Busted: Bankers and The Global Economy

November 16, 2008

Big U.S. Bailout Secrets, No Supervision

bailout game show giveaway

bailout game show giveaway

The Troubled Asset Relief Program, originally a $700 billion bailout program mandated by Congress was to be conducted with transparency and oversight. That hasn’t happened and none of the oversight posts have been filled. To make matters worse, the Federal Reserve is now showing $2 trillion in additional loans, which apparently have gone to the central bankers bottom line.

Disclosure has been a joke in a solution that was declared to be sound and manageable. Instead, there has been no accountability and a desire to change plans in the middle of the bailout game by Henry Paulson and his team. Most of Congress seems unconcerned.

House Rep Barney Frank gave the thumbs up revealing, “I talked to Geithner, and he was pretty sure that they’re OK.” Who is okay? Certainly the Federal Reserve is very okay as they have nothing to lose and everything to gain. Who is Barney Frank talking about? Revealing the collateral for the $2 trillion in loans would give away banking secrets, so nobody is talking.

The reality is that the Federal Reserve is taking bad debt from the banking industry and giving itself huge sums of cash, since it still holds all the loot. It’s profit taking time in New York City. Perhaps this is the money to pay for all those Ameros that the U.S. just sent to China to pay for their earthquake rebuilding project, but that’s only conspiracy talk. ~ E. Manning

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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

October 16, 2008

Financial Crime of the Century

Today at the Senate Banking and Housing Committee meeting “Turmoil in the Credit Markets”, Senator Chris Dodd, now the “Congressional champion” for the American consumer against foreclosures along with others, aptly pointed out a fact that most of us have overlooked or conveniently forgotten. President Clinton assigned the Federal Reserve the full duty as regulatory policeman over the nation. The Federal Reserve, in the words of Dodd, ignored the assignment by doing nothing for years. Senators are seeking reelection this year and U.S. citizens would do well to remember that Senators are now trying to cover their lack of action and regulatory oversight for the last eight years. Now, hearings are in order to find the right degree of blame and then an effort made so that another economic tsunami never happens again.

Dodd’s words were perhaps among the most pointed opening comments of a recent hearing. He simply stated that bankers shifted risk through exploitation. You can hear the politics and excuses too. A mandate of Congress doesn’t mean anything with regulation. That has been the flaw behind the entire federal government for the last decade at a minimum. Interestingly, Dodd sees himself as doing a “post-mortem” examination on the U.S. economy. By that definition, the economy is dead. That is not a good comparison unless he knows something most Americans don’t. ~ E. Manning

Senator Dodd’s opening remarks

October 14, 2008

Is Inflation King Yet?

superpower confidence

superpower confidence

The media and the perception of confidence took a temporary nosedive after a banner day at the global superpower. There is so much going on, who can really know what is really driving the situation except perhaps confusion? The bottom line is that investors will continue to fret about the stock market and take profits while they can, even in a volatile market. That is human.

As part of the new building blocks in the national economy, the U.S. Treasury finally confirmed plans to use the initial $250 billion to invest in large banks and former investment banks with conditions. All but one bank took the federal government up on the offer. President Bush has requested another $100 billion for bailout aid as well as a move for the Federal Reserve to start buying up short-term debt from companies. Meanwhile, Henry Paulson has hired Mellon Bank of New York to assist the U.S. Treasury in buying failed mortgage securities or troubled assets.

As usual, the Federal Reserve’s main preoccupation is to manipulate public perception of interest rates and the classical perception of low inflation. Ben Bernanke is keenly interested in keeping national confidience in the hope of somehow strengthening the dollar and curbing the tide of what is proving to be nasty inflation in a time of wage stagnation. The Fed simultaneously manages interest rates while working to keep the economy from dropping into a recession. Uncle Ben has his work cut out for him, especially since we are probably already in a recession by his own definition. If he knows that, he isn’t saying. No surprise there. Besides, inflation is now a back door issue.

