Busted: Bankers and The Global Economy

September 24, 2009

Too Big To Fail Means Big Growth

Filed under: banking, corporatism, credit — Tags: , , , , , , , — digitaleconomy @ 8:27 am

big banks

See the article at the Washington Post.

Advertisements

September 13, 2008

Investment Bankers Fear Panic and Unrest

Paulson's Grand Staircase?

Paulson at the Grand Staircase?

With the shakeout of Fannie Mae and Freddie Mac, Lehman Brothers almost seems an afterthought these days. The firm is clearly looking for salvation, but Big Government doesn’t seem so eager for a Bear Stearns type bailout. The problem is that the panic on Wall Street doesn’t affect only the plight of Lehman Brothers, but has the ability to touch the entire scope of Wall Street resulting in economic ripples and collateral damage throughout the U.S. economy.

Are the U.S. Treasury and the Federal Reserve in such fear that no solution is evident or is the weakness of banking institutions creating a problem in an effort to support failing Lehman Brothers? It doesn’t take a rocket scientist to discern that the nation is in the midst of another economic crossroads. However, the national and investor confidence doesn’t ring true with the “optimism” suggested by the press last Monday with Fannie and Freddie in the stock market.

In the past, the god of confidence has been the mainstay of U.S. economic policy. Confidence can only be harmed by allowing failing Wall Street to collapse. Yet, if decline and collapse what were to happen, that is exactly what should happen. The federal government has put themselves in the business of shoring business up instead of allowing for the consequences of business risk or business failures as a result of banking abuse. The reluctance of U.S. authorities to shore up the perception of a crumbling system indicates other more severe economic issues at hand behind the scenes. Wall Street stress is just the tip of the iceberg.
~ E. Manning

September 12, 2008

Lehman: The Prophecy of Failure

Lehman Brothers paints themselves as an innovator in global finance as they serve the financial needs of corporations, governments and municipalities, institutional clients, and high net worth individuals worldwide. They “maintain leadership positions in equity and fixed income sales, trading and research, investment banking and investment management.

In advance of the collapse of investment banker Bear Stearns in March of this year, rumors have been circulating continually about the demise of Lehman. Those have hardly quelled since then. As a result, the value of the stock holdings has steadily evaporated and the value of the investment bank plummeted.

Employees are now worried and expecting pink slips. The New York Times is pointing out that the Lehman decline is much like Bear Stearns. However, while the failure and decline is similar, the circumstances that brought those about is very much different.

The demise of Bear Stearns was brought about by bungling, bad financial moves within the banking system and an ensuing panic. The collapse was quick and decisive. The decline of Lehman has been created by the prophecy of pessimism, the fear of weakness which has been mostly unrelenting. This undercurrent of perceived weakness has evolved over time despite the efforts to prop up the firm.

The Times reports an employee as saying, “Everyone is walking around like they have just been Tasered. Everyone was always hoping we would pull through. Now, that is not really an option.” The undercurrent involving a lack of confidence has been pernicious, even on the inside.

The media has talked up the demise and is now talking up the sale of the company. “The cold prospect of losing a life savings in Lehman stock has become more of a reality, many employees have grown resentful.” While that is true, the idea of investing is usually based on a sound investment. It is sad that employees have chosen to sink with the ship instead of divesting themselves if that were possible. What is more sad is that a wealthy corporation like Lehman hasn’t bothered to secure even a small portion of interest in their employees. That is, in fact, the dilemma that threatens the very fabric of American society. It’s all about “me.” This eighties born attitude rises to the top of the corporate ladder. The backlash has been and will be substantial except for the corporate leaders.

It is true that business is not about charity. However, this writer is not discussing charity. The problem is that life in America has become so self-centered that the prospect of tomorrow is rarely if ever addressed. There is lack of planning and little care for tomorrow or for anyone else on any level. That attitude is as prevalent at the top of business as it is at the bottom. The nation has thoroughly corrupted itself and the corporate environment that it originally built. There is not even the illusion of responsibility. Live for today for tomorrow is its own.

