I read an article today entitled "South Korean comics warn of North’s threat" in the FT. I lived in S. Korea in 1984/5 while working for the US Air Force. I was flabbergasted by the regular routine of "news" shown on TV that kept the South Korean population in constant fear of the North's impending invasion.
Not having lived there now for 25 years, my guess from this article is after the first democratic elections there in 1987, the overt propaganda by the state died down and from that time South Koreans have been able to concentrate on creating an industrial nation with international companies and first rate technology instead of being beaten down by authoritarian regimes with threats of the boogie man from the north.
So I was quite amused, surprised, disappointed and baffled when I read this article about comics created to "re-educate" the youth in South Korea about the "threat" to the north. The only "threat" from the north in Korea is that the people there will someday rise up and overthrow their dictatorship and over run the south to get out of the hellhole of the north.
It is high time that the South stops propagandizing about the north as a threat. If the north decided to "invade" the south tomorrow, the main fear would be that after an initial surge, the military of the north would immediately turn on their despotic leaders and reverse the incursion back on the north. They would then proceed to hang the leader and his cronies.
The south would have a huge humanitarian mission on its hands unlike anything that has been witnessed in the last 50 years. They would need billions of dollars of international support to manage the influx of refugees and to invest in the north to begin to bring them back from the dark ages.
So why the new comic book now? The only thing about North Korea I am 100% sure of is it's importance to the United States as a "strategic partner". Yes, you read that correctly. North Korea is one of our most important strategic allies in East Asia. Without their despotic leaders, nuclear games, authoritative government and repressed population, we would have no good reason to have 35,000 or so troops plus the major contingent of military "advisors" in the South to hedge ourselves against the real reason those troops are there, China. The ignorant, ethnocentric and paranoid powers in Washington still have 19th century mentalities towards world power and politics and "fears" of China emerging as a power that would somehow undermine US "dominance" in the world.
Truth be told, our ignorant, paranoid and ethnocentric Washington power circles are single-handedly destroying our prominence on the world stage as I write this. History will show that during one of the most important times in modern development, where the world is witnessing the emergence of secondary nations to economic relevance and power, Washington was busy spending trillions of dollars in pointless wars waged against people with no education or industrial capacity whatsoever. We are defeating ourselves before any real challenge has begun and South Korea is continuing to play a part in the internationally destructive role Washington has set up for itself and it's soon to be poverty stricken people.
Saturday, December 19, 2009
Tuesday, December 15, 2009
Banks Paying Back What?
I have been reading about the banks "paying back TARP" and "regaining their freedom" from the Government reigns for some days now with disdain for what is being "sold" to us by the media as a "payback" of money injected into the banks during the "crises" in 2008.
There is still a major crisis. The pittances the banks are paying back are only part of the total sum of what the Fed / Government has done and is still doing to back these institutions. They should remain under supervision for everything they do and their management should be under salary caps. If they don't like it they should all go to work with hedge funds, the unwieldy banking institutions they run broken apart with their retail, banking, insurance operations etc. regulated and their trading arms closed or spun off to the pigs in the Hedge Fund industry (which should be regulated or shut down as well but for now this is highly unlikely).
I would like to remind you that besides the deregulation of banking in 1999 which was done to rubber stamp the mega Citycorp merger with Travelers our legislative body also deregulated leverage rules for leverage "not using bank deposits" as stated in a January 2009 Time Magazine article:
Now what is interesting is the "not raising a single dollar of capital" part. They could just go about doubling down on leverage. The "banking" industry had convinced our impotent and incompetent legislators as well as the idiot running the Fed at the time, Greenspan, that banks had installed sophisticated "risk management" tools that would allow them to manage this escalated leverage. I remember reading with amazement the monthly or quarterly updates by "investment banks" on Wall Street on how much capital they could "loose" or was “at risk” in a single day given information they had on hand and risk management practices in place. The numbers had grown to the hundreds of millions of dollars in some cases. These were "day" trading risks.
Back to the point, the Fed agreed not only to the injection of cash into the large money center banks in 2008 (agreed with the Treasury) but also to accept all kinds of before unheard of collateral against borrowings from the Fed. In addition the Fed, in bailing out some institutions like City, Bear Sterns, BoA and AIG agreed to assume hundreds of billions of dollars in losses on "assets" removed from their books that were "locked up" in the credit crises. These institutions alone account for nearly $500 Billion in "guarantees" against bad debts / assets on their books (well off books as well for technical / accounting purposes). Plus there is another $300 Billion PLUS that has been borrowed by financial institutions from the markets with implicit guarantees under the Temporary Liquidity Guarantee Program.
In addition the Fed just started it's $1.8 Trillion program to "become" the commercial paper industry, a Trillion and a half has been allocated to buy mortgages from the banks and GSE's, another Trillion program to buy consumer loan-backed securities called TALF, and $300 Billion in outright "injections" by the fed done through bond purchases from the banks.
As I write this, Goldman still has about $20 Billion on it's books it borrowed under TLGP so as far as I am concerned any PIG Institution that still has guaranteed money on it's books is the same as having the money injected directly. They were able to borrow at ridiculously low rates by having the direct guarantee of the government, hence they should be highly regulated until they are COMPLETELY CLEAN of any support by the government.
Oh, well that is not really possible now is it? The government "being" the mortgage market, consumer credit market, commercial backed mortgage market, commercial paper market etc. In other words, none of these intuitions could even continue to function under anything like "normal" market conditions without the FED putting about $7 Trillion in support out there. You can see some of the numbers here.
So, basically, I can say “The Hell with them all”. They so totally ruined the financial system they should not be “free” to do anything without heavy government regulation until this entire mess is cleaned up. So where are the Chiefs going to go if the entire finance industry is heavily regulated? Guess they will just have to accept “government” salaries like doctors in a government health plan until they can learn to “walk” on their own again. Alternatively they could all go to the hedge fund industry until some government with a spine shuts that worthless unregulated industry down completely.
For a little comedy check out this 12 part short video series on the Fed.
For very extensive analysis of Fed workings through the crises check this out.
There is still a major crisis. The pittances the banks are paying back are only part of the total sum of what the Fed / Government has done and is still doing to back these institutions. They should remain under supervision for everything they do and their management should be under salary caps. If they don't like it they should all go to work with hedge funds, the unwieldy banking institutions they run broken apart with their retail, banking, insurance operations etc. regulated and their trading arms closed or spun off to the pigs in the Hedge Fund industry (which should be regulated or shut down as well but for now this is highly unlikely).
I would like to remind you that besides the deregulation of banking in 1999 which was done to rubber stamp the mega Citycorp merger with Travelers our legislative body also deregulated leverage rules for leverage "not using bank deposits" as stated in a January 2009 Time Magazine article:
Regulators have long had a lower capital requirement on loans that are not backed by deposits. But in 2004, the Securities and Exchange Commission (SEC) removed rules that capped leverage at 15 to 1 for investment-banking firms like Goldman Sachs. That allowed the firms to vastly expand their lending activities without raising a single new dollar of capital. One big backer of the rule change was reportedly former Treasury Secretary Henry Paulson, who was then Goldman's CEO. By that time, the regulatory separation between investment banks and traditional banks had long since been removed, so traditional banks such as Citigroup and Bank of America shifted more and more of their lending operations to their investment-banking divisions, and leverage took off. By the end of 2007, many banks were lending $30 for every dollar they had in the vault. "Changing the net-capital rule was an unfortunate misjudgment by the SEC," says former SEC official Lee Pickard. "It's one of the leading contributors to the current financial crisis." (See who else is to blame.)
Now what is interesting is the "not raising a single dollar of capital" part. They could just go about doubling down on leverage. The "banking" industry had convinced our impotent and incompetent legislators as well as the idiot running the Fed at the time, Greenspan, that banks had installed sophisticated "risk management" tools that would allow them to manage this escalated leverage. I remember reading with amazement the monthly or quarterly updates by "investment banks" on Wall Street on how much capital they could "loose" or was “at risk” in a single day given information they had on hand and risk management practices in place. The numbers had grown to the hundreds of millions of dollars in some cases. These were "day" trading risks.
Back to the point, the Fed agreed not only to the injection of cash into the large money center banks in 2008 (agreed with the Treasury) but also to accept all kinds of before unheard of collateral against borrowings from the Fed. In addition the Fed, in bailing out some institutions like City, Bear Sterns, BoA and AIG agreed to assume hundreds of billions of dollars in losses on "assets" removed from their books that were "locked up" in the credit crises. These institutions alone account for nearly $500 Billion in "guarantees" against bad debts / assets on their books (well off books as well for technical / accounting purposes). Plus there is another $300 Billion PLUS that has been borrowed by financial institutions from the markets with implicit guarantees under the Temporary Liquidity Guarantee Program.
In addition the Fed just started it's $1.8 Trillion program to "become" the commercial paper industry, a Trillion and a half has been allocated to buy mortgages from the banks and GSE's, another Trillion program to buy consumer loan-backed securities called TALF, and $300 Billion in outright "injections" by the fed done through bond purchases from the banks.
As I write this, Goldman still has about $20 Billion on it's books it borrowed under TLGP so as far as I am concerned any PIG Institution that still has guaranteed money on it's books is the same as having the money injected directly. They were able to borrow at ridiculously low rates by having the direct guarantee of the government, hence they should be highly regulated until they are COMPLETELY CLEAN of any support by the government.
Oh, well that is not really possible now is it? The government "being" the mortgage market, consumer credit market, commercial backed mortgage market, commercial paper market etc. In other words, none of these intuitions could even continue to function under anything like "normal" market conditions without the FED putting about $7 Trillion in support out there. You can see some of the numbers here.
So, basically, I can say “The Hell with them all”. They so totally ruined the financial system they should not be “free” to do anything without heavy government regulation until this entire mess is cleaned up. So where are the Chiefs going to go if the entire finance industry is heavily regulated? Guess they will just have to accept “government” salaries like doctors in a government health plan until they can learn to “walk” on their own again. Alternatively they could all go to the hedge fund industry until some government with a spine shuts that worthless unregulated industry down completely.
For a little comedy check out this 12 part short video series on the Fed.
For very extensive analysis of Fed workings through the crises check this out.
Thursday, December 03, 2009
End of Support for President Obama
From this moment forward I am categorically removing my support for President Obama. The tripling of troops in Afghanistan under his watch has absolutely destroyed my faith in him as an independent thinker, diplomat, and logical man, a president who has the best interest of the citizens of America in mind.
The US has spent over a Trillion Dollars on the “war” in Iraq. (A nation about the size of California) Let me remind you, Iraq is, was and never has been a “war”. When we “invaded” Iraq, they had no standing army (only the president’s “guard” which was basically in place to keep the bully, Saddem Hussein, in power), no standing air force and no standing navy. They had been through over 10 years of embargo. Iraq was nothing more than a training exercise for our military, a large adrenaline surge for troops and to train the next generation of our military (not to mention a great way to dump piles of legacy munitions sitting around in storage depots).
Like any people who resent being invaded, Iraq has been fighting back with whatever means they have and we know what the result has been. Thousands of American solders killed, hundreds of thousands of Iraqi civilians and militants (Iraq version of “freedom fighters”) killed. What for? Did you ever loose sleep worrying about the “Iraq Threat” on the US? Of course not, cause there is and never was one.
Can you give me an example of what a Trillion Dollars spent in the State of California would look like? Can you give me an example of what $350 Billion would look like? We spent at least that much “rebuilding” Iraq, yet they still have no reliable electricity, water or reliable means of communications to show for it. Oh, but lets not forget, the multitude of American companies, well connected to the government, who hire high paid lobbyist, consultant firms, and give lavishly to our legislators, directly and indirectly in the many creative ways created over the years to pay your congressman or senator without putting it directly in their pocket. Lets not forget the benefits to our military leaders who are ushered into the private sector with tremendous benefits after leaving service as payment for helping the American Military Establishment (Corporate Welfare to the highest degree) win contracts.
So that was Iraq. Now we have Afghanistan, another nation comparable in size to one American state, this time Texas. The latest move by President Obama puts nearly 100,000 troops in Afghanistan. Yea, Afghanistan, a rocky arid nation with little “official” standing army, no navy, no air force and no technology, nearly no industrial productive capacity at all, and they are largely uneducated. Does this sound like a nation with the capacity to harm or otherwise threaten the US? They cannot even “create” a gun let alone any more sophisticated “devise” capable of harming another individual let alone another nation.
So lets look at the “real enemy” over there headed by Osama Bin Laden (if he is in fact still alive, it is also worth noting he is not an “issue” any longer), a bunch of folks who have idealistic reasons to oppose the US. I must say I don’t disagree with their “political” reasons to oppose us. They want the US off of Muslim soil. So be it, get off of their soil. Let them live like it is the 6th century if that is what they want to do. Rational people will leave and go to other countries just as all the talent has left Africa, and used to (still do to some extent) leave Latin American nations, and leave South Asian nations and former Soviet Nations for better opportunity not under repressive regimes in their own nations (although Bush and now Obama seem to be learning more from the oppressive nations on this plane then from any ideologically free thinking ideas of the past). Being on their soil serves us no purpose. The oil in the Mid East is worth nothing in the ground. They have no other natural resources. They will sell it. Fine. What are we doing there? They have no technology. We (Western nations with technology) sell them what they need to take the oil out of the ground, transport it, refine it and ship it. You name it. They are completely unable to even exploit their only resource without the Western Nations and their technology. So what do we have to worry about? We will get paid. Secondly, they have nothing useful to do with all the money they make on oil sales without the West again. They cannot build anything without raw materials, western finished materials, tools, machines etc. They cannot invest the cash in anything worthwhile in the Middle East so they buy stakes in Western companies where they can benefit from the technology and innovation and wealth creation of the nations around the world that produce things other than oil.
What it the heck would any rational person be doing on land that is opposed by a growing bunch of radical religious folks when the land has no productive value to us whatsoever?
Now that “enemy”, yea, a bunch of guys have some rudimentary schools where they “teach” ignorant poverty stricken men from around the region how to bomb stuff and ideologically oppose Western culture. Well, we pretty much do the same thing, only with technology. We create “enemies”, the “evil empire” the “axis of evil” the “cancer of the Taliban” (as Pres. Obama put it, which really burns me up). We have to create enemies so we (power) can justify the half trillion a year in direct military spending and the other billions in indirect military spending. This is about American Money, not enemies; American Power Circles, not Taliban; American imperialism, not threat.
A bunch of guys with the equivalent of a few hundred thousand dollars, some flight training and some box cutters has created war in 2 nations and expenditures per capita not matched since a world war!! Can you imagine if someone would have said to you 10 years ago, that after a couple prior attempts, some guys would manage to actually take down a couple of tall buildings in NYC and after that America would spend over $2 Trillion Dollars and engage themselves in a decade “war” with 2 nations that together are about the size of California and Texas using hundreds of thousands of American military and civilian personnel, cause the deaths and maming of US and allied troops triple the number of people killed in the NYC take down, cause directly or indirectly around 500,000 civilian and insurgent (justified insurgents I might add) deaths in the invaded countries? (I could go on but you get the point.)
I could discuss all of the idiot decisions made by our prior government lead by a president with the intellect of a door knob but it’s all out there. One more rant will not solve anything. However, I will not, will not, will not support a man that sold such a rational line of diplomacy during his run for power but after taking power the result is his selling (or attempting to sell) a decision to escalate the “war” in Afghanistan. There is no justification. I don’t care what his “advisors” said; he is not seeing the world clearly any longer. I don’t know what “deal” he made to get into the White House but it is obvious that “power circles” have the better of him and he does not have the backbone or no longer has the incentive to do what is right for American citizens and our Nation. Better put, he obviously has GREAT incentive to do what is wrong.
