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

March 8, 2009

Bailout Fever Meets with Resistance

bank-bailoutBailout fever is no longer the style as the Senate Banking Committee, notably Republicans, are rising up against the prospect of moral hazard.

Read article on Associated Content by E. Manning

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

February 23, 2009

PM Brown: New Global Economy

pm-brown-berlusconi-romeBritish Prime Minister Gordon Brown has stressed the importance of April’s G20 ‘Economic Recovery Summit’ in London in the bid to strike a “global deal” that will “speed up the recovery of the world economy”. He and other European Union members are advocating a new global financial system, but have backed off somewhat due to the reluctance of U.S. support. His recent statement in Rome revealed that all nations need to inject resources into their own economies as well as agree on ways to reform international institutions.

Currently, he is recommending new policies that he calls ‘fairness principles’ against “old excesses” in the banking community, a standard of stewardship instead of speculation. In the meantime, Brown and other European Union members are advocating unity in opposing moves towards protectionist trade policies. They see the U.S. as a major opponent where such policies are concerned.

Back in the United States, international bank holding company, Citigroup continues its precipitous decline. The U.S. government is looking at boosting its’ controlling interest in the banking firm to boost confidence and maintain solvency from toxic debt, part of the speculation that PM Gordon Brown was referring to.  Britain is dealing with similar issues relating to the Royal Bank of Scotland. ~ E. Manning

February 9, 2009

Mortgage Bailout on the Way?

obama-mortgage-fingerprintsRemember the mock outrage of so many politicians last year as the U.S. economic national debt ceiling approached $10 trillion? Last October, when we heard about a $700 billion bailout of the financial system, it seemed like all the money in the world as a manner of speaking. Never mind the debt ceiling since President Obama doesn’t recognize national debt as an issue. Since then, the collective “we” in this country have managed to spend another $10 trillion without accomplishing a thing beyond buying preferred shares in certain banks. The year isn’t over yet (it’s only February 9th) and more economic stimulus is probably on the plate as job losses continue.

How has the nation lost its’ way? A lack of common agreement regarding simple principles and a common vision for the future that makes sense reveals the true crisis. Deceptive flawed thinking among lawmakers portends a real problem for the future as far as the common American is concerned.  Disagreement and strife is the real standard that lawmakers hold to. There has been no presidential honeymoon that this writer can see. We have forgotten what stewardship really is. Hope isn’t on the plate where elected lawmakers are concerned. A divided house cannot stand indefinitely. Perhaps President Obama needs to campaign to the American people to grip some sort of vision….but I digress from this mental exercise.

Another couple of trillion dollars would pay off every residential mortgage in the country and Americans would be home free…literally. What foreclosure crisis? Every American with a home would have a piece of America to call their own without a bank involved. Think of the quick national stimulus  the nation would enjoy as everyone spent their house payment on disposable income and new vehicles, the current blight of lack in the current economy.

The fact remains that the national foreclosure crisis is always on the back burner, yet is blamed as the basis for the nation’s economic demise. Naturally, lawmakers can’t support any kind of quick national housing stimulus that I sarcastically penned because of the $40 trillion plus in potential interest  income that scandalous bankers would never receive because of early prepayment before the term. Any bailout like that won’t happen because it takes power away from the system. Taking money away from bankers would be far too simple while firing and imprisoning financial thieves is too difficult and embarrassing.  Real economic stimulus is far too simple when it comes down to rewarding honest income producing activities. Instead, politics simply gives bankers more money as if that will really solve the problem as they complain about esoteric banking derivatives that nobody knows how to fix. Let Timothy Geithner have a go at this bailout.  Based on what has been discussed, the nation is still looking at investment shell games that are no better than what bolstered the economic crisis to begin with on Wall Street. That is the financial literacy that the Federal Reserve and Wall Street know. ‘Democrats’ deserve a chance to repair the system and they will have that chance.

Can you imagine a retired economist presenting such ideas and speaking in such a way? Remember, it is always about money and authority, but then it always comes back to money and the status quo. That’s all about authority too. ~ E. Manning

February 8, 2009

Toxic Debt Bailout by Wall Street?

bailout-can-of-wormsWall Street was instrumental in producing the global economic crisis as well as the economic crisis at home. Now the Obama administration is looking for private investment to bail out U.S. banking with a U.S. Federal Guarantee. In exchange for a guaranteed bottom dollar value on toxic derivatives and bank assets, the federal government wants to entice buyers like private investors and investment entities: hedge funds, private equity funds, insurance companies and the like.

The federal government has stubbornly insisted that toxic banking instruments that have brought the global economy crashing down still maintain some value and will increase in value some day. In the bailout last year, the federal government paid almost double the estimated value of toxic debts purchased from banks. The value of securities and toxic debt tied to subprime mortgages and other dubious loans has plunged as the financial crisis has intensified. To avoid similar criticism in the future, the federal government wants to establish guarantees for investment. The Obama administration is depending on Timothy Geitner to get the job done with a workable approach.

In a federal bailout, toxic asset valuation is questionable at best, raising political questions about whether purchase prices are fair to both banks and taxpayers. The system is ‘too big too fail.’ As toxic assets remain on the bank balance sheets, they continue to decline in value, producing more multi-billion dollar losses for banks. Bank securities are complex and hard to evaluate. There is little information about which assets are owned by each bank. To make matters worse, banks have refused to cooperate with outside buyers. The Obama administration expects that federal investment guarantees will be a good short-term fix that is worth the risk of declining assets even though the U.S. taxpayer will be left holding the bag. The government stands ready to absorb losses at a base value, while providing some of the financing for the purchases as an incentive.Transparency is still the #1 issue behind the whole idea making the actual workability of any plan questionable.

Lap dog economists are finally admitting that the U.S. doesn’t have a functioning banking system, a measured requirement for a future ‘self-sustaining capitalist economy.’ The lack of trust has destroyed the system. The government hopes to restore that trust. As far as a functioning banking system, lap dog economists and government specialists haven’t determined that the American people can’t continue to borrow their way to economic health with stagnant wages, job losses and inflated prices. The credit bubble for the U.S. economy has burst with the result that millions of formerly prosperous Americans no longer can qualify for loans. Now, the Feds are hoping on investors to make the difference. ~ 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…)

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