Busted: Bankers and The Global Economy

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

December 1, 2008

It’s Academic: U.S. Recession

banking-house-of-cards-1For those that needed affirmation, the U.S. has been officially in a recession since December 2007. The Republican’s greatest political fears have finally been clarified by economic academic definitions.

Now that recession is officially here, what are we going to do about it? “It is clearly not going to end in a few months,” noted Jeffrey Frankel, a Harvard economist with the National Bureau of Economic Research. “We would be lucky to get done with it in the middle of next year.”

The White House says, “The most important things we can do for the economy right now are to return the financial and credit markets to normal.” If you’ve been watching the news on television, one idea continues to surface: the best ideas that politicians can come up is to somehow continue the obscene use of endless credit, especially where the American public is concerned. They haven’t awakened to the reality of the need for cost adjustments in the economy that simply make living more affordable and realistic. Instead, we cling to same ideals that brought the nation exactly where it is. However, the fact remains that economic price adjustments are already in process and will continue to work their economic magic whether politicians or economists like the news or not. We are in for another 5 quarters of economic contraction at a minimum along with concordant price adjustments. Business will suffer. Government will “suffer.” Americans will suffer.

Then, on the other hand, many more millions of Americans will also continue to prosper or at the very least, get by. Soon enough, the recession will be past if politics doesn’t keep trying to prolong the cycle by circumventing pain. Evaluating what really put us here beyond crooked banking is exactly what needs to happen. If you read this blog, you have a clue what this is. Otherwise, America hasn’t learned a thing. What do you think? ~ E. Manning

October 26, 2008

Leadership Needed in U.S. Foreclosures

New statistics now share that 2700 Americans lose their homes every day due to the banking and mortgage debacle combined with a sharply declining United States economy. That number is up from 1200 a day one year ago. What do you think? Clearly, Americans are losing ground.

Digital Economy has shared a wealth of information and perspective regarding the foreclosure crisis consuming the American populace. Sheila Bair, head of the FDIC, says that the nation is way behind the curve on getting anything done about the foreclosure crisis. The do-it-yourself attitude of the U.S. government has been no help at all. I’m not sure why the FDIC would bother commenting on the foreclosure crisis, but hey, I’m game. What she said next is much more important: “We need to act quickly, and we need to act dramatically to have more wide-scale, systematic modifications.…”

Sheila Bair is voicing something that Americans and politicians have been mouthing for the last year with little results. Part of the problem is the opaqueness of the mortgage system coupled with that of the securitized and bundled loans so prevalent in the U.S. The Federal Reserve would tell you that rules are the problem. Yet, the truth is that there is no speedy way to deal with the crisis. The mortgage process is outdated and hopelessly compromised by the new age of banking greed. Expediency is important to politicians and as a result, the crisis gets nothing more than plenty of lip service.

Naturally, there are plenty of excuses why foreclosure resolution is so difficult:
Homeowners walking away
Job losses
Negative equity
Availability of credit for new loans
Investor speculation
Complex investment banking instruments (mortgage-backed securities)

The credit market is such that no homeowner is able to get a loan, especially from a competing bank. Bankers don’t want any more trouble from strapped homeowners than they already have. If Congress and the Bush Administration had acted faster with determinant action, much of the carnage could have been avoided. Instead, they have placated the public with voluntary programs such as the Hope Now Alliance. Hope Now isn’t bad, it just isn’t powerful enough or fast enough. No meaningful provisions have been adopted to force the mortgage and banking industry to hold more responsibility for the loans they created.

Now, the nation faces a global meltdown of epic proportions. Can you imagine 2700 houses a day being dumped on the U.S. housing market? The fact is that little real U.S. leadership has been shown. Along with the commensurate lack of leadership, bankers and mortgage servicers are still being allowed to run amok. So far, too little, too late is the result of laissez-faire economics that the Bush administration has adopted. Yet the same laissez-faire politicians are providing taxpayer money as bailout grist for bankers and businesses that they deem as too-large-to-fail. America needs something more than a hands-off approach to business/consumer regulations and relations. Americans need real leadership and action with real protection provisions in place. Even if some American citizens are dead wrong in how they have handled their finances, Big Government needs to step up to the plate and hold back the tide of banking greed and process, while forcing foreclosure resolution to work. It is all in the rules and how they are enforced. So far, your United States government has lacked the will to act strongly and decisively. America needs real leadership, not excuses. ~ E. Manning
Selling Short to Avoid Foreclosure
Good New for Cheated Homeowners
Selling Short to Avoid Foreclosure

October 3, 2008

E.U. Panic: the Edge of the Abyss

Interbank lending, credit to businesses and individuals have seized up. Central banks have injected billions of dollars to maintain some flow of funds, endangering the stability of the dollar.

