Busted: Bankers and The Global Economy

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.

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November 12, 2008

Discouraged U.S. Treasury Takes Other Options

illiquidity support

illiquidity support

The major determination of the initial $700 billion bailout to buy up devalued securities has been scrapped. “Illiquidity in this sector is raising the cost” coupled with continued pressures on consumer credit. “This is creating a heavy burden on the American people and reducing the number of jobs in our economy.” Obviously, Paulson’s original take on the bailout was heavily overestimated.

What U.S. Treasury Secretary Henry Paulson has just admitted is that the functionality, transparency and the scope of the defective banking instruments is so poor, that buying them up won’t solve the problem or would involve a significantly larger sum of taxpayer money, showing a huge chasm in the underlying viability in the U.S. and global banking industry and perhaps the U.S. economy as well.

The bailout made only a month ago won’t deliver what was promised. Secretary Paulson pitched the bailout plan as a way to rid bank balance sheets of illiquid mortgage assets. Congress may show resistance to releasing the remaining $350 million in funds for future purposes. The real problem is that the national bailout won’t work at all. Banks are still holding the toxic debt that they created.

92308-paulson-bernanke-testifyThe United States seems to be stuck in a netherworld of economic dysfunction. Now the U.S. Treasury and Federal Reserve officials are exploring another facility with the idea of supporting the market for securities backed by assets. Paulson wants to use bailout money to encourage investing again. Investing in a terminally broken system is not the answer and a paramount oversight on Paulson’s part. His misjudgment is just another reason why Paulson should not be allowed to continue to tinker with the financial system. He doesn’t have the expertise required, further muddied by a failed and hopelessly bankrupt and antiquated system. This portends bad things for the U.S. economy and the world, but even worse, the U.S. Treasury is now misrepresenting previous actions without answering to any other authority under the guise of failure. Has anyone really studied the problem enough to be able to develop a core solution?

Continuing to invest in the same bankrupt insanity is poor thinking at best. Trying to convince investors to do the same thing is even worse. There is a push overseas to rebuild a new monetary architecture with a new global financial society. Will desperate American politicians pile on in an effort to redeem themselves and what is left of our failing financial system? What real options does America have?
~ E. Manning

August 2, 2008

March 19, 2008

International Banking Mood Jittery

Recent media and banking chatter reflects a jittery mood surrounding U.S. and U.K. banks. The latest world focus has been on Federal Reserve moves in the U.S. as well as the collapse of investment bank Bear Stearns last Friday. To calm the jitters, the Bank of England made a statement to speculations saying that it isn’t aware of a problem at any British bank. “No meetings have taken place or been scheduled to discuss problems with any institution in the UK,” a BoE spokesman said. The good news continues. It has been a largely uneventful week in the U.S. so far, which is promising. U.S. investors have been fearful of more banking failures, particularly with investment banking. Numbers recently released by those banks have calmed the concerns of many.

The international G-10 central banks have made special internal arrangements to insure against liquidity issues on a national basis.

It would be wise to keep in mind that the collapse of Bear Stearns was unexpected and took only one day. The published figures and stock market prices were up until the investment bank run. Internal banking instruments and securities packages have caused internal instability, chiefly in the U.S. banking system. Because banks have fearfully refused to loan funds to one another, the Federal Reserve has been forced to step in with creative financing in response to the situation. The bottom line is that not one single person actually knows the extent of the risk to the U.S. banking system. Likely, because  the huge volume of these creative banking securities were originally designed to make big money, most banks, especially investment banks are probably greatly overvalued because of the large volume of these securities held. The banking situation continues to be dangerous for investors. This has been recently reflected by investor response in the U.K. as more investors invest in cash deposits. Doubtless, bankers are watching their numbers very closely.

March 14, 2008

Bear Stearns in Danger; Economy Stressed

bear-stearns.jpgJPMorgan Chase announced that in conjunction with the Federal Reserve Bank of New York it will provide temporary funding for Bear Stearns, the fifth-largest investment bank. The funding will be provided as necessary for up to 28 days. During this period, JPMorgan Chase will assist Bear Stearns find permanent financing. Bear Stearns says its liquidity significantly deteriorated over the past day and the temporary funding will help it continue operating normally.

The investment bank added there is no guarantee that any permanent strategic alternatives will be successful. According to the AP, the central bankers tapped a rarely used Depression-era provision to provide loans, and said they were ready to provide extra resources to combat an erosion of confidence in America’s biggest financial institutions.

Nearly half the value of Bear Stearns, or about $5.7 billion, was wiped out in a matter of minutes as investors decided the bailout signaled that the credit crisis has reached a more serious stage, and now threatens to undermine the broader financial system and the U.S. economy.

Additional information from the Fed

A few loners have been very much ahead of this economic situation. Last night, President Bush admitted trouble in the economy after three and a-half months of “chin-up exercises”. More bailouts are in the air with large banking institutions, even as early as next week. The movements of the Federal Reserve in advance of this latest news were clearly not a coincidence, but a preparation for the inevitable while wearing a brave face to the public-at-large. Interestingly, the public has not held much interest even though their interests are keenly at stake. ~ E.M.
 

March 7, 2008

Fed Addresses Bank Liquidity Problems

Filed under: banking, credit, federal reserve, government, money — Tags: , , , , , , — digitaleconomy @ 10:13 am

In an effort to strengthen the U.S. banking system, the Fed has increased the TAF or short-term auction from $30 billion to $50 billion to meet the dramatic demand. The Fed press release also announced the amount would be increased as necessary and that auctions would continue for the next six months unless the need abated. The increase in the TAF auction demonstrates the continued stress in banking finance and the serious condition of the economy.

In more important news, the Fed has started purchasing United States securities today to bolster the economy. Essentially, the Fed is temporarily buying bank-banked securities to increase liquidity within the banking system to loosen the hold of the credit crisis. As a result of the bond holding actions of the Fed, banks can temporarily remove the securities from bank ledgers, bolstering the strength of banking portfolios. Initially, the Fed plans to buy into $100 billion in bank-backed securities and announced that the amount may be increased. Essentially, this tactic amounts to the U.S. government through the Federal Reserve buying the securities to avoid bank failures, thus preventing a loss of confidence. This action will short-circuit the need to for the FDIC to cover a rash of bank failures by bolstering the flagging bank system.

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