04.04.08
Posted in Old Posts at 9:16 am by Administrator
Besides the unemployment numbers, which if honestly reported will show a massive drop in addition to substantial revision downwards for February, there was one story which stood out and grabbed my attention last night:
Moody’s cuts Countrywide Bank rating to “D”
This story ( located here ) could be the news Bank of America has been looking for to walk away and leave the taxpayer with this dog. Stay tuned gang as life is about to get one heck of a lot more interesting in our markets as the big hits, the CMBS problems are about to explode like a cow that fell asleep on the railroad tracks of a bullet train.
It’s a good thing the analysts have not put a “SELL” recommendation on this stock yet. Heck, it might rally above 7 with this news……(Check out one of the analyst summaries here at Yahoo Financial page).
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04.02.08
Posted in Old Posts at 2:45 am by Administrator
ABBAnomics
By John Galt
Dancing Queen
You can dance, you can jive, having the time of your life
See that girl, watch that scene, dig in the dancing queen
Friday night and the lights are low
Looking out for the place to go
Where they play the right music, getting in the swing
You come in to look for a king
Anybody could be that guy
Night is young and the musics high
With a bit of rock music, everything is fine
Youre in the mood for a dance
And when you get the chance…
You are the dancing queen, young and sweet, only seventeen
Dancing queen, feel the beat from the tambourine
You can dance, you can jive, having the time of your life
See that girl, watch that scene, dig in the dancing queen
Youre a teaser, you turn em on
Leave them burning and then youre gone
Looking out for another, anyone will do
Youre in the mood for a dance
And when you get the chance…
You are the dancing queen, young and sweet, only seventeen
Dancing queen, feel the beat from the tambourine
You can dance, you can jive, having the time of your life
See that girl, watch that scene, dig in the dancing queen
East of the Rockies, this is your host Art…er, never mind. Time for the “Dancing Queen” Benron Bernanke to explain why he is allowed with his other twelve cronies to circumvent the laws of the land and partake with their co-conspirator, Hanky Panky Paulson.. But to do this first, let’s do a quick and dirty tour of history, going back in time first to our childhood to bring this down to basics and moving into the music of the 1970’s with my dedication and personal nomination of our new economic system:
ABBAnomics
Marbles
Ah the great game of marbles. Remember how that used to work for all you old timers out there? Most of us would “lose our marbles” (well, my wife would endorse that) to the geeky kid with the glasses who always won. Then one day you and a few friends would get on a hot streak and start to win. The kid would get more and more upset as he lost more and more of those marbles and get furious at all of you. He would try more dramatic strategies and then try to pull other players aside to convince them to team up against the winning sides. Just as it looks as if you’re going to get your marbles back and some of his, what happens?
That’s right, the geeky kid gets pissed off and takes his marbles and goes home, ending the game. This ancient, well at least to the video game generation, parable about a game long past might seem like an irrelevant analogy to our modern markets. Sadly, it is about spot on. The failure to understand that the geeky kid is losing and thus he’s ending the game right when it gets good is one thing. The failure to actually endorse the concept of laissez-faire capitalism and the risks to reward ration that engenders is another. America was a risk and has paid a hearty reward to those who founded this nation and those fortunate enough to be born or emigrate here.
Unfortunately, America is turning into the biggest whiny sissy on the block. And a whiner who can not lose with grace and dignity in the market place of finance and ideas is not only dangerous but pathetic. The mass interventionism by our government agencies and private banking institutions is an indication that the marbles are being removed and soon will be played with by only their direction and a new set of rules.
What will soon end up occurring is that as the rules are changed to prevent “cheating” as the powers that be will call it, they will also modify them so that certain players can never lose. This modification in the middle of the game often results in the end of the game as the players walk away to preserve what marbles they have. We are on the brink of witnessing the same event in our markets on a scale far beyond the scope or imagination of our friend Benron Bernanke. And the consequences will change our society for at least three generations if they are not stopped immediately.
The World War I Market Holiday Experience and Inflation
As I discussed in the op-ed below titled “Birth of a Nation” the markets closed in 1914 thanks to an act of Islamic terror and prevented a massive exodus of European capital. While unprecedented, to insure that the coming capital flight does not occur, the simple numerical identifier of “1914” is all it will take to destroy your retirement program, and insure you are sitting there going “DOH” while banging your head into a bloody pulp against the wall because you trusted the same morons who determined “subprime” was a great idea. The most amazing thing that I have ever witnessed in my years of watching this nonsense since the late 1970’s is that for the first time ever, the rules can be changed before any trader, any investor or any foreign government can make substantial changes to their portfolios or strategies. To make matters worse, the rules can be changed outside of the scope of the regulator and legal powers of those doing so and without Congressional action. So as the markets continue to deteriorate while the mortgage problems are imploding further and further the valuations will be changed by the markets on the various bond instruments constructed to enable this problem to occur in the first place. That leaves foreign investors little if any choice as the US Dollar declines in value and the inflationary pressures increase in our economy, eroding earnings on dollar denominated investments. The nonsense we are seeing in our markets has infected almost every equity and credit market worldwide, and that is a very dangerous problem that will impact all fiat currencies and force a flood of paper on to the markets in a desperate final attempt to salvage economic stability which will instead trigger the inflationary death spiral all Fiatocracies are destined to experience. Presuming that we continue to dilute the value of the U.S. Dollar at a faster pace than other nations to stabilize our banking system, the inflationary specter shall hang over economic growth in the U.S. like an executioner swinging a large heavy ax.
The Art of Socialist Nationalization Practices by “Free Market” Economies
The big lie has begun to spread. All of our lives we have had it drilled into our head per airheads like Kudlow:
“We Believe that Free Market Capitalism is the best path to prosperity”
The unsaid caveat which will never be heard on Bubblevision or any of the MSM?
“We believe that until our portfolios go into the crapper and create massive losses causing us to sell one of our vacation homes in St. Kitts.”
You see the rules are different when failure due to horrid decision making comes into play. Free markets are supposed to reward the intelligent companies by driving their valuations higher while punishing the gamblers and the foolish by taking their values to a very low price or “zero” as they should be. In this modern world however, we can not have winners or losers in little league games and that educational model has been expanded to include Wall Street. The major banksters have all got issues beyond any comprehension with losses yet to be declared and in all probability beyond the capability of the entire U.S. economic structure to absorb. So what does a supposedly quasi-capitalist economy do when free market rules indicate failure is imminent? Change the rules.
Paulson’s folly on Monday was a very dangerous venture into the elimination of freedom via the circumvention of the U.S. Constitution. There is nothing in the primary legal foundation of our country which allows a private institution regulatory powers over other private institutions but thanks to decades of ignoring the works of our Founding Fathers, the Constitution is no longer relevant and thus the discussion of the so-called “Nordic” model has entered into the conversation. The fallacies of fiat currencies have been discussed numerous times by this writer, but he fallacies of attempts to merge socialism with capitalism are going to be the destruction of our nation leading to further declines in our standard of living. With that warning in mind, let’s review the Nordic model and the history of the central bankster bailout in Sweden that our Fed appears to eager to undertake.
ABBA Banksterism
“Fed eyes Nordic-style nationalisation of US banks” was the story on March 31, 2008 by Ambrose Evans-Pritchard from the U.K. Telegraph which caught my eye. He was the first reporter, as usual, to find the perfect analogy for the actions that the Federal Reserve is undertaking and where they got the idea for this outrageous activist banking system operating outside of our Constitution. So what happened in Sweden in the early 1990’s which created a model for the central banksters of the world to follow? Let’s get into our way back machines and visit the land of ABBA to get some idea.
