Tag: banks

Wrong and wronger

Both the liberal orthodoxy, as represented by Paul Krugman, and the conservative orthodoxy still completely fail to understand the financial crisis. That is why they have not even begun to successfully address it:

In the real world, recent events were a devastating refutation of the free-market orthodoxy that has ruled American politics these past three decades. Above all, the long crusade against financial regulation, the successful effort to unravel the prudential rules established after the Great Depression on the grounds that they were unnecessary, ended up demonstrating — at immense cost to the nation — that those rules were necessary, after all.

But down the rabbit hole, none of that happened. We didn’t find ourselves in a crisis because of runaway private lenders like Countrywide Financial. We didn’t find ourselves in a crisis because Wall Street pretended that slicing, dicing and rearranging bad loans could somehow create AAA assets — and private rating agencies played along. We didn’t find ourselves in a crisis because “shadow banks” like Lehman Brothers exploited gaps in financial regulation to create bank-type threats to the financial system without being subject to bank-type limits on risk-taking.

No, in the universe of the Republican Party we found ourselves in a crisis because Representative Barney Frank forced helpless bankers to lend money to the undeserving poor.

O.K., I’m exaggerating a bit — but not much. Mr. Frank’s name did come up repeatedly as a villain in the crisis, and not just in the context of the Dodd-Frank financial reform bill, which Republicans want to repeal. You have to marvel at his alleged influence given the fact that he’s a Democrat and the vast bulk of the bad loans now afflicting our economy were made while George W. Bush was president and Republicans controlled the House with an iron grip. But he’s their preferred villain all the same.

The demonization of Mr. Frank aside, it’s now obviously orthodoxy on the Republican side that government caused the whole problem. So what you need to know is that this orthodoxy has hardened even as the supposed evidence for government as a major villain in the crisis has been discredited. The fact is that government rules didn’t force banks to make bad loans, and that government-sponsored lenders, while they behaved badly in many ways, accounted for few of the truly high-risk loans that fueled the housing bubble.

First, Krugman is totally and completely wrong about “the free-market orthodoxy that has ruled American politics these past three decades”. The last I noticed, the US financial system was still a government-mandated monopoly in the grand tradition of the East India and Hudson Bay companies. To claim that a nation which requires the reporting of all cash transactions over a certain amount to the government and where even cutting hair requires special permits is a “free market” is totally absurd.

But one cannot reasonably claim that the government is the primary villain in the financial crisis either. The government did put pressure on the banks to make bad loans, but the fact is that although they are certainly a serious probem, it is not the problematic banks loans are actually the major problem. Consider the following facts. The two total amount of money presently loaned out by all the commercial banks in the USA is $6.8 trillion dollars, down from a peak of $7.3 trillion in 2008. The total amount of debt presently owed by the financial sector is $13.8 trillion, down from $17.1 trillion in 2008.

This is the Wall Street Casino to which I have referred. It is sometimes referred to as the “investment” side of banks, which is nothing more than them borrowing money and gambling it in the form of derivatives on the different currency and equity markets. This is no more productive or capitalist than Grandma’s bingo night or Uncle Joe’s day at the horse track, it is simply gambling on a larger scale.

So, it should be readily apparent that anyone who is still attempting to frame the problem in terms of bank loans and not bank debts simply does not even begin to comprehend either the nature or the scope of the crisis.

There are serious economic problems, to be sure, but the core of the financial crisis would be better described as Bingo Night Finance than Rabbit Hole Economics.

Karl Denninger bitchslaps a banker’s tool

First, Tom Blumer demonstrates that he is a) in entirely over his head, and b) has no freaking idea what has been taking place in the financial sector for the last 30 years.

Even when they sharply criticize yours truly, I have tried in recent years to avoid getting unduly exercised over individual posts at other sites. They have their views, I have mine. It’s a (mostly) free country (for now).

I must carve out an exception to that stance because the individual objecting to my most recent PJM column (“October 14, 2008: The Day the Economy as We Knew It Died”): a) has accused me of “bald lies” while failing to successfully identify one; b) did so without having the integrity or basic decency to name me; c) criticized a column which deliberately focused on a narrow two-week time frame as “a particularly odious and sickening piece of crap” without the faintest understanding of my full take on the government-led, bank-assisted, political corruption-driven financial crisis we face and the several decades of history which led to it (completely irrelevant to this column, which will exclusively address the absence of “utter falsehood”); and d) deliberately made it about more than my work by indicating that “these people (in context: ‘at Pajamas Media’) need to be exposed as the liars they are.”