Uncle Ben has been busy on the dollar and liquidity front as well. Unknown trillions of dollars have been forced into the U.S. banking system in an effort to get banks moving again. Uncle Ben has been working with the help of central bankers around the globe to make this happen. So far, the efforts haven’t worked. One of the conditions on U.S. bailout funds for banks is that the money is used for loans instead of bank protection, which may begin to change the banking equation soon. Whether that condition works remains to be seen.

All this money flowing would appear to generate some positive and decisive activity. A nationally-recognized recession seems evident as Corporate America and Corporate Multinationals are starting to reap financial declines, further jeopardizing any chance at economic expansion and further withering job prospects. Huge injections of cash are generating one large problem that will come home with a vengeance given some time: a rather stiff inflation rate. The U.S. will soon wish for today’s inflation. But, we live in the real world, so we consider the price of food and fuel without faking the facts. Other issues like a high jobless rate coupled with that inflation will be still worse. Could stagflation be around the corner or are we already there? That depends on who you ask. ~ E. Manning

October 8, 2008

Nationalizing U.S. Banks; Globalizing Banks

global bailout fever

global bailout fever

If there was ever a question about the nationalization of U.S. commercial banking, that question may be at an end. Treasury Secretary Henry Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis. What does investing in banks mean?

The bailout legislation that Congress passed last week to rescue financial institutions gave Henry Paulson broad authority that he intends to use beyond buying mortgage-related assets on bank balance sheets. Paulsen intends on using the initial $700 billion for a far grander notion. He intends to boost the capital of firms with cash infusions with idea of making the nation’s financial system stronger.

The International Monetary Fund has published that banks worldwide are not raising enough capital to offset losses to the tune of a $150 billion deficit. Henry Paulson and the U.S. Federal Government have arrived on their white horse to save the day.

There has been some discussion within the ranks of international central bankers and the G-7 finance ministers of a global banking bailout using identical policies. Britain has questioned this idea. Still, the turmoil is a global phenomenon that central bankers see advantage in addressing to secure their control. Undoubtedly, this will involve an enhanced system of controls and tools to manage the global economy. The real question remains: Are banks globalizing under a single economic control structure?

In Paulson’s mind, regulators will take measures to limit the systemic risk from any single bank failure. The reality is that the systemic risk has already been introduced due to the same lack of regulation. Allowing the same watchdogs to monitor the system is a questionable move that is apparently unavoidable. ~ E. Manning

October 4, 2008

Pork Helps the U.S. Bailout Medicine

The first bailout was largely unpalatable to Congress, largely because of the reaction of taxpayers. Their rejection of the first bailout also makes lawmakers appear responsible, careful and in control. Don’t kid yourself. A healthy chunk of pork-barrel spending makes almost any Washington legislation go down much easier.

Yesterday, the Senate tacked an additional 341 pages onto the original House bill in the form of various renewable fuel and energy tax incentives, a number of additional tax provisions, and the Wellstone-Domenici Mental Health Parity Act.

The 2008 Emergency Economic Stabilization Act contains stronger oversight protections than the three-page bill Treasury Secretary Henry Paulson offered a few days ago. That isn’t saying much though. Checks and balances are truly in question. Section 101of the bailout directs the U.S. Secretary to “prevent unjust enrichment of financial institutions…by preventing the sale of a troubled asset at a higher price than what the seller paid to purchase the asset.” Suspending accounting rules does nothing to change the value of the junk assets, allowing institutions to value their assets based on whatever scenario they like. Hmmm.

Section 104 allows for oversight by the same folks that allowed the regulatory debacle to begin with including the U.S. Treasury Secretary and the Federal Reserve. The oversight is window dressing with no direction to make the reports public or to report corruption or abuse.

The legislation in Section 107 allows the Treasury Secretary to waive “specific provisions” if he determines that “urgent and compelling circumstances make compliance with such provisions contrary to the public interest.” Nice.

What about foreclosure prevention? “…the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.” There is very little material to govern this process. There is plenty of wiggle room for problems here and very little action for taxpayers here. Government can continue to rubber stamp the actions they are making now which is pretty much nothing at all. This is not a taxpayer or foreclosure bailout by any stretch.

