Busted: Bankers and The Global Economy

March 8, 2009

Bailout Fever Meets with Resistance

bank-bailoutBailout fever is no longer the style as the Senate Banking Committee, notably Republicans, are rising up against the prospect of moral hazard.

Read article on Associated Content by E. Manning

March 1, 2009

U.S. Budget Goes Bust

obama-camp-lejeuneThe economy is in a tailspin, contracting at a 6.2 percent pace in the last three months of 2008: the worst performance in decades. The White House announced that it will take a 36-percent stake in Citigroup in the hope of keeping it afloat amid huge toxic debt and a continuing crisis of confidence. These are ominous reminders that the nation has critical decisions to make in order to turn things around. President Obama appears to have ditched the Bush administration’s Washington-style budget sleight-of-hand with the attempt to honestly portray what the government will actually spend. In the mind of President Obama, his truth in budgeting approach is designed to help Americans make informed choices. That is exactly what Americans have been doing without government so far. We react to the failures of government, business and even ourselves. Even so, President Obama reveals that $3.6 trillion is to be spent in 2010, with almost $1.2 trillion of it borrowed.

What is President Obama’s message to taxpayers and Capitol Hill? We need to quit magical thinking. All the thing the nation’s needs will not pay for themselves. Laying the groundwork for a strong economy in the future isn’t without cost. Does America want to kick fossil fuels out for a greener future? How will America reform how we pay for health care, so that the nation can get more for our dollars and reduce the ranks of the uninsured? How do we keep Medicare solvent with the swelling rank of the disabled and a steadily growing retirement community? The nation needs a larger federal contribution for our schools. How will the nation repair and maintain roads, bridges, airports and mass transit? Now there is talk of building a modern energy grid. The president is counting on the economy to be growing by 2011. He plans on halving the deficit by 2013 through taxation of the upper class and perhaps through restricting corporate taxes loopholes and offshore banking. Keeping a deficit in the same place is difficult enough with the proposed spending required to save the nation and its’ current power and financial structure. That deficit reduction remains to be seen. Along the way, the nation must discontinue the practice of borrowing, spending and passing the bill to our kids to deal with. We just haven’t figured out how to do that yet.

You can argue that money isn’t everything, but you can’t argue that fact when you are in government and money is everything. ~ E. Manning

February 23, 2009

PM Brown: New Global Economy

pm-brown-berlusconi-romeBritish Prime Minister Gordon Brown has stressed the importance of April’s G20 ‘Economic Recovery Summit’ in London in the bid to strike a “global deal” that will “speed up the recovery of the world economy”. He and other European Union members are advocating a new global financial system, but have backed off somewhat due to the reluctance of U.S. support. His recent statement in Rome revealed that all nations need to inject resources into their own economies as well as agree on ways to reform international institutions.

Currently, he is recommending new policies that he calls ‘fairness principles’ against “old excesses” in the banking community, a standard of stewardship instead of speculation. In the meantime, Brown and other European Union members are advocating unity in opposing moves towards protectionist trade policies. They see the U.S. as a major opponent where such policies are concerned.

Back in the United States, international bank holding company, Citigroup continues its precipitous decline. The U.S. government is looking at boosting its’ controlling interest in the banking firm to boost confidence and maintain solvency from toxic debt, part of the speculation that PM Gordon Brown was referring to.  Britain is dealing with similar issues relating to the Royal Bank of Scotland. ~ E. Manning

November 23, 2008

Citigroup Saved by Federal Reserve and TARP

citigroup1In headier times a mere six months ago, Citigroup was discussing the sale of assets to raise cash flow and liquidity. With the stock market value of Citigroup plummeting, one of the larger international bank groups has now been saved this morning through the Federal Reserve. This is undoubtedly designed to build confidence in the markets this week as the economy continues to flag amid record job losses in America.

Citigroup is one of the world’s largest owners of toxic collateralized debt obligations (CDOs). This pool of bonds has created one of the largest victims in the financial crisis.

The U.S. Treasury and the Federal Deposit Insurance Corporation is providing liquidity against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the U.S. Treasury and FDIC.