To get some idea, I’m going to extract some quotes from a speech by the Governor of the Riksbank of Sweden, Urban Bäckström, of that time at a Federal Reserve Symposium in Kansas City on August 29, 1997 (Titled: “The Swedish Experience” ) to give everyone some perspective on the problem from the view of their central bank and how they dealt with it. The first thing that grabbed my attention in this speech was this paragraph:
“The expansion of credit was also associated with increased real economic demand. Private financial saving dropped by as much as 7 percentage points of GDP and turned negative. The economy became overheated and inflation accelerated. Sizeable current-account deficits, accompanied by large outflows of direct-investment and other long-term capital (once exchange control had been finally abandoned in the late 1980s), led to a growing stock of private sector short-term debt in foreign currency.”
Sound familiar? The primary difference has been obvious with the inflationary overheating not a factor thanks to the factors of foreign economies willing to accept the export of U.S. inflation into their economies to stave off a problem in our system plus the manipulation of data structure by our reporting agencies to maintain permanent distortions in the records thus preventing traditional application of existing economic modeling. These two factors prevented the inflationary spike from impacting the U.S. economy for over almost two decades until 2006 when the questions were being asked how the reporting system claimed no inflation in the housing numbers despite firm data suggesting twenty plus percent increases in prices across the nation. Add in the sudden increase in costs of precious metals, base metals and a steady but not dramatic surge in energy prices(until 2007) and doubts about the statistical reporting methodology from the U.S. began to spread. Those mitigating factors appear to be coming to an end as the lack of savings in the U.S. economy are paralleling the Swedish experience of the early 1990’s and as the Riksbank chief illustrates, the crisis starts to accelerate.
“Step by step the Swedish economy became increasingly vulnerable to shocks. During 1990 matters came to a head. Competitiveness had been eroded by the relatively high inflation in the late 1980s, resulting in an overvalued currency.”
Sound familiar again? Our currency by all models was extremely overvalued in 2005 as valuations were not realistic for many of the underlying assets in our nation. If anyone needs proof of this fact, please go hug the closest Realtor sign with the words “Short Sale” or “Foreclosure Sale” hanging on it. This was realized by many as the flight to nations with more stable fiat currencies(sorry for the oxymoron) began in earnest yet was not realized by many U.S. investors until 2007. The rest of the world realized that by basing our economy on consumerism instead of actual productivity was a formula for disaster as all nations who are in debt beyond their capabilities to repay eventually defaulted. The Swedes realized that the problems they had in attempting to use their managed quasi-capitalist socialist economic model with a fixed currency exchange rate would result in failures within their finance system. This was borne out as the chief continues to illustrate here:
“Asset prices began to fall and economic activity turned downwards. Between the summers of 1990 and 1993 GDP dropped by a total of 6 per cent. Aggregate unemployment shot up from 3 to 12 per cent of the labour force and the public sector deficit worsened to as much as 12 per cent of GDP. A tidal wave of bankruptcies was a heavy blow to the banking sector, which in this period had to make provisions for loan losses totalling the equivalent of 12 per cent of annual GDP.”
Notice any parallels? This one quote should indicate to everyone why the Fed is contemplating the Swedish or “Nordic” model for management of the financial crisis. Here is the key part of the Riksbank Governor’s speech, in my opinion, that indicates why Bernanke will apply a mix of his anti-deflationary Great Depression model in addition to the ABBA Banksterism model:
“In the early stages of the crisis, monetary policy was directed to maintain the fixed exchange rate. This line had broad support among the general public as well as in the political system. The aim was to establish a low-inflation policy once and for all. But in spite of major efforts, both political and economic, the international currency unrest in November 1992 meant that the fixed exchange rate had to be abandoned. It was replaced by a flexible exchange rate and an explicit inflation target. This resulted in a considerable depreciation of Sweden’s currency but during 1993 the continued fall in international bond rates meant that Swedish interest rates also moved down to levels that were comparatively low. Together with the Riksbank’s reduction of its instrumental rate, this gave the monetary conditions a stimulatory turn. It also helped to stabilise both the economy and the banking system. Lower market rates eased the fall in asset prices, lightened the burden of servicing private sector debt and mitigated the negative impact on the financial system.
Rescuing the banking sector was necessary to avoid a collapse of the real economy. There is no evidence that a credit crunch developed, though anecdotal information did suggest that creditors became more restrictive. I shall be returning shortly and in more detail to how the banking problems were tackled.”
While this is nice in theory, it has never been applied to the largest debtor nation in the history of capitalism and thus why I have grave concerns about the implementation of such policies by our cronies at the Fed. In this context, here is the reason we see a massive Fed bailout of our system at this time as the Swedish banking chief discusses their past which is becoming our reality:
“Looking back, one can see that in the course of the crisis the seven largest banks, with 90 per cent of the market, all suffered heavy losses. In these years their aggregate loan losses amounted to the equivalent of 12 per cent of Sweden’s annual GDP. The stock of non-performing loans was much larger than the banking sector’s total equity capital and five of the seven largest banks were obliged to obtain capital contributions from either the State or their owners. It was thus truly a matter of a systemic crisis.
In connection with a serious financial crisis it is important first and foremost to maintain the banking system’s liquidity. It is a matter of preventing large segments of the banking system from failing on account of acute financing problems.”
Thus it is quite obvious that while Bernanke would like to apply traditional solutions to our banking crisis, the ideal of an illegal and blatantly unconstitutional socialist model being applied is the only immediate method which would stave off an economic collapse. To justify the actions after they have been taken, the U.S. government trotted out Paulson to speak to what needs to change to allow the Fed to continue this course of action even though there is nothing in the original Federal Reserve Act which allows expansion of these powers nor other actions outside of their scope to be taken. The Riksbank chief continues:
“The bank guarantee provided protection from losses for all creditors except shareholders.”
Yet the shareholders in our nation are too stupid to realize they are being given the ABBA DDD treatment:
Duped. Diluted. Dumped.
Ah well, maybe the shareholders will all get a free toaster oven and copy of “Dancing Queen” as compensation. Bernanke could care less about free market capitalism and when the American public becomes aware of this, they will flee for the exits as more actions are being undertaken which are very unfriendly to shareholders and speculators as I shall discuss later in the article. So back to the Swedish crisis and the course of action the Riksbank took to stave off a financial system collapse. So why the urgency to bail out the Swedish system and change the rules? This should give you a clue why and start to think about the parallels boys and girls:
“The political system concluded that in the event of widespread failures in the banking system, the national economy would suffer major repercussions. The direct outlays in connection with the capital injection into the banking sector added up to just over 4 per cent of GDP. However, it is now calculated that most of this can be recovered.
One way of limiting moral hazard problems was to engage in tough negotiations with the banks that needed support and to enforce the principle that losses were to be covered in the first place with the capital provided by shareholders.
A separate authority was set up to administer the bank guarantee and manage the banks that landed in a crisis and faced problems with solvency, though the crucial decisions about the provision of support were ultimately a matter for the Government. A clear separation of roles was achieved between the political level and the authorities, as well as between different authorities. Naturally this did not preclude very close cooperation between the Ministry of Finance, the Bank Support Authority, the Financial Supervisory Authority and the Riksbank.
It was up to the Riksbank to supply liquidity on a relatively large scale at normal interest and repayment terms but not to solve problems of bank solvency. Collateral was not required for the loans to banks, neither intraday nor overnight. The banking system was free to obtain unlimited liquidity by drawing on its accounts with the central bank. The bank guarantee meant that the solvency of the Riksbank was not at risk. In order to offset the loss of foreign credit lines to Swedish banks, during the height of the crisis the Riksbank also lent large amounts in foreign currency.”
