Busted: Bankers and The Global Economy

January 16, 2009

Treasury Bails Out Bank of America

rainy day for B of A

rainy day for B of A

Since the beginning of economic contraction, Bank of America, has been buying up banks and assets from failed institutions such as Merrill Lynch. Now is a rainy day for Bank of America, a toxic debt laden bank in danger of failure.

After taking recent value write offs on toxic debts, the U.S. Treasury and the Federal Deposit Insurance Corporation are providing protection against unusually large losses on approximately $118 billion of loans, securities backed by residential and commercial real estate loans and related faulty assets. (more…)

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October 12, 2008

International Bankers: Time is Short

the IMF in better times

the IMF in better times

The International Monetary Fund, an international organization that oversees the global financial system based on economic policies of its member countries, proclaimed that time is short for consensus on the international financial crisis. The finance members of industrialized nations failed to agree on absolute and unified measures to end the crisis. The IMF expects a systemic meltdown if stability in financial markets is not achieved. While the international body recommends “exceptional vigilance, coordination and readiness to take bold action,” the body is leaving the pressure and responsibility on the collective bodies of national Finance Ministers. All this from an international body that claimed in August that there would be no recession in the Eurozone.

Solvency concerns are cited as the chief concern. The reality is that solvency is determined by a set of regulations that can easy be changed, as has happened in the United States. Therefore, the definition of solvency to a reasonable extent is in the hands of Finance Ministers and national leaders. Where such a change is seen as beneficial, such a move buys time when developing a consensus is especially important.

While consensus has been difficult, developing effective means to counteract the global financial crisis has been no less elusive. Panicked Finance Ministers are looking for support from the IMF or other global authorities in a effort to deal with the crisis. Britain has developed an interbank lending guarantee that has other nations stressing to compete.

In general, G-7 and G-20 ideas are essentially the same and somewhat short on creativity. Whether injecting capital into financial institutions and insurance companies, effectively nationalizing them, or buying up worthless mortgage assets, groups of Finance Ministers are chiefly examining the importance of uniform national guarantees to protect individual economies and to avoid creating a currency run. Encouraging monetary liquidity through central banking auctions has become a mainstay in prime economies.

Most telling perhaps is a statement made by the Brazilian Finance Minister, Guido Mangega, “The problems we are facing today in the global economy must be solved by several countries, they can’t be addressed by only one country or a single continent.” Finance Minsters from the G-20, not wishing to be left out of the loop, want emerging economies to be included within the ranks of G-7 Finance Ministers or by implication, involved as part of a larger authoritarian body.

Even Arab nations, whose prosperity seemed to make them immune from catastrophe are now encountering monetary issues, property value declines and business funding problems that threaten the Arab economic fabric as in much of the world. The Arab nations are largely isolated within the Islamic banking community except from within the burgeoning oil market, which in recent years has fueled inflation rates as high as 25 per cent.

As a result of the growing crisis, the United States is seen on many fronts, notably among Muslim leaders, as having no credibility whatever. Resentment, which is already high in religious circles, is multiplying because of the perception of financial betrayal and lack of wisdom. The push for Islamic banking within Muslim circles will continue despite any devaluation of the dollar experienced.

The issue created by injecting capital into banks dilutes monetary value and ownership of individual banks. While these types of measure can create the appearance of stability, diluting monetary value creates an ongoing increase in national, as well as global inflation. With increases in credit and cash generated for financial rescues, the end result is always inflationary as the devaluation of currency sets in. The only short-term winners are holding the gold and living off the interest for their services: central bankers. Meanwhile, central banking policies are behind the continued growth in inflation because a flawed economic model that mandates liquidity through monetary production. This is currently central banking’s best hope for economic stability. ~ E. Manning

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 19, 2008

Total Meltdown or Financial Reconstruction?

What is happening on Wall Street? Everyone wants to know why government has waited so long and who will be held accountable. Now we are in the midst of a financial panic. Communication at the top of government during the panic has been in contention among politicians. Some are pointing fingers of blame. Most are simply carrying a stiff upper lip and wearing a poker face.

hundreds of billions of dollars

bailout: hundreds of billions of dollars

There has been plenty of talk about effectively sucking up the bad securities with a vaccuum cleaner style policy that has yet to be revealed. This miraculous policy is what authorities will be working on today and this weekend in order to avoid what some say is an inevitable collapse. In essence, everything needs shoring up and the government seems intent on taking care of the world. Open the newspaper or check out the internet to see the flurry of activity by authorities “to address the underlying problem.” All of this is being touted to cost the American taxpayer far less than allowing the crushed system to play itself out. If you like big government or have the idea that only marketing matters, this may be the ultimate solution for you.