If you want a nice round up of his decision (not nearly complete but what do you expect from 9 minutes of media?) check out this link http://www.youtube.com/watch?v=DDmen_2yoQY
For information on the land sizes of the nations involved you can see the US at
http://www.infoplease.com/ipa/A0108355.html
And the world at
http://en.wikipedia.org/wiki/Land_area
As for me, I am signing off my support for President Obama in a Great Big Way and I encourage you to do the same. This man is no longer representing me.
Peace.
The US has spent over a Trillion Dollars on the “war” in Iraq. (A nation about the size of California) Let me remind you, Iraq is, was and never has been a “war”. When we “invaded” Iraq, they had no standing army (only the president’s “guard” which was basically in place to keep the bully, Saddem Hussein, in power), no standing air force and no standing navy. They had been through over 10 years of embargo. Iraq was nothing more than a training exercise for our military, a large adrenaline surge for troops and to train the next generation of our military (not to mention a great way to dump piles of legacy munitions sitting around in storage depots).
Like any people who resent being invaded, Iraq has been fighting back with whatever means they have and we know what the result has been. Thousands of American solders killed, hundreds of thousands of Iraqi civilians and militants (Iraq version of “freedom fighters”) killed. What for? Did you ever loose sleep worrying about the “Iraq Threat” on the US? Of course not, cause there is and never was one.
Can you give me an example of what a Trillion Dollars spent in the State of California would look like? Can you give me an example of what $350 Billion would look like? We spent at least that much “rebuilding” Iraq, yet they still have no reliable electricity, water or reliable means of communications to show for it. Oh, but lets not forget, the multitude of American companies, well connected to the government, who hire high paid lobbyist, consultant firms, and give lavishly to our legislators, directly and indirectly in the many creative ways created over the years to pay your congressman or senator without putting it directly in their pocket. Lets not forget the benefits to our military leaders who are ushered into the private sector with tremendous benefits after leaving service as payment for helping the American Military Establishment (Corporate Welfare to the highest degree) win contracts.
So that was Iraq. Now we have Afghanistan, another nation comparable in size to one American state, this time Texas. The latest move by President Obama puts nearly 100,000 troops in Afghanistan. Yea, Afghanistan, a rocky arid nation with little “official” standing army, no navy, no air force and no technology, nearly no industrial productive capacity at all, and they are largely uneducated. Does this sound like a nation with the capacity to harm or otherwise threaten the US? They cannot even “create” a gun let alone any more sophisticated “devise” capable of harming another individual let alone another nation.
So lets look at the “real enemy” over there headed by Osama Bin Laden (if he is in fact still alive, it is also worth noting he is not an “issue” any longer), a bunch of folks who have idealistic reasons to oppose the US. I must say I don’t disagree with their “political” reasons to oppose us. They want the US off of Muslim soil. So be it, get off of their soil. Let them live like it is the 6th century if that is what they want to do. Rational people will leave and go to other countries just as all the talent has left Africa, and used to (still do to some extent) leave Latin American nations, and leave South Asian nations and former Soviet Nations for better opportunity not under repressive regimes in their own nations (although Bush and now Obama seem to be learning more from the oppressive nations on this plane then from any ideologically free thinking ideas of the past). Being on their soil serves us no purpose. The oil in the Mid East is worth nothing in the ground. They have no other natural resources. They will sell it. Fine. What are we doing there? They have no technology. We (Western nations with technology) sell them what they need to take the oil out of the ground, transport it, refine it and ship it. You name it. They are completely unable to even exploit their only resource without the Western Nations and their technology. So what do we have to worry about? We will get paid. Secondly, they have nothing useful to do with all the money they make on oil sales without the West again. They cannot build anything without raw materials, western finished materials, tools, machines etc. They cannot invest the cash in anything worthwhile in the Middle East so they buy stakes in Western companies where they can benefit from the technology and innovation and wealth creation of the nations around the world that produce things other than oil.
What it the heck would any rational person be doing on land that is opposed by a growing bunch of radical religious folks when the land has no productive value to us whatsoever?
Now that “enemy”, yea, a bunch of guys have some rudimentary schools where they “teach” ignorant poverty stricken men from around the region how to bomb stuff and ideologically oppose Western culture. Well, we pretty much do the same thing, only with technology. We create “enemies”, the “evil empire” the “axis of evil” the “cancer of the Taliban” (as Pres. Obama put it, which really burns me up). We have to create enemies so we (power) can justify the half trillion a year in direct military spending and the other billions in indirect military spending. This is about American Money, not enemies; American Power Circles, not Taliban; American imperialism, not threat.
A bunch of guys with the equivalent of a few hundred thousand dollars, some flight training and some box cutters has created war in 2 nations and expenditures per capita not matched since a world war!! Can you imagine if someone would have said to you 10 years ago, that after a couple prior attempts, some guys would manage to actually take down a couple of tall buildings in NYC and after that America would spend over $2 Trillion Dollars and engage themselves in a decade “war” with 2 nations that together are about the size of California and Texas using hundreds of thousands of American military and civilian personnel, cause the deaths and maming of US and allied troops triple the number of people killed in the NYC take down, cause directly or indirectly around 500,000 civilian and insurgent (justified insurgents I might add) deaths in the invaded countries? (I could go on but you get the point.)
I could discuss all of the idiot decisions made by our prior government lead by a president with the intellect of a door knob but it’s all out there. One more rant will not solve anything. However, I will not, will not, will not support a man that sold such a rational line of diplomacy during his run for power but after taking power the result is his selling (or attempting to sell) a decision to escalate the “war” in Afghanistan. There is no justification. I don’t care what his “advisors” said; he is not seeing the world clearly any longer. I don’t know what “deal” he made to get into the White House but it is obvious that “power circles” have the better of him and he does not have the backbone or no longer has the incentive to do what is right for American citizens and our Nation. Better put, he obviously has GREAT incentive to do what is wrong.
If you want a nice round up of his decision (not nearly complete but what do you expect from 9 minutes of media?) check out this link http://www.youtube.com/watch?v=DDmen_2yoQY
For information on the land sizes of the nations involved you can see the US at
http://www.infoplease.com/ipa/A0108355.html
And the world at
http://en.wikipedia.org/wiki/Land_area
As for me, I am signing off my support for President Obama in a Great Big Way and I encourage you to do the same. This man is no longer representing me.
Peace.
Friday, November 13, 2009
The Future of "Aid"
I read this article in the FT in August. I kept it. I have been talking about how Africa will be re-colonized by the middle of this century for some time, not the same way as in the last century or two, but in a new way, one involving control through production and resource allocation with people in place to make this possible being both local and from the colonial powers.
You may wonder what an FT article about how 45% of US Aid to Pakistan gets "distributed" to "well paid consultants" or other specialists overseeing international aid instead of to the "project" that the Aid was meant to benefit, has to do with colonizing Africa.
The answer is simple. The US Government is yet again attempting to install a kind of overriding system to track every dollar in the latest "stimulus" money. I say "again" because some years ago this type of tracking system was supposed to be in place at least in the military, yet there is still an extreme amount of waste and fraud in every dollar the Defense Department spends, mostly because all of this spending is still controlled by "people" who know how to abuse the cash and of course much of the Defense Department spending is nothing but Welfare for well fed contractors and pay backs for whatever folks are due big contracts to bail them out of the latest financial mess enveloping our nation.
Anyway, the time has come for a direct Aid system that is completely divorced from the "Aid Machine" of consultants, ex-peace corp inbreds, grant writing professionals and other "non-profit" do good organizations that scour the world looking for "projects" to fund and other ways to scrape cash from the aid budgets coming out of Washington. All US Aid should be generated from request of the people who would directly benefit from the aid in the country where it will be granted. Yes there are many models for how this could be accomplished but suffice to say, direct request from the people / nation needing the aid and who will be responsible for implementing the program is paramount.
All grants should have a "formula" based on a set of parameters, like the size of the grant, the intensity of the project, the purpose etc. where "management" of the grant as a portion of expense is built in along with other guidelines. The people submitting the grant request would in fact be able to work with these "formulas" and argue their percentages etc. when such flexibility is warranted.
All grants should be distributed electronically. There should never be "cash" until actual designated expenses are distributed and only where non-electronic forms of payment are necessary. Every dollar should be tracked to the final recipient and every final recipient should have a direct role to play in implementing the program the grant is for.
The entire "industry" in Washington of people who make a living scraping as much money as possible from every US Aid dollar should be put out of business. I live in this town and although I don't "run" regularly in circles of these folks, I have and do run into them relatively often. I have yet to meet ONE person in this US Aid "industry" who I would say is qualified to go to another country and tell folks there how to do anything.
I live in a city that sold its above ground rail system to GM for $1 and it was promptly dismantled; a city that has no pedestrian friendly public areas to partake in civil discourse (with the exception of the "Mall" and surrounding National Park, areas which are not where the "citizens" of this city live, work and play); a city where the public education system from K through University is so poorly able to accomplish it's task it looses 50% of its students; a city that has just experienced a building boom but assumes there will never be young adults with children ever living here, hence no regulations to make anything suitable for children; a city that still dumps vast amounts of it's raw sewage into the adjacent waterways; a city that has plenty of "affordable housing" as long as you don't mind being mugged, shot or otherwise harassed for living there; a city that pays out vast amounts of money to developers and corporations to bring "national retail" to its center yet fails to provide reasonable cost municipal parking to serve the majority of its residents un or under served by public transportation to get there; a city that has the highest percentage of administrators per-capita in the US running everything from it's metro transportation service, fire and police service to public administration getting paid over $100,000 a year and who do absolutely nothing; a city with inadequate or unreliable medical facilities for a vast number of its residents; a city with crime and incarceration rates that are more comparable to a developing drug lord nation. I could go on. I have not event touched the city from the Federal level yet, the corruption, incompetence, waste, crime, war etc. created by our national government.
There are these people who actually think or have been led to think they can help someone in another country do ANYTHING! It astounds me. Most people when I bring this up are politely offended when I simply ask them "What qualifications do you have that make you think you have the ability to implement anything to improve the lives of folks in another part of the world when you are a of this country, which is such a complete mess and is responsible for more death, destruction and terror around the world than any other one or group of countries combined?"
Enough said.
You may wonder what an FT article about how 45% of US Aid to Pakistan gets "distributed" to "well paid consultants" or other specialists overseeing international aid instead of to the "project" that the Aid was meant to benefit, has to do with colonizing Africa.
The answer is simple. The US Government is yet again attempting to install a kind of overriding system to track every dollar in the latest "stimulus" money. I say "again" because some years ago this type of tracking system was supposed to be in place at least in the military, yet there is still an extreme amount of waste and fraud in every dollar the Defense Department spends, mostly because all of this spending is still controlled by "people" who know how to abuse the cash and of course much of the Defense Department spending is nothing but Welfare for well fed contractors and pay backs for whatever folks are due big contracts to bail them out of the latest financial mess enveloping our nation.
Anyway, the time has come for a direct Aid system that is completely divorced from the "Aid Machine" of consultants, ex-peace corp inbreds, grant writing professionals and other "non-profit" do good organizations that scour the world looking for "projects" to fund and other ways to scrape cash from the aid budgets coming out of Washington. All US Aid should be generated from request of the people who would directly benefit from the aid in the country where it will be granted. Yes there are many models for how this could be accomplished but suffice to say, direct request from the people / nation needing the aid and who will be responsible for implementing the program is paramount.
All grants should have a "formula" based on a set of parameters, like the size of the grant, the intensity of the project, the purpose etc. where "management" of the grant as a portion of expense is built in along with other guidelines. The people submitting the grant request would in fact be able to work with these "formulas" and argue their percentages etc. when such flexibility is warranted.
All grants should be distributed electronically. There should never be "cash" until actual designated expenses are distributed and only where non-electronic forms of payment are necessary. Every dollar should be tracked to the final recipient and every final recipient should have a direct role to play in implementing the program the grant is for.
The entire "industry" in Washington of people who make a living scraping as much money as possible from every US Aid dollar should be put out of business. I live in this town and although I don't "run" regularly in circles of these folks, I have and do run into them relatively often. I have yet to meet ONE person in this US Aid "industry" who I would say is qualified to go to another country and tell folks there how to do anything.
I live in a city that sold its above ground rail system to GM for $1 and it was promptly dismantled; a city that has no pedestrian friendly public areas to partake in civil discourse (with the exception of the "Mall" and surrounding National Park, areas which are not where the "citizens" of this city live, work and play); a city where the public education system from K through University is so poorly able to accomplish it's task it looses 50% of its students; a city that has just experienced a building boom but assumes there will never be young adults with children ever living here, hence no regulations to make anything suitable for children; a city that still dumps vast amounts of it's raw sewage into the adjacent waterways; a city that has plenty of "affordable housing" as long as you don't mind being mugged, shot or otherwise harassed for living there; a city that pays out vast amounts of money to developers and corporations to bring "national retail" to its center yet fails to provide reasonable cost municipal parking to serve the majority of its residents un or under served by public transportation to get there; a city that has the highest percentage of administrators per-capita in the US running everything from it's metro transportation service, fire and police service to public administration getting paid over $100,000 a year and who do absolutely nothing; a city with inadequate or unreliable medical facilities for a vast number of its residents; a city with crime and incarceration rates that are more comparable to a developing drug lord nation. I could go on. I have not event touched the city from the Federal level yet, the corruption, incompetence, waste, crime, war etc. created by our national government.
There are these people who actually think or have been led to think they can help someone in another country do ANYTHING! It astounds me. Most people when I bring this up are politely offended when I simply ask them "What qualifications do you have that make you think you have the ability to implement anything to improve the lives of folks in another part of the world when you are a of this country, which is such a complete mess and is responsible for more death, destruction and terror around the world than any other one or group of countries combined?"
Enough said.
Sunday, October 25, 2009
The Financial "Crises" is Not Over
I have been reading my weekend section of the FT this afternoon and came across two unrelated articles that struck a chord with me with respect to the financial markets. Some items that are notable, 1) Treasuries, since the credit crises, have been the only acceptable collateral in the "repo market" 2) There are still non financial companies out there that are writing off huge losses in derivative "investments" that are way out of proportion to the revenues they had as functioning companies, making me think more non-financial companies than I originally thought got hood-winked by Wall Street into derivative positions way out of line with the regular functioning of their business.
So what does this mean?
First, the huge demand for US Government debt over the last year, despite a normal economic view that any nation running the kinds of reckless borrowing and printing of money the US has been would make rational investors run the other way, is a direct response to the fact that only treasures are being accepted as collateral in the global credit markets and the US Dollar is "reserve currency" by default. Hence, there is a very large demand component to treasuries that is unrealistic, unsustainable, unhealthy and explainable only within the context of the crash of the credit markets. Low US interest rates cannot be sustained much longer without GREAT cost to our financial system, as we know it. The Trillions of dollars in subsidies being offered by the Fed to the credit markets make the billions of dollars of reckless subsidies to say gasoline in Iran or bread in Egypt look like paltry handouts, yet those subsidies are often referred to as dangerous to those countries balance of payments and government debt ratios. Go figure.