Notice the sections that I put into bold print. Notice the sense of urgency in their decision making process. Notice the ominous parallels. Now start thinking about the events of the last month. The Treasury Department today gave unqualified guarantees to the Federal Reserve a private unregulated institution to support the Federal Reserve Bank of New York(FRBNY) should any losses be incurred in the Bear Stearns bailout. Translation? The $29 billion in bonds can be added to the FRBNY’s balance sheet because the taxpayers will eat it. Thank you for letting me vote on that. In the mean time the bond holders and derivative holders of Bear’s garbage might get to skate with relatively minor losses compared to the equity holders. This model of rescue will be repeated over and over again, adding huge liabilities to an already over-extended government debt load. But is this the end? Oh no, there’s more to come. If you notice above a new authority was created in Sweden and that proposal and search for a new RTC type agency is being sought out. The Congresscritters are already thinking about creating a massive mortgage rescue plan for consumers to prevent deteriorating property values from falling further and creating a municipal bond default wave. What they fail to realize is that by copying the Swedish model, you have to create an entirely new welfare state including the creation of a government managed industrial base to sustain employment levels to collect the taxes necessary to support such an idea. So what fool would invest in a US Government Bond if that prospect was around the corner unless the yield was north of 15%???????
So what did the Swedes do to save their banking system? More from the Governor:
The Swedish Bank Support Authority had to choose between two alternative strategies. The first method involves deferring the reporting of losses for as long as is legally possible and using the bank’s current income for a gradual write-down of the loss making assets. One advantage of this method is that it helps to avoid the bank being forced to massive sales of assets at prices below long run market values. A serious disadvantage is that the method presupposes that the bank problems can be resolved relatively quickly; otherwise the difficulties compound, leading to much greater problems when they ultimately materialise. The handling of problems among savings and loan institution in the United States in the 1980s is a case in point. With the other method, an open account of all expected losses and writedowns is presented at an early stage. This clarifies the extent of the problems and the support that is required. Provided the authorities and the banks make it credible that no additional problems have been concealed, this procedure also promotes confidence. It entails a risk of creating an exaggerated perception of the magnitude of the problems, for instance if real estate that has been taken over at unduly cautiously estimated values in a market that is temporarily depressed. This can lead, for instance, to borrowers in temporary difficulties being forced to accept harsher terms, which in turn can result in payments being suspended.
The Swedish authorities opted for the second method: disclose expected loan losses and assign realistic values to real estate and other assets. This method was consistent with other basic principles for the bank support, such as the need to restore confidence. Looking back, it can be said that in general the level of valuation was realistic.
While the solution sounds realistic, sound and decisive, this is where I think Ben and the oligarchy of the twelve will run into issues. The easy part would be to assign realistic values to real estate, that’s fair enough, as there are decades of appraisals and measurements in any market in the United States to determine such valuations. But the problem that they will run into is the determination of values on “other assets” because the concept of “mark to market” was never applied until an institution was about to enter into a crisis. If Bear Stearns had defaulted and the associated paper had been marked to market this would have triggered a series of similar asset valuations at other institutions world wide and without the liquidity necessary to maintain these valuations, instead of an inflationary rescue of the banksters, we would have experienced a 1929 deflationary spiral that would have been out of the control of the entire financial system because the phrase “no bid” would once again enter into the vocabulary of the investing public. Sadly, if you ask the average investor what the definitions of the terms “bid” and “ask” actually mean, most would give you a blank stare, not realizing that the basic fundamentals of all capitalist economies returns to those two words. The markets could never assign an asking price to something that has a fictional valuation such as some of the mortgage backed derivative instruments because the history of the prices is considered a “Level III” secret to be determined by an institution and the self-associated hedge funds they owned and ordered to buy the products. Since Ben and the boys have no idea how to deal with these alleged assets, they have to allow other institutions to assign valuations to these instruments and then absorb or bury them into their balance sheets under the Level III heading. This is no way to run a free market economy and as the Swedes demonstrate, the hybrid model leads to stagnation and a lack of the explosive expansion as we have experienced throughout our history.
Let’s continue to review the Governor’s speech:
Allow me now to summarise what I consider to be the most important lessons from Sweden’s financial crisis:
1. Prevent the conditions for a financial crisis
The primary conclusion from our experience of Sweden’s financial crisis is that various steps should be taken to ensure that the conditions for a financial crisis do not arise.
- Fundamentally it is a matter of conducting a credible economic policy focused on price stability. This provides the prerequisites for a monetary policy reaction to excessive increases in asset prices and credit stocks that would be liable to boost inflation and create the type of speculative climate that paves the way to a financial crisis.
- Looking back, it can be said that if various indicators that commonly form the background to a financial crisis had been followed systematically, then incipient problems could have been detected early on. That in turn could have influenced the conduct of fiscal and monetary policy so that Sweden’s financial crisis was contained or even prevented. In spite of the evident signs, few if any in the public discussion warned of what might happen. Martin Feldstein offers an interesting explanation in his introduction to The Risk of Economic Crisis from 1991. At that time the industrialised world had not experienced an outright financial crisis since the 1930s. As a result, economists had devoted relatively little work to the analysis of this subject, being more concerned to understand the more normal economic world. This symposium is a positive sign that matters have changed in that respect. The conclusion drawn by the Riksbank is that various indicators must be followed systematically with the aim of detecting any signs of potential financial problems and systemic risks.
- In Sweden’s case the supervisory authority was not prepared for the new environment that emerged after credit market deregulation. This meant that during the 1980s the banks were able to grant loans on doubtful and sometimes even directly unsound grounds without any supervisory intervention. In addition, in many cases the loans were poorly documented. The lesson from this is that much must be required of a supervisor operating in an environment characterised by deregulated markets.
Notice the sections I have put into bold for this discussion. The Swedish banking system was not ready for new loan structures provided and created(translation to the U.S. problems: Subprime) and elected to depend on price stability to maintain equilibrium instead of maintaining regulatory authority as originally intended after the last crisis in the 1930’s. With the repeal of the Glass-Steagall Act by the Gramm-Leach-Bliley Act in 1999, the wall which prevented a lot of the creative instability in the banking system was torn down and allowed the bubbles in both equity and real estate markets to accelerate to excesses for which the problems of today have been exacerbated. The failure to maintain price stability in equity markets and honest reporting in the financial statements of corporations (much less the government) have allowed the instability to spread into commodities and begin the much feared inflationary death spiral which has resulted in a decline in the U.S. dollar in an attempt to monetize part of the American government and private debt.
(Dollar chart from www.shadowstats.com )
The now inherent currency instability introduced into the U.S. Dollar will eventually accelerate the capital flight from our shores which will increase the magnitude of the problems instead of allowing a stable system to manage the orderly deleveraging of these overvalued assets. The “Nordic Way” might sound applicable until one realizes that Sweden did not owe the entire world trillions of dollars in government and corporate debt. Add in the trillions in securitized debt obligations which our institutions created and sold based on the concept that “real estate never declines” and the “American consumer rarely defaults” and it does not take much to imagine just how a nationalization of our banking system could blow up in our face. The necessary monetization of our Treasury Debt would create a capital flight unseen since the Weimar Republic of Germany gave wheelbarrows to banking customers instead of toasters.
