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

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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

September 20, 2008

U.S. Economy: Stagflation in the Wings

The dark underbelly of arrogant and evil monetary policy been put into place today. The decision isn’t new, but is repeated constantly. This decision will affect you and everything you do from today. The news seems innocent and matter-of-fact on the surface and is reported by the media in that fashion, as if central bankers are doing all of us a favor. The reality is far from innocent or hum-drum. Central bankers are pumping billions of dollars in American greenbacks into monetary systems to “sustain the market.”

In response to financial turmoil and lack of confidence, central banks began injecting huge amounts of cash into the world financial system in an effort to make sure that firms needing monetary resources to stay afloat could actually find some. The British central bank, the U.S. Federal Reserve, the European Central Bank and the Swiss central bank: let call them the International Society of Bankers, have injected around $400 billion into the global financial system so far.

global credit

global credit

The idea behind all of this credit pumping is liquidity. This liquidity is for lending, borrowing and who knows what else. All the liquidity isn’t helping you or me directly most of the time. The liquidity is supporting the market to keep the market from tanking in a rather large way or at least to keep global business from stalling. According to central bankers, this is supposed to be good. What is the down side for all this global credit?

Remember that the stock and trade in finance today is the dollar. It is the toy that bankers use to get business done globally and the tool used to manipulate (both good and bad) global markets. As a result, the effect of the dollar on the global economy is likely to be very different from the effect on the U.S. national economy.

As an economist I could talk about M3, job statistics, the national debt or use any number of magical numbers and percentages. I could try to impress you with enormous intellect and knowledge while talking over your head. Sufficient is the fact that record numbers of jobs have gone by the wayside this year and even more jobs are being pumped out the U.S. economy by multinational corporations to promote their immediate bottom line. Sufficient is the fact that the mortgage meltdown is summarily destroying the banking, mortgage and finance system. The causes of the meltdown were designed to bolster and send the industry to new heights of profitability. Sufficient is the fact that the federal government has opted to cover, guaranteeing practically every business failure and misjudgment with credit that they don’t have from the central bankers themselves. That is reality.

A key reality is being ignored that has been previously discussed. U.S. politicians have put the gloss on the reality of our national recession by calling it a slowdown. U.S. politicians and most economists put the gloss on the reality of our national inflation rate by minimizing it with false figures and deceptive tactics. U.S. politicians and most economists don’t want to recognize what this nation has staring us in the face as a result of continual bloodletting of the dollar around the world.

That evil is stagflation. Ben Bernanke has tried to prove that we aren’t going through a 1970’s style economic situation, as if we should be looking at the 1970’s as some kind of measuring stick for today’s economic blight. He is missing the point that the building blocks of the economy are not only different, but that many of the pressures driving the forces behind the economy, now a global economy, is also very different. Comparing apples and oranges is useful only if you can agree that they are fruit, but the sameness ends there. Need I say more? The texture, flavor, nutritional value and uses are similar but different. The same is true today. The only truth that remains the same is the central bankers are behind the economy to profit themselves. All the measuring sticks have altered, corrupted or adjusted to a fine promotional edge. Economics has become something other than science: a marketing scheme. Central bankers are working their global magic and deception on a global basis without apology and most of the world is thanking them for it.

Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time. This is a combination of policy by central bankers that allow excessive growth of the money supply and an economic shock such as a excessive regulation, huge job losses, declining wages and unchecked inflationary prices. We have all of these in place and in force right now.

Continually dumping more greenbacks on the global market may have short-term global and corporate benefits. The central bankers also benefit by increasing the debt base, charging more interest for various and sundry economies and swapping cash for gold held in their vaults as collateral. The short-term effect of acute dollar liquidity on the U.S. economy is very different on all terms.

As the fires of inflation are stoked and as the national economy continues its descent into the economic abyss, the mire of stagflation only worsens, creating a national and ultimately a global dilemma if left unchecked or unmitigated. All of this affects you in very real terms. You are living part of that dilemma today.

Continued government guarantees and nationalization of business across the board makes government larger and creates a larger drain on the American taxpayer as well. In essence, you are paying to sustain the global economy, while the central bankers collect the cream at the top. You are the human capital from which all profits are milked with little reward. The problem behind all of this in a declining economy is that a declining economy cannot fund all of the bells and whistles required by endless debt creation. Ultimately, the situtation is not sustainable.

The nation is running into a wall of debt that must be addressed through some new invention of government and finance in order to keep the scheme going. That is where the nation is at today as we pay collectively through the nose for the privilege of being part of the stock and trade of global finance. The central bankers and the U.S. government have already joined forces in a quasi-governmental scheme for economic power and control as the economy is slowly drained. The men and women that we have elected have brought this to bear. That is why this election is probably more important that any other. Make the right choice.

Stagflation may not be avoidable, but it isn’t too late to save what is left of the people in this nation. We are “human capital,” worth far more than banker grist. ~ E. Manning

Originally published 9/18/08 on TNTalk!

September 14, 2008

Wall Street: Strength or Poor Collateral?

economic checkmate?

economic checkmate?