Second, after seeing companies like chicken producer Pilgrims Pride go bankrupt largely due to derivative contracts in corn which went bad costing them millions, I realized that real companies that produced real products were pulled into the derivative markets (along with investment funds like Harvard University's Endowment) with promises from Wall Street Firms to "hedge" their operations at levels that were completely out of context with the needs to do so in their every day operations. So when I read that GM, the Bankrupt now Government owned US Automaker, just pumped $413 Million (Won 491 Billion) into it's Korean joint venture with Daewoo, called GM Daewoo, after GM Daewoo had it's "entire equity base (cash) wiped out by Won 2.3 Trillion of currency derivatives losses", I realized this problem has not gone away.
So how do these two seemingly unrelated articles jog my brain? Well, first, I have presumed for some time that the increasingly oligopolistic nature of American business does some things well. They become extremely inefficient and difficult to manage but hugely profitable due to their purchasing power with very large scale orders(evident by the ability of these companies to lay huge amounts of their work force and turn out higher profits with lower revenues); they are entirely responsible for driving manufacturing out of the US with their desire to constantly lower the cost of inputs to meet needs for quarterly profits; they become faceless, unwieldy and largely wrapped up in getting as large as possible by squeezing out any and all competitive elements while colluding with the other oligopoly members on pricing; the collective "tax" these companies call "profits" begin to look like a tax because no longer are these companies benefiting their many individual owners and pools of investors like when there are many players of all sizes in an industry, but these companies start to look like mini socialist governments, taxing their "customers" with fixed prices, lying to, cheating and outright stealing from their customers (at least 1 out of every 3 grocery store visits I make I have to return and get a refund on an item that was overcharged at the register); paying exorbitant salaries to the "apparatchik" (crony insiders) selected to run the organizations; paying their "workers" lower and lower wages and most importantly, generating HUGE amounts of cash which then must be "invested"; the cash generated is so large only Wall Street firms have the wherewithal to handle the money.
This is where Wall Street and Hedge Funds come in. Where does all the cash generated by these oligopoly companies go? It appears much of it found it's way into the same esoteric products that financial and insurance companies were buying and selling which means huge losses on the books of some companies. This is truly where Wall Street hits Main Street and it is only possible when Main Street has become an oligopolistic town with profits large enough to play with the big boys in New York and Off Shore. Now even these huge companies, which have shown a great penchant for halting internal "investment" and "growth plans", cutting dramatically their "inventory levels", laying off huge numbers of employees and hence creating very large cash balances, need to "play it safe" and buy treasuries as there is uncertainty in the economy and lack of any other "instrument" to invest in due to the collapse in the credit markets. The lack of liquidity from “productive industry” (those who make and sell tangible products) in the US is further exasborating the crises and forcing the Fed to offer more support then would otherwise have been needed.
I sense a great deal of resentment building towards the dollar and treasury markets by countries forced to continue to hold both when they know it is no longer economically wise to do so.
I sense companies are going to continue to accumulate cash and hence buy treasuries as a cushion to a potential continued decline in the economy.
I assume there are still huge amounts of esoteric derivative products on the books of many a financial institution (and otherwise) that are basically worthless but being recorded as having value to avoid a collapse in the institutions.
I assume everyone knows these worthless assets are worthless but have stopped pressing for more collateral because there is no more collateral so nobody sees any benefit in continuing to bleed a turnip dry since losses on one party's books simply reverberate into losses in everyone else’s as well.
I figure, there is no near term end to the financial crises because it will take years for all of the worthless paper to be "wound down" so to speak while companies try to "earn" their way out of the financial mess.
What does all this mean? Is somebody going to blink? The markets now only have to drop 100 points for every man in Washington to find a podium and announce a new "program" or "reinforce their support" of the credit markets or "ensure no change in liquidity or interest rates" or whatever to "calm" the markets so they can continue their rise straight out of the stratosphere. It used to take Paulson 300 points to do the same. One needs little more evidence that the smoke screen being sold the public by the media conglomerates and PR spinsters in Washington is a total lie.
The global financial system is still a complete mess. Wall Street is celebrating every time a company "beats" some arbitrary analyst "prediction" of how much earnings and profits would drop over last year. Yes "drop" over last year. So if my profits are only down 18% and revenues down 10% when the street was looking for profits down 20% and revenues down 12% then my stock is going to a 52 week high! Yes I can celebrate that my stock is worth as much as in early 2008 even though my company is doing 30% or so less business than January 2008.
This is all liquidity driven. I love seeing the CNBC pundits all acting like everything is normal again. They talk stocks and earnings like the credit crises never happened. There is no need to discuss the fact that the Fed IS the Residential Mortgage Market, Commercial Mortgage Market, Consumer Credit Market, Student Loan Market, Auto Finance Market not to mention the other myriad of "support systems" in place to keep other markets from crumbling. The interest rates we are all paying on our credit cards, mortgages, and auto loans are all massively subsidized right now by the Fed and FDIC. The rates are COMPLETELY divorced from "market reality" which to an economic minded person like me no longer resembles "reality" at all.
Companies still being brought to their knees by bad derivative bets; trillions of dollars in "assets" on the books of thousands of banks, companies and hedge funds that are in the best case scenario worth $.30 on the dollar; hundreds of billions of dollars in government debt being sold every couple weeks by the Fed to finance the massive stimulus and deficit spending by the government being soaked up by institutions with no where else to turn to put their dollars; commodity prices completely divorced from economic demand realities; stock market valuations 20-40% elevated from fundamental realities, what does this mean?
Simple, we are seeing global inflation of ALL dollar-based assets, which is reflecting as we speak the massive loss in purchasing power of the dollar. Yet the dollar itself is only marginally off against a basket of currencies from last year's dramatic fall then rise again and the Fed is telling us that consumer prices in the US are stable to falling. How much longer can the relative value of the US Dollar maintain stability while the amount of dollars needed to purchase all commodities priced in dollar continues to rise?
If the US economy faces a second dip and other countries economies follow, especially the few developing nations that have held up relatively well during this latest recession, the underlying demand for commodities priced in dollars would drop further putting downward pressure on the price, but will this result in an actual drop in the dollar price of these assets or will the dollar price for commodities simply continue to rise as institutions increasingly seek to get out of their dollars by buying other assets?
This is the big money question. How far will the equity markets rise before someone decides to take his or her cash out in a big way? With all these dollars floating around now and the obvious inflation in the price of every global asset priced in dollars, the absolute dire state of the credit markets has held the Fed's hand in removing liquidity and getting interest rates back to normal levels. Where is the break point?
Removing liquidity will force reckoning by all those firms with worthless assets on their books and could put credit markets back in crises mode. Not removing liquidity is causing the inflation of all dollar-based assets globally. We are paying a huge, unrecognizably destructive price for being both the global reserve currency and the source of the global financial crises. We screwed ourselves and everyone else and there is no turning back. By not allowing the markets to work out the derivative driven credit crises, not matter how immediately painful it would have been, we have simply delayed the inevitable market correction while simultaneously created a new asset bubble fed by to many dollars floating around. The next move will be a double whammy. I cannot wait.
So what does this mean?
First, the huge demand for US Government debt over the last year, despite a normal economic view that any nation running the kinds of reckless borrowing and printing of money the US has been would make rational investors run the other way, is a direct response to the fact that only treasures are being accepted as collateral in the global credit markets and the US Dollar is "reserve currency" by default. Hence, there is a very large demand component to treasuries that is unrealistic, unsustainable, unhealthy and explainable only within the context of the crash of the credit markets. Low US interest rates cannot be sustained much longer without GREAT cost to our financial system, as we know it. The Trillions of dollars in subsidies being offered by the Fed to the credit markets make the billions of dollars of reckless subsidies to say gasoline in Iran or bread in Egypt look like paltry handouts, yet those subsidies are often referred to as dangerous to those countries balance of payments and government debt ratios. Go figure.
Second, after seeing companies like chicken producer Pilgrims Pride go bankrupt largely due to derivative contracts in corn which went bad costing them millions, I realized that real companies that produced real products were pulled into the derivative markets (along with investment funds like Harvard University's Endowment) with promises from Wall Street Firms to "hedge" their operations at levels that were completely out of context with the needs to do so in their every day operations. So when I read that GM, the Bankrupt now Government owned US Automaker, just pumped $413 Million (Won 491 Billion) into it's Korean joint venture with Daewoo, called GM Daewoo, after GM Daewoo had it's "entire equity base (cash) wiped out by Won 2.3 Trillion of currency derivatives losses", I realized this problem has not gone away.
So how do these two seemingly unrelated articles jog my brain? Well, first, I have presumed for some time that the increasingly oligopolistic nature of American business does some things well. They become extremely inefficient and difficult to manage but hugely profitable due to their purchasing power with very large scale orders(evident by the ability of these companies to lay huge amounts of their work force and turn out higher profits with lower revenues); they are entirely responsible for driving manufacturing out of the US with their desire to constantly lower the cost of inputs to meet needs for quarterly profits; they become faceless, unwieldy and largely wrapped up in getting as large as possible by squeezing out any and all competitive elements while colluding with the other oligopoly members on pricing; the collective "tax" these companies call "profits" begin to look like a tax because no longer are these companies benefiting their many individual owners and pools of investors like when there are many players of all sizes in an industry, but these companies start to look like mini socialist governments, taxing their "customers" with fixed prices, lying to, cheating and outright stealing from their customers (at least 1 out of every 3 grocery store visits I make I have to return and get a refund on an item that was overcharged at the register); paying exorbitant salaries to the "apparatchik" (crony insiders) selected to run the organizations; paying their "workers" lower and lower wages and most importantly, generating HUGE amounts of cash which then must be "invested"; the cash generated is so large only Wall Street firms have the wherewithal to handle the money.
This is where Wall Street and Hedge Funds come in. Where does all the cash generated by these oligopoly companies go? It appears much of it found it's way into the same esoteric products that financial and insurance companies were buying and selling which means huge losses on the books of some companies. This is truly where Wall Street hits Main Street and it is only possible when Main Street has become an oligopolistic town with profits large enough to play with the big boys in New York and Off Shore. Now even these huge companies, which have shown a great penchant for halting internal "investment" and "growth plans", cutting dramatically their "inventory levels", laying off huge numbers of employees and hence creating very large cash balances, need to "play it safe" and buy treasuries as there is uncertainty in the economy and lack of any other "instrument" to invest in due to the collapse in the credit markets. The lack of liquidity from “productive industry” (those who make and sell tangible products) in the US is further exasborating the crises and forcing the Fed to offer more support then would otherwise have been needed.
I sense a great deal of resentment building towards the dollar and treasury markets by countries forced to continue to hold both when they know it is no longer economically wise to do so.
I sense companies are going to continue to accumulate cash and hence buy treasuries as a cushion to a potential continued decline in the economy.
I assume there are still huge amounts of esoteric derivative products on the books of many a financial institution (and otherwise) that are basically worthless but being recorded as having value to avoid a collapse in the institutions.
I assume everyone knows these worthless assets are worthless but have stopped pressing for more collateral because there is no more collateral so nobody sees any benefit in continuing to bleed a turnip dry since losses on one party's books simply reverberate into losses in everyone else’s as well.
I figure, there is no near term end to the financial crises because it will take years for all of the worthless paper to be "wound down" so to speak while companies try to "earn" their way out of the financial mess.
What does all this mean? Is somebody going to blink? The markets now only have to drop 100 points for every man in Washington to find a podium and announce a new "program" or "reinforce their support" of the credit markets or "ensure no change in liquidity or interest rates" or whatever to "calm" the markets so they can continue their rise straight out of the stratosphere. It used to take Paulson 300 points to do the same. One needs little more evidence that the smoke screen being sold the public by the media conglomerates and PR spinsters in Washington is a total lie.
The global financial system is still a complete mess. Wall Street is celebrating every time a company "beats" some arbitrary analyst "prediction" of how much earnings and profits would drop over last year. Yes "drop" over last year. So if my profits are only down 18% and revenues down 10% when the street was looking for profits down 20% and revenues down 12% then my stock is going to a 52 week high! Yes I can celebrate that my stock is worth as much as in early 2008 even though my company is doing 30% or so less business than January 2008.
This is all liquidity driven. I love seeing the CNBC pundits all acting like everything is normal again. They talk stocks and earnings like the credit crises never happened. There is no need to discuss the fact that the Fed IS the Residential Mortgage Market, Commercial Mortgage Market, Consumer Credit Market, Student Loan Market, Auto Finance Market not to mention the other myriad of "support systems" in place to keep other markets from crumbling. The interest rates we are all paying on our credit cards, mortgages, and auto loans are all massively subsidized right now by the Fed and FDIC. The rates are COMPLETELY divorced from "market reality" which to an economic minded person like me no longer resembles "reality" at all.
Companies still being brought to their knees by bad derivative bets; trillions of dollars in "assets" on the books of thousands of banks, companies and hedge funds that are in the best case scenario worth $.30 on the dollar; hundreds of billions of dollars in government debt being sold every couple weeks by the Fed to finance the massive stimulus and deficit spending by the government being soaked up by institutions with no where else to turn to put their dollars; commodity prices completely divorced from economic demand realities; stock market valuations 20-40% elevated from fundamental realities, what does this mean?
Simple, we are seeing global inflation of ALL dollar-based assets, which is reflecting as we speak the massive loss in purchasing power of the dollar. Yet the dollar itself is only marginally off against a basket of currencies from last year's dramatic fall then rise again and the Fed is telling us that consumer prices in the US are stable to falling. How much longer can the relative value of the US Dollar maintain stability while the amount of dollars needed to purchase all commodities priced in dollar continues to rise?
If the US economy faces a second dip and other countries economies follow, especially the few developing nations that have held up relatively well during this latest recession, the underlying demand for commodities priced in dollars would drop further putting downward pressure on the price, but will this result in an actual drop in the dollar price of these assets or will the dollar price for commodities simply continue to rise as institutions increasingly seek to get out of their dollars by buying other assets?
This is the big money question. How far will the equity markets rise before someone decides to take his or her cash out in a big way? With all these dollars floating around now and the obvious inflation in the price of every global asset priced in dollars, the absolute dire state of the credit markets has held the Fed's hand in removing liquidity and getting interest rates back to normal levels. Where is the break point?
Removing liquidity will force reckoning by all those firms with worthless assets on their books and could put credit markets back in crises mode. Not removing liquidity is causing the inflation of all dollar-based assets globally. We are paying a huge, unrecognizably destructive price for being both the global reserve currency and the source of the global financial crises. We screwed ourselves and everyone else and there is no turning back. By not allowing the markets to work out the derivative driven credit crises, not matter how immediately painful it would have been, we have simply delayed the inevitable market correction while simultaneously created a new asset bubble fed by to many dollars floating around. The next move will be a double whammy. I cannot wait.
Sunday, October 18, 2009
Health Care Remarks 4
I once owned a small business I started while at university. I plowed all of what I made back in the business keeping only what I needed to pay my small bills at the time. In 1991 I hired my first “employee”, an intern from my university.
I was faced with my first dilemma. If I was going to pay someone who works for me a regular salary, shouldn’t I do the same for myself? Dilemma 2; health insurance.
It was a few years late with 8-10 employees that I revisited the health insurance question and ultimately offered a managed plan and picked up 80% of the cost for full time employees. It was the mid 90’s and the Clinton Administration put the fear of God into the rapidly growing and immensely profitable health care racket, I mean industry. The side benefit to this debate was slower increases in heath care cost.