French Prime Minister Francois Fillon is hosting an emergency summit with Italian, British and German leaders on October 4. Fillon claims that only collective action are capable of solving the financial crisis facing the European Union. He said he would not rule out any solution to stop the failure of the banking system.

Lax regulation and excessive lending have to a global debacle placing the world “on the edge of the abyss because of an irresponsible system,” according to the French Minister.

Finance Ministers in Europe will be working on proposals at the emergency meeting to unfreeze credit while coordinating economic and monetary strategies. While the U.S. has been focused on a massive bailout plan, the British government has been panicking in an effort to bolster their financial system. Bad news isn’t limited to the U.S. economy, now residing in the E.U. financial sector.

Ireland has offered guarantees on bank deposits, prompting a flight of capital from British lenders to Irish banks. Insurance giant Fortis has been broken up and nationalized to sustain it since no corporate rescuers were available. Swiss UBS has been plastered by its exposure to subprime debt. The banking and investment industry in Europe is shedding jobs. Meanwhile, turmoil over Ireland’s guarantees threatens the stability of the rest of Union according to many banking officials.

The U.S. economy has become thoroughly dependant on foreign investment. With much of the world is financial disarray, who will invest in America? According to authors of the American bailout plan, the plan is largely dependent on foreign investors to insure the success for the future. Otherwise, U.S. success in preventing a protracted deep recession is truly a wild card. ~ E. Manning

September 30, 2008

Financial Collapse: Fear & National Resentment

monetary whirlpool

monetary whirlpool

Global reports state that the global credit crisis has deepened. Banks have stopped lending to one another. Britain and Europe are encountering many of the same problems as the United States. Central bankers are dumping cash onto the market and playing the same game as the Federal Reserve through auctions to keep commercial banks on life support. Who is to blame? Today, the blame is being cast on the collapse of Lehman Brothers, but the reality is a tragic loss of confidence brought on by bankers themselves. Some of the best educated men and women on the planet have been powerless to improve the situation.

Commercial bankers have locked up the market and the only option central bankers think they have is to dump money into banks, in effect, satisfying the “need for cash.” The need for cash and credit is a symptom of the larger problem: panic by bankers because of their poor choices.

Economists publicly expect the longest recession in a quarter century with or without a bailout plan to rescue the battered banking industry. Most say the next six months are going to be very difficult. Market scare tactics say that if a bailout is not approved, a depression is likely as credit freezes up and markets collapse. The global consortium of central banks dumped an additional $630 billion into the global financial system, which will fuel both inflation and devalue currencies simultaneously. Central bankers are doing the same thing with other major currencies, portending a global debacle in an effort to keep the cash and credit flowing. On the other hand, the central bankers don’t want to be caught holding devalued cash, so now is the time to cleanse their palates. Central bankers only collect and horde gold among themselves since that is how they settle their accounts against each other.

stormy economic skies

stormy economic skies

Whether disaster can be averted or not, the United States has a right to do nothing, even to fail. The reality is that this is already what has happened as politicians and money managers stubbornly cling to the hope of sustaining what currently exists in the current power structure. The problem remains as a global crisis that even central bankers are ill-prepared to deal with.

George Bush warned Congress that they must act or damage to the U.S. economy will be painful and lasting. Congress seems to have rejected that notion. What the nation really has is a credibility crisis. Authorities seem to be more interested in their reputations than possible solutions. Meanwhile, many American scrimpers and savers are in a panic and most American voters resent the bailout efforts, convinced that the rescue effort is for the good of Wall Street and not the average man in America. Considering the decline in the U.S. living standard over the last few decades, the popular opinion to let banks fail and allow the system to unwind naturally is seen as likely to have little effect on meaningful personal assets in the eyes of most Americans. The real problem that panics bankers and politicians lies in the market correction and pricing standards in a bankrupt economy as values fall through the floor, creating still more bankruptcy and poverty for business and citizens.

The correction in the U.S. housing market bore a decline of more than 16 percent in July 2008 alone as the accounting totals have come rolling in. Americans are quickly becoming “upside-down” on mortgages on their homes, encouraging more defaults and foreclosures, even as more Americans lose their employment from an already failing economy.

The public line is that business must have a huge amounts of credit available. Business, like consumers have become increasingly dependent on credit while overpaying executives and paying stockholders instead of reinvesting in themselves. With credit becoming increasingly tight, businesses may find it tough to obtain short-term loans to meet payrolls or purchase inventory. That may lead to job layoffs, which could ripple through the economy in a matter of weeks. The bottom line is that solvent businesses do not need large amounts of credit for everyday business. In the “old days,” business used to borrow for expansion purposes only. Business needs were met by the influx of cash coming in from clients and customers. Have business standards declined so dramatically in the name of personal profit taking or is this statement simply a political red herring to generate urgency?

