?

One answer is that borrowers are simply “tapped out” and not in a position to take out as many loans as they used to. When housing and the stock market crashed, consumers no longer had home or stock equity to borrow against.⁵ But to the extent that the blockage is with the banks themselves, it is not caused by the reserve requirement. Something else is putting the squeeze on credit . . . . Stay tuned, because I’m gonna tell ya what the real problem is, and how to stop the bleeding. these things they’re talking about on local news and msnbc, cnn, well; you the ones, they’re not telling you the real truth, however, I will.

Watchout! The dollar bubble bursts… December 22, 2008

Posted by tetrahedron in Uncategorized.
Tags: bank of america, bernanke, bill gross, bloomberg, Bubble, forex, goldman sachs, the fed, treasuries, us dollar
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In “The New Bubble: Cash“, I argued that there was a bubble in U.S. dollars and treasuries.

Bill Gross, co-chief investment officer of the world’s largest bond fund, now says:

“Treasuries have some bubble characteristics . . . The government and the Fed cannot continue to talk about trillions of dollars of financing and expansion of the Fed’s balance sheet without the dollar going south”.

Many others are saying the same thing.

But how do we know when the dollar bubble will pop? In other words, when should we get out of dollars?

An article in Bloomberg might provide some insight:

The biggest foreign-exchange strategists and investors say the best may be over for the dollar after a four-month, 24 percent rally.***

“The dollar will go to new lows as the U.S. attacks its currency,” said John Taylor, chairman of New York-based FX Concepts Inc., which manages about $14.5 billion of currencies.

Citigroup Inc., Goldman Sachs Group Inc., BNP Paribas SA and Bank of America Corp. predict further weakness. Last week was the first time in almost a month that consensus estimates for the dollar against the euro through 2009 fell, according to the median forecast of 47 strategists surveyed by Bloomberg.

Taylor, whose firm manages the biggest hedge fund focusing on foreign exchange, said while the dollar may strengthen next year, it will fall to a record low against the euro in 2010 and to a 13-year low of 80 per yen as soon as 2009.***

“We’re at a turning point in terms of dollar dynamics,” said Jens Nordvig, a New York-based strategist at Goldman Sachs, the biggest U.S. securities firm to convert to a bank. “The dollar shortage has been addressed and we’ll see people start to focus on other things and those are all dollar negative.”***

Robert Sinche, the head of global currency strategy at Bank of America in New York, the third-largest U.S. bank, says the dollar is bound to weaken because investors are starting to focus on traditional measures of value such as relative interest rates, budget deficits and trade balances.

As more loans are repaid, there is less need for dollars, forcing investors to value the currency on metrics such as relative interest rates, budget deficits and trade balances. By those measures, the greenback should weaken, according to Sinche.***

Like Goldman Sachs, London-based Barclays Plc, the U.K.’s third-biggest bank, forecasts the dollar will weaken to $1.45 per euro by the end of 2009, according to data compiled by Bloomberg. New York-based Morgan Stanley strategists Stephen Jen and Spyros Adreopoulos, who in August advised clients to buy the dollar, said in a Dec. 11 report that the currency may strengthen in the first half of 2009, before “underperforming most other currencies” as the global economy recovers.

Bernanke and Paulsen Pimped America… December 22, 2008

Posted by tetrahedron in Uncategorized.
Tags: bernanke, bretton woods, China, global credit, it is so stupid, paulson, russia, trillions, us dollar
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It Is So Stupid To Borrow US Dollar “Toilet Papers” For Trade Finance.

There Can Be Only A Credit Crunch For Dollars If You Are Stupid Enough To Want To Be Paid And To Pay In Dollars.

Otherwise, There Is Only An Illusion Of A Global Credit Crunch.

This Is The Global Con Game By Bernanke, Paulson,.

It may have made some sense, post-World War II to dollarise international trade when the so-called “Free World” was supposedly threatened by the “Communist Bloc” and the Imperial United States was offering “protection” in exchange for financial dominance.

The imperial design for financial dominance was the Bretton Woods dollar reserve currency scheme.

Since those days, the US has been abusing its financial power by the use of its greatest invention, the “toilet paper printing press” (now, the modern “electronic printing press”) to issue irredeemable fiat money.

Now the world is flooded with trillions of this toilet paper, namely US dollars.

The US Superpower is at the very precipice of the abyss and a wrong move will plunge it into the black-hole of financial Armageddon.

The world will not face Armageddon, only the US. The rest of the world will suffer pain, deservedly so, for being so stupid in believing in the use of US toilet papers as money!

To avoid this catastrophe, Ben Bernanke and Paulson as directed by their Shadow Money-Lender masters have devised an insidious scheme. The ultimate con-game!

Basically, what they have done is to try to turn a weakness into perceived strength.

Let me explain.

Countries have been so used to trading in dollars that they cannot think otherwise. They continue to borrow dollars to finance their imports. Their corporations continue to borrow dollars to finance their business expansion. It is as if the world is addicted to dollars, as a drug addict is addicted to cocaine and or crack!

The world has been brainwashed into thinking that without the US toilet paper, their global economy would come to a grinding halt.

How stupid!

Yet this is exactly the state of mind of governments and central banks all over the world. China is a case in point: blind reliance on the US dollar. But fortunately, they have other strengths which will see them through this painful period.

Taking advantage of this temporary idiotic global mindset, the Fed and the US Treasury have deliberately triggered a credit crunch for US dollar denominated toilet papers. The major global banks are hoarding the toilet papers and with-holding cross-border financing of every kind.