Once the health care racket had sufficiently damaged the administration and rendered our legislators impotent, my insurance costs began to climb exponentially, from the low single digits to low double digits to 20-30% a year. Eventually I had to back down my percentage covered to as low as 50% of a monthly cost that rose nearly 150% in under 10 years. The costs became down right prohibitive for a company with fewer than 25 employees to cover.
Fortunately the state of MD, like many other states frustrated at the impotency of the Federal Government to get anything done, instituted reforms that forced insurers to allow new employees to opt in without restrictions and banned certain other discriminating practices by health care companies.
From the late 1990’s on the health care racket was going through mergers, buyouts, consolidations and making Billions of dollars in profits each quarter. They were paying their CEO’s Dotcom salaries and offering generous stock rewards. I knew something was amiss.
Well America, something is still amiss and the “corporate super citizens” are spending millions of dollars as we speak to convince YOU that universal health care is a “bad idea”. Any wonder why?
It is time you tune out the corporate funded, hyper subjective, emotionally charged and orchestrated “debate” and vote for universal health care today!
Watch video here.
I was faced with my first dilemma. If I was going to pay someone who works for me a regular salary, shouldn’t I do the same for myself? Dilemma 2; health insurance.
It was a few years late with 8-10 employees that I revisited the health insurance question and ultimately offered a managed plan and picked up 80% of the cost for full time employees. It was the mid 90’s and the Clinton Administration put the fear of God into the rapidly growing and immensely profitable health care racket, I mean industry. The side benefit to this debate was slower increases in heath care cost.
Once the health care racket had sufficiently damaged the administration and rendered our legislators impotent, my insurance costs began to climb exponentially, from the low single digits to low double digits to 20-30% a year. Eventually I had to back down my percentage covered to as low as 50% of a monthly cost that rose nearly 150% in under 10 years. The costs became down right prohibitive for a company with fewer than 25 employees to cover.
Fortunately the state of MD, like many other states frustrated at the impotency of the Federal Government to get anything done, instituted reforms that forced insurers to allow new employees to opt in without restrictions and banned certain other discriminating practices by health care companies.
From the late 1990’s on the health care racket was going through mergers, buyouts, consolidations and making Billions of dollars in profits each quarter. They were paying their CEO’s Dotcom salaries and offering generous stock rewards. I knew something was amiss.
Well America, something is still amiss and the “corporate super citizens” are spending millions of dollars as we speak to convince YOU that universal health care is a “bad idea”. Any wonder why?
It is time you tune out the corporate funded, hyper subjective, emotionally charged and orchestrated “debate” and vote for universal health care today!
Watch video here.
Health Care Remarks 3
I had a conversation with my mother the other day and when the issue of health care came up, an otherwise intelligent and somewhat rational human being began spouting all kinds of propaganda propagated by the mouthpiece of the “corporate super citizen” from the media landscape that dominates her suburban Jacksonville Florida home.
I was distraught when every intelligent example I tried to interject into the conversation was immediately dragged down to the lowest common denominator; druggies who shoot each other and how she does not feel the need to cover “their” health care; the homeless or addicts who cost the health care system and emergency rooms time and money, obesity inflected illnesses robbing our system’s health care dollars and so on…
Never could I get her to focus on the 60% of Americans who may have some kind of health insurance but are also living a pay check or serious illness away from loosing both their jobs and insurance, and who live with constant stress of losing their insurance, esp. if they have or are expecting children. (I am not including the 30% of Americans who have access to higher education, health care and other semblances of a 1st world economy without worry nor the 10% of Americans who live in chronic poverty, drug addiction, diseases and other societal woes reminiscent of a third world nation.)
This 60% or so of Americans would experience an immediate improvement in their quality of life with just the Knowledge that they can live and not expect a life catastrophe due to a sudden illness or accident or whatever.
Heck, some of these 10s of millions of Americans may actually have the confidence to make the career changes that will get them a leg up. Perhaps many will start that new business they always wanted to have, move to that town they fell in love without risk of losing their health insurance keeping them from doing so. Perhaps parents could afford to allow their children to partake in more extra curricular activities, or save money for their child’s education…
Who knows the possibilities? The key is we need universal health insurance and we need it now.
Watch Video here.
I was distraught when every intelligent example I tried to interject into the conversation was immediately dragged down to the lowest common denominator; druggies who shoot each other and how she does not feel the need to cover “their” health care; the homeless or addicts who cost the health care system and emergency rooms time and money, obesity inflected illnesses robbing our system’s health care dollars and so on…
Never could I get her to focus on the 60% of Americans who may have some kind of health insurance but are also living a pay check or serious illness away from loosing both their jobs and insurance, and who live with constant stress of losing their insurance, esp. if they have or are expecting children. (I am not including the 30% of Americans who have access to higher education, health care and other semblances of a 1st world economy without worry nor the 10% of Americans who live in chronic poverty, drug addiction, diseases and other societal woes reminiscent of a third world nation.)
This 60% or so of Americans would experience an immediate improvement in their quality of life with just the Knowledge that they can live and not expect a life catastrophe due to a sudden illness or accident or whatever.
Heck, some of these 10s of millions of Americans may actually have the confidence to make the career changes that will get them a leg up. Perhaps many will start that new business they always wanted to have, move to that town they fell in love without risk of losing their health insurance keeping them from doing so. Perhaps parents could afford to allow their children to partake in more extra curricular activities, or save money for their child’s education…
Who knows the possibilities? The key is we need universal health insurance and we need it now.
Watch Video here.
Health Care Remarks 2
Some years ago I coined a term called “the commercial truth”.
I don’t like to call capitalist enterprises “liars” when they use their “super citizen” legal structure to play undue influence in the messages about our nation spouted to it’s citizenry through mass media, so I coined the term “the commercial truth” to help people understand that all messages they receive from the mass media come from the mouths of “super citizen corporate entities”. Through their creation of foundations and think tanks “super citizen corporate entities” orchestrate messages to the citizenry that tell a “story” based on their interest, not truth, not what is best for the nation, it’s citizenry or your future but the “commercial truth” the point of view that best serves “their” interest.
If you buy into the “super citizen corporate message” with respect to health care you are undeniably buying into a message that best serves them, not you, not your neighbor, not your fellow citizen, not your nation.
To live in a nation that purports to consider itself part of the league of 1st world nations, yet to have it’s citizens still contemplating whether or not basic health care should or should not be a right of every citizen, does nothing but put a giant mirror onto the faces of it’s millions of citizens who have been sold that somehow health care is not a right and part of what defines a “civilized” citizenry and reflects the sheer ignorance of that citizenry and the immense power of it’s “corporate super citizen” elite who have managed for ¾ of a century to dominate the discussion about health care.
The United States is NOT a first world nation. Don’t kid yourself. The United States is a second world nation with first world guns and our lack of universal access to health care is but ONE glaring example of this reality.
Vote for universal health care for America and it’s citizens. Defeat the “corporate super citizen” now.
Watch video here.
I don’t like to call capitalist enterprises “liars” when they use their “super citizen” legal structure to play undue influence in the messages about our nation spouted to it’s citizenry through mass media, so I coined the term “the commercial truth” to help people understand that all messages they receive from the mass media come from the mouths of “super citizen corporate entities”. Through their creation of foundations and think tanks “super citizen corporate entities” orchestrate messages to the citizenry that tell a “story” based on their interest, not truth, not what is best for the nation, it’s citizenry or your future but the “commercial truth” the point of view that best serves “their” interest.
If you buy into the “super citizen corporate message” with respect to health care you are undeniably buying into a message that best serves them, not you, not your neighbor, not your fellow citizen, not your nation.
To live in a nation that purports to consider itself part of the league of 1st world nations, yet to have it’s citizens still contemplating whether or not basic health care should or should not be a right of every citizen, does nothing but put a giant mirror onto the faces of it’s millions of citizens who have been sold that somehow health care is not a right and part of what defines a “civilized” citizenry and reflects the sheer ignorance of that citizenry and the immense power of it’s “corporate super citizen” elite who have managed for ¾ of a century to dominate the discussion about health care.
The United States is NOT a first world nation. Don’t kid yourself. The United States is a second world nation with first world guns and our lack of universal access to health care is but ONE glaring example of this reality.
Vote for universal health care for America and it’s citizens. Defeat the “corporate super citizen” now.
Watch video here.
Health Care Remarks 1
Coming from the perspective of someone who does not have TV, I must say I find it troubling that the issue of universal access to health care in a nation that claims to be part of the 1st world economy is an issue it all
While spending time in the Air Force as a young man (where I had universal health care) I was fortunate enough to witness how societies can be hard wired into a set of beliefs that did not serve their common interest, but served the interest of those in “power” instead.
In South Korea I witnessed a nation wired to believe authoritarian government was good for its people as long as the great looming threat by their “hostile neighbor” to the north was evident.
In England I witnessed a nation where the economic reality of the vast majority of it’s citizens resembled second world nation, yet the English were wired to believe they were citizens of an “empire” that should travel to undeveloped nations and tell impoverished people there how to improve their livelihood.
Here in the United States I see a citizenry wired by corporations who make hundreds of billions of dollars every year off the backs of their illnesses that the idea of universal access to health care is some kind of evil idea that takes their rights away. The notion is absurd.
If you are currently event debating whether or not the citizens of this great nation deserve equal access to health care I urge you to remove yourself from all media, radio, TV, Internet, whatever your media vice, for at least 6 weeks and use this time to read and think about why you have government; what human needs, characterizations and expectations come from the word “civilization”. I am confident you will find collective care for the well being of one’s people / citizens i.e.; Health Care, to be a major part of what a civilized society is all about.
Watch a video here.
While spending time in the Air Force as a young man (where I had universal health care) I was fortunate enough to witness how societies can be hard wired into a set of beliefs that did not serve their common interest, but served the interest of those in “power” instead.
In South Korea I witnessed a nation wired to believe authoritarian government was good for its people as long as the great looming threat by their “hostile neighbor” to the north was evident.
In England I witnessed a nation where the economic reality of the vast majority of it’s citizens resembled second world nation, yet the English were wired to believe they were citizens of an “empire” that should travel to undeveloped nations and tell impoverished people there how to improve their livelihood.
Here in the United States I see a citizenry wired by corporations who make hundreds of billions of dollars every year off the backs of their illnesses that the idea of universal access to health care is some kind of evil idea that takes their rights away. The notion is absurd.
If you are currently event debating whether or not the citizens of this great nation deserve equal access to health care I urge you to remove yourself from all media, radio, TV, Internet, whatever your media vice, for at least 6 weeks and use this time to read and think about why you have government; what human needs, characterizations and expectations come from the word “civilization”. I am confident you will find collective care for the well being of one’s people / citizens i.e.; Health Care, to be a major part of what a civilized society is all about.
Watch a video here.
Wednesday, October 14, 2009
Interest Rate Rise NOW!
I have been doing some thinking lately and analyzing the Fed's rate action since 2000 and have decided the biggest problem created by the Fed was not bring rates to historic lows after the 9/11 terrorist attacks. The problem began when the jacked up rates in early 2000. Then after realizing they “goofed” dramatically reversed course in 2001 only to overshoot to the down side where they left rates to low for to long. When realizing this, the Fed followed with a draconian attempt to return the rates back to "normal" beginning in 2004, which wrecked havoc with the credit markets and economy.
It takes a while for the markets (and the economy) to react to both lower interest rates and higher interest rates. This is Econ 101 stuff. If rates are set at an abnormal level either on the high side or low side, the market will adapt, create all kinds of products and strategies to "deal" with the rates as they are and make money. The financial markets will make money, lots of it, any time official rates are out of sync with market realities, unfortunately with sometimes disastrous effect. This happened when rates were kept artificially low for to long. The markets were then shocked when rates were raised so quickly. The real question is, "Why does it seem the Fed is always lagging the markets so much, failing to see obvious signs of bubbles or crises?"
Rates were raised 17 (yes 17) consecutive times beginning June 2004. The rates had remained at 1% (fed funds rate) for the prior year and were 1.25% from November 2002.
Part of the reason the Fed had to lower rates so much in 2001 were the Fed's mistaken rate rises in 2000 of a full 1%. In only four months (Feb - May) rates were raised from 5.5% to 6.5%. The Fed then had unnecessarily choked the financial system and exaggerated the stock market bubble burst with this draconian rise. It is as if the Fed was (late to the party as usual) trying to "pop the Dotcom Bubble" right at the wrong time. The bubble was already deflating. Then, within 9 months of it's last rate increase, the Fed reversed course in dramatic fashion lowering rates a whopping 4.76% inside of 12 months so by the end of 2001 rates stood at 1.75%.
The reason the batch of rate increases in early 2000 were unnecessary was obvious at the time and is more so looking back. The Dotcom rally in the markets had begun to play itself out. Moreover, the overall economy at that time had not experienced any real underlying inflation in the consumer sector. Commodity prices were tame and Oil had bottomed out only two years earlier. There were hints of inflation in housing at the time but after the housing and real estate bust of the late 1980's which lasted well into the mid 1990's the revival in the housing and commercial real estate prices were welcome and at that time not over heated.
Note: I will paraphrase the comment about housing in 2000 by saying, there were some exceptional housing price increases around 1999-2001 fueled mostly by Dotcom employees and executives cashing out options and buying "trophy" real estate; basically real estate in resort oriented areas or "desirable" urban centers. However the overall economy did not participate in the Dotcom surge in wealth. There were some sorely needed rises in average wages and incomes, which had stagnated for some 30 years. In fact, as we can see in hindsight, the crazy options grants to executives, exploding pay and bonuses to CEO's of NON-Dotcom companies were nothing more than attempts for those guys to play the same game financially as Dotcom companies were. For boards of companies they bought in with the excuse they had to in order to "keep their CEO's from bolting to the hot Dotcom sector". Legacy industries in the US were not growing or profiting anywhere near the level of the Dotcom startups. Yes, the dramatic disparity in wages between executives and salary earners was exasperated by these phenomena. For example when you look back on deals like AOL buying Time Warner and the churning of assets in telecom and energy where executives were trying to get as much cash from these cash generating companies as possible to play the Dotcom "I want mine to" game, it is obvious the influence the Dotcom bubble had on legacy companies and the economy. Hence there was some spill over in "luxury" and "resort" real estate areas but like I said, there was no overheating of the general economy or real estate assets in general by early 2000. In fact it was obvious the Dotcom phenomena had been played out.
So the Fed drops rates in dramatic fashion throughout 2001 (not just after 9/11 as many remember, by then rates had already been slashed by 3%). The Fed obviously did not grasp the state of the markets in 2000 and was "shocked" at the dramatic drop in stocks and subsequent affect on the economy after their 2000 rate rise.
My guess looking back is had the Fed kept rates at 5.5% through 2000 we would have had a softer landing of the Dotcom bubble. Easing rates would not have had to be so dramatic in 2001. The 9/11 effect would have only had to be short lived (lowering rates and adding liquidity only in the months after the terrorist attacks). Rates should have averaged around 3.5% from late 2001 forward before being raised again beginning around mid 2003 to closer to the 5.5-6% range (nearer a historical average).
If one looks at the European lending rates this is exactly what one would find. The EU started in the fall of 1999 at 5.5% raising them only to 5.75% in late 1999 before beginning to actually LOWER them again by May 2000. Their rates reached a low point of 3% not until June 2003 before they began to raise them slowly to peak in July 2007, just before markets reached an all time high in October of the same year.