The final section from the speech by the Governor:
2. If a financial crisis does occur
In a sense all major financial crises are unique and therefore difficult to prepare for and avoid. Once a crisis is about to develop there are some important lessons concerning its handling that can be learnt.
- If an economy is hit by a financial crisis, the first important step is to maintain liquidity in the banking system and prevent the banking system from collapsing. For the management of Sweden’s banking crisis the political consensus was of major importance for the payment system’s credibility among the Swedish public as well as among the banking system’s creditors throughout the world. The transparent approach to the banking problems and the various projects for spreading information no doubt had a positive effect, too.
- The prompt and transparent handling of the banking sector problems in also important. The terms for recapitalisation should be such as to avoid moral hazard problems.
- Automatic stabilisers in the government budget and stimulatory monetary conditions can help to mitigate the economy’s depressive tendencies but they also entail risks. Economic policy has to strike a fine balance so that inflation expectations do not rise, the exchange rate weakens and interest rates move up, which could do more harm than good. In this respect a small, open economy has less freedom of action than a larger economy.
- It is important both to avoid a widespread failure of banks and to bring about a macroeconomic stabilisation. The two are interdependent. The collapse of much of the banking system would aggravate the macroeconomic weaknesses, just as failure to stabilise the economy would accentuate the banking crisis.
While Governor Bäckström’s point about a small open economy having less freedom of action is applicable to Sweden, this theory is full of holes when applied to a debtor nation which owes in excess of four times of it’s annual GDP in debt and committed future liabilities. The flexibility is applicable when a nation is a creditor nation or has the ability to back it’s currency something other than “faith” or an IOU. The American currency was the strongest in the world for decades but the failure to escape the consumerism mentality has allowed the degradation of not just the respect for the dollar, but the nation as a whole. There is no longer a hegemony of the dollar as other nations have started to shy away from accepting the currency or the debt created by the U.S. The most recent Treasury auction had a whopping approximately 3% foreign participation and still to this day the ever evasive and mysterious “Caribbean Banking Centers” are still large holders of our bonds, yet providing no level of foreign trade or commerce beyond being a Laundromat for our currency holding just over $108 billion in Treasuries. The desire to bring stabilization first, and deal with the inflationary consequences later appears to be Mr. Bernanke’s solution. And this solution is what should terrify every sane American.
ABBAnomics
The new term I have coined is not meant to be an insult to one of Sweden’s foremost musical talents, but it is so appropriate as to the solution. You see the Dancing Queen we have as a Fed chairman is trying desperately to put lipstick on a pig and call it something we should all behold. In reality that pig is now eight years bloated and should have been slaughtered and slow cooked instead of waiting on it to explode. Instead of a slow, orderly deflating of over-valued assets, the risk of a sudden crash only expand week by week as the foreign investors realize this dance will not last much longer. This Bubblenomics economy created by Greenspan to inflate asset class after asset class in an attempt to maintain political favor and keep economic discomfort as something that was eliminated along with the business cycle is a myth of epic proportions. Unfortunately the basic rules of economics, excess demand and diminished supply creates price pressures and vice versa still apply. And we have been in a period of excess supply for almost a decade now. The excess I am referring to is EXCESSIVE GOVERNMENT. By allowing the government to expand far beyond what has ever been needed be it in the arena of macroeconomic management or individual behavior supervision, the American people have opened the door to the ABBAnomic solution. And that’s a solution which can be summed up as the new cradle to grave nanny state mentality which most Americans seem perfectly willing to accept. Karl Marx said it best in the Communist Manifesto:
“The weapons with which the bourgeoisie felled feudalism to the ground are now turned against the bourgeoisie itself.”
The idealism of free market capitalism have been buried and shamed by the socialist agenda as a new corporatist elite have elected to encourage the stifling of competition and invite the government into a new working relationship to prevent older institutions from failing and essentially destroying the investing public’s monies to create a new dependency class. Instead of accepting personal responsibility at every level, be it corporate or individual, a new government feudalism has been determined to be an acceptable solution for the average soul. America works best in their minds when the citizenry has a level of enslavement to the government trough and with over fifty-five percent of the American public accepting some sort of largess, there is no reason to doubt that this will only increase as pension funds and investment plans are devalued to adjust balance sheets and maintain the banking system’s status quo. The investor who worked his entire life, played by the rules, never cheated and worked within the system to achieve a comfortable standard of living in his or hers twilight years will now be forced into the government system as their savings are destroyed and investments revalued. The theories of the “Nordic Solution” are wonderful if we are talking about a small, young and growing population such as that of the early 1990’s in Sweden. But we are a retiring, aging population with an exodus of our manufacturing base and an import based consumerist economy. Socialism will work here, but it will be a disaster. And Bernanke’s legacy of creating ABBAnomics, the economic model where hybrid government agencies working with a private group of banksters will forever hijack the free market until the citizens take a stand and demand their both personal and economic freedoms be returned without prejudice. The time to take a stand is at hand. It’s freedom or polyester bell bottoms with a government handout.
The choice is yours.
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04.01.08
Posted in Old Posts at 10:37 pm by Administrator
So don’t panic boys and girls, you’re precious metals are still precious…..
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Posted in Old Posts at 8:00 pm by Administrator
Ok, I guess I should have posted an explanation (my bad) on how this works and thought I would add a “printable size” for everyone to read which is easier on the eyes.
Going vertically (column 1 for example) 1 oz. of gold = approximately 230 gallons of diesel, 154 bushels of corn, or 260 10 lb bags of flour.
Going horizontally (column 2 for example) 1 oz. of silver = approximately 2 haircuts (or 1/2 oz. =1), 1 750 ml bottle of bourbon but takes over 7 oz.’s to get a filling at the dentist.
The pricing is just as an example and designed to illustrate a basis for haggling back and forth. Hope this helps gang and this printable view is easier to follow! If you right click on the image and see the drop down window which states “view image” (depends on your browser) you can see it clearly….-John
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Posted in Old Posts at 1:05 am by Administrator
Since the wording is too small to read, here it is:
Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive – a sure sign the world’s richest country faces economic crisis
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03.30.08
Posted in Old Posts at 7:59 pm by Administrator
BIRTH OF A NATION
By John Galt
March 31, 2008
I. Intent
The Founding Fathers had a vision where individuals were allowed to use their God given freedoms to use their own creativity, their own belief systems, and their own talents to work within a Capitalist system based on the principle of freedom. This freedom extended to all aspects to each and every citizen of American life as long as it did not impair or impede on other individuals or the greater good of this nation. These freedoms and the vision our Founding Fathers had for us are now coming to a close. The abdication of the ideal known as “personal responsibility” and the application of morality in everyone’s decision making process have been delivered a fatal blow first struck some ninety-five years ago. The creation of the Federal Reserve Banking system at the behest of political idealists who wished to manage the social fabric of society as opposed to their Constitutionally mandated responsibilities were just the beginning. The series of legislative initiatives undertaken from 1910 to 1940 to complete reshape our nation under the guise of “Progressivism” was slow to come about, but it was not until this decade and the final crisis of our foolish endeavors in societal management that we shall realize the implications of that generation’s actions. Their intent was to create a system of macro economic management by government which allowed the banking system to function outside of the legal parameters of the Constitution while profiting the few and penalizing the majority for any mistakes that were made. As decades of erroneous decisions have piled up and multiplied exponentially the proverbial bill is now past due. How appropriate that a nation founded in the idealism of personal responsibility and freedom shall now depart from that path and begin a final curtain call which entails the incorporation of a vile system of Marxist theory in combination with the perversion of religion to justify the revision of our society and the behavior of it’s citizens.