The U.S. Treasury has invested $20 billion in Citigroup from the Troubled Asset Relief Program (TARP) in exchange for preferred stock with an 8% dividend to the U.S. Treasury. ~ E. Manning

October 6, 2008

Crisis Floods Global Markets

not all love bailouts

not all love bailouts

Governments and central banks around the world grasped at measures to contain the fast-spreading financial crisis today. Investor confidence reflected on global stocks. According to the media, investors have finally decided that a recession is inevitable.

The more powerful members of the EU have reacted in panic as market volatility continues. Similar events continue to unveil with bailouts in the works. Even Fortis has new ownership. In panic, central bankers are dumping billions of euros on the market, creating another global monetary inflation hazard. A few national banks throughout the EU have moved to guarantee depositor funds causing a rash of capital movement to guaranteed banks and undermining financial security for others. More European governments followed Germany’s lead offering guarantees to savers in a frantic effort to calm fears among investors over the worst financial crisis in 80 years. The big losers portend to be the shareholders of these institutions.

economic bondage

economic bondage

The British government has promised on Monday to protect citizens in the face of global financial turmoil. Investors are terrified that the government will require partial ownership in exchange for the bailout.

For more than a week, the U.S. Federal Reserve has been working to find new ownership and capital to cover to bankrupt Wachovia Bank, even issuing and quickly retracting their statements as deals have fallen through. Right now, the Fed is trying to coax Citigroup and Wells Fargo to break up the Wachovia’s assets. Even the Fed is learning to temper its enthusiasm as deals are worked out.

While none of this is especially good news on the surface, the really bad news remains the now unseen seeds planted by central bankers as they flood the market with euros or whatever monetary unit is seen as useful. This simply weakens an already weak economy and further dilutes the value of the currency, creating more inflationary pressure.

The really bad news behind all of this news is that the United States bailout success hinges so much on foreign investment from overseas. With a global crisis in the works, only the Muslim and Saudi countries are not yet reporting huge problems beyond apparent hyperinflation caused by the huge $700 billion yearly influx of greenbacks from America. They have so many devalued dollars that spending them is a challenge. Therein lies the crux of the problem. A vicious circle of events is creating a downward global spiral that cannot be readily or quickly overcome without a reinvention or substantial revision of a new monetary system, an idea that is reportedly in discussion by the International Society of Bankers (the global central banking franchises) as an easier way out of the looming crisis if events become unmanageable. ~ E. Manning

August 21, 2008

Wages in America: Faking Lifestyle

web of deception

wages: web of deception

The concept of wage stagnation is in the news once again even though the economic blight is a mere 35 to 40 years old. The media and economic bean counters are curiously worried about the “standard of living bubble.” Imagine the idea that this news at all. Most Americans, except during times of heady expansion in certain markets, have been fully aware of the concept as jobs head out of the American economy in droves because of corporate multinationals and careless politics. For years, the idea was that you could beat wage stagnation with a well-heeled education, but reality has proved that this idea is no longer true if it ever really was.

Americans and other high-faluting nations have been loading up on credit for years to bolster the appearance of bettering the Joneses next door. The contracting market cut into that fantasy for many credit afficianados. Now the contracting job market, which in reality has been imploding in the United States for some time is hampering the ability of Americans to cope with lifestyle choices.

If that prospect wasn’t enough, now Americans risk losing the ability to use their precious credit cards because contracting credit markets threaten to limit access of credit cards to many participants. The entire economy of the United States seems to be facing a reality check where fiscal relevance is concerned.

credit is good for America

credit is good for America

The media has suddenly cooked up the idea that inflation has been increasing more rapidly than pay increases, which goes against what the U.S. government has preached for decades. A modest 3 percent raise in pay was supposed to cover the national inflation rate. The reality from the 80’s to 2006 shows a ten percent yearly-averaged inflation rate. Using these humble and easily accessible figures, no fool would admit that wages have kept pace, even if those wages were not stagnant. The term stagnant is relative, depending on how you want to justify the term.