Basically, the EU Central Bank was “Right on the Money” with monetary rates from 2000 forward. So why was the US so drastic in it’s moves? Why did the US find it necessary to jack up rates in 2000? Why did the US find it necessary to drop rates to 1% so quickly through 2001? Why did the US find it necessary to keep rates so low for so long? Why is it that the entire credit crises had its roots in the US and the “financial shenanigans” undertaken by Wall Street?
What had already started happening years earlier in the US was a consolidation of the financial sector. This began in the mid 1990's and was formalized in 1999 by financial deregulation legislation. I hold the position that Washington simply bent over after the Fed had turned a blind eye to banking sector consolidation and movement into alternative areas of finance and signed off on a deregulation bill largely written by the financial industry and celebrated as a nearly ¾ century battle to undue the regulations put in place in the early 1930’s. Hedge funds, debt backed securities, off balance sheet finance (made legend by the collapse of Enron) all had gotten off the ground in style. Deregulation was all that was needed to get the wheels of pre-depression risky finance and leverage going again. Cheap money was icing on the cake.
I don't know if the Fed has an office where folks simply follow the markets day in and day out, watch for what new financing schemes have been created, keep a finger on the emergence of new money flows and "emerging" companies and markets. Is there a team of people who attend the seminars and investment strategy sessions hosted by the big money center banks and investment firms? Does the fed have a bunch of folks who watch unregulated players in unregulated markets, stay on top of their strategies, see what "products" they are trading, study the leverage they employ, find out who is lending them the capital they need for this leverage? I wonder.
Anyway, from the outside it seems the answer would be "no" because the Fed obviously was hit blind sided again by the credit bubble that emerged very rapidly from the end of 2001 to 2004 and continued as long as through the end of 2006. Either way, the Fed is making the same mistake right now as it is obvious to anyone here on the "outside" that a bubble is being created on the back of cheap money and liquidity that they are pouring into the financial system.
Right now it does not matter if unemployment rises to 10%, 12% or 14%, and sales at major companies shrink by 5-30% from 2008 because for anyone reading the daily and quarterly reports of companies that function on a national and international level in industries dominated by a hand full of players knows, these guys are still scraping out profits and decent cash flows albeit on the backs of firing as many workers as feasible and shutting down excess capacity as fast as they can. They see no reason to "invest" this money in their businesses and are dramatically scaling back growth plans to conserve even more cash. While it is obvious the economic outlook is pale, they are either 1) paying down debt 2) starting to employ it in buyouts of their nearest competitors or in other areas 3) putting it to conservative "investment" use like treasuries or 4) hedging the value of their "assets" buy "investing" in commodities. I think the smartest thing they can do is "spend" it whether it be by buying another company or buying overseas growth because there is whole other potential problem with all this cash and "debt issuance" going around, the future of the dollar.
Time and time again this theme is played out, "The dollar is going to crash". Well whether or not the dollar really looses it's international attractiveness as a "store of wealth" is not the issue. The issue is the Fed needs to stop the cheap money wheel now and begin to allow the markets to price debt. In the US the Fed IS the mortgage securities market, consumer credit market, commercial mortgage backed debt market, funder of cheap money to banks so they can play the same old "borrow cheap lend long, keep the difference and leverage as much as you can doing it" game. The rest of the money is going right into the stock market, where an interesting article in January 2009 stated, "with the credit markets frozen the only place to put money is where liquidity is king". Well stock markets and treasuries are those 2 places and both have seen booms since early 2009, all liquidity driven by cheap money and Fed buying back its debt while allowing companies recently converted into "bank holding companies" to tap markets with Fed guarantees at abnormally low rates. Basically a stew of stimulating practices that is for the time being delaying the credit write downs that are sagging the books of many financial firms and buying time for companies to refinance short term debt, raise money from the cash driven markets and otherwise pad their books with stock market increases (esp. insurance companies).
The problem with all this stimulation is it was too much and to soon. It was a very dramatic knee jerk reaction by the Treasury and Fed when all hell broke loose in late 2008. Once again the Fed was "taken off guard" by the severity of the financial melt down. It was obvious by 2006 to people like me that a house of cards was being created, a pyramid scheme not unlike the Milken days of the 1980's. I wrote a long letter to Secretary Paulson, fairly new on the job, in early 2006 warning him to stop bashing Sarbanes-Oxley and start doing his job. There was a credit bubble out there and at that time about $50 Trillion worth of “insurance” that nobody would be able to pay off if the credit market crashed. There was no way the party could continue and unlike the 1980's the introduction of credit derivatives had driven the credit markets beyond anything imaginable in the history of capital markets. Tens of trillions of dollars in "insurance" products were being sold on every type of credit imaginable combined with off balance sheet entities and leverage and vast sums of money in unregulated markets being administered and financed by regulated banking entities... I mean one had to live in a closet not to see this thing happening. Well, the fed doesn't have enough windows I guess.
Anyway, the stimulation was way out of whack. I remember the markets in late 2008. A 300-point move in the DOW sent Paulson and Bernanke to their respective podiums to announce more stimulating efforts. This was almost a daily occurrence. For a pure economic minded person such as myself, I was in total disbelief. I was loosing money left and right because any decision I made to buy or sell securities was being whip-sawed by draconian government attempts to "correct" a market that was obviously "correcting itself". Once again, the Fed was late to the party, came with huge ammunition beyond what was required and blew everything to pieces. Now we are experiencing a dramatic run right to the edge of a cliff. The stock markets are reaching elevated levels with no cause, the corporate bond market has nearly completely recovered, commodities are priced way out of context with respect to underlying demand while the fundamental consumer driven economy is not nearing a recovery. So the basic message to the Fed is, STOP STIMULATING NOW! You are causing asset bubbles that are inconsistent with underlying economic fundamentals, creating liquidity that is only chasing these assets indiscriminately, risking the future value of the US Dollar with a potential hyper inflationary scenario unrelated to classic inflation causes in the economy but related to pure debt and liquidity creation by an IRRESPONSIBLE FED.
The time is now to bring up rates .25%. NOW. This will signal to the markets that they need to start thinking about functioning without $11 Trillion in Fed guarantees. Raise again in .25% in January / February, another .25% in May / June and another .25% in September / October and a further .25% in November / December 2010. These rate increases will only bring us to 1-1.25% Fed funds rate, still extremely low. These rate rises will NOT have ANY major effect on the economy today but are absolutely essential. They will need to be combined with a removal of the Fed from the Mortgage market, the termination of the TALF program the end of the Fed Reserve buybacks scheduled this month, the adjustment of interest paid on deposits held on reserve by banks etc. The market DESPERATELY needs to begin pricing credit again the sooner we get Fed lending rates back to the 3-3.5% range the better.
I have expressed concern many times until now that the Fed extending all this credit directly and indirectly at artificially low interest rates is doing more harm than good. The longer they do this the more harm it will do to the long term credit markets and the more time it will take for the massive credit bubble (worthless assets) to "wind down". This mess cannot be "earned" out by the banks. The American taxpayer has already expressed displeasure at the Fed tacitly letting the banks rake the American Consumer's pocketbook to pay for their risky mistakes and besides, there is not enough money there to do so. The longer all of this cheap credit with Fed backing is extended while risking further declines in the dollar and further increases in non-productive asset prices, the more painful the reconciliation will be when market rates take over.
Right now, without Fed backing, I would guess mortgage rates would be in the high single digits to around 10%, credit card rates would be in the high teens to low 20's, auto loans would be in the low to mid teens, highly rated corporate debt anywhere from mid single digits to mid teens etc. If the dollar continues to fall, non-productive asset prices to rise and the economy continue it's lackluster consumer driven flat line; bigger trouble ensues.
Market realities need to be realized soon so the "market" can go about creating new ways to profit from new realities and drive our economy back towards its economic norms NOW.
It takes a while for the markets (and the economy) to react to both lower interest rates and higher interest rates. This is Econ 101 stuff. If rates are set at an abnormal level either on the high side or low side, the market will adapt, create all kinds of products and strategies to "deal" with the rates as they are and make money. The financial markets will make money, lots of it, any time official rates are out of sync with market realities, unfortunately with sometimes disastrous effect. This happened when rates were kept artificially low for to long. The markets were then shocked when rates were raised so quickly. The real question is, "Why does it seem the Fed is always lagging the markets so much, failing to see obvious signs of bubbles or crises?"
Rates were raised 17 (yes 17) consecutive times beginning June 2004. The rates had remained at 1% (fed funds rate) for the prior year and were 1.25% from November 2002.
Part of the reason the Fed had to lower rates so much in 2001 were the Fed's mistaken rate rises in 2000 of a full 1%. In only four months (Feb - May) rates were raised from 5.5% to 6.5%. The Fed then had unnecessarily choked the financial system and exaggerated the stock market bubble burst with this draconian rise. It is as if the Fed was (late to the party as usual) trying to "pop the Dotcom Bubble" right at the wrong time. The bubble was already deflating. Then, within 9 months of it's last rate increase, the Fed reversed course in dramatic fashion lowering rates a whopping 4.76% inside of 12 months so by the end of 2001 rates stood at 1.75%.
The reason the batch of rate increases in early 2000 were unnecessary was obvious at the time and is more so looking back. The Dotcom rally in the markets had begun to play itself out. Moreover, the overall economy at that time had not experienced any real underlying inflation in the consumer sector. Commodity prices were tame and Oil had bottomed out only two years earlier. There were hints of inflation in housing at the time but after the housing and real estate bust of the late 1980's which lasted well into the mid 1990's the revival in the housing and commercial real estate prices were welcome and at that time not over heated.
Note: I will paraphrase the comment about housing in 2000 by saying, there were some exceptional housing price increases around 1999-2001 fueled mostly by Dotcom employees and executives cashing out options and buying "trophy" real estate; basically real estate in resort oriented areas or "desirable" urban centers. However the overall economy did not participate in the Dotcom surge in wealth. There were some sorely needed rises in average wages and incomes, which had stagnated for some 30 years. In fact, as we can see in hindsight, the crazy options grants to executives, exploding pay and bonuses to CEO's of NON-Dotcom companies were nothing more than attempts for those guys to play the same game financially as Dotcom companies were. For boards of companies they bought in with the excuse they had to in order to "keep their CEO's from bolting to the hot Dotcom sector". Legacy industries in the US were not growing or profiting anywhere near the level of the Dotcom startups. Yes, the dramatic disparity in wages between executives and salary earners was exasperated by these phenomena. For example when you look back on deals like AOL buying Time Warner and the churning of assets in telecom and energy where executives were trying to get as much cash from these cash generating companies as possible to play the Dotcom "I want mine to" game, it is obvious the influence the Dotcom bubble had on legacy companies and the economy. Hence there was some spill over in "luxury" and "resort" real estate areas but like I said, there was no overheating of the general economy or real estate assets in general by early 2000. In fact it was obvious the Dotcom phenomena had been played out.
So the Fed drops rates in dramatic fashion throughout 2001 (not just after 9/11 as many remember, by then rates had already been slashed by 3%). The Fed obviously did not grasp the state of the markets in 2000 and was "shocked" at the dramatic drop in stocks and subsequent affect on the economy after their 2000 rate rise.
My guess looking back is had the Fed kept rates at 5.5% through 2000 we would have had a softer landing of the Dotcom bubble. Easing rates would not have had to be so dramatic in 2001. The 9/11 effect would have only had to be short lived (lowering rates and adding liquidity only in the months after the terrorist attacks). Rates should have averaged around 3.5% from late 2001 forward before being raised again beginning around mid 2003 to closer to the 5.5-6% range (nearer a historical average).
If one looks at the European lending rates this is exactly what one would find. The EU started in the fall of 1999 at 5.5% raising them only to 5.75% in late 1999 before beginning to actually LOWER them again by May 2000. Their rates reached a low point of 3% not until June 2003 before they began to raise them slowly to peak in July 2007, just before markets reached an all time high in October of the same year.
Basically, the EU Central Bank was “Right on the Money” with monetary rates from 2000 forward. So why was the US so drastic in it’s moves? Why did the US find it necessary to jack up rates in 2000? Why did the US find it necessary to drop rates to 1% so quickly through 2001? Why did the US find it necessary to keep rates so low for so long? Why is it that the entire credit crises had its roots in the US and the “financial shenanigans” undertaken by Wall Street?
What had already started happening years earlier in the US was a consolidation of the financial sector. This began in the mid 1990's and was formalized in 1999 by financial deregulation legislation. I hold the position that Washington simply bent over after the Fed had turned a blind eye to banking sector consolidation and movement into alternative areas of finance and signed off on a deregulation bill largely written by the financial industry and celebrated as a nearly ¾ century battle to undue the regulations put in place in the early 1930’s. Hedge funds, debt backed securities, off balance sheet finance (made legend by the collapse of Enron) all had gotten off the ground in style. Deregulation was all that was needed to get the wheels of pre-depression risky finance and leverage going again. Cheap money was icing on the cake.
I don't know if the Fed has an office where folks simply follow the markets day in and day out, watch for what new financing schemes have been created, keep a finger on the emergence of new money flows and "emerging" companies and markets. Is there a team of people who attend the seminars and investment strategy sessions hosted by the big money center banks and investment firms? Does the fed have a bunch of folks who watch unregulated players in unregulated markets, stay on top of their strategies, see what "products" they are trading, study the leverage they employ, find out who is lending them the capital they need for this leverage? I wonder.
Anyway, from the outside it seems the answer would be "no" because the Fed obviously was hit blind sided again by the credit bubble that emerged very rapidly from the end of 2001 to 2004 and continued as long as through the end of 2006. Either way, the Fed is making the same mistake right now as it is obvious to anyone here on the "outside" that a bubble is being created on the back of cheap money and liquidity that they are pouring into the financial system.
Right now it does not matter if unemployment rises to 10%, 12% or 14%, and sales at major companies shrink by 5-30% from 2008 because for anyone reading the daily and quarterly reports of companies that function on a national and international level in industries dominated by a hand full of players knows, these guys are still scraping out profits and decent cash flows albeit on the backs of firing as many workers as feasible and shutting down excess capacity as fast as they can. They see no reason to "invest" this money in their businesses and are dramatically scaling back growth plans to conserve even more cash. While it is obvious the economic outlook is pale, they are either 1) paying down debt 2) starting to employ it in buyouts of their nearest competitors or in other areas 3) putting it to conservative "investment" use like treasuries or 4) hedging the value of their "assets" buy "investing" in commodities. I think the smartest thing they can do is "spend" it whether it be by buying another company or buying overseas growth because there is whole other potential problem with all this cash and "debt issuance" going around, the future of the dollar.
Time and time again this theme is played out, "The dollar is going to crash". Well whether or not the dollar really looses it's international attractiveness as a "store of wealth" is not the issue. The issue is the Fed needs to stop the cheap money wheel now and begin to allow the markets to price debt. In the US the Fed IS the mortgage securities market, consumer credit market, commercial mortgage backed debt market, funder of cheap money to banks so they can play the same old "borrow cheap lend long, keep the difference and leverage as much as you can doing it" game. The rest of the money is going right into the stock market, where an interesting article in January 2009 stated, "with the credit markets frozen the only place to put money is where liquidity is king". Well stock markets and treasuries are those 2 places and both have seen booms since early 2009, all liquidity driven by cheap money and Fed buying back its debt while allowing companies recently converted into "bank holding companies" to tap markets with Fed guarantees at abnormally low rates. Basically a stew of stimulating practices that is for the time being delaying the credit write downs that are sagging the books of many financial firms and buying time for companies to refinance short term debt, raise money from the cash driven markets and otherwise pad their books with stock market increases (esp. insurance companies).
