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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March 4, 2009

U.S. Mortgage Panic Ensues

tsunami-financeA mortgage panic is setting in. More than 8.3 million U.S. residential mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year. An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent. Do you have one of these mortgages? Probably not if you have been in your home more than 5 years and made sensible choices with financing. 10 million homes is small potatoes compared to number of residential mortgages out there in the United States. However, the crooked system of weights and balances that bankers designed are now a house of cards ready to crash as more Americans appear to be losing their homes.

The banking and finance system has plowed virtually every mortgage into a profit making system of toxic securities. The system of high finance is beginning to panic as it realizes that it must comply with trimming and modifying home loans to keep their customers viable as they lose their bottom line. Why are the system of bankers and high finance trembling in their boots? Confidence continues to dwindle and stock prices fall. Trading value is the bread and butter of publicly-traded companies. Banking and high finance are trembling due to the toxic securities that they built to underscore and enhance their profits. With toxic mortgage-based securities failing, this puts banks, investors and insurers like AIG in the position of holding the bag of spoiled goods that were originally designed to spur runaway profits and build a system of financial prosperity.

mortgage-tsunamiWe are witness to what has happened. Bankers and high finance have designed their own self-destruction that has been left squarely in the hands of government and citizens to miraculously rectify. The fallout from all the speculation and rampant leveraging has been an enhanced recession which is likely to lead to a depression. No man lives on an island. The world of finance is no exception. Sooner or later, greed and fraud bite back. The only problem for the nation is that the taxpayer is covering the systemic failure with their own blood, sweat and tears. ~ E. Manning

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 7, 2008

U.S. Federal Reserve Extends Economic Lifeline

Now the Fed is loaning on “commercial paper” for the first time in history and extending credit to nearly one trillion dollars. What is next to expand the economic lifeline?

global bailout crisis

global bailout crisis

Countries scrambled to slow the growing global financial crisis today. The Federal Reserve was close behind the heels of a bad day at the stock market with a few arrows in its quiver early this morning to counter the mess that has evolved from frenzied mortgage lending and trading in unregulated financial derivatives. 

The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.

The economic lifeline credit for banking has been extended by the Federal Reserve and will reach nearly $1 trillion dollars by the end of the year.

“The sizes of both 28-day and 84-day Term Auction Facility (TAF) auctions will be boosted to $150 billion each, effective with the 84-day auction to be conducted Monday. These increases will eventually bring the amounts outstanding under the regular TAF program to $600 billion. In addition, the sizes of the two forward TAF auctions to be conducted in November to extend credit over year end have been increased to $150 billion each, so that $900 billion of TAF credit will potentially be outstanding over year end.”

The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve’s existing credit facilities to help provide liquidity to term funding markets. The U.S. Federal Reserve has focused on calming chaotic markets by creating a new commercial paper facility that buys “short-term highly rated debt,” funding corporate borrowing for the first time in history.

 

crisis worsens

crisis worsens

Today Ben Bernanke admitted that institutions including Washington Mutual and Wachovia had experienced banking runs by depositors, creating a crunch on funding. Because of the size of Wachovia and to prevent destabilization, the Federal Reserve is working to have other institutions absorb the assets of that bank without closing it down.

 

Bernanke also admitted that inflation has been elevated, reflected by the steep increases in the price of oil this year as well as other commodities, imports and higher costs of production. Until now, the Fed has been reluctant to publicly admit such a fact. However, more recently, the prices of oil and other commodities, while remaining quite volatile, have fallen from their peaks, and prices of imports show signs of decelerating. The recently falling price is due to inflation in the rest of the world lining up with the United States, although Uncle Ben didn’t specify that reality.

Uncle Ben is ever the public optimist:

“The steps being taken now to restore confidence in our institutions and markets will go far to resolving the current dislocations in the markets. I believe that the bold actions taken by the Congress, the Treasury, the Federal Reserve, and other agencies, together with the natural recuperative powers of the financial markets, will lay the groundwork for financial and economic recovery.”

Meanwhile, the pillars of high finance are giving way. The International Monetary Fund increased an estimate of global losses from the financial crisis, warning that the world’s economic downturn is quickly evolving into a global depression. Iceland, Russia and Australia are high on the list of countries working at a frantic pace to protect their banking and monetary systems.

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 18, 2008

Central Bankers foster U.S. Stagflation Today

Market Note: Here is the real news today. 

financial crisis

financial crisis

Central bankers are pumping billions of dollars in American greenbacks into monetary systems to “sustain the market.” Who asked the blighters? What central bankers are doing is fueling the fires of inflation which makes the repercussions of bailout fever more difficult. Yet, nobody asks the question why. Central bankers, under the pretense of helping the market are profiteering and “making themselves useful.” The reality is that they are stoking the fire of U.S. inflation and inflation globally, while taking gold in exchange into their larder to count among themselves as they gloat. The winner of this “market sustenance” is the central banker or the body of International Bankers. Curiously, this is not fostered by the Federal Reserve system directly. However, the central bankers are all in on the same scheme: corporate profits. They do this by bleeding the system and holding the gold while creating more fiat money to lower the value of currency, in this case the staple of the global economy, the dollar which is managed by the Federal Reserve. The end result will be higher prices, devalued currency and more finanical pressure, not less. Don’t be fooled. Markets and panic will heat up whether they do so today or tomorrow. What does this mean for the United States? STAGFLATION. Central bankers are sacrificing the U.S. economy.  5AM CST ~ E. Manning

Read this post penned earlier this morning. Global Economic 911 in Progress

Inflation: Economic Global 911 in Process

In the last few months, Busted Bankers has discussed the distinct and strongly lingering likelihood of a larger global downturn or collapse in global financial markets. In the past, you didn’t hear any of that in the States except among a smallist number of bloggers and from a few Scot and British financial specialists. These bankers approximately timed and named the general events that would transpire. Those general events have come home.

bankers

busted: bankers

In the United States, we are chiefly concerned with covering up and dealing with public embarassment on virtually all levels. The inability to admit weakness is a larger flaw than the weakness itself. The confidence crisis here is based in that embarassment along with the truth that investors are spinning in circles looking for a “safe place” to shelter their money. Investors and consumers alike are discovering that there is little safety: that all the gains that have been made over the last decade or more could easily be swallowed whole.

Politician John McCain heralded the idea that “economic fundamentals” are strong. Unfortunately for politicians that long for a rosy picture, the global financial crisis was not created by healthy economic fundamentals, but through misappropriation, greed and fraud in the mortgage and finance industry as well as through creative banking instruments. That cold reality is beyond the realm of economic fundamentals, although even the Federal Reserve system in the U.S. wants to make these corrupted banking standards part of economic fundamentals. This global crisis may make that desire and tendency unpopular, if not impossible. (more…)

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