With each succeeding bailout through nationalization, the U.S. government grows larger. Innovation rarely happens within government, so nationalization is rarely a good prospect for a growing and dynamic economy. The U.S. economy is clearly in a decline. More bailouts only prolong the pain and do little to spur the nation forward as it languishes and flounders. Bailouts appear to be a prop, but in reality further weakens the economy in a downward spiral.

More and more businesses want government money to move their business projects forward, especially for public works and energy projects. Arguably, either business is so bad that business doesn’t want to take risks or business has become lazy in risk department, unwilling to set aside funds for projects that might be considered in the public interest. Big Business is coming into the habit of standing by for government loans at “public expense.” Even the Big Three auto manufacturers are looking for handouts or cheap loans from the Federal Reserve.

All weekend, bankers of prominent standing have been visiting the Federal Reserve Bank of New York in round robin style, while the U.S. Treasury pounds away in the hope of negotiating an agreeable deal for Lehman. The prospect of saving the majors of Wall Street and preventing economic collapse around the globe as investments are compromised is what is at stake.

Investment bankers have been able to borrow from the Federal Reserve since the collapse of Bear Stearns. Based on certain rules, the Federal Reserve has allowed investment bankers to borrow operating capital for the short-term to sustain business. Investment banks have supposedly stopped borrowing from the Federal Reserve since April of 2008.

On the surface, this lack of borrowing is indicative of an improvement in health. However, if the quality of the collateral held is so poor that the Federal Reserve will not accept the collateral for a short-term loan, this is indicative of far greater failure than is being publicly admitted. Could this be why bankers are being called to the Fed in the hope of sequestering a bailout deal and leave running the other direction?

Bankers are naturally eager to survive and unwilling to soak up any more failed collateral. If the government doesn’t come up with an enticing enough proposal to persuade a private bailout, the collapse of Lehman is likely to lead to global losses and more financial dominoes. Henry Paulson has been reluctant to promote more bailout fever, perhaps fearful of more weakness and more bailouts on his shoulders.

Clearly, the U.S. government is incapable of bailing all business out, nor should it be expected to. Business holds a certain amount of risk that can be largely anticipated to a certain point. Bankers have been heavily impacted from the financial derivitives that were expected to create endless wealth. Smaller commercial bankers in the United States have been largely protected from these risks and continue to make poor decisions because they can. International bankers and bank holding companies cannot afford to eat more huge losses while borrowing heavily from foreign nations for more financial sustenance. If there is no profit in a deal, they won’t be making one.

The U.S. and perhaps the global economy is at a crossroads this week. We are going to find out whether Uncle Sam can find a way to entice bankers into a private bailout. Perhaps reality is so bad that the deal is virtually untouchable. Has “tough love” finally come home?
~ E. Manning

August 26, 2008

Mortgage Twins Suffering Corporate Death

For many weeks, economists have been looking for the decline of Fannie and Freddie. It’s only been a matter of time and confidence. Central bankers unloading and refusing to buy the usual amounts of stock have put the the U.S. mortgage twins in a world of hurt.

Then, there is the nationalization theory, which would put all stockholders out in the cold; hence the concern of central bankers and now most investors, almost forcing the federal government to play the bailout hand for Fannie Mae and Freddie Mac.

A number of banks own large chunks of the $36 billion in invested preferred shares in the twins. J.P. Morgan is the largest, holding $1.3 billion currently. These banks have already lost about half the value in these shares and face losing the remainder, especially with the prospect of nationalization. Unhappily, some smaller banks could be wiped out or at least face capitalization issues.

The bottom line is that it is in the interest of the U.S. Government to bail out the preferred shareholders to avoid an enhanced banking crisis. This is a temptation, although not popular among many, especially those with bailout envy. The problem with bailouts is that once you commit to one, picking and choosing becomes a political issue. That is exactly what the government doesn’t want in an election year. Either way, bailouts are the watchword of this ailing economy because of overcommitment by the U.S. Federal Government. ~ E. Manning

August 15, 2008

Bailouts and Moral Hazard

house of moral hazard

house of moral hazard

In the past, the federal government has insisted that home buyers shouldn’t be bailed out because of a dilemma called a moral hazard. The Feds are using the concept of moral hazard to define what a bailout is. Apparently, the issue of moral hazard was never a factor in the Fed’s decision to supply the banks with over $1.2 trillion of taxpayer funds, nor is it being considered by Henry Paulson’s proposal to bailout Fannie and Freddie.

A real bailout creates freedom from responsibility through government assistance or guarantees of protection. A real bailout creates a moral hazard; hence, the tendency to behave irresponsibly and take on excessive risk because the penalty for failure has been removed. That is the banking system guarantee by our beloved federal government that backs up banking avarice.

The Federal Reserve and the U.S. Treasury claim that a bailout is necessary because if banks are allowed to fail, the failure will create a loss of confidence and a global financial crisis. In one fell swoop federal nationalization has effectively deleted the risks of “capitalism” at the expense of the U.S. taxpayer.

~E. Manning

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