The problem with all this stimulation is it was too much and to soon. It was a very dramatic knee jerk reaction by the Treasury and Fed when all hell broke loose in late 2008. Once again the Fed was "taken off guard" by the severity of the financial melt down. It was obvious by 2006 to people like me that a house of cards was being created, a pyramid scheme not unlike the Milken days of the 1980's. I wrote a long letter to Secretary Paulson, fairly new on the job, in early 2006 warning him to stop bashing Sarbanes-Oxley and start doing his job. There was a credit bubble out there and at that time about $50 Trillion worth of “insurance” that nobody would be able to pay off if the credit market crashed. There was no way the party could continue and unlike the 1980's the introduction of credit derivatives had driven the credit markets beyond anything imaginable in the history of capital markets. Tens of trillions of dollars in "insurance" products were being sold on every type of credit imaginable combined with off balance sheet entities and leverage and vast sums of money in unregulated markets being administered and financed by regulated banking entities... I mean one had to live in a closet not to see this thing happening. Well, the fed doesn't have enough windows I guess.
Anyway, the stimulation was way out of whack. I remember the markets in late 2008. A 300-point move in the DOW sent Paulson and Bernanke to their respective podiums to announce more stimulating efforts. This was almost a daily occurrence. For a pure economic minded person such as myself, I was in total disbelief. I was loosing money left and right because any decision I made to buy or sell securities was being whip-sawed by draconian government attempts to "correct" a market that was obviously "correcting itself". Once again, the Fed was late to the party, came with huge ammunition beyond what was required and blew everything to pieces. Now we are experiencing a dramatic run right to the edge of a cliff. The stock markets are reaching elevated levels with no cause, the corporate bond market has nearly completely recovered, commodities are priced way out of context with respect to underlying demand while the fundamental consumer driven economy is not nearing a recovery. So the basic message to the Fed is, STOP STIMULATING NOW! You are causing asset bubbles that are inconsistent with underlying economic fundamentals, creating liquidity that is only chasing these assets indiscriminately, risking the future value of the US Dollar with a potential hyper inflationary scenario unrelated to classic inflation causes in the economy but related to pure debt and liquidity creation by an IRRESPONSIBLE FED.
The time is now to bring up rates .25%. NOW. This will signal to the markets that they need to start thinking about functioning without $11 Trillion in Fed guarantees. Raise again in .25% in January / February, another .25% in May / June and another .25% in September / October and a further .25% in November / December 2010. These rate increases will only bring us to 1-1.25% Fed funds rate, still extremely low. These rate rises will NOT have ANY major effect on the economy today but are absolutely essential. They will need to be combined with a removal of the Fed from the Mortgage market, the termination of the TALF program the end of the Fed Reserve buybacks scheduled this month, the adjustment of interest paid on deposits held on reserve by banks etc. The market DESPERATELY needs to begin pricing credit again the sooner we get Fed lending rates back to the 3-3.5% range the better.
I have expressed concern many times until now that the Fed extending all this credit directly and indirectly at artificially low interest rates is doing more harm than good. The longer they do this the more harm it will do to the long term credit markets and the more time it will take for the massive credit bubble (worthless assets) to "wind down". This mess cannot be "earned" out by the banks. The American taxpayer has already expressed displeasure at the Fed tacitly letting the banks rake the American Consumer's pocketbook to pay for their risky mistakes and besides, there is not enough money there to do so. The longer all of this cheap credit with Fed backing is extended while risking further declines in the dollar and further increases in non-productive asset prices, the more painful the reconciliation will be when market rates take over.
Right now, without Fed backing, I would guess mortgage rates would be in the high single digits to around 10%, credit card rates would be in the high teens to low 20's, auto loans would be in the low to mid teens, highly rated corporate debt anywhere from mid single digits to mid teens etc. If the dollar continues to fall, non-productive asset prices to rise and the economy continue it's lackluster consumer driven flat line; bigger trouble ensues.
Market realities need to be realized soon so the "market" can go about creating new ways to profit from new realities and drive our economy back towards its economic norms NOW.
Thursday, October 08, 2009
Blackrock Takes the Cake
You must know how many Washington insiders have migrated to the Blackrock "umbrella" over the years. Well today Marketwatch.com published a short story on their overwhelming influence handling the government sponsored cleanup of the financial bailouts and derivative mess created by the financial institutions "we" know own.
The story states some of the many roles Blackrock has been "hired" to take care of on behalf of the taxpayers who will be paying them and the labyrinth of conflicts that have resulted. For example the article states:
This is only part of their many roles. The bottom line is how on earth can you have a company responsible for winding down collapsed financial institutions worthless derivatives on one hand then have them valuing assets many of the derivatives were written on the other hand and not expect them to "game" these two responsibilities to maximise the profits they could potentially make by "being" both sides of the market?
Our government is run by worthless weans who are clueless and impotent. Shame. We all will pay, only this time it will truly break our economy.
The story states some of the many roles Blackrock has been "hired" to take care of on behalf of the taxpayers who will be paying them and the labyrinth of conflicts that have resulted. For example the article states:
BlackRock was hired to manage the portfolios of Bear Stearns Cos. and American International Group Inc. . BlackRock also is responsible for valuing hard-to-price assets at Fannie Mae and Freddie Mac . It manages a $46 billion fund for the New York Fed that buys assets underlying credit-default swaps written by AIG, an assignment at the behest of the New York Fed.
This is only part of their many roles. The bottom line is how on earth can you have a company responsible for winding down collapsed financial institutions worthless derivatives on one hand then have them valuing assets many of the derivatives were written on the other hand and not expect them to "game" these two responsibilities to maximise the profits they could potentially make by "being" both sides of the market?
Our government is run by worthless weans who are clueless and impotent. Shame. We all will pay, only this time it will truly break our economy.
Tuesday, October 06, 2009
Debt for Profit
I have to say, after reading about CIT and Goldman Sachs over the past few days I have had many occasions to smile. I am forever fascinated by the amount of money made on "debt" in our financial markets. I am also forever fascinated by our government's willingness to allow the credit markets to continue along their corrosive path "creating" new "products" that allow layers of profit to be made or lost all based on some underlying "debt" somewhere.
This quote from Street Insider, has me baffled.
I do not profess any clear understanding of the layers of products that allow "bets" on debt repayment, but to lend a firm $3 billion at a 2.85% interest rate with annual "interest" payments of $85 million as stated in this article on the Dow Jones News Wires ,
Wow, lending has become this profitable. Not is lending profitable, but those who buy / sell / trade the multitude of "instruments" linked to the debt have an opportunity to make a mint as well.
It seems like "debt" has become like "oil" in the sense that when a tanker of oil is loaded somewhere in the world it has already been sold forward to someone, options and futures are being traded on the oil and it may actually be "owned" ever so momentarily by many parties before actually being "delivered" to its final purchaser. In addition, there is insurance on the oil, the ship and I am sure a multitude of other products linked to the oil so that the firm moving the oil can also be "protected" in the unlikely event something goes wrong in transportation of the oil. In each of the "transactions" described above, a small "commission" or "cut" of the transaction is taken by someone for providing the "services" or "protection" or "securities" or "contracts" to buy and sell.
Now "debt" is similar. From the fees by those making the loan, processing the loan, brokering the loan etc. there are a myriad of "products" to allow the lender to "protect" themselves from default of the borrower. In fact what stops the borrower from buying protection from themselves in the form of some kind of "insurance" that pays if their business suffers financial hardships and losses ensue, thus causing them to default on the loan? The loan may be syndicated with other loans and sold as a "security", interest payments "stripped" from the loan, bets made on the likelihood of it being paid, the loan itself can be sold to another firm, the loan can be "owned" indirectly through credit protection "products" where someone may have "rights" to the loan or it's interest payments under certain circumstances.
Man, if you can think of it, it has been tried, is being tried or is in the works. This is the "financial industry" and the house of cards built on "debt". The markets for most of these derivative products are not regulated and many of the firms that create, buy and sell them are regulated which puts our entire "regulated" financial system at risk as we have seen over the past 24 months. Yet the game still goes on.
It has been said in some fashion in every religion, "one must not create an economy based on usury". We have done exactly this and are moving ever faster to a baseless debt based economy which will implode; it is a matter of time.
This quote from Street Insider, has me baffled.
According to reports from the Wall Street Journal, Goldman Sachs (NYSE: GS) is in talks to amend the terms of a $3 billion loan to struggling lender CIT Group (NYSE: CIT).The loan, extended to CIT in June 2008, calls for CIT to pay Goldman $1 billion if it were to file for bankruptcy. Goldman could reduce the total loan amount, though other scenarios likely are being considered. The loan needs to be resolved as part of CIT's move to raise funds as part of its restructuring. Goldman spokesman Michael Duvally said Goldman "is working with CIT and its creditors to enable it to continue to use the facility, which we believe gives it its most attractive cost of funding." Duvally said the potential $1 billion payment is not a windfall payment, but reflects the "present value of the spread to be earned over the life of the facility."
I do not profess any clear understanding of the layers of products that allow "bets" on debt repayment, but to lend a firm $3 billion at a 2.85% interest rate with annual "interest" payments of $85 million as stated in this article on the Dow Jones News Wires ,
The investment bank extended $3 billion in funding to CIT in June 2008, according to regulatory filings. The 20-year contract, which was put in place as the credit markets froze, calls for CIT to pay Goldman 2.85% of the maximum amount lent, which would come to about $85.5 million annually for the first 10 years of the agreement. CIT would be required to pay $1 billion if it were to file for Chapter 11 bankruptcy.then for Goldman to claim a Billion Dollar payout if the company goes bankrupt is amazing. In addition, Goldman claims to have bought "credit protection" on the original $3 billion which pays again if CIT fails, thus making the $1 billion CIT "penalty" (I would love to read this loan document to understand why CIT would have actually agreed knowing the dire straits they were in mid 2008) plus the credit protection on the original loan which may not cover the entire $3 billion but as long as it covers 70% of the original loan amount, Goldman makes a profit on the demise of CIT.
Wow, lending has become this profitable. Not is lending profitable, but those who buy / sell / trade the multitude of "instruments" linked to the debt have an opportunity to make a mint as well.
It seems like "debt" has become like "oil" in the sense that when a tanker of oil is loaded somewhere in the world it has already been sold forward to someone, options and futures are being traded on the oil and it may actually be "owned" ever so momentarily by many parties before actually being "delivered" to its final purchaser. In addition, there is insurance on the oil, the ship and I am sure a multitude of other products linked to the oil so that the firm moving the oil can also be "protected" in the unlikely event something goes wrong in transportation of the oil. In each of the "transactions" described above, a small "commission" or "cut" of the transaction is taken by someone for providing the "services" or "protection" or "securities" or "contracts" to buy and sell.
Now "debt" is similar. From the fees by those making the loan, processing the loan, brokering the loan etc. there are a myriad of "products" to allow the lender to "protect" themselves from default of the borrower. In fact what stops the borrower from buying protection from themselves in the form of some kind of "insurance" that pays if their business suffers financial hardships and losses ensue, thus causing them to default on the loan? The loan may be syndicated with other loans and sold as a "security", interest payments "stripped" from the loan, bets made on the likelihood of it being paid, the loan itself can be sold to another firm, the loan can be "owned" indirectly through credit protection "products" where someone may have "rights" to the loan or it's interest payments under certain circumstances.
Man, if you can think of it, it has been tried, is being tried or is in the works. This is the "financial industry" and the house of cards built on "debt". The markets for most of these derivative products are not regulated and many of the firms that create, buy and sell them are regulated which puts our entire "regulated" financial system at risk as we have seen over the past 24 months. Yet the game still goes on.
It has been said in some fashion in every religion, "one must not create an economy based on usury". We have done exactly this and are moving ever faster to a baseless debt based economy which will implode; it is a matter of time.
Friday, September 25, 2009
Timely Appearance on CNBC
This video was aired on CNBC Airtime: Tues. Sept. 22 2009 | 5:35 PM ET.
I believe this video is timely. Secondly it is the first "voice" to hammer home in a concise argument that the US market is in a cash infused bubble. I loved Simon’s comment about JP Morgan BEFORE CNBC CUT THE VIDEO where he actually said something to the effect “What on earth justify you guys recommending JP Morgan at $44 a share?”. In other words a very pointed question. Instead CNBC put up an S&P Chart on the screen as “filler” which is very funny. Why did CNBC feel so strongly about his question and the way he asked it to cut the actual wording out? It is easy, Simon Hobbs was not on board with the US Government and Media PR campaign doing everything it can to push sentiment and the markets higher. There is a real PR war on the American Citizen going on now that is very “Big Brother” like.
It is also pointed today that the Consumer Confidence numbers came out with a big jump. Funny the consumers are more “confident” but in the same breath the report says,
So is it not comical that consumers expect the economy to improve but not their own finances? Do they not realize they are 70% of the economy? Perhaps the PR Machine is doing it’s job making “consumers” (Why don’t they say “citizens”?) feel like the world is getting better even though they look in the mirror and still see the black eye…
I believe this video is timely. Secondly it is the first "voice" to hammer home in a concise argument that the US market is in a cash infused bubble. I loved Simon’s comment about JP Morgan BEFORE CNBC CUT THE VIDEO where he actually said something to the effect “What on earth justify you guys recommending JP Morgan at $44 a share?”. In other words a very pointed question. Instead CNBC put up an S&P Chart on the screen as “filler” which is very funny. Why did CNBC feel so strongly about his question and the way he asked it to cut the actual wording out? It is easy, Simon Hobbs was not on board with the US Government and Media PR campaign doing everything it can to push sentiment and the markets higher. There is a real PR war on the American Citizen going on now that is very “Big Brother” like.
It is also pointed today that the Consumer Confidence numbers came out with a big jump. Funny the consumers are more “confident” but in the same breath the report says,
"Confidence rebounded in early September as consumers increasingly expected the economy to improve despite their reluctant conclusion that their own financial situation would remain quite problematic for some time,…”
So is it not comical that consumers expect the economy to improve but not their own finances? Do they not realize they are 70% of the economy? Perhaps the PR Machine is doing it’s job making “consumers” (Why don’t they say “citizens”?) feel like the world is getting better even though they look in the mirror and still see the black eye…
Thursday, September 24, 2009
AIG and Attitude
I came across this comment from "White House Economist" off the Dow Jones Newswire today referring to an article in the Washington Post.
I find it objectionable that AIG has a new CEO with anywhere near the attitude he has. I don't care if the guy thinks Washington is clueless about business or esp. running his business. On this front he is more than likely correct. It is very unfortunate we (the American Taxpayer) own 80% of the blasted company. I would prefer we own 0% and have never owned any at all and don't give a darn if AIG would have imploded. Personally I think it did not implode because of the number of "well connected" wealthy bank running CEO's and "investors" that would have lost a fortune if it did called their "friends" running the Treasury and said, "Bail out AIG or we will loose a fortune". So the American Taxpayer paid to make sure that Goldman Sachs can pay it's employees $700,000 in bonuses each this year.
Besides the fact this is the biggest financial crime ever perpetrated against the American people, mind you done without any approval from our impotent legislators, the guys running the show at AIG should have better taste than say such things in public about the idiots in Washington. I mean how many people in the entire Government are qualified to run a sprawling 100 + country "insurance" operation, let alone all the other crazy divisions they own? There are not many people in the world that understand AIG enough to "run" it.
