Busted: Bankers and The Global Economy

May 7, 2009

Finance Experts Double-Minded and Fearful

Fed ever hopeful

Fed ever hopeful

Desperate to be a financial cheerleader during the recession, Ben Bernanke insistently paints an economic picture of future light and in almost the same breath debate about the biggest “what if” about the so far dubious recovery. It isn’t that the American public doesn’t long for good news, but we aren’t going to be conned either. Records numbers of jobless Americans point to a real problem where recovery is concerned.

Experts continue to be fearful about government banking stress tests, as if banks are the only importance for a future recovery. Certainly, that is where the bulk of taxpayer money has been placed to keep the system operational and the American power structure in place.

The media easily reports both sides of the economic story, but mostly focuses on the negative and no wonder. The greatest reality is that an economic recovery is mostly in the minds of a few visionaries at this point. If the economy worsens, “big lenders” do not have enough money to survive. The media points the inevitable need to raise cash as a precaution. Now that is confidence in a recovery.

Government stress tests for finance put banks through two appraisals. One appraisal reflects expectations about the recession as it is and the other forecasts a recession deeper than what experts predict. The reality of the current recovery isn’t strong enough to be called that, but any glimmer of economic light has corporate promoters banging their gongs and playing the marching band in the hopes of stirring sentiment for a recovery.

Experts just can’t wait for the recovery as they now invent ways that the nation will recover and prosper while record numbers of Americans remain unemployed and homeless. The idea of home sales being on the increase has moneychangers truly excited for an abbreviated recovery and future corporate good times.

Investors and the public have been quite realistic about corporate finance. Stock prices, especially for banking institutions, have taken a beating. This has spurred the requirement for more capital to keep banks operational as investor sentiment continues to ruin them. The government has been there all along to prop up the system. As a result, there would seem to be little immediate fear for the system. The bottom line for investors and the public-at-large is the main concern and truly the main force behind ‘recovery’. The new brand of corporatism can’t stand the thought of needing the little guy for anything. They have a philosophical quandary on their hands.

What is truly sad is that economic cheerleaders want to convince us that the United States can have a recovery and enjoy good times again with record numbers of permanently unemployed Americans. The reality has set in that we are enjoying the fruits of our corporate policy of job exportation over the last two decades. Cheerleaders don’t want to acknowledge this reality.  The new brand of corporatism and government wants to redefine unemployment and prosperity to fit a new mold that belies any logic. I’ll post more about this tomorrow.

April 14, 2009

Bernanke: It’s All About the System

monopoly moneyPresident Obama declares that the sun is coming out as the economic storm wanes. “The financial and economic risks posed by a collapse of AIG would have been at least as great as those created by the demise of Lehman. In the case of AIG, financial market participants were keenly aware that many major financial institutions around the world were insured by or had lent funds to the company. The company’s failure would thus likely have led to a further sharp decline in confidence in the global banking system and possibly to the collapse of other major financial institutions. At best, the consequences of AIG’s failure would have been a significant intensification of an already severe financial crisis and a further worsening of economic conditions. Conceivably, its failure could have triggered a 1930s-style global financial and economic meltdown, with catastrophic implications for production, incomes, and jobs. The Federal Reserve and the Treasury agreed that in the environment then prevailing, AIG’s failure would have posed unacceptable risks for the global financial system and for our economy.” – Ben Bernanke in speech to Morehouse College

Magic Money T-ShirtThe American taxpayers have been put on the hook to bail out Wall Street.  Success is still not guaranteed despite a recently sunny disposition. Meanwhile the European Union supports a new monetary system and retirement of the dollar as the prop of the global community that central bankers have long proffered. The general undercurrent in much of the EU underwrites “the collapse of the Bretton Woods system based on the US Dollar as sole pillar of the global monetary system.” This was predicted by some parties in the EU last year, but so far has not come to pass because of the creativity and financial manipulation of the International Society of Central Bankers.