The Secretary must “make available to the public, in electronic form,” a description of assets including cost. Hopefully, an average person will be able to understand the information. No such provision is made. Other oversight provisions made seem to be to good effect. At least they have been thinking. Legislators have also been thinking about copious amounts of pork. A few examples are below:

Sec. 201. Deduction for state and local sales taxes.
Sec. 201. Inclusion of cellulosic biofuel in bonus depreciation for biomass ethanol plant property.
Sec. 211. Transportation fringe benefit to bicycle commuters.
Sec. 301. Extension and modification of research credit.
Sec. 308. Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands.
Sec. 309. Extension of economic development credit for American Samoa.
Sec. 317. Seven-year cost recovery period for motorsports racing track facility.
Sec. 323. Enhanced charitable deductions for contributions of food inventory.
Sec. 324. Extension of enhanced charitable deduction for contributions of book inventory.
Sec. 325. Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds.
Sec 502. Provisions related to film and television productions.
Sec. 503. Exemption from excise tax for certain wooden arrows designed for use by children.
Sec. 504. Income averaging for amounts received in connection with the Exxon Valdez litigation.
Sec. 601. Secure rural schools and community self-determination program.
Sec. 602. Transfer interest earned to abandoned mine reclamation fund.
~ E. Manning

October 2, 2008

Bailout: And Now the Rest of the Story

And now the rest of the story. The U.S. Senate and House have approved and passed the latest U.S. bailout miracle. How will the nation benefit? The rest of the story is there will be very little difference except that the current power structure will remain in place. That, America is exactly what all the hubbub at the top of the U.S. government is all about. The long-term details are of little importance to politicians, bankers and especially not to the central bankers.

Within a month or two, Hank Paulson will buy $250 billion in junk assets using mainly guesswork since there is little transparency in evaluating the quality of what he is buying. Because of the false pride in U.S. government and under the pretense of fairness (can you believe that?), Paulson and his buddies will spend more than market value, even though the junk value is pretty much zero. If the nation is smart, they will elect a president that will promptly dump Henry Paulson onto the job market heap of life. He will spend up that precious $700 billion in credit before he leaves office. If by some miracle Paulson retains his job, he will come with his hand out to Congress for another hefty chunk with little to show for his efforts.

Confidence will improve modestly, mostly due to investment from global central banks as they need somewhere to invest all that devalued cash. Other foreign investors will watch cautiously, but begin to bet on safer risks for the short-haul. Banks will continue to stand on capital and credit markets will stay tight. The economy will continue to shrink and the market liquidity will continue to logjam.

Joe Citizen will continue to cut back because of inflationary pressures and shrinking income. Credit costs will rise and the cost of capital goods will stall. Pressures on foreign markets will continue to put the squeeze on the business world, especially big business and multinationals. Generally, the poor will get poorer and poverty will spike across the globe.

The global economy will continue to weaken focusing initially in Europe, followed by Asia and the emerging markets that business has come to rely on. This is in process now.

Hopes for a speedy recovery by politicians and lapdog economists will wane as the seeds of what Washington has sown come to full fruit. The unpleasant combination of high inflation and economic stagnation will come to bear on the land of the free, followed by the Europe and the rest of the world.
Continued meddling by the U.S. government, foreign governments and central bankers will continue to reinforce inflation. This meddling, like the bailout before it, will merely prolong the economic pain instead allowing the cycle to work naturally. Economic suffering will be great.

The U.S. government will vainly attempt a fiscal stimulus for taxpayers for give a shot in the arm to the economy. An expansion of the bailout will be too little, too late and with little understanding of the real issues because of a lack of understanding of the real issues. Economic recovery is a long-term prognosis.

The United States will be tempted to default on the national debt. Politicians won’t need to worry much. Central bankers have what they want: control of governments and populations, the economic gross national product to fund their quiet rush to superpower status and a new global currency built under the guise of peace and security. It is a dark scenario that must be walked through except for those central bankers that control the gold.~ E. Manning

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