Obviously Hank Greenberg was running an operation with "Enron" financing. It has been reported he was moving money around to skirt the US regulators (Partly allowed because of the arcane and completely outdated insurance regulation in the US which is still state by state and completely out of touch with the fact that the industry is national and international in scope) and pad his accounts to hide the billions of dollars in risk and losses he began to accumulate when they kicked him out over one reinsurance deal which was caught.
Hank still gets "answers" when he make calls to Washington and as far as I can tell he is a one man lobbying effort right now to "save" his old company. He has said himself "all of his wealth" is tied up in AIG shares (though he sole enough to pay some bills) and he obviously thinks he can influence "Washington" to loosen up credit terms and allow AIG five years or so to "unwind" loosing positions and rescue the company's balance sheet.
It is not going to happen. AIG should be "gone" as we know it and unfortunately, not unlike the "bad banks" the Chinese created after bailing out their banking industry about a decade ago, the American Taxpayers will NEVER see the $160 billion sunk into the company. This is reality. But the bankers, hedge funds and other "investors" that benefited from the taxpayer bailout "got theirs" and they are living large off what is left of the crumbled institution's lousy contracts.
Shame. Mr. Robert Benmosche should be fired. AIG wound down, sooner rather than later.
I find it objectionable that AIG has a new CEO with anywhere near the attitude he has. I don't care if the guy thinks Washington is clueless about business or esp. running his business. On this front he is more than likely correct. It is very unfortunate we (the American Taxpayer) own 80% of the blasted company. I would prefer we own 0% and have never owned any at all and don't give a darn if AIG would have imploded. Personally I think it did not implode because of the number of "well connected" wealthy bank running CEO's and "investors" that would have lost a fortune if it did called their "friends" running the Treasury and said, "Bail out AIG or we will loose a fortune". So the American Taxpayer paid to make sure that Goldman Sachs can pay it's employees $700,000 in bonuses each this year.
Besides the fact this is the biggest financial crime ever perpetrated against the American people, mind you done without any approval from our impotent legislators, the guys running the show at AIG should have better taste than say such things in public about the idiots in Washington. I mean how many people in the entire Government are qualified to run a sprawling 100 + country "insurance" operation, let alone all the other crazy divisions they own? There are not many people in the world that understand AIG enough to "run" it.
Obviously Hank Greenberg was running an operation with "Enron" financing. It has been reported he was moving money around to skirt the US regulators (Partly allowed because of the arcane and completely outdated insurance regulation in the US which is still state by state and completely out of touch with the fact that the industry is national and international in scope) and pad his accounts to hide the billions of dollars in risk and losses he began to accumulate when they kicked him out over one reinsurance deal which was caught.
Hank still gets "answers" when he make calls to Washington and as far as I can tell he is a one man lobbying effort right now to "save" his old company. He has said himself "all of his wealth" is tied up in AIG shares (though he sole enough to pay some bills) and he obviously thinks he can influence "Washington" to loosen up credit terms and allow AIG five years or so to "unwind" loosing positions and rescue the company's balance sheet.
It is not going to happen. AIG should be "gone" as we know it and unfortunately, not unlike the "bad banks" the Chinese created after bailing out their banking industry about a decade ago, the American Taxpayers will NEVER see the $160 billion sunk into the company. This is reality. But the bankers, hedge funds and other "investors" that benefited from the taxpayer bailout "got theirs" and they are living large off what is left of the crumbled institution's lousy contracts.
Shame. Mr. Robert Benmosche should be fired. AIG wound down, sooner rather than later.
Tuesday, September 22, 2009
Thank you Congressman Mike Castle
Here is a link to the outline of Mike Castle's proposal to create a regulatory agency to regulated "financial markets" and hopefully remove ALL Fed Reserve and Treasury oversight of financial markets because they are incompetent. His link is here.
Here are the details:
Details of the Legislation
FSSRA calls for the creation of an independent Financial Stability Council (FSC), composed of representatives from existing federal financial regulators which now have the responsibility to oversee portions of the financial system. The FSC will serve as a “systemic-risk monitor,” and would maintain comprehensive oversight of potential systemic risks to the financial system. It would have the ability to propose changes to regulatory policy, working with existing federal regulatory agencies, when systemic risk could emerge due to regulatory gaps or the emergence of risky new financial products. The FSC would also have the authority to close regulatory “black holes” that pose a systemic risk when risky products or activities fall outside the current authority of federal financial regulators. The FSC would also have the authority to adopt rules that ensure financial institutions do not grow “too big to fail,” by imposing different capital requirements, raising risk premiums, or requiring a larger percentage of debt be held as long-term debt.
Additional provisions in the FSSRA would:
· Close the credit default swaps loophole to ensure oversight of a financial instrument that contributed heavily to the current financial crisis and the downfall of AIG. This regulatory gap allowed systemic risk to build in our financial system without the oversight and transparency needed to prevent a collapse;
· Impose safety and soundness requirements on new investment banks by requiring them to organize under the Bank Holding Company Act. Under the current system, investment bank firms such as the Bear Stearns and Lehman Brothers were left unregulated with no agency given the authority to examine the full scope of their operations;
· Merge the Office of Thrift Supervision (OTS) and Office of the Comptroller Currency (OCC) to consolidate and reduce the number of banking regulators, improving the effectiveness of the entire system. This merger was recommended by many experts, and the Treasury Inspector General recently raised concerns about the objectivity and effectiveness of OTS;
Here are the details:
Details of the Legislation
FSSRA calls for the creation of an independent Financial Stability Council (FSC), composed of representatives from existing federal financial regulators which now have the responsibility to oversee portions of the financial system. The FSC will serve as a “systemic-risk monitor,” and would maintain comprehensive oversight of potential systemic risks to the financial system. It would have the ability to propose changes to regulatory policy, working with existing federal regulatory agencies, when systemic risk could emerge due to regulatory gaps or the emergence of risky new financial products. The FSC would also have the authority to close regulatory “black holes” that pose a systemic risk when risky products or activities fall outside the current authority of federal financial regulators. The FSC would also have the authority to adopt rules that ensure financial institutions do not grow “too big to fail,” by imposing different capital requirements, raising risk premiums, or requiring a larger percentage of debt be held as long-term debt.
Additional provisions in the FSSRA would:
· Close the credit default swaps loophole to ensure oversight of a financial instrument that contributed heavily to the current financial crisis and the downfall of AIG. This regulatory gap allowed systemic risk to build in our financial system without the oversight and transparency needed to prevent a collapse;
· Impose safety and soundness requirements on new investment banks by requiring them to organize under the Bank Holding Company Act. Under the current system, investment bank firms such as the Bear Stearns and Lehman Brothers were left unregulated with no agency given the authority to examine the full scope of their operations;
· Merge the Office of Thrift Supervision (OTS) and Office of the Comptroller Currency (OCC) to consolidate and reduce the number of banking regulators, improving the effectiveness of the entire system. This merger was recommended by many experts, and the Treasury Inspector General recently raised concerns about the objectivity and effectiveness of OTS;
Thank You Mary Schapiro
This is from Marketwatch today, read here:
Now someone is talking. These products need to be regulated. They need to be traded on transparent exchanges and adequate collateral requirements applied.
I also am in agreement with a recent proposal by Delaware Congressman Mike Castle to create a powerful financial regulator that is NOT in any way associated with the Fed. The Fed should have had all of it's board fired after the collapse of the financial system / credit markets. Anyone with half a brain knew what was going on and these guys let it all happen under their watch and should have all been fired and Bernanke should not have been reappointed. Some of these guys on the governing board could be investigated with criminal wrongdoing in bailing out some of the Wall Street firms they bailed out without congressional oversight.
Over-the-counter derivatives should be regulated the same way as the commodities or securities they are based on, said Securities and Exchange Commission Chairwoman Mary Schapiro on Tuesday..."Congress should consider modifying the [Treasury Department] proposal so that all securities-related OTC derivatives are regulated more like securities; and commodity and other non-securities-related OTC derivatives are regulated more like futures," Schapiro said...
Now someone is talking. These products need to be regulated. They need to be traded on transparent exchanges and adequate collateral requirements applied.
I also am in agreement with a recent proposal by Delaware Congressman Mike Castle to create a powerful financial regulator that is NOT in any way associated with the Fed. The Fed should have had all of it's board fired after the collapse of the financial system / credit markets. Anyone with half a brain knew what was going on and these guys let it all happen under their watch and should have all been fired and Bernanke should not have been reappointed. Some of these guys on the governing board could be investigated with criminal wrongdoing in bailing out some of the Wall Street firms they bailed out without congressional oversight.
Saturday, September 19, 2009
Congressman Sessions Complains about Student Loan Changes
Hi Congressman Sessions,
I want to remind you of why the Democrats are voting to remove the "private" option for student lending. You wrote in your news letter:
One would only have to do a rudimentary search on the issue of student loans in the past 5 years to find out how corrupt the "private" portion of the lending had become with major kickbacks to University personnel for favoring one lending institution over another, negotiated high fees for originating loans, "loan steering" by University personnel of students to "preferred high fee loans", all the way to the reckless "investments" into consumer debt backed securities by Sallie Mae which nearly bankrupt the company. There was so much corruption from the financial institutions taking advantage of the "private / public" partnership in student lending there was left only 2 options:
1) terminate all government backed student lending (which in the current credit environment would be a catastrophe)
2) remove the corrupt, kickback laden, reckless securitization and expansion into direct risky consumer lending (due to the ability to make mounds of money securitizing these risky loans in the credit boom up to 2006) of the "private" lenders.
At this time number 2 has won out.
Instead of bashing the current decision, I would like to see you come up with a new bill allowing "private" lending in this area again [and soon] that would put in place a host of "protections" that would make sure the kind of shady lending practices that were happening would not happen again and would make sure the "student lending" programs backed by the government STAYED "student lending" and not become reckless unsecured lending just to send pooled loans to Wall Street where millions could be made selling and creating derivatives off of these products.
Sincerely,
Patrick Henry
I want to remind you of why the Democrats are voting to remove the "private" option for student lending. You wrote in your news letter:
In 2006, FFELP was overwhelmingly popular with schools and students, accounting for more than 80 percent of the student loan volume. Sound familiar? This mimics much of the satisfaction with the current health care delivery system. But yesterday, the Democrat-controlled House of Representatives voted to eliminate FFELP provided by private lenders, which have enabled over 200 million loans to college students totaling nearly $800 billion. The result: a government-takeover of the student loan industry.
One would only have to do a rudimentary search on the issue of student loans in the past 5 years to find out how corrupt the "private" portion of the lending had become with major kickbacks to University personnel for favoring one lending institution over another, negotiated high fees for originating loans, "loan steering" by University personnel of students to "preferred high fee loans", all the way to the reckless "investments" into consumer debt backed securities by Sallie Mae which nearly bankrupt the company. There was so much corruption from the financial institutions taking advantage of the "private / public" partnership in student lending there was left only 2 options:
1) terminate all government backed student lending (which in the current credit environment would be a catastrophe)
2) remove the corrupt, kickback laden, reckless securitization and expansion into direct risky consumer lending (due to the ability to make mounds of money securitizing these risky loans in the credit boom up to 2006) of the "private" lenders.
At this time number 2 has won out.
Instead of bashing the current decision, I would like to see you come up with a new bill allowing "private" lending in this area again [and soon] that would put in place a host of "protections" that would make sure the kind of shady lending practices that were happening would not happen again and would make sure the "student lending" programs backed by the government STAYED "student lending" and not become reckless unsecured lending just to send pooled loans to Wall Street where millions could be made selling and creating derivatives off of these products.
Sincerely,
Patrick Henry
Friday, September 04, 2009
Treasuries Fall Auctions Loom
Any Surprise that Friday before next week's Treasury Auction the rates are up significantly? Should not be. The Fed's decision to keep pre-announcing it's auctions has and continues to give the "Primary Dealers" in the market the ability to push up interest rates prior to the auction (pushing down the price) then miraculously after the auction, rates drop back down (with prices on the debt going up) allowing the 18 primary dealers required to bid at Treasury auctions to rake in easy profits.
I am very disconcerted by this practice ever since I first read about it some months ago. It is an absolute travesty that our government, the Fed and Treasury continue to feed the profits of a bunch of insolvent institutions on the backs of the taxpayer and now on the backs of other investors.
Of course you have seen the percentage of buying of these offerings by so called "indirect bidders" increase by a factor of 4 since late 2008. My unscientific findings of the percentage of uptake by "indirect bidders" are thus:
It is nice to know the world of "indirect bidders" is not ignorant. They see "free money" and are taking an increasingly large portion of initial offerings. Are they then selling this supply back to the market for a quick profit? Are they being seduced into taking the product with guaranteed short term profit margins? Is it possible that no matter what is going on now that eventually the free ride will end and ultimately nobody will want to own the massive supply of debt being put out there right now?
I don't know the answers to these questions but I do get the sense that what the Treasury is doing is purposefully padding the profit margins and accounts of anyone who wants to "play" in the auctions. What their multiple motives are, I don't know. What the result is... Big short term profit margins, big short term commissions, big short term pay and bonuses for insolvent institutions, yes a BIG PAY DAY EVERY MONTH FOR THE SAME INSTITUTIONS THAT ARE SUPPOSED TO BE UNDER SUPERVISION AND WE ALL KNOW ARE INSOLVENT.
Yes, this is just another candle in the eye of the average American for the gain of institutional players on the "Wall Streets" of the planet... For now.
Here is a nice chart from the Treasury from previous years:Bidder Category Purchase Shares for
I am very disconcerted by this practice ever since I first read about it some months ago. It is an absolute travesty that our government, the Fed and Treasury continue to feed the profits of a bunch of insolvent institutions on the backs of the taxpayer and now on the backs of other investors.
Of course you have seen the percentage of buying of these offerings by so called "indirect bidders" increase by a factor of 4 since late 2008. My unscientific findings of the percentage of uptake by "indirect bidders" are thus:
Last 3 months of 2008 = 15%
Jan 09 = 18%
Feb 09 = 24%
Mar 09 = 33.5%
April 09 = 38.5%
May 09 = 37.3%
June 09 = 43.8%
July 09 = 54%
Aug 09 = 62.5% (a Record)
It is nice to know the world of "indirect bidders" is not ignorant. They see "free money" and are taking an increasingly large portion of initial offerings. Are they then selling this supply back to the market for a quick profit? Are they being seduced into taking the product with guaranteed short term profit margins? Is it possible that no matter what is going on now that eventually the free ride will end and ultimately nobody will want to own the massive supply of debt being put out there right now?
I don't know the answers to these questions but I do get the sense that what the Treasury is doing is purposefully padding the profit margins and accounts of anyone who wants to "play" in the auctions. What their multiple motives are, I don't know. What the result is... Big short term profit margins, big short term commissions, big short term pay and bonuses for insolvent institutions, yes a BIG PAY DAY EVERY MONTH FOR THE SAME INSTITUTIONS THAT ARE SUPPOSED TO BE UNDER SUPERVISION AND WE ALL KNOW ARE INSOLVENT.
Yes, this is just another candle in the eye of the average American for the gain of institutional players on the "Wall Streets" of the planet... For now.
Here is a nice chart from the Treasury from previous years:Bidder Category Purchase Shares for
All Treasury Securities
| Category | Mean | Standard Deviation | Minimum | Maximum |
| Primary dealer | 70.9 | 14.6 | 33.6 | 100.0 |
| Direct bidder | 2.4 | 3.6 | 0.0 | 31.6 |
| Indirect bidder | 21.6 | 12.7 | 0.0 | 64.8 |
| Noncompetitive | 5.1 | 4.7 | 0.0 | 16.8 |
Source: Author’s calculations, based on data from the
Treasury Department.