March 29, 2009

Geithner Admits Fed Role in Economic Collapse

geithner charlie roseThe Obama administration wants to add a glimmer of hope to the global fiscal crisis that started with corrupted U.S. corporate policy and banking investment greed. Despite efforts of many to put lipstick on the ongoing economic recession and remove blame from corporate bankers and government, in a recent interview with Charlie Rose, Tim Geithner admitted

“a deepening recession. You’re seeing the recession intensify here and really around the world. You know it started here, but the world is sort of catching up. That’s putting more pressure on business and the financial system as we see it. We start with this deepening recession, intensifying housing crisis, a deep fiscal hole in the financial system that’s in some ways very damaged. Parts of it are working well, parts of it are still very damaged. It’s going to take a lot to work through this. Again, we start with a — just a deep mess. It is our obligation to clean it up and to fix it…”

“I want to be clear. Again, we start with a mess, a deep mess, made worse by the deepening recession. And these things are pitting on themselves. And it’s very important for people to understand, it’s going to take some time to work through this. But what I want people to know is that we’re going to do what’s necessary to get through it. And these things will get traction. They will start to help unfreeze things, and they will help lay the foundation for recovery.”

“They (the Fed) projected that optimism in the future and that created the conditions where people took more risks than they should have, and they, frankly, didn’t pay enough attention to the possibility that when this ended, came apart, that the consequences would be as damaging as they did. Now, I spent almost every day from the first time I walked into the New York Fed about five years ago working with my colleagues on ways to try to make the system stronger so we were going to be better able to withstand the kind of pressures when this came apart, and we did some very important, powerful things, but many of the things didn’t have enough traction, and we share with really all parts of the financial oversight bodies here and around the world a deep responsibility for not having done more and a really deep obligation for trying to fix this quickly and put in place the kind of reforms to prevent this from happening again.”

“Our system was not designed to sustain a shock, a crisis of this magnitude. It’s the tragic failure of financial regulation in this country. It was just not designed to tolerate anything of this magnitude. The critical test of any financial system in some senses is how you deal with stress and shock because you want a system that’s going to be strong and resilient enough to handle almost anything it could face. And this system didn’t meet that test because we had a regulatory framework that was designed, largely, 90 years ago and did not adapt to take account of these huge changes in the structure of our financial system.”

March 13, 2009

Can the Economic Crisis Be Resolved?

nauseating crisis

nauseating crisis

Bankers have been treated like bad rich kids with every need met so that Daddy Government isn’t so embarrassed. This was the public relations idea that hasn’t worked. As a result of this public relations nightmare, the federal government has continued to overextend itself in the name of security and confidence as the instrument of last choice. Oh really?

As a result of this mindset, the Treasury has run amok in a virtual panic through the system looking for toxic debts and tried to figure out the crisis using the best brainpower that is available with banking debt so complex as to make you give up. That is what Hank Paulson did. Banks continue to snivel about their needs within the broken system that they created.

What’s worse, the world of top-notch education and best brainpower available coupled with self interest has brought the nation, albeit, the world to its’ knees with only excuses for any hope of redemption. Paulson couldn’t find all the debt or deal with the tentacles of the impossible situation.  Timothy Geithner still isn’t thinking outside the box of rules he is used to. Paulson’s terminal frustration and Geithner’s government-man thinking don’t have to be. They have been beholden to the system. There is a solution.

This solution is much the same as the raw deal handed out to homeowners in do-it-yourself mortgage crisis that continues to beleaguer the nation of taxpaying American citizens. The nation is threatened, say those of superior intellect,  because ‘undereducated Americans’ can’t seem to get it together. Bankers and servicers have done little or nothing to stem the tide of foreclosures because there is little self-interest in doing so in the short-term. The short-term is the measuring stick of capitalism today.

Since bankers and their ilk are so highly educated with plenty of basic internal resources, the Federal Government needs to install a new idea that involves do-it-yourself capitalism. This do-it-yourself system takes the burden from Daddy Government’s hands and puts the responsibility squarely on the shoulders of those that spawned the crisis. Daddy Government isn’t going to be involved any more beyond the cleaning up by the FDIC, but Daddy is going to supply the credit tools necessary to do the job.

banking-hourglassUncle Hank couldn’t find all the toxic debt which ultimately ended the bailout that the nation had intended. However, in the world of banking capitalism,  rest assured that if you have toxic debt, you know it. Banks are hiding toxic debt based on their own fear and trepidation, the ultimate public relations nightmare.