II. Taxation Without Representation
In the 1770’s part our nation’s foundation was laid with the purpose of eliminating tyrannical leaders who impose their will without the voice of the people. The taxation of citizens to serve a “crown” was considered a barbaric relic of medieval times as serfdom was no longer accepted by “modern” society. Alas, if only old Ben Franklin could see us now. The average schmuck has been quite content for decades to accept taxation without realizing they are being taxed as it has been given the false perception of the “cost of a free society” and other such rot. Although my personal principles are somewhat Libertarian in nature, this does not mean I am advocating naked women running up and down the streets as whores like Amsterdam promotes, nor the elimination of some of the Constitutionally mandated operations of government and it’s interaction with the private citizen. Obviously it costs money to maintain the national defense, a sound judicial system and to secure a safe, consistent and fair flow of commerce. Yet the responsibilities assumed have now spread to every aspect of our lives, including and up to the examination of the sexual behavior of flies as well as the willingness or ability of each citizen to educate their children in a manner (or religious principle) that they see fit. Alas, to become a “nanny state” costs considerably more than just the income tax structure we have in place now. So what is our poor government to do?
After the 1916 income tax solution opened the door, the U.S. government and it’s minions started looking for other taxation solutions to insure that the American people were married to their ideals through the concept of entitlements. That solution did not really take hold until the Great Depression created a nation of sheep willing to accept whatever solutions were provided to insure that the average citizen always had a roof over their head, a meal, a job, a car, a Playstation III, a vacation in Cancun, etc., etc. As the real levels of taxation on corporations (who just pass it on to the customer) and citizens skyrocketed via income taxes, fees, etc. the stress on government has become so great that running a debt on an annualized basis became commonplace and once the banksters and the government figured out that the U.S. was “too big to fail” and that the average citizen would rather be fat, dumb and happy rather than worry about the consequences of their actions, the game was on.
The spending on everything and anything was acceptable and by manipulating the accounting regulations the Congress and Senate could cut deals, make huge profits for themselves via the lobbying system, and create a dependency class that could be further expanded as long as the banksters played along by assuring the public that the integrity of our markets would never be unscathed and unending sources of profit and liquidity would be available as long as everyone played along and didn’t bother to look behind the curtain. Unfortunately for the elitists, people began to peek and worse, people began to worry as the liabilities of this nation were at a staggering $20,000,000,000,000 plus in 2000 and has more than doubled to a blow-one’s-brains-out-if-you-think-about-it-too-much $53,000,000,000,000 plus now. To maintain the ability to service this debt load, much less meet the underlying obligations, the impossible task of maintaining a seven to ten percent annual GDP (oh no, GNP wasn’t good enough, it didn’t track consumer spending enough) was thrust upon the markets and with the help of our friendly neighborhood central bankster, went to work to achieve it. Add in the smoke and mirror arrangement constructed by the Federal Reserve and you can see how this is not going to have a happy ending.
So who is taxing the American citizenry that does not have the authority to do so you may ask? That requires a quick and dirty analysis of our currency and the $53 trillion (it’s too much work to type all those zeroes more than once) in debt and liabilities we now are beholden to. Since the creation of the Federal Reserve in 1913, our dollar has experienced a depreciation of about 97% from its original value. We have changed the constitutionally mandated method of issuing currency in this nation without an amendment as intended by our founding fathers. Doubt that? Well here are the exact words from our Constitution:
Section 10. No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.
We have witnessed the abdication of personal responsibility in favor or servitude to the state. In this writer’s opinion, it would be fair to the currency depreciation a somewhat inflationary tax levied upon our society as well as a moral hazard. But now look at the level of debt and obligations and start thinking about that from the big picture perspective. The only way to pay off or maintain the spending levels and debt we have incurred is to monetize the debt and at a rapid pace before the rest of the world does the job of peeking behind the curtain which the American citizens refuse to do for whatever reason. Bad news Sparky; the rest of the world has taken that peek and figured out a few things:
- The Federal Reserve has never been audited
- The Federal Reserve has no legal liability to the customers it serves, a.k.a. the American Public
- The Federal Reserve is a private corporation using policy to generate or promote monetary growth via it’s Treasury proxy. These policies often impact the consumer by destroying savings and increasing the inflation tax.
- The Federal Reserve serves only the investors who own that bank, not the nation
Where as many nations have a central banking system directly accountable to legislative branch or powers restricted to the protection of the integrity of their currencies, the Federal Reserve has assumed the role of an un-elected oligarchy, which will ultimately destroy our freedoms and our nation. They are imposing an inflation tax and increasing the rate of destruction of our currency without the authority of the Constitution behind them and worse, at the expense of our citizenry to pay for decades of ignorant bliss as the party went on unimpeded. Now the bill is due and the tax rate is about to be increased dramatically as the casino on Wall Street has made so many bad bets, it requires the house to bail the players out or risk the destruction of the entire world’s financial system. This is not minor threat, but worse, it enables a far more devious threat to emerge.
III. 1914
So what do we have to look forward to? To get some idea, let’s take a look back into history. When Europe erupted into war in 1914, ironically enough due to an act of Islamic terrorism, the United States was caught in the middle as a neutral observer. The Federal Reserve was not a functioning entity, thanks to political delays, when the war started but the U.S. Treasury and its idealistic President were ready. Instead of allowing foreigners to sell off their holdings in the American markets, the solution was simple:
Close them.
That was a dangerous game but thanks to the currency provisions of the Alrdich-Vreeland Act the domestic banking system was able to avoid a repeat of 1907 and the currency crunch and uncertainty that would ensue from having our financial markets closed. This same approach could easily be employed again today. If there is a notable or sudden liquidation of our Treasury paper or equities by foreign powers along with a sudden flight of capital from our banks the easiest solution is not to just have the Federal Reserve purchase the paper, as that would require an unrealistic sudden increase in the money supply. The gradualist approach to monetization would have to be tossed out the window causing a larger problem at a sooner point in time. That alternative is unacceptable but still on the table but could appropriately be called the “nuclear option” as it would be the hyperinflationary trigger. The short term option is obvious and it is the 1914 option. That would enable the U.S. government to save face and still maintain some faith in the stability of our economy while stopping a deflationary outflow of capital that would cause an immediate collapse of our economy. Closing the markets in the name of free market capitalism (ironic isn’t it?) is the only logical solution and whatever excuse is offered as “cover” for such an action may sound drastic, but for a short term cessation of bleeding, the only reasonable course of action. How does such an action lead to a change in our nation and just what are the consequences? Read on my friends, as this is where a new nation is born.
IV. DEATH OF A NATION
To create a new ideal, the old one must die. The concept of America must die. There are and always have been tinkering old fools who have felt that they could “adjust” or redesign America better than the founding fathers. The aristocracy of old was greatly displeased with the balance struck in the United States Constitution but this balance served the purpose of allowing their class to excel in their goals while giving the average person a chance to succeed without the yoke of government being worn about their necks. As the participants of and investors in the modern Fiatocracy see their empire begin to flounder, the plans to revise and redesign this nation are right there in front of us, but thanks to the conspiracy theory principle, it is dismissed as unrealistic and absurd. Despite the fact that grown men dressing up in robes and burning humans in effigy in the mouth of a burning owl has been well documented and confirmed, that does not seem to strike the sheeple as critical to our future. Yet as this writer types this, these same individuals have ownership in the Federal Reserve, ownership of some of our largest financial and corporate institutions, or meet now behind closed doors to discuss the “rumored but documented” NAFTA superhighway as they are able to work in the open without scrutiny and without the authority allegedly given to the citizens of this nation in the Constitution. This is not a good sign and indicates that our nation is well on its way to passing into history as a memory.