Sooner or later, that attitude along with the prophecy of failure comes home to roost. ~ E. Manning

September 9, 2008

Investor Confidence: History of Short Rallies

Since the current mortgage crisis has been officially publicly documented around July of 2007, investor profitaking has barraged the stock market under the pretense of confidence after each bailout. Each time the bailout grows larger. The market scores big gains followed by a drop “as reality takes hold.” The media circus and investors appeared to rejoice upon the bailout of Fannie Mae and Freddie Mac, but the joy has proved to be short-lived.

bailout fever

bailout fever

The federal government seems to enjoy playing the same game, now using Sundays as a day of economic rescue and salvation. Traders are in agony as they mourn the loss of another fall downward in the markets. Why can’t we just get the problems over with so we can get back to making money like we used to? That is the essence of Wall Street’s attitude about the economy, an attitude of frustration. These self-centered expressions are expected in a market that has no moral compass beyond profit.

investor dunce award

investor dunce award

Self-absorbed traders and profiteers shouldn’t need to ask. The bailout of Fannie and Freddie, like the bailout of Bear Stearns has prevented a complete meltdown of the economy, certainly saving the plight of every investor from the jaws of bankruptcy today. Considering the short-term mentality of investors, the bailout is good when you consider that investors can come to play another day.

~ E. Manning

September 4, 2008

Inflation: Sick of the “I” Word

Yes. Every American knows what the Fed is reluctant to admit. The economy is struggling. Prices remain high. Booyah. It’s a revelation.

It took the Fed and the federal government almost 9 months to admit the truth about the mortgage, banking and finance debacle. They had all the facts and saw it coming. They looked the other way in the hope that you might not notice or in the vain hope that a pied piper might come along and enchant all the rats. Shortly after that mortgage and finance truth was reinforced by reality, Bear Stearns collapsed, threatening the fall of U.S. investment bankers. Now the Federal Reserve has effectively nationalized every important sector of the banking community within the United States in the effort to keep the show running in the spirit of confidence. The federal government a/k/a the American taxpayer is theoretically on the hook for the entire expense, enslaving the nation to an uncertain future unless we wise up.

We’ve heard about the “R” word, but never has another word meant more to a nation or a global economy in consternation than the infamous “I” word that economists, writers and politicians cannot fail to utter in quiet undertones of fear. What make the “I” word so dangerous is the lack of power against it. Inflation isn’t just a cycle. Inflation is a symptom of unbridled lack of discipline and theft by the Federal Reserve and central bankers themselves. The fact is that authorities have decided that if we mention inflation enough, the public will actually stop taking it seriously.

Inflation has been described as “creeping.” Inflation may well be creepy and may well be advancing, but inflation has showed its ugliness rather dramatically. The nation faces higher inflation than in more than 20 years. Even worse, the nation flutters on the brink of truly nasty stagflation.

The officials in charge won’t readily admit such a thing. First, we have invented hard and fast rules about such topics. Economics is a science say many experts. We have strict definitions for these kinds of things say leaders. That depends on what school of thought you choose to believe. Still, you may be right if you consider economics to be on the same level of science as evolution. The best and the brightest are still unresolved about both except where it fits an agenda for power as they constantly update the facts in an effort to make their case.

In the meantime, prognosticaters are expecting a “rough patch” to come up soon. This patch could happen at any time. Christmas is going to be very bad, business pundits say in prophecy. Bad depends on the level of expectations. If consumers continue to retrench by only buying what they need, the economy is doomed in the eyes business retailers and tax collectors.

American consumers may be in a “slump”, but business and government is in the midst of a crisis. Government has grown to depend on more consumption and rosy projections to raise operating funds by taxation. Business has grown to depend on cheap foreign labor to slash expenses while raising prices. Inflation comes as much from greed and usury of the little guy on both sides as it does from devaluation of American currency and weakness in the dollar.

Food and fuel prices have knocked inflationary values out of the park recently. The Fed says that fuel prices have moderated somewhat, but are still elevated. Considering that the average barrel of oil averaged about $37.00 in 2004, the word elevated is an understatement.

Then the Fed blithely states that wage gains are modest. This is an obscene statement considering that wages have been flat for years, even when adjusted continually for “nominal 3 percent inflation.” No danger for inflationary pressure here because employers are laying off workers in droves in an effort to save the bottom line of business. Employers haven’t been known to be “overly generous” in at least 3 decades.