Enter Ben Bernanke’s Federal Reserve, the answer to all liquidity. Set up yet another credit window, this time wholly financed by the Federal Government. This doesn’t mean that the other tools used by the Fed aren’t financed by the taxpayer and the federal government, but I digress.

In this case, the suffering banker knows of his liquidity issues and always has. This time, instead of expecting the Treasury Secretary to come to the rescue, the bankers are to cash out their toxic debt at a preassigned value as presented to the Fed. Think cheap. Think bargain basement. The Fed, using credit guaranteed by the American taxpayer (of course) will issue monetary credits to the bank in exchange for ownership of the toxic debts in a nationwide fire sale of sorts. The toxic debts are and most likely, forever will, be worth virtually nothing.  They will be removed from the system and these flawed toxic debts will never be sold again. We will plan to eat the cost. The responsibility is on the bankers which is exactly where it should be. To make life good, everything will be publicly anonymous to save the possibility of embarassment.

In exchange for this generosity and real bailout by government, these banks will guarantee in blood that all monies received for such bailout will be used to fund loans to taxpayers and small businesses with relaxed terms that generally creditworthy citizens and business in today’s economic climate can meet. In other words, stable income is required, but no more endless profiteering and nitpicking that banks love to keep their credit out of the system. For large bank holding companies that hold toxic debt and cannot directly assist in rebuilding the economy and improving liquidity to the economy, there will be no further bailout.

The first part of the plan would be enough, but the second part of this plan is sheer genius, but not for greedy capitalist bankers.

In the second phase of the plan, bankers will be required from a certain date in the immediate future to update cash holdings for their fractional reserve. Instead of being able to loan out 90% of cash holdings, they will be required to hold on to 20% their holdings without loaning them out. This will allow an extra margin of security since the traditional 10% hasn’t worked to keep banks solvent. The reality is this, like it or not: the fractional reserve of 10% is part of what got bankers into this mess with toxic debt. The idea of easy money is what fueled the crisis. Money is no longer going to be so free and easy for bankers. They will be living on less and making more loans or cease operation and sell off their accounts. An uncooperative greedy banker is the worst sort of animal. It is time to remedy that problem with a little less manufacturing of money. 80% of new loans out of thin air fueled from deposits and downpayments will be enough. Bankers will now be keeping 20% on reserve instead of the traditional 10% moving forward. Of course, this will involve keeping two set of books, one for old loans at the traditional old rate and another for continued business, but bankers are good at keeping books. Will bankers buy the idea? There won’t be any choice if they want to survive. What is best is that no nationalization will be required, an action that renders zero benefit to the taxpayer. ~ E. Manning

March 11, 2009

U.S. Economy: Prepare for Depression and Inflation

Central Bankers Support More Inflation Now

European Union Rejects Breakneck Fiscal Stimulus

economic-knife

Article on Associated Content by E. Manning

We are living on the edge of an economic knife. The U.S. government is bailing virtually everyone in the financial system out. If this continues, the U.S. can expect hyperinflation that hasn’t been seen since post-war Germany down the road.

January 1, 2009

Fed Fearful of Deflation

creditcrunchBankers, especially central bankers strive to be boring while blending into the background. They simply don’t want the attention or someone looking over their shoulder. Unfortunately for them, their inability to follow reason or right and the resulting tough economic times has cast the spotlight unpleasantly on them.

Central bankers, steadily losing the illusion of control, have hit bottom, now using their “own resources”. For example, the Federal Reserve has been using it’s own balance sheet more and more to battle the economic onslaught since March of 2007. Otherwise, the bottom would have already dropped out of the bottom of the U.S. economy and we would be enjoying a profound depression today. Since the dollar is the stock and trade of global currency, central bankers have taken an active interest is propping the dollar up. What has scared many is the idea that the taxpayer of the United States is somehow responsible for all the debt and all the funny money created from thin air by the Federal Reserve, even though the national debt now outstrips the yearly gross national product of the nation.