Recently bailed out Fannie Mae and Freddie Mac will be used to bolster the system, but all measures in place are deemed as “not enough.” Liquidity must be restored. Government is working to eliminate selling short by profiteers, which has worked to undermine the solidity of the system. They expect to buy out all of the securities, modernize the system to today’s standards and then set up new rules so that what led to the collapse can never happen again. U.S. Treasury Secretary Henry Paulson has revealed right now that saving the system from total collapse is what is on the financial and political plate this weekend rather than worrying about the idea of regulating the new policies that they want to put in place. Obviously, flooding the monetary system with a cash infusion yesterday has done nothing to take care of the crisis. That is no surprise.

Now a lame duck president is setting the direction for this nation with very little consultation, much like what he has done with other issues during his terms in office. There must be no controversy and authorities are in a great rush to action. Is that action warranted? Will the nation default on its debt? What will happen after the policy miracle of this weekend? Like it or not, prepare for a roller coaster ride. ~ E. Manning

August 23, 2008

Economic Gale Force Winds Blow in the States

Another Friday passed with the closing of The Columbian Bank and Trust of Topeka, Kansas. Ben Bernanke is speaking in an amazing feat of poetry, comparing the economic storm in the United States to gale force winds that have not subsided. This is an almost startling admission from a man so conservative in his explanations. Bernanke is feeling confident about his strength and position.

The appearance of the economy has weathered well so far without truly significant collateral damage for the public to see. Bernanke admits to being challenged with the “softening in economic activity and rising unemployment.” He readily admits that commodities boom is partly responsible for the dramatic rise in inflation instead of simply blaming inflation on energy futures.

The Fed is weathering the gale force storm by hanging tough and hoping for stability. Even “the experts” admit that the inflation outlook is uncertain, but will be a major concern through next year. If the Fed could find a way to control commodity prices, they would probably think they had it made. Bernanke hasn’t devised a way to harness the commodities market yet. Undoubtedly, that is in the works soon.

The Fed continues to work with other central bankers to provide plenty of liquidity for needy banking institutions that are still fearful of interbank lending. Banks continue to use Fed auctions liberally, with demand in excess of supply.

Bernanke admits the need to somehow strengthen the financial system beyond the sustenance that has already been provided. Suddenly, Bernanke is speaking about thorny issues “raised by the existence of financial institutions that may be perceived as ‘too big to fail’ and the moral hazard issues that may arise when governments intervene in a financial crisis.” In other words, Bernanke is expecting some large financial failures. Whether he is alluding to Fannie Mae and Freddie Mac or holding banks like Citi isn’t being admitted. He is sounding warning by his comments as the gale force winds blow. He also defended the need to cover for Bear Stearns almost six months ago. He apparently expects to do so again.

Bernanke has also admitted that the Fed is involved in finding a way to protect bankers from their own financial politics through automation and standards rather than avoiding the risk altogether. In other words, the Fed is seeking to minimize risk by continuing to engage in what has been discovered to be risky banking conduct. Hey, it’s good for business.

Bernanke even discusses covering pools of securitized bonds while seeking more power from Congress to settle a crisis without government intervention. That is good for the Fed’s business as well as the corporate oligarchy takes ever more responsibility for monetary policy and legal oversight from the hands of government. That is the idea in the eyes of the Fed.

Bernanke believes that the more power that the Fed has, the less risk that there is to the system. He is convinced that by having more regulatory power to monitor individual institutions, he can eliminate moral hazard and promote financial resistance, perhaps by increasing capital requirements for banking. He wants to conduct “stress tests” to monitor liquidity, risk exposure and adverse circumstances. He wants to build a new financial regulatory empire operated by corporate global banking. Who is watching the Federal Reserve while all this wonderment is going on? Not a soul is watching the Fed. The Fed monitors itself and as far as the government and Congress are concerned, is “above reproach.”

The reality is that politicians have become thoroughly dependent on the International Society of Bankers. Fear should be firmed rooted in the hearts of politicians. World bankers have the nation of sheep by the private parts and are leading it down the primrose path of banking for sheering.

~ E. Manning

June 7, 2008

Wall Street: Distractions and Insecurity

The media is once again focusing on the insecurity of Wall Street. The insecurity has never really left. Only the distraction of profits and money to be made has given Wall Street any relief from the feeling of doom.

Many investors thought the financial sector bottomed-out in March when JPMorgan Chase rescued Bear Stearns from the brink of collapse. Now there are worries that Lehman Brothers Holdings Inc. is facing a serious cash shortage.

What is new about this? Rumors have circulated about Lehman Brothers and other investment bankers on Wall Street at the same time that Bear Stearns saw its demise. Bear Stearns fell first.

Like Bear Stearns, Lehman says that it has plenty of money, but claims to be looking for more capitalization. The vernacular of “capitalization” is the new keyword of the U.S. financial crisis. Increasingly, strapped banking institutions are seeking more and more capitalization as the fruit of their old banking standards comes to rest.

This is tantamount to the admission of trouble. Not a single human being alive really has a clue as to where the bottom really is. Anyone that does is engaging in fanciful thinking.

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