Now, I don’t think Blumer is as much a liar as he is a complete moron who understands nothing about banking, the economy, or the power structure of the US political system. I suspect he genuinely believes that the former Secretary of the Treasury Henry Paulson forced the banks to accept TARP and “basically put guns to their heads”.

What Blumer is either too ignorant or too stupid to realize is that Paulson IS A CARD-CARRYING GOLDMANITE who was in the Bush Administration to protect the interests of Wall Street. His putting a gun to the heads of the banks and “forcing” them to accept TARP was exactly like forcing Brer Rabbit to be thrown in the briar patch. Congratulations, Tommy Boy, you’re not actually a liar, you’re just a clueless moron who doesn’t allow his ignorance to inhibit his expression of an uninformed and incorrect opinion.

But Karl doesn’t need my help in pointing out the many deficiencies of Blumen’s case:

You’re entitled to your opinions, whatever they may be. You’re not entitled to invent facts, and placing words inside quotation marks that claim to make a point that you in fact interpreted might have occurred from other sources without identifying them as your own belief as opposed to someone else’s actual words you are quoting falls into that category.

As for your opinion that the banks were “taken over”, I disagree. I argue that the banks in fact looted the people with the full cooperation and complicity of the Treasury, and my interpretation is backed by the actual words of the bill that were passed and how it was used, buttressed by the fact that Kashkari testified over a year later under oath that prior to final passage of TARP Paulson had already decided to inject capital into the banks and did not inform Congress of this change in the essential intent of the bill on the floor at the time. (CSPAN should still have archives of that testimony if you’re interested in it.) It is further buttressed by your own claimed source.

I was attempting to engage in a debate on the substance of the matter, which is the root of your claim rather than the minutia: You stated that our economy in large part is not growing because our government has basically taken it over via authoritarian acts, implying that were those acts to be reversed we’d be ok (or at least “better off.”)

You’re wrong.

Blumen, like Pajamas Media, the Wall Street Journal, and Fox News, is desperately attempting to cast Washington as the bad guy when it is the Washington-Wall Street axis of pure evil that is the problem, and it is Wall Street that is the senior partner.

Herman Cain: banker’s whore or bankster?

It has been interesting to see how feeble a defense those who support Magic Negro Part II: The Republican have been able to make on his behalf. When faced with the fact that he was not only a corrupt Federal Reserve executive, but is still defending the Federal Reserve, the giant zombie banks, and Wall Street despite the economic depression they caused, their only – and I do mean ONLY – response is to cry raciss.

This demonstrates that Herman Cain has little more to offer as a presidential candidate but his race. But, in the immortal words of the French castle guard, the American people already got one, you see. The grand Republican dream of finally being able to accuse Democrats of racism is based on an erroneous assumption that Democrats care about such things; it would appear that Republicans have learned nothing from Clinton presidential scandal when it was learned that feminists didn’t mind being legitimately accused of supporting sexism.

Democrats are the modern equivalent of the medieval religious heretics who demonstrated their moral ascension beyond good and evil by their ability to indulge in the latter without harming their immortal soul. Thus, while others are tainted by the mere accusation of sexiss or raciss, actual acts of what would otherwise be considered sexism or racism on the part of a Democrat only proves his ideological saintliness.

As we’ve seen already with regards to Rick Perry, Cain is more than willing to cry raciss himself. But that’s almost irrelevant. The real question is whether Cain is a banker’s whore or a bankster proper. While his Federal Reserve history suggests the latter, his astonishing remarks about the central bank and apparent ignorance about the U.S. financial system strongly indicate that his role at the Federal Reserve was little more than affirmative action PR. So, I conclude that Cain is merely a banker’s whore like McCain and Obama rather than a genuine bankster like Bernanke.

“Such as it is”

Bernanke circles around the truth:

Europe has a debt crisis. America has a jobs crisis. Corporate profits could be in trouble. World financial markets are in turmoil. And no one seems prepared to ride to the rescue. Federal Reserve Chairman Ben Bernanke bluntly warned Congress on Tuesday of what most of America has sensed for some time: The economic recovery, such as it is, “is close to faltering.”