There is an ocean of toilet paper (literally in the trillions) but there is now created, a deliberate shortage of these very same toilet papers.

But where is the money? There is no money. It is an illusion!

What a ridiculous contradiction. But that is the present reality. The Fed has stated that they will pump US$8.5 trillion to resolve the crisis! You have to give credit where credit is due. This is indeed a brilliant con-game and the whole world has fallen for it hook, line and sinker – almost the whole world!

I refuse to accept this state of affairs.

Yet, the Nobel Laureates in economics have missed this stark reality by a thousand miles and are coming up with all kind of theories for the present global credit crunch of US toilet paper. Alternatively, it may be that as paid-scribes, they have been directed to spew economic nonsense to confuse other economists.

How was this illusion set up?

This happened when all of a sudden, and in total connivance, Brazil, Mexico, South Korea and Singapore got into the act by entering into swap facilities with the FED, each requesting a hefty US$35 Billion to “overcome their liquidity problems.” These countries could not get enough toilet papers! Wow!

Even the great magician Houdini would not have come up with this grand illusion of shortage in currency when there is an ocean of funny money. But it is an illusion and a stupid one at that.

So now, Bernanke and Paulson is advertising to the whole world, that they are prepared to do anything and use all financial weapons, including financial nuclear weapons to defeat the crisis.

For those countries that are short of toilet papers, the US will be the global guarantor and will be willing to lend trillions of toilet papers to help them weather the financial crisis and the credit crunch. How generous of the FED and the US Treasury. But there is a catch.

The catch being – countries must continue to use the worthless toilet papers in global trade.

In one masterful stroke, the US has created an artificial demand for dollars thereby rescuing in the short term the plunging value of the dollar.

Since the global banks are not willing to lend and are insolvent, the mighty FED, the nasty and abhorrent creation of the global Shadow Money-Lenders, will be the lender of last resort to the whole world. It will be business as usual. That is what they hope. This is their final gambit. The last magic show!

And as I have written earlier, this is the OBAMA’s GAMBLE!

Countries need not trade in dollars, as after all, they are not even BUYING “MADE IN AMERICA GOODS”. AMERICA IS A NET IMPORTER, NOT EXPORTER.

So central banks of the world, especially the Third World, and the emerging powers of China and Russia: you have no need for US toilet papers when you sell your national products to countries other than the US.

And in so far as the U.S. is concerned, why are you demanding to be paid in toilet papers? Why are you not demanding payment in your own currency?

China and Russia are at the present moment on the wrong course. They hold trillions of US dollar denominated debts but act as if they are at the mercy of the US, fearing that if they do anything unfavourable to US or cahllenge the hegemony of the greenback, there will be a massive slump in the value of the dollar.

But that is a given in any event. So why play a game that has been rigged in the favour of the global Shadow Money-Lenders.

There is no reason why Russia and China should be in a recession or experience slower growth. They are suffering from the present so-called credit crunch because they continue to manage their economies in dollar terms and in a dollar mindset.

The US is playing suicide poker and calling one last card. They have nothing on the table but toilet paper.

The US will collapse in a minute, if not sooner if China and Russia were to categorically call the US’s bluff and say:

1) Close down the derivative casino now!

2) Buy back all the toxic wastes which you have unloaded on the unsuspecting global economies with currencies of our choice!

3) Since the US is in debt, the US must now borrow in the currencies of our choice to repay past debts and new loans!

Failure to comply will result in a credit crunch to US banks and companies. US can continue to use domestically their worthless toilet papers (to wipe the shit off the ceiling fans, if there are any left hanging from the ceilings) but there will be no more credit in toilet papers. Period. There will be loans only in other currencies.

This is the checkmate. .

So China and Russia should wake up and do what is necessary to save their economies as well as the global economy or their economies will end up in the shit hole as they are now playing the US / UK rigged game.

I am not surprised at the present state of mind of Chinese and Russian bankers. They have sent some of their best brains to be trained in Harvard etc., and by the fraudsters in Goldman Sachs, JP Morgan Chase, Merrill Lynch, Citigroup etc. They have all been infected with the Ponzi disease and as such cannot think otherwise. Otherwise, how do you explain their mental paralysis?

This is a simple financial puzzle.

There is no credit crunch. There is only a false or an illusion of credit crunch for US toilet papers.

Once there is no demand for dollars, there will be no credit crunch for dollars. The Shadow Money-Lenders con-game will be exposed for what it is – a giant fraud. Not unlike that of Bernard Madoff, only a thousand times more insidious and toxic.

I hope that I have made myself absolutely clear to the financial officials in Russia and China.

If China and Russia and the third world continue to stand pat, these economies deserve to be in the dog house.

Bernanke and Paulson are going to destroy the US and the global economy so as to fulfil the grand design of the Shadow Money-Lenders. Stop them before it is too late.

The Count-down has started!

« newer posts — older posts »

America:Losing the Empire

Are ou ready for the future…More foreclosures…this summer April 22, 2009

The Tower of Basel April 19, 2009

April 19, 2009

Want the truth…The Real Economy? Ookaay! March 3, 2009

Is it “Change” I don’t think so! February 16, 2009

Black History, What…? February 6, 2009

High School Seniors…gotta read this January 16, 2009

$$$Banks can give you as …$$$ you need ! January 15, 2009

Watchout! The dollar bubble bursts… December 22, 2008

Bernanke and Paulsen Pimped America… December 22, 2008

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