Increasingly, Americans have become more and more detached from the wealth and prosperity of Corporate and Political America. They have become beasts of burden for the affluent. Considering the circumstances, it isn’t hard to see why many Americans don’t favor a bailout, even if they risk losing a few thousand in a retirement account they may never see anyway. There is an underground pessimism and resentment that has come to rest in much of mainstream America. ~ E. Manning

August 1, 2008

Oasis Wealth & Fraud: Simply Unsustainable

Since World War II, the United States has been the center of global finance. It has used that position to virtually dictate the conditions under which many other nations get access to capital. Letting weak and mismanaged companies fail has been high on the list. As of late, this reality is no longer the case as bailout fever ensues to glorify national confidence.

Henry Paulson, the U.S. Treasury boss, has not reigned in criticism of other countries that have nationalized corporations in the past. Since March, he has been in the position of recommending the same ideal himself. How times change. Fascism has come home to roost in America.

The U.S. economy is a shambles for most, perhaps subsistence at best. However, this does not include the up-and-coming flank of investors and administrators that are tapped into commodities futures. Unhappily, this too is a desert vision of an oasis. Eventually, thirsty investors will be gobbling down sand in an effort to sate their thirst for money and profits. This has already happened with the mortgage crisis. As the environmentalists would say: “this is isn’t sustainable.” The multi-level marketing scheme will become oversaturated and lose its potency. Eventually, the poison of fraud takes hold of those that practice it.

The U.S. is now enjoying the reality of an economic hangover from unbridled credit, financing and speculation compounded by ignorance and mismanagement. Wages haven’t kept pace for what seems like an eternity for all but the wealthiest. This was conveniently ignored as long as the nation thought borrowing would sustain the national lust for the appearance of wealth. The desert vision wasn’t sustainable and now, like the Japanese, Americans are thirstily looking for the next oasis. Surely corporate wealth and the corporate oligarchy will sustain us. Most plans for unbridled wealth are unsustainable. Is yours? ~ E. Manning

June 16, 2008

The U.S. Housing Market Turnaround

As home and real estate prices fall, home buyers will lose a primary motivation for paying high prices for homes: making money on home price appreciation. If you don’t fall into that category and money is not an object (probably about 1/2 of a percent of home buyers), then you aren’t affected by the market. When money is not an object, your home is your pride and a merely a symbol of your wealth for the world to see.

In today’s economy, it is wise to realize that falling home prices are a symptom of a problem. Lots of people want to live in and buy homes in America. However, there is a difference between paying loads of cash for a home and spending as little as possible. Right now, this economy is “somewhere in-between”.

The housing market will, in fact, turnaround. Prices must drop a substantial amount for the possibility of a market turnaround. This is known by pundits as the dreaded “market correction”.

For years, banks and finance companies have depended on the rising value of real estate to bring home the bacon. Creative financing and the dream that housing value would never drop fueled the fire of the great mortgage bubble.

Now, the value of homes and requirement of financing in order to afford a home has come back to bite the world of banking and finance in the boo-boo. When the market value of homes drop en masse because of a market correction, demand will ultimately decrease because people are worried they will lose money when they buy a home. Given the miracle of modern financing, this is a sure bet. Given that the equity may be only 10% of the value of the home, Mr.and Mrs. Homebuyer could easily lose all of their money. This is not a wise investment. The typical home buyer has become afraid to buy. They simply cannot afford the high stakes.

Seller panic ensues as home sellers find it harder and harder to sell their homes. Buyer panic comes about when prices drop rapidly. Buyers don’t buy even with drastically lower prices.

The lack of easy financing in banking puts a home beyond the ability of many home buyers. This factor puts additional downward pressure on the housing market. With the advent of banking problems, the zero down-payment is likely a thing of the past for most home buyers as well.

The down-payment was actually designed to protect the banker in the event of default. Considering that bankers create money out of thin air with the fractional reserve power they possess, this is a straw dog argument that old bankers used to make. In the midst of their pain, bankers will be screaming for down-payments again, thus negatively impacting the market they seek to bolster.

Job security is also a major factor in the housing market. For years, wages have not rose appropriately to keep up with expenses. Jobs are being exported overseas. All the while, bankers have been there to convince Americans that they can afford a piece of the dream. As a result of financing and creative sales, the finance industry created a boom based solely on credit, ultimately generated by commercial bankers and the Federal Reserve.

Because of the failure of job market wages to appreciate over the past thirty years combined with the idea of financing every purchase and whim, Americans have impoverished themselves as a whole. The ponzi system of finance has played out the limits of its endurance for now.

For now, the home buyer alone will determine economically sustainable levels of housing prices. Only the best homes will be able to command the best market prices. The buyers market is the reality. Everyone else will have to make due until a balance is established. In the meantime, millions of nondescript tract homes sit empty while the economy tries to decide what to do with them. Hang on. A new bubble is around the corner.

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