The cold reality that we all know is that we have supported our lifestyle dreams on credit. We lost the incentive to save, which we have lost anyway due to the monster of inflation. Saving a few dollars now with a regular inflation loss means a dollar saved is a dollar lost, just a little slower over time. The endless printing of American greenbacks combined with a burgeoning national debt has ensured that a dollar saved ten years ago is worth zero today. Any interest gained on that dollar is worth very little unless you were able to invest that dollar to somehow create more. When viewed in reality, inflation is really a hungry bear. The working man has been royally and cruelly worked over, even though the government has denied the reality all along.

semantics in wealth perception

semantics in wealth perception

Since the mortgage debacle and the contracting real estate market has hit the economy (not pointing fingers today), Americans have embraced the last source of easy money to keep up their lifestyle or to avoid the reality of bankruptcy from relentless spending.

Americans aren’t ones to be told no when it comes to lifestyle. According to bean counters, credit card debt is growing much faster than the economy as Americans use credit cards with interest rates as high as 30% as a substitute for income. Last year, use of credit card increased around 7% each quarter. That is a 28% increase in an attempt to sustain economic lifestyle. Last May reported an increase of credit card use of 7%. If that were to continue for 12 months, the humble increase is a mere 84%. Obviously, this economic miracle is not sustainable.

A big crush is coming, but not just because you can’t pay your credit card bill. Banks are “securitizing” everything including your beautiful credit card debt to be sold off to eager desperate investors, at least bankers hope. Citigroup alone lost $176 million through securitized bonds for credit cards in the last quarter. Sweet. Delinquency rates devalue the securitized bonds, forcing a writedown in value.

Since banks can’t sell of all that glorious credit card debt, banks are going to make customers pay more for the privilege of easy money resulting in less easy money and a contracting credit market over time because creative money creation is not working to the advantage of wiley bankers.

Where America will turn next is anyone’s guess. Barring black market prices for selling off children as collateral, Americans may be faced with the joys of living within their means. The good news behind all of this drama is not the perceived pain. Contraction of any marketplace is a mixed blessing. Billions will be lost and millions of Americans will see hard times, but in the end everyone is a winner because, at least in theory, the marketplace achieves a value balance. America has needed a long-awaited correction that politicians are deathly afraid of. Market contraction means that prices and everything that is assigned a dollar value decreases in relative cost. The exception to that blessing is the specter of devaluation or the possibility of hyperinflation due to stagflation. That however, is another story. ~ E. Manning

August 8, 2008

Bankers Seek to Buy Out Uncle Sam on Fraud

Regulators have been investigating Wall Street firms for their role in the sales and marketing of auction-rate investments.

Wall Street agreed to buy back more than $17 billion in securities that they fraudulently sold to retail customers paving the way for other banks and brokerage firms to do the same.

Merrill Lynch jumped ahead of regulator investigatory scrutiny, announcing that they will buy back about $10 billion in auction-rate investments that it sold to retail investors.

Citigroup reached a settled with state and federal regulators, agreeing to buy back about $7.3 billion of auction-rate securities that it sold to retail customers. As recompense for misconduct, Citigroup will pay a $100 million fine for its misconduct. The securities are essentially worthless, even though the buyers were told that the securities were safe and easy to cash in.

Even Bank of America is under attack with subpoenas related to securities sales. Taking on responsibility of bank instruments in bank bailouts has likely posed an additional headache.

At this time, institutional investors are still out in the cold, but both firms claim to be working on a resolution on problems with institutional investors in the hopes of avoiding more heat and gaining brownie points from the federal government. A rush of settlements are expected in the next few months as Wall Street aims to absolve itself.

Regulators are starting to pile on in a sort of informational and investigational bankers bloodletting. The Securities and Exchange Commission has elected to stay out the recent penalties as they expect to weigh in on their own investigation. From all appearance, Wall Street’s troubles have only just begun. Bankers know their guilt. Can they distract the investigations to avoid the embarassment as the propensity of their fraud is exposed to the nation? Seeking to buy out authorities may be seen as an easy way out as the financial onslaught on Wall Street and for banking in general continues.

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