Note: The table reports descriptive statistics of bidder category
purchase shares in percent for all 576 U.S. Treasury security
auctions between May 5, 2003, and December 28, 2005.
Wednesday, September 02, 2009
No Insider Trading Rules?
I found the information in this article useful.
It appears there are no "insider trading" restrictions within the CFTC regulations except with respect to employees. Is there any wonder why all of the products "created" over the past few years have been products NOT traded on any open exchange?
From the article bit below...
It appears there are no "insider trading" restrictions within the CFTC regulations except with respect to employees. Is there any wonder why all of the products "created" over the past few years have been products NOT traded on any open exchange?
From the article bit below...
I especially like the remark by Anthony Leitner. It reminds me of the remarks by Bernanke and Paulson when they started in their new jobs while still having their feet in their prior ones where they suggested point blank that the banking industry was sophisticated enough to gauge its own risk profiles and thus could create it's own guidelines and needed little "meddling" from the Fed or government as to how to manage risk capital ratios. These words were being spoken as the entire financial system was stretched over 30-1 and beginning to implode in 2006.
Participants also debated concerns about harmonization when it came to insider-trading prohibitions.
Annette Nazareth, a former Democratic SEC commissioner, said she wants to see such prohibitions when it comes to commodities futures, modeled after how such restrictions exist in the securities market.
"The Commodity Exchange Act generally contains no such ban, other than for CFTC and market employees, largely because one of the historical functions of the futures markets was to permit hedgers to protect themselves against risks to the commodity positions based on their own knowledge of those positions," Nazareth said.
However, the CFTC's Chilton said he "wasn't so sure" about bringing the insider-trading ban to the commodity futures regulator.
CBOE's Brodsky said both agencies could impose insider-trading restrictions so long as a particular rule on insider trading applies only to a particular product and not broadly across all sectors.
Some officials testifying expressed concern about whether insider-trading prohibitions should apply to broad-based indexed products as opposed to individual products.
With lots of derivatives, Brodsky said, there is no transparency or reporting requirements, giving many investors the opportunity to do a wide variety of insider trading.
CFTC's Gensler pointed out that the agencies as well as the White House and Congress are working on legislation that would bring these products, both over-the-counter and exchange-traded, under regulation. "We are working on record keeping, reporting and other regulations for derivatives," he said.
Clearinghouses
Clearinghouses, which are intermediaries between buyers and sellers, should have agreements among themselves, based on a common set of principles agreed to by the agencies, so that no problematic products slip through the cracks, said Anthony Leitner, director at A.J. Leitner & Associates.
Bank Bonuses
Until about now I have had little opinion of the bonuses banks pay out to the people who make money for them. In fact, with respect to Merrill Lynch, I felt the "retail brokers" should get whatever performance bonuses they deserved as long as the cash was in the bank, if for only the reason they had little to do with the risky undertakings of the firm's high profile traders who gambled with the firms own and borrowed capital and lost miserably.
Now, however, I am inclined to get very pissed off when thinking about not only the bonuses being paid by these financial firms but at the exceptional trading profits being made on the backs of the taxpayer through our direct support of financial firms through TARP and the indirect but just as risky support through the FDIC backed loans (TALF) companies are floating at dramatically subsidized interest rates that taxpayers are ultimate responsible for.
To have had the Fed and Treasury spend and allocate several (one estimate is $12 Trillion) trillion taxpayer dollars to "shore up" what is essentially a pool of financial firms that are technically insolvent and then to see the folks running these firms still with the mindset to rake out as much cash from the system as they can, while they can, is an insult to their profession, shows a complete lack of respect for the trauma they caused not only the global financial system but to the lives of at least a billion people who have been financially crushed by their reckless, unregulated activities over the past 10 years (well the latest 10 years in this case),is a travesty.
If I were in any decision making power, I would gather some economists together and apply "market reality" metrics to each one of these firms. I would invite them to a nice lunch where I would spell out in no uncertain terms, they are insolvent, they are not making any money above the losses still on their books and will not likely to be truly "profitable" for 2-3 years as they work off the dead assets. If they have "profitable" divisions (like Citi owning a trading arm that made a killing) they will make it clear to the folks that work there, they work for a government subsidized failed banking firm and they will not be paid bonuses until the entire firm can show "real" profits overall in the firm.
If this does not work for these folks, then those people should leave the bank or the division split off so those folks can continue to run their little profitable firm with the bank holding a minority stake.
The bottom line is the model of large conglomerate banking enterprise does not work. This was sorted out in 1934 and the reason they do not work is you CANNOT HAVE TAXPAYERS BAILING OUT LARGE UNWIELDY FIRMS JUST BECAUSE ONE COMPONENT OF THE FIRM IS RETAIL BANKING. Retail banking, with its FDIC assurances should NOT be combined with other kinds of investment banking, finance, insurance etc. This is well known.
Just like the Enron disaster, where a few guys get together to take over a large regulated (at the time) firm with stable cash flows they could heavily leverage and turn it into a crazy speculative monster and lead it to bankruptcy, the same folks that run investment banks and other financial gambling oriented firms love to get their hands on retail banks for their stable deposits, fee income and seemingly unlimited access to cheap capital.
This should not be allowed. Period. We need to go back to Glass-Steagall Act and separate the various financial businesses for GOOD!
See latest story on banking bonuses from EU remarks today.
Now, however, I am inclined to get very pissed off when thinking about not only the bonuses being paid by these financial firms but at the exceptional trading profits being made on the backs of the taxpayer through our direct support of financial firms through TARP and the indirect but just as risky support through the FDIC backed loans (TALF) companies are floating at dramatically subsidized interest rates that taxpayers are ultimate responsible for.
To have had the Fed and Treasury spend and allocate several (one estimate is $12 Trillion) trillion taxpayer dollars to "shore up" what is essentially a pool of financial firms that are technically insolvent and then to see the folks running these firms still with the mindset to rake out as much cash from the system as they can, while they can, is an insult to their profession, shows a complete lack of respect for the trauma they caused not only the global financial system but to the lives of at least a billion people who have been financially crushed by their reckless, unregulated activities over the past 10 years (well the latest 10 years in this case),is a travesty.
If I were in any decision making power, I would gather some economists together and apply "market reality" metrics to each one of these firms. I would invite them to a nice lunch where I would spell out in no uncertain terms, they are insolvent, they are not making any money above the losses still on their books and will not likely to be truly "profitable" for 2-3 years as they work off the dead assets. If they have "profitable" divisions (like Citi owning a trading arm that made a killing) they will make it clear to the folks that work there, they work for a government subsidized failed banking firm and they will not be paid bonuses until the entire firm can show "real" profits overall in the firm.
If this does not work for these folks, then those people should leave the bank or the division split off so those folks can continue to run their little profitable firm with the bank holding a minority stake.
The bottom line is the model of large conglomerate banking enterprise does not work. This was sorted out in 1934 and the reason they do not work is you CANNOT HAVE TAXPAYERS BAILING OUT LARGE UNWIELDY FIRMS JUST BECAUSE ONE COMPONENT OF THE FIRM IS RETAIL BANKING. Retail banking, with its FDIC assurances should NOT be combined with other kinds of investment banking, finance, insurance etc. This is well known.
Just like the Enron disaster, where a few guys get together to take over a large regulated (at the time) firm with stable cash flows they could heavily leverage and turn it into a crazy speculative monster and lead it to bankruptcy, the same folks that run investment banks and other financial gambling oriented firms love to get their hands on retail banks for their stable deposits, fee income and seemingly unlimited access to cheap capital.
This should not be allowed. Period. We need to go back to Glass-Steagall Act and separate the various financial businesses for GOOD!
See latest story on banking bonuses from EU remarks today.
Thursday, August 27, 2009
TALF Backing after Bailout
This kills me. Bank of America buys the nations worst mortgage lender, Countrywide, then buys the largest retail broker, Merrill Lynch, gets bailed out with government money for the 2 lousy deals, and now floats FDIC backed debt for consumers to buy cars! They are getting government backing on the debt but they keep the profits!! What is wrong with this picture.
The bank is completely ripping off everyone in their retail banking business, ripping off the government in their participation in government debt issues and is a monolithic monster of a banking organization to boot (yes, "to big to fail").
This program needs to stop. If the "markets" cannot finance consumption at these ridiculously low subsidised interest rates it means the interest rates are not realistic and the Fed needs to allow the markets to operate!!
The longer the Fed subsidises interest rates for everything from consumer loans to mortgages the longer it is putting all of the financial institutions and the FDIC in the tank when the subsidized interest rates are "rebalanced" to the "real" market interest rates down the road and all of the financial institutions freeze up again because their returns on subsidized capital deployed will not allow them to be profitable when they have to pay substantially higher rates to access the markets for liquidity.
This is elementary stuff guys. Stop the subsidized consumption loans NOW before you put our entire financial system (and now the taxpayer) in a real pickle about 12-18 months from now and throw the country into a REAL DEPRESSION with no more options left...
NOW
Asset-Backed Securities
Bank of America/Merrill Lynch is in the market with a $1.995 billion auto loan-backed deal, according to a person familiar with the matter.
The deal is eligible for a Federal Reserve program, the Term Asset Backed Securities Loan Facility, or TALF, through which investors can procure cheap loans to buy newly created consumer loan-backed and new and existing commercial mortgage-backed bonds.
Bank of America's deal, dubbed BAAT 2009-2, is jointly led by Bank of America/Merrill Lynch, Barclays Capital (BCS), Citigroup, Credit Suisse Group (CS) and Royal Bank of Scotland Group PLC (RBS).
Last month, Bank of America sold a $3.993 billion auto-loan backed deal at 135 basis points over a benchmark. That was the bank's first deal eligible under TALF.
The bank is completely ripping off everyone in their retail banking business, ripping off the government in their participation in government debt issues and is a monolithic monster of a banking organization to boot (yes, "to big to fail").
This program needs to stop. If the "markets" cannot finance consumption at these ridiculously low subsidised interest rates it means the interest rates are not realistic and the Fed needs to allow the markets to operate!!
The longer the Fed subsidises interest rates for everything from consumer loans to mortgages the longer it is putting all of the financial institutions and the FDIC in the tank when the subsidized interest rates are "rebalanced" to the "real" market interest rates down the road and all of the financial institutions freeze up again because their returns on subsidized capital deployed will not allow them to be profitable when they have to pay substantially higher rates to access the markets for liquidity.
This is elementary stuff guys. Stop the subsidized consumption loans NOW before you put our entire financial system (and now the taxpayer) in a real pickle about 12-18 months from now and throw the country into a REAL DEPRESSION with no more options left...
NOW
Fed Urges Secrecy on Banks in Bailout Programs
The out right insult of the title here, the headline in a Reuters article today is indicative of how bad the folks running the Fed are. From their insistence as far back as 2006 that the Trillions of dollars in Insurance Protection floating on unregulated markets would not harm the greater economy to their indiscriminate bail out of multiple unregulated companies while allowing many of them to become banks under accelerated application processes to their obvious ignorance of market mechanisms whereby allowing savvy institutions to rake in Billions in profits from the various Fed programs to float debt and buy back debt (print money) to the absolutely unconscionable allowing of financial and non-financial firms to float Private Debt with direct Public Backing through the FDIC to the complete take over of the consumer and mortgage credit markets to the tune of a couple Trillion Dollars...
Now they want total secrecy. The Fed is paranoid and incompetent and they are "spending" taxpayer money with abandon (flooding the banks with cash through buybacks of debt) while supporting without oversight firms they deem "to big to fail" at the same time they and the FDIC continue to encourage the building of more institutions that are "to big to fail" all the while inviting "private equity" and other unregulated non "financial" firms to buy into their tottering financial system.
Where does this end??? I have had it with these guys and our legislators are complete incompetent, impotent wimps with no backbone to deal with the Fed. Where are they in all this discussion?
From the Article
Give me a break. At this point does it matter? We all know the firms that almost went under, the ones that are technically insolvent and only operating because of the accounting changes instituted early this year. There is no "news" to be revealed in disclosing this other then for the Citizens of this Nation to have the right to see how the Washington Financial Elite bailed out the Wall Street Financial Elite after their House of Cards came crumbling down.
Give me a BREAK!!
Now they want total secrecy. The Fed is paranoid and incompetent and they are "spending" taxpayer money with abandon (flooding the banks with cash through buybacks of debt) while supporting without oversight firms they deem "to big to fail" at the same time they and the FDIC continue to encourage the building of more institutions that are "to big to fail" all the while inviting "private equity" and other unregulated non "financial" firms to buy into their tottering financial system.
Where does this end??? I have had it with these guys and our legislators are complete incompetent, impotent wimps with no backbone to deal with the Fed. Where are they in all this discussion?
From the Article
* Fed urges judge not to enforce order pending appeal
* Banks say disclosure could cause loss of confidence
By Jonathan Stempel
NEW YORK, Aug 27 (Reuters) - The U.S. Federal Reserve asked a federal judge not to enforce her order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received, saying such disclosure would threaten the companies and the economy....
Preska (Chief Justice Loretta Preska) said the Fed failed to show that revealing the names would stigmatize the banks and result in "imminent competitive harm." The Fed asked the judge not to require disclosure while it readies an appeal.
"Immediate release of these documents will cause irreparable harm to these institutions and to the board's ability to effectively manage the current, and any future, financial crisis," the central bank argued.
It added that the public interest favors a delay, citing a potential for "significant harms that could befall not only private companies, but the economy as a whole" if the information were disclosed.
Give me a break. At this point does it matter? We all know the firms that almost went under, the ones that are technically insolvent and only operating because of the accounting changes instituted early this year. There is no "news" to be revealed in disclosing this other then for the Citizens of this Nation to have the right to see how the Washington Financial Elite bailed out the Wall Street Financial Elite after their House of Cards came crumbling down.
Give me a BREAK!!
Tuesday, August 11, 2009
Goldman Tentacles
For a company like Goldman Sachs to make something like 60% of it's profits from commodities / currency trading it is no wonder why they are so good at it. As I said before, they have heavily invested directly in the production, transportation, storage and processing of all of the commodities they trade for themselves and their "clients". In addition to their business tentacles they have in house knowledge of all of the funds and traders they handle accounts for, what they are buying and selling, hence they know the inside and outside of what many folks are doing.
This is another example of their investment in an industry that allows them a good view what what is happening with respect to transport. (taken from The Virginian-Pilot, Norfolk, Va.)
This is another example of their investment in an industry that allows them a good view what what is happening with respect to transport. (taken from The Virginian-Pilot, Norfolk, Va.)
A 140-plus-page proposal from a partnership of Carrix Inc. and Goldman Sachs Group Inc. would form either an "operational partnership" with the Port Authority, a "financial re-engineering of the balance sheet utilizing Goldman's extensive knowledge and experience in the capital markets," or both, according to a cover letter from Bob Watters, Carrix's vice president/director of business development.
Carrix Inc. is the Seattle-based parent of SSA Marine, Tideworks Technology and RMS Rail Management Services, which makes it the world's largest privately held marine and rail terminal operator, according to its Web site.
Goldman Sachs Infrastructure Partners, a unit of the New York investment bank Goldman Sachs, acquired a 49 percent stake in the company in July 2007.
Subscribe to:
Posts (Atom)