The ability to create any new ideals or “modifications” as they shall be called, to our current system requires a breaking point, or death of the nation. There are two methods to achieve this goal and either might be acceptable but one is obviously much more practical. The first method is simply to involve a nation in an idealistic but costly war which slaughters millions of it’s citizens thus reducing the economic needs and re-balancing the supply demand curve in favor of the profiteers and political class where the numbers are much more manageable. This method is of course costly and if carried to extreme in this modern society, the physical damage to actual attacks on the homeland could put the power elite into the same risk strata as the citizens they wish to enslave. The second and most obvious solution is to bankrupt the people, not just the nation. Eliminate the financial capacity of a citizenry to survive and you own them. In the days of yore, the monarchy would simply offer an opportunity to survive by allowing the serfs to live on the land in exchange for the offerings a large percentage of the crops leaving the serfs just enough to survive. This virtual enslavement allowed one class to survive while another prospers. And this lesson in population and economic management has never been lost on the elites in society.
V. BIRTH OF A NATION
With the plan currently being enacted, the question becomes “What kind of nation will we look like in 20 years?” I fear we could become as drastic a head case as the 1970’s Soviet Union or worse a perpetual model of France combined with the ethnic problems of the Balkans. The withdrawal of the needle from the arm of America via the long-term extraction of capital infusion from foreign powers will leave our standard of living flailing at best and careening into levels unseen in this nation in over one hundred and fifty years if we are lucky. The inability of our society to pay its debt off at all levels and work towards self-sufficiency will create the grand political opportunity that only arrives in history maybe once every two or three centuries. This political opportunity or “third way” as it so often promoted will unfortunately allow the elitists to explode on to the scene denigrating the primitive nature and thought processes of our founding fathers and in the desperation of the moment, the citizenry will bleat right into an automatic acceptance of the changes as a “savior” of their society and the classes of people unable to cope with cyclical economic change. The new Socialism will neither call itself that nor ever openly use the terminology of the works of Marx or Lenin. The test case for this ideology is well under way in the form of Communist China attempting a mix of corporatism, communism and fascism while maintaining the illusion of free market capitalism. The theory that has been promoted over and over again by multinationals and our socialist infested State Department is that “free market capitalism promotes democracy” but in Communist China, it promotes enslavement. There are no free elections there nor truly free markets. There is no desire to allow open competition for the development of and expansion of goods and services without some degree of state control. The profits are guaranteed to insure a large percentage of funds to be allocated to increasing the ability of the military class to expand and dominate the region and the society as a whole. In the case of the United States, the military dominance is unquestioned, but the thumb of the political class does not have the reach of the Central Committee in Beijing yet. By allowing the crisis to worsen or better yet, accelerating the impacts of such a crash, much like what was accomplished in the 1930’s under FDR, the birth of a new nation can be completed under the demands of the very people who are to be enslaved. With so much of our population now dependent on government largesse, this process will be frighteningly easy to achieve.
VI. OH AUGUSTUS, WHERE ART THOU
There is but one hope and believe it or not it is in the mirror. Go look at it. And pray hard for a miracle. In Roman times after the period of the Civil Wars, there was a desire that such a great empire, militarily over-extended and rooted in democratic principles would end their infighting and bring stability back to their people at home. The citizens hoped a return to a virtuous democratic society would win out over the old ways. When Emperor Augustus took power in 31 BC, it enabled a period of relative stability and economic growth to ensue. The Empire of Rome became unified, formidable and expansive once again without the drag of the Republic’s pesky democratic principles. Unfortunately it created a new fascistic monarchy, which demonstrated its brutality and ability to dominate its citizenry and neighbors on a regular basis. It is this writer’s fear that while history may not repeat; the duplication of human foolishness will allow this to occur again. We must, as a society, pray that as the Third Way takes hold over our society that someone will take a stand against the elimination of the U.S. Constitution and the ideals of Jefferson and Hamilton. That someone will have to be a person of considerable power on the inside and willing to wear the Judas label and betray the new elite when and if they make their move. Let us hope this is a man or woman of principle and does not have a sale price like much of our society. Let us pray this happens before the title “Imperator” becomes part of our lexicon, much like the phrase novus ordo has already been accepted, denied and ignored by the masses. The consequences of failing to stop this “new order” from taking hold, as seen in history, will be fatal.
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03.23.08
Posted in Old Posts at 1:58 am by Administrator
I remember when the US Dollar allowed me to buy candy for a nickel……
I remember when American cars were completely manufactured in America….
I remember when televisions were made in America….
I remember when Christian holidays were respected and “Spring” was just a season…or winter…or solstices….
I remember when Daylight Savings Time started and it sucked then just as much as it does now…..
I remember when “God” was not an obscene word or concept….
I remember when being an American first was not something you had to hide….
I remember watching television and not worrying about obscene words or behavior….
I remember when “Communism” was considered an evil and the Constitution a blessing….
I remember when politicians were caught in a lie they would actually feel shame….short-lived as it was…
I remember when your local bankster shook your hand and thanked you for your business instead of looking up your credit score to see if he or she wanted to talk to you…..
I remember when owning a home meant creating a neighborhood….
I also remember when “flipping” referred to coins or burgers and not homes…..
I remember when kids actually played outside instead of against each other via online interactive games or the internet….
I remember when getting that first job actually meant something to a sixteen year old….
I remember when credit cards were hard to get….
I remember when radio stations only broadcast in English as their primary language in the United States…
I remember when Civil Defense was a serious issue and homeland security meant preparing for war…..
I remember when illegals were ashamed of being caught….
I remember when being a “typical white person” wasn’t really an issue; we never really looked at color the way people do these days when I grew up….in the Deep South….
I remember when saving money was encouraged and spending foolishly as it is advised now, was frowned upon….
I remember when the price of gold last topped $800….and what happened to our economy….
I remember when lumberjacks were viewed with admiration by little boys as a profession instead of pushed out of business by Marxist environmentalist whackjobs….
I remember when most of our lumber came from the U.S.A. instead of Brazil or China also…..
I remember when a family farmer did not have to answer to faceless bureaucrats in Washington, D.C. about the water quality in their toilets….
I remember when people who got sick from eating foreign produce used to actually get upset and stop buying foreign produce…..
I remember when the Constitution was the word of law and “feelings” were something you worried about with your wife….
I remember when Castro was accurately portrayed as a murdering Communist thug….
I remember when 24 rolls of toilet paper was cheaper than a gallon of gas…..
I remember when a gallon of milk was cheaper than a gallon of gas…..
I remember when gasoline was rationed and inflation was actually feared….
I remember when it was viewed that the government’s business needed to stay out of mine to promote the greater good…
I remember when the idea of “chipping” a pet or livestock was viewed as radical and evil….
I remember when doctors were not scared to treat their patients due to lawsuits….
I remember when lawyers had some degree of honor……
I remember when Newt Gingrich taught a lesson to a class I was in and said that (paraphrasing) History was the most noble of studies…
I remember when the Federal Reserve actually cared about the value of the dollar…..as well as the Treasury….
I remember when our military was allowed to fight to win………..
I remember when “political correctness” was viewed as a joke….alas, no more…..
I remember when Jesus was celebrated in birth, death and rebirth….
Celebrate today.
America needs people to start believing in what founded this nation in it’s principles and moral guidance, not moral hazards.
