Busted: Bankers and The Global Economy

January 28, 2009

Congress: We are not the Experts (The Real Truth about the U.S. Economy)

kanjorski-banking-economyIn a CSPAN interview, Democrat Representative Paul Kanjorski, the Capitol Markets Subcommittee Chairman, made some revealing confessions about the expertise of the U.S. House and Senate, the facts behind the scenes during the EESA Stimulus plan last year and the real plight of the U.S. economy.

the actions of the Secretary of Treasury and EESA bailout

“Things were done that were misunderstood. We did not give the $700 million for the purpose of lending money. It was never in the program (TARP, EESA) It was misconstrued initially and put together with the suggestion by the Secretary of Treasury that we would be buying what we called dirty assets, defective mortgages and securities in these banks and that the government would find a way to create a market, buy them in, take them off the balance sheets so that the banks could continue to function normally…I supported that. But another part of the bill, we gave jurisdiction and authority to the Secretary of the Treasury to make investments in banks. He had very wide authority because, quite frankly, we (Congress) are not the experts on the Hill as how to solve this problem and the problem is multifaceted, so we gave great flexibility to Secretary of Treasury to act.”

The near collapse of the economy and U.S. government

“I was there when the Secretary and the Chairman of Federal Reserve came those days and talked with members of Congress about what was going on. It was about September 15th. Here’s the facts: we don’t even talk about these things. On Thursday, at about 11 o’clock in the morning, the Federal Reserve noticed a tremendous drawdown of Money Market Accounts in the United States to the tune of $550 billion. It was being drawn within the space of an hour or two. The Treasury opened up it’s window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. The decided to close down the operation, close down the money accounts and announce a guarantee of $250,000 per account so that there wouldn’t be further panic out there. That is what actually happened. What if they had not done that? Their estimation was that by 2 o’clock that afternoon $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States and would have, in 24 hours, the world economy would have collapsed. We talked about, at that time, what would have happened, if that had happened. It would have been the end of our economic system and our political system as we know it.”

“That’s why, when they made the point, we’ve got to act and do things quickly, we did. Now, Secretary Paulson said, Let’s buy out these subprime mortgages. Give us latitude and large authority to do many things as we decide necessary and give us $700 billion to do that. Shortly after we enacted our bill with those very broad powers, the UK came out and said ‘No, we don’t have enough money to buy toxic assets. Instead, we are going to put our money into banks so that their equity grows and they’re not bankrupt. The UK started that process. That’s true, it was much cheaper to put more money in banks as equity investments than to start buying their bad assets. It was early determined that we would have to spend 3 to 4 billion dollars of taxpayer money to buy these bad assets. We didn’t have it. We only had $700 billion.”

“So Paulson made a complete switch, went in and started putting money in and buying securities and investing in banks in the United States. Why? Because if you don’t have a banking system, you don’t have an economy. Although we did that, we didn’t have enough money and as fast as we did that, the economy has been falling. We are really no better off than we were off today than we were three months ago because we have had an decrease in the equity positions of banks. Other assets are going sour by the moment.”

the real truth of the matter according to Paul Kanjorski

“Now, we’ve got to make some decisions. Do we pour more money in to the extent that the money goes in…I, myself, think that we ought to take the time, analyze where we are, have the people (American public) understand…We need to really inform (the public) as to the facts and get input (from them). Perhaps (the public) has better ideas. We aren’t any geniuses in economics or finance. We are representatives of the people. We ought to take our time, but let the people know that this is a very difficult struggle. Somebody threw us out in the middle of the Atlantic Ocean without a life raft and we are trying to determine the closest shore and whether there is any chance in the world to swim that far. WE…DON’T…KNOW.”

Remember who actually threw the economy into “the middle of the Atlantic Ocean without a life raft.” We can offer that credit to greedy unscrupulous bankers, a corrupt banking community, unattentive government regulators and politicians that gloried in the temporary economic bubble that the moral bankruptcy created. Never forget that America! ~ E. Manning

U.S. stimulus trivia: the latest stimulus provision provides enough spending to give every man, woman, and child in America $2,700.
President Obama has said that his proposed “stimulus legislation” will create or save 3 million jobs. This means that this legislation will spend at least $275,000 per job. The average household income in the U.S. is $42,000 a year. The way that the stimulus is currently written will probably save mostly state and federal government jobs. The current stimulus is not designed principally for economic stimulus for Main Street.

January 23, 2009

U.S. Employment and Recovery Dilemna

The U.S. government is in denial of classic facts the majority of the time. Even though Barack Obama has been reasonably honest concerning the immediate future, the figures he used before the inauguration to promote his plans to Congress are hopelessly underestimated and fail to add up on a mathematical level. In the meantime, Americans have the magic and charisma of a new president to chart the uncertain tragic waters of what will ultimately be a recovery given enough time. However the bad news and underlying economic factors coming out of 2008 do not speak of a speedy recovery on any level. When Barack Obama suggests that the American population in general will sacrifice, he isn’t kidding. Even the most optimistic reports paint “a bleak economic landscape ahead” with real unemployment approaching 18% with a sudden increase expected (see recent Digital Economy articles for more details).

