Busted: Bankers and The Global Economy

October 13, 2008

Is a New Era of Economic Finance on the Way?

Britain taking charge

Britain taking charge

While many nations muddle undecisively about their part in the looming global finance crisis, Britain has increasingly taken bolder and more decisive steps in an effort to stem the tide of ruin. Now Prime Minister Gordon Brown is calling for a new financial accord to refashion banking and finance rules for the modern era. “We must now create the right new financial architecture for the global age.”

Many governments in Europe has agreed to follow Britain’s lead by recapitalizing banks and guaranteeing interbank lending. The G-8, of which Britain is a part, are in the planning stages for a meeting soon. “We must now reform the international financial system around agreed principles of transparency, integrity, responsibility, good housekeeping and co-operation across borders.”

Under the British plan, banks that are rescued with taxpayer money will be forced to cease bonuses that have encouraged excessive risk-taking in the past as well as terminating dividends to shareholders. The down side to the bank rescues is that there is currently no incentive for investment and little hope for immediate growth, both hallmarks of the “for profit” market.

While bailing out bankers will sustain the economies for the time being, the end result will be recession coupled with nasty inflation and economic stagnation in some countries if moves are not made to bolster job creation, wages and check price increases. So far, because of credit dependence, nations can expect stymied growth, triggering more defaults and a continuation of tightening lending terms. Nations have been hesitant to guarantee interbank lending because of the trust factor. The pressure is on as the global goal becomes the prevention of a global economic depression.

U.S. economic growth next year will be the weakest since 1954, with unemployment expected to rise to 8.5 percent.

Large corporations are increasingly under the economic gun. American automakers are considering mergers and General Electric is considering a bank charter to provide better funding. Bank lending remains locked down despite flooding the market with monetary credit and interest rate reductions. A continued lockdown will likely result in the depression that scrambling governments are seeking to avoid. Indications are that we are in a global vicious circle of economic decline. The alternative is breaking the cycle. Who is going to break the cycle and how?

British money manager Paul Niven remarked, “We have now entered a new era for global banking. In return for taxpayers’ money, the state will gain a level of control over their governance, pay, and lending practices.” Is Niven’s statement a reality or the work of wishful fiction?

Could the world have the beginnings of a new global banking order or is this move simply an action involving separate economic nationalization of banking and finance to preserve the current financial structure? Perhaps we will know once clearer heads rule the roost. Bible prophecy indicates a new global system that portends to usher in a new era of security. Is there any stock to that? What say you? ~ 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 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

September 11, 2008

The Con Game of Securitization and Wealth

crisis through securitization

crisis through securitization

According to Federal Reserve’s Vice Chairman Donald Kohn, “One reason for the loosening of standards was the expectation that house prices would continue to rise and even more certainly that they could not fall in all regions at the same time, supporting diversification through securitization.”

This small sentence combined with a summary of all the accumulated evidence maintained by the Federal Reserve shows the propensity for a lack of regard for economic concerns over the immediate concerns of profit.

“Rising prices would enable lenders to recoup their funds even if the borrower was unable to service the loan, mostly because the borrower would be able to obtain extra cash through refinancing. Expectations of house price appreciation facilitated and interacted with the increasing complexity of mortgage securities, including multiple securitizations of the same loan, which made it virtually impossible for ultimate lenders to monitor the creditworthiness of borrowers. This was a task they had outsourced to credit rating agencies. The absence of investor caution and due diligence was especially noticeable for the highest-rated tranches of securitized debt.”

securitized vomit

securitized vomit

Who started the securitization of loans to begin with? Give the government geniuses at Fannie Mae and Freddie Mac credit for the wunderkind of shaky banking ‘o so many years ago. That is why authorities in banking and in government are quite mum about the evil and deception of securitized bonds. What is worse, they have no intent to change a thing.

The Federal Reserve is still brainstorming new ways to “ameliorate systemic risk. That said, a host of difficult judgments are inherent in how we establish such a system.” That is the trillion dollar question. In the words of Donald Kohn; “How we can structure these requirements and other aspects of regulation to damp, rather than reinforce, the natural procyclical tendencies of the financial system?”

economic usury

economic usury

If the U.S. economy were equated to an automobile engine, we would be running on half the cylinders. The Federal Reserve and other surrogate economists don’t have a clue and are now discussing “solutions” among themselves. Global bankers long for a solution to the trillion dollar question and they want to continue doing the same old things as long as it makes them money for the short-term. The idea is not what is good for any economy, but what is good for quick profits for themselves. That is what banking around the world has come to represent: corporate profit behind the scenes and personal profit while that is possible. Never forget that the Federal Reserve and global central bankers are corporations bent on making a profit, part of a “franchise” of banks that loosely report to Swiss and Roman bankers. They live off of the world; therefore economies are simply tools for wealth. That is the danger nations, governments and peoples face.

Don’t fool yourself. Global bankers are running the world to your peril. However, the sophisticated United States government and others are all for making a profit while they can, oblivious to the danger or convinced that they will live forever while central banking pumps them dry. ~ E. Manning

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