Now, the Fed is loaning money at theoretical zero. “The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.” The Fed has proven the point, manipulating and managing accounting parlor tricks to keep the U.S. economy at the preferred magical 3% inflation rate for more than thirty years.

To make matters worse, Fed economists are uncertain whether the balance-sheet politics will work, although they are hopeful that psychology will. Now the idea of dropping prices and falling employment rates has the Fed buggered once again. They fear that inflation could fall too low or to make matters more clear…deflation of the national currency.

Back in December of 2003, Ben Bernanke wrote about the “Downside Danger.”

The potential harm of very low inflation or deflation depends on the economic environment. Deflation can be particularly dangerous when a financial system is shaky, with household and corporate balance sheets in poor shape and banks undercapitalized and heavily burdened with bad loans. Under such conditions, deflation increases the real burden of debts—that is, it forces borrowers to repay in dollars that are more expensive than the dollars they borrowed—and may exacerbate the financial distress. (Unexpectedly low inflation has a similar effect.) This phenomenon, known as “debt deflation,” factored prominently in the global economic turmoil of the 1930s and may have played an important role in Japan’s recent troubles.

October 20, 2008

Federal Reserve Questions National Stimulus

In addressing Congress this morning, Ben Bernanke gave a decent summary of national economic concerns aside from a few inaccuracies. The media is proclaiming that Bernanke is recommending a national stimulus plan. That is not exactly true. The fact is that Congress has been evaluating the possibility of moving on a second fiscal stimulus package for taxpayers. In the eyes of Bernanke,

“Any fiscal action inevitably involves tradeoffs, not only among current needs and objectives but also because commitments of resources today can burden future generations and constrain future policy options–between the present and the future. Such tradeoffs inevitably involve value judgments that can properly be made only by our elected officials. Moreover, with the outlook exceptionally uncertain, the optimal timing, scale, and composition of any fiscal package are unclear. All that being said, with the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate.”

For perhaps the first time, Bernanke reflects his concern to Congress regarding the continual expansion of the national debt while using that debt in a responsible manner. From Bernanke’s words, he is clearly not make any predictions for success or encouraging a taxpayer stimulus, instead leaving that decision to the “patient.”

Then, Dr. Ben makes the following recommendation:

Should the Congress choose to undertake fiscal action, certain design principles may be helpful. To best achieve its goals, any fiscal package should be structured so that its peak effects on aggregate spending and economic activity are felt when they are most needed, namely, during the period in which economic activity would otherwise be expected to be weak. Any fiscal package should be well-targeted, in the sense of attempting to maximize the beneficial effects on spending and activity per dollar of increased federal expenditure or lost revenue; at the same time, it should go without saying that the Congress must be vigilant in ensuring that any allocated funds are used effectively and responsibly. Any program should be designed, to the extent possible, to limit longer-term effects on the federal government’s structural budget deficit.

It would seem that the Federal Reserve is hinting at a nationally supportive move, such as a national work program, perhaps modeled to some degree on work programs of the 1930’s. He is also pointing at the possibility of an enhanced U.S. employment program that will show measurable economic results. This is indicated in this statement:

Finally, in the ideal case, a fiscal package would not only boost overall spending and economic activity but would also be aimed at redressing specific factors that have the potential to extend or deepen the economic slowdown.

Bernanke also wants to improve credit exposure to American citizens in an effort to the boost the economy. Once again, Dr. Ben is specifying “easy credit” as the answer to economic growth. Hopefully, the next U.S. President will have enough wisdom to suggest that growing the economy through credit is a failed policy that government has encouraged in the past. Real economic growth is brought about the old-fashioned way: through hard work, wise decisions and a little patience. These concepts have become foreign ideas to many Americans. Easy credit is not an effective way to do anything beyond creating a permanent slavery condition for economic bodies of people. A financial slavery condition is not favorable to the American people or any other nation, but only to bodies that seek to empower themselves. ~ E. Manning

 

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