Manufacturing is weak or declining as corporations close down facilities and offshore jobs to foreign nations with significantly lower wage rates and taxation. The things that America still manufactures like steel, heavy machinery and aircraft are cheaper for foreign buyers because of the weakness of the devalued dollar. This possibility combined with stimulus payments are being given credit for growth figures in the second quarter of 2008.

The largest problem with concepts like recession and inflation is that like every other economic idea, there isn’t much agreement on much of anything. Now that is science. ~ E. Manning

August 11, 2008

Banking Healthier Than Last Crisis?

healthy banking or bust
“healthy banking or bust”

There is no end of perspective, outlook or propaganda on the internet. You can surf until your bloodshot eyes can’t see anymore. One news agency will sometimes play both sides of a topic for weeks or months at a time and you can see it for yourself in real time if you are disposed to do so. If you are listening and lame enough to believe everything you read and hear, you are whirling around in your seat from the stress and pressure.

A consistent outlook is that the banking system is healthier than it was during the last crisis. When was that? Assuming we can remember back that far, consider the wonder of the U.S. Savings and Loan debacle. Those were some nasty times and bankers still didn’t learn much except how to create more trouble. Staid economists like this writer know better. But that isn’t the issue.

“Indeed, the recent spate of bank failures seems remarkable only if one compares it to the unusual period of tranquility that preceded it”, a spokesman for the Federal Deposit Insurance Corp., Andrew Gray, said. “If anything, the rate of bank failures is returning to historic norms.”

Between 1986-1995, over 1,000 institutions with total assets of over $500 billion failed. By 1999, the Crisis had cost $153 billion, with taxpayers footing the bill for $124 billion, and the S&L industry paying the rest. At this writing, 8 U.S. banks have failed. Even at worst, the FDIC is projecting that 100 to 200 banks will fail in the next 18 months. This simply doesn’t compare with the S&L debacle, so banking is clearly in better shape.

Naturally, the stellar minds that cooked up that dogma didn’t consider that comparing then with now is like comparing apple and oranges. They are both fruit and they may be overripe, but that is where the similarity ends. Why?

The reality has everything to do with Federal Reserve policy. The Fed has become the official policeman of the U.S. economy and finally the banking industry. In order to keep the economy on its feet and save the banking industry from certain collapse as well as a complete bursting of the confidence bubble, the Federal Reserve has heavily subsidized the banking and finance industry by floating loans in secret to troubled banks across the nation.

The debacle that brought this reality to fruition was not just predatory lending in the mortgage market, but a variety of untested and fraudulently-based banking instruments created by bankers to make more money, largely through the sale of securities for investment purposes. When the market froze up from lack of liquidity, panic and improper management, the economic fraud began to show itself, threatening not just the banks, but the entire economy.

Further, when Bear Stearns neared collapse the entire economy was prepared to go down the sink. To avoid this very real likelihood, the Fed put a new floor in the economy, consistency loaning to banking institutions and protecting them from their own foolish decisions and greed.

The FDIC or the funds that they hold have hardly been touched because the federal government has developed another economic salvation for banking and finance. The reality is that the jury is still very much out on the success that the Federal Reserve has enjoyed in bailing out the banking and finance industry. The cost is already much higher than the previous crisis and has impacted the world. In effect, the federal government through the Fed has bypassed the old system and upped the ante. The whole economy is on the line behind the success of government and Fed actions while inflation threatened to unhinge the system. The health of banking has become a national shell game of sorts: certainly not healthier than the last crisis.

~E. Manning

July 8, 2008

The Fed: Power and Protection Rules

The Federal Reserve, with new power in hand, intends to issue new rules next week aimed at protecting future home buyers from scandalous lending practices. The media has proclaimed the new rules are the most sweeping response to a housing crisis that has propelled foreclosures to record highs. Considering what is happening to American home buyers, this might considered to be true. The most sweeping response has been the bailout of Wall Street beginning with Bear Stearns in this writer’s humble opinion.

The fact is that there are plenty of regulations. Regulations did not stop bankers from breaking the law with predatory loans, nor stopped investors from (more…)

Older Posts »

Blog at WordPress.com.