Happy Easter to All and God Bless!
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03.21.08
Posted in Old Posts at 5:00 am by Administrator
Tonight and all week on the Q-Files I will be updating the world news and events to keep everyone clued in to the economic decline we are all witnessing. It’s no longer just a “Florida and California” only problem, it’s around the world and it’s moving into the fast lane as the instability of this past week demonstrates. No Bubblevision fantasies here, just the real news and views!
Remember the Q-Files are on from 7 p.m. EDT (2300 UTC/GMT) on WHRI 11.765 Mhz plus 5.850 Mhz and streaming via the following:
Stream 1 (Free)
Stream 2 (Free)
Stream 3 (Free)
Stream 4 (Free)
Stream 5 (Free)
Stream 6 (Free)
Stream 7 (Subscription Required)
You can also go to www.stevequayle.com and click on the “Listen Live” link to obtain access to these links.
You can participate in the show by emailing your host at johngaltfla@yahoo.com
Thank you and I look forward to your participation!
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Posted in Old Posts at 2:05 am by Administrator
So everyone is proclaiming the “end of the financial crisis” and old Baldy who said Bear Stearns was a buy a few weeks ago is never wrong. Right?
Well, Whitney Tilson of T2 was on Bubblevision’s “Fast Money” (aka, follow their advice and your money disappears fast) and had a few words about the housing crisis that brought them down to earth. The look on their faces is worth the time to watch this on it’s own, but add in the horrified questions they asked which ruined their weekends and you would think old Whitney shot all of their dogs.
Enjoy the Video linked here!
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03.20.08
Posted in Old Posts at 3:06 am by Administrator
by John Galt
There is a time when everything in a moment of history coalesces or intersects as I have stated in the past. For purposes of discussion of the U.S. financial system and much of the markets, I think we have arrived or on the precipice of another such moment. The American financial system has been the subject of jolt after jolt, shock after shock and now a final retreat from another phony rally, thanks to more suspect data points which did nothing but confirm the suspicions of the investing public, and by public I mean the rest of the world (most American sheeple just “trust” their 401K plan adviser at work), finally say “the hell with it” and walk away. The data released this month might finally have convinced darned near everyone to just leave in disgust. Why and how is this moment upon us and quite possibly exploding on the scene today or over the next couple of weeks? Let’s take a tour of perception versus reality with a chart or two and the impact of the law of gravity on an airplane or a bird when the wings are removed.
“There’s a sucker born every minute”
If old P.T. were alive today he would not have to look far to find freaks, frauds and funny business. Thus I theorize he would return as a hedge fund manager or partner with one of the CEO’s who have elected to implode their corporations for personal gain. He knew how to round up everyone, get their attention, and keep the people focused on total nonsense and coax them into paying for it. Hey, that sounds a lot like CNBC doesn’t it! The current stock market conditions were a creation of one Mr. Alan Greenspan who might well be old P.T. re-incarnated if we did not know any better. The collapse of the dot-com bubble in the late 1990’s and early 2000’s created a need for a new bubble, one that the “common” man could feel and recognize as opposed to the vague and mysterious workings of Wall Street and those funky numbers streaming across the bottom of a screen. After all, let’s be friends and admit it; the first time any of us tried to figure out what all those symbols and numbers meant it was quite intimidating. But a house, ah yes, that’s something you can feel. You can touch. And the average schmuck can be convinced that it’s not a tool or implement but an “investment” and that the more house you buy, the richer you will feel. Good old P.T. Greenspan figured out that if he convinced the bankster community to create an entirely new wave of investing instruments and hedge funds then it’s no big deal for him to lower interest rates and encourage them to profit off the fees and the Treasury spread. If someone wanted to make some real money then all they had to do was to securitize those mortgages in large bundles and it was a safe bet in the minds of these power brokers that it would be no big deal to get AAA ratings because after all, it’s the banksters who paid the fees to the ratings agencies and made sure they explained just how these new securities would work so the ratings agencies could wink, nod, sleep and feel immune from any problems provided the models created by the firms on their superduper computers were programmed by the best and brightest in America.
Ok, so maybe the programmers were not Americans and this wasn’t the brightest idea in our history. But hey the models have been reliable since the Great Depression and so the updates with the new mortgage problems would be no big deal because after 9-11 we needed a boom and who cared if it meant fudging a line of code here or there. So to create a market for these new securities RMBS (Residential Mortgage Backed Securities) and CMBS (Commercial Mortgage Backed Securities) a pricing structure to create demand had to be created. This was a piece of cake as literally thousands of new hedge funds sprung up over night and with that pesky Glass-Steagall thing out of the way nothing could stop the banks or brokerages from saving America by plunging us deeply into debt by some $500,000,000,000,000.00 plus in derivatives. So just how did the banksters price this junk? Well you take a variety of mortgages, get them rated, come up with a really creative and “safe” sounding name like:
Bear Stearns Asset Backed Securities I Trust 2007-HE3
(yes, that’s a real name with AAA ratings from the MarkIt ABX-HE-AAA 07-2 Series)
Sounds safe to me. Heck sounds secure to me. In fact to create a demand for it a brokerage or investment bankster might place a phone call down to it’s Cayman Island hedge fund and the conversation might go something like this:
Investment Banker(IB): “Come on answer the phone, I just saw you at your cubicle a second ago”
Hedge Fund(HF): “Cayman Islands Super Duper Safety Hedge Fund, this is Mike, can I help you”
IB: “Hi Mike, I have a new securitized bond that needs a buyer. It has a AAA rating with insurance and we think it would suit your fund perfectly.”
HF: “Well, we’re the Fund for that. What’s the asking price?”
IB: “I’m offering it at $2.00″
HF: “Wow, that’s a steep price, I should get manager’s approval first. Never mind, I see you’re on the phone with me, ok, we’ll buy it.”
IB: “Thanks. And you have a buyer for it also I assume?”
HF: “Of course, I’m going to package it with five other bonds and create a new investment fund called the Grand Cayman U2Dumbtolive Fund and sell it in Shanghai at 8 pm tonight”
IB: “Good work! But that name concerns me”
HF: “Have no fear, in Chinese that translates to ‘dog is yummy fund’ and they love those names!”
IB: “Great. I’ll wire the money to your account to buy this and complete the transaction. Are you free for tennis tonight?”
HF: “Sure, I just have to grab some dinner, meet you at the club at 8.”
While that story sounds far-fetched, that’s essentially how this has been worked out for some, oh, five plus years now. There is no giant strip of shiny office buildings in the Cayman’s with thousands of investment banksters or hedge fund managers working there. Just like there isn’t thousands of “banks” buying the Treasury Paper each month and saving it in vaults in these islands. This was the safest scheme ever concocted because every aspect of the creation, securitization, rating and pricing mechanism was controlled by the orignator. Of course it could never fail as long as there was another sucker born every minute or two in China, the Middle East, or India(Japan told us to pound Saki after the dot-com bust). Once the Chinese or whoever purchased these instruments the promises of steady income with the same perceived level of safety as a U.S. Treasury were no longer traded but stored as a reserve with the valuations given to them by the hedge fund or investment banksters who resold them. This nonsense permeated not just into foreign holdings but into the domestic U.S. markets as P.T. Greenspan continued to encourage “diversification” and pension funds, 401K’s, IRA’s and mutual funds bought these instruments under the assumption that they could not fail. After all, an illegal alien would never walk away from a half million dollar home they purchased with a no-doc loan would they?
Oops.