“Such as it is.” For those of you who aren’t fluent in Fedspeak, allow me to translate:

There is no recovery. There never was any recovery and all of my talk of green shoots and economic growth was a failed attempt to raise those all-important animals spirits while I flooded the banks with money. But the happy talk isn’t working and is actually becoming counter-productive as the gulf between it and observable reality continues to widen, so I’m going to dial it back a bit in order to retain some semblance of credibility. God help us all, because I am totally out of ammo.

And this was an interesting admission: “I think people are quite unhappy with the state of the economy and what’s happening. They blame, with some justification, the problems in the financial sector for getting us into this mess. And they’re dissatisfied with the policy response here in Washington. And at some level, I can’t blame them.”

Yes, the massive borrowing that took the financial sector from 0.85% of the total U.S. debt to 32.66% in 2008 might just have a little to do with the current problem. But no, Helicopter, people aren’t protesting Wall Street because of 9% unemployment and slow growth, they’re protesting because they know Wall Street gambled big, lost heavily, and then robbed them and went back into the casino.

Occupy Wall Street

As police arrested hundreds of protesters on the Brooklyn Bridge in New York City, more demonstrations began to spring up across the U.S.

The anger against Wall Street isn’t likely to burn out anytime soon. Not all, but most, of the US economic problems can be traced to the Wall Street casino and the refusal of the Wall Street bankers to accept their losses instead of forcing them on an unwilling public. The fact that the federal government connived with the bankers to do so doesn’t make the action legal or legitimate.

Every bank that received a bailout, direct or indirect, should be shut down, its executives arrested, and their bonuses seized. Remember, in 1946, the financial institutions accounted for 0.85% of all U.S. debt. Sixty years later, that percentage had risen to 32.7 percent, nearly three times more than the 11.6% owed by the federal government.

The government is far from innocent, but for the most part, it has exacerbated the debt-deflation problem that the bankers created. Occupying Wall Street should only be the beginning of the debt cleansing process. However, what neither the Occupy Wall Street activists on the left nor the Tea Party activists on the center-right appear to understand is that BOTH Wall Street and the federal government are responsible for the present situation.

Washington can’t fix Wall Street because it is wholly owned by the bankers. And Wall Street can’t fix Washington because Washington is already doing what Wall Street wants. As long as the left supports Washington and the right supports Wall Street, absolutely nothing with long-term positive economic effect can be accomplished.

Which, of course, is why I have been saying for years that there will be no solution until the eventual and inevitable system failure takes place.

Krugman the caterer

Paul Krugman’s column sometimes makes me think of a slow-pitch softball pitcher nonsensically called up to the big leagues:

Politicians who always cater to wealthy business interests say that economic recovery requires catering to wealthy business interests. Who could have imagined it?

That’s true. And there is even a corresponding truth. Economists who always cater to banks and government say that economic recovery requires more bank credit and more spending by government. Who could imagine that either?

The Fed creates its own CIA

Zerohedge has the details on the Federal Reserve’s plans to spy on the economically astute:

Two weeks ago, the media’s heart went aflutter when it learned that the president had borrowed a page right out of ole’ Joe McCarthy’s communist witch hunt book with the launch of Attack Watch. The response by everyone, even fans of Obama, was immediate and brutal. Yet where Obama took about 24 hours to crash and burn, someone else has stepped in with a far stealthier method of ferreting out the traitors amongst us: none other than our old friends, the Federal Reserve Bank of the United States, which in a Request for Proposals filed to companies that are Fed vendors, is requesting the creation of a “Social Listening Platform” whose function is to “gather data from various social media outlets and news sources.” It will “monitor billions of conversations and generate text analytics based on predefined criteria.” The Fed’s desired product should be able to “determine the sentiment [ED:LOL] of a speaker or writer with respect to some topic or document”… “The solution must be able to gather data from the primary social media platforms – Facebook, Twitter, Blogs, Forums and YouTube. It should also be able to aggregate data from various media outlets such as: CNN, WSJ, Factiva etc.” Most importantly, the “Listening Platform” should be able to “Handle crisis situations, Continuously monitor conversations, and Identify and reach out to key bloggers and influencers.” Said otherwise, the Fed has just entered the counterespionage era and will be monitoring everything written about it anywhere in the world.

I could save them the trouble and expense of spying on the world with a simple summary: Everyone who understands the U.S. central banking system despises the Fed and understands that it is an organization that was created to inflate the money supply and funnel money to the banks. And while investors once feared its influence over the financial markets, no one fears it anymore because Chairman Bernanke’s predictions are uniformly wrong, his policies have uniformly failed, and the shortcomings of the its debt currency are becoming obvious even to non-economists.