Bankers have seen the massive destruction of their net worth and the ability to conduct business. As a result, so have we all. What was your hard-earned 401K last year? What was your net worth two years ago? The Bush administration had only seen to slowly respond to the crisis in addition to adding sweet Federal Reserve liquidity to keep failing institutions and most of the relevant power structure in place solvent. They used laissez-faire economics as an excuse to do little or nothing until their hand was forced by extreme circumstances and the national plight of total economic failure. Henry Paulson admitted his team’s inability to find and deal with the real scope of the national banking toxic-debt, instead choosing the easy course of simply recaptalizing bank with nationalized capital from taxpayers. As a confessed seasoned professional insider, Paulson was unable to determine or realize the full extent of the national collateral damage or he simply isn’t saying, which may be closer to the truth.

America has this plight to look forward to in 2009 barring other unforeseen issues:
* A huge rush of residential housing mortgage failures due to ‘housing resets’, the blight of unemployment and the inability for Americans to qualify for loans because of tightening banking rules which were conveniently ignored previously.
* A tsunami of commercial mortgage foreclosures.
* Billions in credit card defaults that threaten to further decimate the banking system coupled with banking cutbacks in anticipation of the same.
* As unemployment skyrockets, a tsunami of auto repossessions and loan defaults.
* Economic decimation through toxic banking instruments and complex debt instruments combined with $500 trillion in unmanageable credit default swaps.

25% real unemployment is realistic by the summer of 2009, near the estimated high of depression unemployment charted in the 1930s.  Unhappily, the resulting fallout will simply get worse and the economy spirals downward as more unpredicted events occur. Some areas in close relation to the Big Three automakers could see unemployment much higher than that. This commentary just touches the beginning as municipalities and states sink into further debt this year. The nation that used to live on credit will truly be living on credit in order to sustain America on any level. The profitaking of the last decade coupled with predatory banking designs has truly taken its toll. The U.S. economy didn’t have enough energy to maintain a stagflation last year. Deflation will be the ultimate result as the nation pulls into recovery years down the road. These are likely the unpleasant facts unless central bankers have a better idea. That is unlikely unless they start thinking outside the box they have built. ~ E. Manning


January 18, 2009

Economic Panic: Frying Pan to the Fire

As the economy risks spinning out of control and banks continue to run up multi-billion dollar losses, the Obama administration will face tough choices with the $350 billion remaining in the bailout plan. With the bailout of General Motors by converting it to a bank holding company, some boundaries were set where corporate welfare is concerned. This has stopped most of big corporate Main Street from expecting direct government bailouts so far. There are many institutions that still want a piece of the bailout pie. The result is likely to be a shortage of bailout money.

The rumor is that the Troubled Asset Relief Program (TARP) will be used to build a “bank” that holds the toxic debt, a repository of toxicity that moves those debts firmly into government hands. The government is hoping beyond hope that at some time in the future, those debts will increase in value once the recession is in hand and the economy has returned to health. (more…)

May 16, 2008

Don’t Be Spooked, Don’t Give Up

Filed under: banking, federal reserve, investment, money — Tags: , , , , , — digitaleconomy @ 12:18 pm

Federal Reserve chairman, Ben Bernanke, urged banks to prevent deeper damage to the economy by continuing to raise capital despite losses from the credit crisis. “Firms are hunkering down,” he told a conference in Chicago. “They have at least partially replaced the losses with new capital raising, but not entirely. They are being rather conservative in making new loans, which has implications for the broader economy.”

Mr Bernanke and the US Treasury secretary, Henry Paulson, have repeatedly said firms should keep increasing their funds, seeking to alleviate the impact of the credit crunch.

Raising investment capital is the only real hope (more…)

March 21, 2008

Wall Street Investment Bankers Use Fed

wall-street.jpgBig Wall Street investment companies have been taking advantage of the Federal Reserve’s unprecedented recent offer to secure emergency loans. The new lending measures are part of a major effort by the Fed and the Bush Administration to guarantee the free flow of liquidity to keep order in the financial markets (see video for March 20). The Bush Administration is not taking any chances on any possibility of future failures. The likes of Goldman Sachs and Lehman are using the the funding. Wall Street banking firms have averaged $13.4 billion in daily borrowing since Monday from the Fed. In emergency meetings on Sunday with Treasury Secretary Henry Paulson, the Fed agreed to allow Wall Street investment houses to secure emergency loans directly from the central bank (see March 16 post). This new measure created a way for “financially strapped” investment firms to have regular access to a source of short-term cash at standard Fed interest rates. Investment bankers can also bid at Fed auctions in the immediate future. The Fed will allow investment firms to borrow up to $200 billion in Treasury securities by using risky investments on hand as collateral. This move could cost U.S. taxpayers if care is not exercised. However, it is clear that the Federal Reserve and the Bush Administration do not expect to fail in any measure regardless of the cost.

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