Models of Monumental Stupidity
In this writer’s opinion, there is nothing more dangerous in this world than a drunk driver, an infant playing with garbage bags, George W. Bush in charge of the military, or a bankster feeling they can act with impunity. In 2005, while doing what I enjoyed doing, reading articles from newspapers from around the internet, I came across this article (plus others) titled Banking on illegal immigrants from CNN.com and of course another one about an illegal getting a $750,000 home in Denver. The banksters were all giddy about this “untapped” resource (their words, not mine) for expanding the “American dream” in the hopes this boom would continue. I knew this boom was over in 2004 when I saw a condo conversion down in my area flip seven contracts in one day for a two bedroom one bath, but these articles just confirmed my worst fear:
We’ve lost our ever lovin’ freaking minds.
The banksters didn’t care because the concept of “responsible lending practices” went out the window when they were not going to get stuck with the paper and Wang Ho Dung would buy shares of it when he took a second mortgage out on his home in Beijing between working five jobs and fathering three hundred boys for the People’s Liberation Army. The coming crash in China has already been commented on by this writer but let me warn you now, it will cause headaches for the U.S. banksters who have lost their ever lovin’ freaking minds. So the variety of insane plans: no doc, Alt-A, subprime, no-doc jumbo, no-doc Alt-A, no-doc doc doc doc and my favorite the “psst, hey buddy, wanna buy a home” loans were created and anyone and everyone who could fog a mirror tried to get a home. To make matters worse the mortgage brokerage industry expanded so they could make a buck and that overwhelmed not just the banksters who had to order more “APPROVED” rubber stamps but the entire system of permitting, appraisal, inspection, etc. became somewhat suspect as everyone just wanted to “move” the home and get bodies in and out of contracts, be they legal citizens or not.
The issues that these excesses to the other extreme in the lending and securities industry of course created a problem that nobody wanted to acknowledge. Like that pesky little geek at Chernobyl who said “I wouldn’t push that button if I were you” the models were ignored and from what I understand the variances created by the overwhelming input did nothing to indicate that there would be a series of cascading failures due to the large number of mortgages written nor who they were issued to. Of course the problem with models, as in all computer programs is the old theory “garbage in, garbage out” and thus why there was no accurate mathematical model that could include “common sense” as part of the equation. The common sense aspect was just brushed over as for over sixty years the commercial banks served that role by insuring they got to know their customers and actually validate the information gathered before approving five hundred thousand dollar loans for people with forty thousand dollar per year incomes and no money down. Thus the theory of the infallibility of the models is now obvious and we need to fire those Indian programmers and blame our education system for the shortfalls of not producing enough engineers. The entire problem could have been avoided thus, if we had just given the NEA twenty trillion bucks to educate our youngun. Or better yet, actually regulate the industries that we are supposed to be regulating instead of “trusting” their word as good enough and rubber stamping paper work, year after year.
Needless to say, that brings us to today, March 20, 2008.
Wile E. Coyote meet Gravity
The collapse of Bear Stearns last week was not hard to predict, foresee or wonder about. If you look at the one year chart of the stock price and can’t figure that out, then you could have a problem with vertigo or need to quit binge drinking with American Idol contestants.
Needless to say the collapse of a Prime Dealer was viewed with great alarm by the Federal Reserve which is why they plunged head first into the problem and did what they had to to “stabilize” the market. But the Federal Reserve does have a limit to it’s budget; they have expended about sixty percent of their balance sheet bailing out Wall Street under the Benron Bernanke “Inflate or Die” banner. This illustrates the problem. The school marm who is in charge of the largest central bank in the world has no real world experience to how the banking system functions nor the real business world. Those of us who saw this problem coming in 2003 prayed Greenspan would live until he was 150 and would create another fantastic yet disastrous solution to all our problems in 2005. Instead old PT thought it was more important to travel the world with his reporterette wife and left us with, ugh, Bernanke. He’s a nice guy I’m sure but in way over his head. He was supposed to be the Fed Chariman best equipped intellectually to cope with the threat of an economic depression. That would be wonderful if it were 1929 and we needed a replacement for Roy A. Young, but it’s not 1929, there is no internet boom and P.T. Greenspan just handed the keys to him and said “I’ll stab you in the back later, when it really matters” to which Benron thought “I wonder what he meant by that comment?”
Now that moment, that potential implosion is upon us. On Tuesday a faux rally was engineered one more time on the idea this Fed Funds rate cut would be the one to finally bail us out. In reality, the market internals said otherwise. They called “nonsense” on this rally and the earnings reports on Goldman Sachs and Lehman Brothers were celebrated by Bubblevision (CNBC) and proclaimed to be the savior of our economy, again, for the 318th time, and that the sun would come up tomorrow.
Well, the sun came up on Wednesday, March 19, 2008. It was hot down here in Florida. But it was hotter in the financial centers around the world. The story (Bloomberg: Goldman, Morgan Stanley Use Fed’s Wall Street Window) of Goldman Sachs and Lehman going to the discount window the minute after they reported on Tuesday to get $2 BILLION each (that’s “B” as in BILLION) have persisted for twenty four hours now and begs the question: If earnings are so great, then why beg for a loan??? Add in the damning evidence of a massive capital flight to quality and safety as illustrated below in the charts of the 1 Month Treasury, 3 month Treasury and 2 year Treasury and you start to get the idea…..
Yields do not CRASH like this unless there is a massive flight to quality. Add in the events of tonight as I finish penning this and the crash in China I’ve warned about appears to be under way. For those that do not understand what I mean, well, here:
The first chart is a weekly chart through the end of last week, the second chart as of approximately 2230 EDT on 3/19 (3/20 Shanghai time). It’s down 5% plus. It’s cratering. They are scared and have never been exposed to the gyrations of food shortages, energy shortages and a financial crisis under a capitalist system. The problem is it’s not a pure capitalist system so panic will rule the day if the Communists can not use their 50% plus control of all the stocks to stop the slide. The problem? There are margin calls impacting U.S. companies which started earlier in the day and appear to be accelerating again, just like last week. Thus why we could be at that moment where Wile. E. Coyote looks down and realizes he’s not a bird and that gravity still works. The lack of any ability to raise cash, to cover margin calls, could crater this market later today. There’s nothing much left to sell. They sold gold. They sold oil futures. They sold grains, metals, speculative paper, you name it, if it could be sold, it was today. The last strong sector, the commodities and materials sector was sold off hard today. This means the bear market is now almost in full swing. The activities and games played by the big boys to kill the shorts took that money out of the markets. The fallacy of a “real estate bailout” has everyone from the Century 21 office down the street from me (she looks more and more like the Maytag repair guy from the old commercials) to the average schmuck laughing out loud at the concept that the government will buy up all the bad paper in this country to save the day. Congress, as usual, will address the problem after their in depth investigative committee returns from seeing the real estate crisis first hand in Monaco and do something to make matters worse. In the history of bear markets when there are no buyers, that leaves sellers and going into a long weekend that could be a most dangerous formula for those that wish to be the tall blade of grass and do something foolish. When everything is being sold except for the safest of Treasuries, then you have to be concerned that we are heading into a major move. Yields do not drop to 0.30% on a 3 month T-Bill unless there is a whiff of panic in the air.
I smell panic. The rumors are flying like smoke from a forest fire. Where there is smoke, there is fire. I would advise against trying to play the role of smoke jumper now unless you have a clue as to what you are doing or a professional investment adviser who is not just another CNBC salesman type.
Today could just be another day.
Or it could be historic.
Either way, after so many people have been warning about this for so many years now, you can not say you have not been warned.
Happy Easter!
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