On the other hand, perhaps Helicopter Ben is simply looking for hot investment tips. Obviously his investment strategy hasn’t been working out so well.

Germany chickens out

Faced with a clear and open violation of the German Constitution, the German Supreme Court unsurprisingly caved rather than risk undermining the supports that are propping up the banks of the European Union:

In a widely followed ruling on Wednesday, Germany’s Constitutional Court upheld the legality of Berlin’s rescue packages for debt-stricken euro zone countries, but said any future bailouts must be approved by a parliamentary panel…. The court rejected three appeals against the legality of earlier bailouts, which have stirred a furious political debate among Germans. The suits had been brought by a coalition of German lawmakers, economists and business executives who argued that Germany’s participation in loans and support funds for Greece undermined Parliament and infringed constitutional provisions underpinning the country’s democracy.

In other words, there is no longer any more law in Germany than there is in the United States. That should work out well. All this worldwide government kowtowing to the banks in a futile and desperate attempt to keep them from going under has done is to make it perfectly clear to all and sundry that there is no law. The law is now a transparent fiction. All of the words written down on paper are entirely meaningless. Read the English translation, it is a masterpiece of legal weaselry.

The world is rapidly entering into a literally Satanic state where do what thou wilt truly is the whole of the law.

And clearly, going to mark-to-fantasy should fix the whole thing. After all, it has worked so well in the USA. “My gnome, high above the Alps is hearing that the EU is considering suspension of bank mark to market acctg.”

Corruption USA

This is unsurprising, but seriously bad news even so:

Eric T. Schneiderman, the attorney general of New York, has come under increasing pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices, according to people briefed on discussions about the deal.

In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the attorney general to support the settlement, said the people briefed on the talks….

Not surprising, the large banks, which are eager to reach a settlement, have grown increasingly frustrated with Mr. Schneiderman. Bank officials recently discussed asking Mr. Donovan for help in changing the attorney general’s mind, according to a person briefed on those talks. In an interview on Friday, Mr. Donovan defended his discussions with the attorney general, saying they were motivated by a desire to speed up help for troubled homeowners.

In other words, the White House is attempting to shut down the joint 50-state investigation in order to whitewash literally years of massive criminal wrongdoing by the mortgage banks, then change the laws after the fact so that all of the titles they shredded in MERS are magically returned to the banks. Their problem is that they need to get the 50 state attorney generals to sign off on the deal. Obviously, most of these champions of the law have already agreed to be bought, so they’re leaning on the last few holdouts now.

This clearly demonstrates that there is not only no law in the USA anymore, there is barely a pretense at it. Instead of shutting down the criminal organizations and imprisoning the executives responsible, they will agree upon a small fine and cover up their crimes, which include but are not limited to stealing thousands, if not hundreds of thousands, of houses from homebuyers.

And the reason they need to get a deal done and let the banks off the hook? To help homeowners. Seriously. That’s the line they’re selling.

Beware the Nones of September

Germany is indicating a potential disinclination to play the Fed game:

“I regard the huge buy-up of bonds of individual states by the ECB as legally and politically questionable. Article 123 of the Treaty on the EU’s workings prohibits the ECB from directly purchasing debt instruments, in order to safeguard the central bank’s independence,” [German President Christian Wulff] said….

The blistering attack follows equally harsh words by the Bundesbank in its monthly report. The bank slammed the ECB’s bond purchases and also warned that the EU’s broader bail-out machinery violates EU treaties and lacks “democratic legitimacy”.

The combined attacks come just two weeks before the German constitutional court rules on the legality of the various bailout policies. The verdict is expected on September 7.

It’s hard to imagine that the German court won’t just rubber stamp the blatantly unconstitutional, overtly illegal actions of the EU and ECB in the same way that the U.S. Supreme Court has seen no evil in the illegal actions of the U.S. Congress and the Federal Reserve.

However, the Germans aren’t always predictable, they do tend to be sticklers for the letter of the law, and there is no question that if the letter of the law is respected, the bailouts will be pronounced illegal. The possibility the court will do so may explain this recent market development:

Insurance on the debt of several major European banks has now hit historic levels, higher even than those recorded during financial crisis caused by the US financial group’s implosion nearly three years ago. Credit default swaps on the bonds of Royal Bank of Scotland, BNP Paribas, Deutsche Bank and Intesa Sanpaolo, among others, flashed warning signals on Wednesday.

Interesting times, interesting times….