March 31, 2009

More Insight into the Economic Crisis

and our gummint's putative efforts to fix it -- just a taste of what I'm trying hard not to feel sick with rage about this morning. (Emphasis {bolding} supplied in all instances.)

From Buzzflash 3/30/09, citing economist Jeffrey Sachs, WaPo, and The New York Post (much more at the foregoing link):

The banks have zeroed in on Geithner's cash giveaway bonanza, the "Public Private Investment Partnership" (PPIP) . . . . As expected, Bank of America and Citigroup have angled their way to the front of the herd, thrusting their pig-heads into the public trough and extracting whatever morsels they can find amid a din of gurgling and sucking sounds. . . .

"As Treasury Secretary Tim Geithner orchestrated a plan to help the nation's largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post...

"But the banks' purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

"One Wall Street trader told The Post that what's been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay."

. . . . Thus begins the next taxpayer-subsidized feeding frenzy featuring all the usual suspects. The race is on to vacuum up as much toxic mortgage paper as possible so it can be dumped on Uncle Sam at a hefty profit. Nice. These are the same miscreants the Obama Administration is so dead-set on rescuing. It's crazy to help people who use the cover of a financial crisis to fatten their own bottom line. Let them sink and be done with it.
From Geopolitics-Geoeconomics, 3/30/09 (more at the link):
What Geithner does not want the public to understand, his ‘dirty little secret’ is that the repeal of Glass-Steagall and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global ‘off-balance sheet’ or Over-The-Counter derivatives issuance.

Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default. [The five are, in order of decreasing magnitude, JPMorgan Chase, Bank of America, Citibank, Goldman Sachs, and the merged Wells Fargo-Wachovia Bank.] . . .

The Government bailout of AIG to over $180 billion to date has primarily gone to pay off AIG’s Credit Default Swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of America, the banks who believe they are ‘too big to fail.’ In effect, these five institutions today believe they are so large that they can dictate the policy of the Federal Government. Some have called it a bankers’ coup d’etat. It definitely is not healthy.

This is Geithner’s and Wall Street’s Dirty Little Secret that they desperately try to hide because it would focus voter attention on real solutions. The Federal Government has long had laws in place to deal with insolvent banks. The FDIC places the bank into receivership, its assets and liabilities are sorted out by independent audit. The irresponsible management is purged, stockholders lose and the purged bank is eventually split into smaller units and when healthy, sold to the public. The power of the five mega banks to blackmail the entire nation would thereby be cut down to size. . . .

This is what Wall Street and Geithner are frantically trying to prevent.

From Rolling Stone, 3/19/09 (much more at the link):
The global economic crisis isn't about money - it's about power. . . .

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

From NYT, 3/29/09 (more at the link):
Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox.

Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.

So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.

“I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable.

From Information Clearing House, 3/30/09, citing The Wall Street Journal and WaPo (much more at the link): "If Obama is serious about restoring confidence in the markets, he should replace current SEC chief Mary Schapiro with Eliot Spitzer." If Obama were serious, that is.

The lesson to me is, we ALL need to start working a lot harder to understand what's being done to us.

1 comment:

  1. I would say the first instigator of pending disasters started with the deregulation of the public utilities. The fake rolling blackouts of California turned out to be a price-manipulating tactic. Why should the public have to trust a private profit driven business model for modern necessities?
    Did everyone notice that in the early two thousands it seemed that mortgage brokers were instantly everywhere. Even your buddies were doing it, bugging you, “make sure your refi with me old buddy”. I remember thinking. “what the hell”, why, what am I missing. Well, seems that the fees charged to close a mortgage could go from 5k to 50k to do a whole lot of nothing. Nice. The word “stated income”, seemed to be the easiest way to get the deal closed for sure. “Stated Income”, intended statistically for a little higher interest rate acting as profit insurance on the statistical default rate as well as the house value to ensure a solid banking investment. Did people lie about their income to get the loans. All the time. So why didn’t anyone care. Well, weren’t brokers getting paid 5 to 50k for nothing, with a seeming sound banking model backing them up. Oh yah. Actually, most of the times the brokers did all the paper work, filled in all the numbers with next to no input short of names and SS numbers to get the deals closed fast and many. The public is the product, “bring them in buy the truckload, its time to make some serious cash”. This run away business model became the mechanism for high volume loan closing and high profits to brokers and bankers. Don’t forget these broker fees get worked into the loan. So a good part of the fees paid out to the brokers are still owed through the loans and a lot of the public are to this day still in debt to these fees.
    But everything seemed to be going so well. It wasn’t that bad. The model was working. Working families in the US seemed to have achieved a delicate balance with their budgets with their income vs. there debts. Most families were making it. Close but were pulling it off month to month.
    Here comes the landslide. In 2008 the gas prices decides to pretty much double. A few months of this converts higher prices in pretty much all commerce due to the transporting and manufacturing costs. The delicate budgets of millions a families are disrupted. Month after month families attempt to balance out there finances, but to find themselves unsuccessful. For a moment, view the total money circulating in the U.S. economic infrastructure as a full cup of water. When one entity such as an oil company achieves record billions in profits. In other words billions of dollars are removed from circulation and is sitting in a companies account. Sort of like taking a 3/8 cup of the water instead of the 1/8 cup the company usually got. Consequently leaving the rest of the country to pay expenses short ¼ of the money that was usually economically available. If the money is gone, its gone. Simply cant be used if its not there. Simply speaking, the money has been removed from the economy in the form of record fuel company profits.

    Did anyone notice that when you start running out of money, our good old bank friends seem to want to take even more cash than ever? A few checks get returned. Lots of $35 charges. Usually $350 per cycle of 10 checks max the law allows to charge per day. Interest rates seem to really jump missing a payment. What about those 2-year arm adjustable rates, mortgages going from $2800 per month to $4300 per month over a month period. This is the same for businesses. When sales get low, expect tons of over draft charges. It seems way better to run your store with cash daily. Forget writing checks. You’re just being a sucker to the bank system. Even the electronic bill pay system puts a day delay on removing the funds they send out with the hopes of creating an over draft situation. Just clear the checks paid as the store sales and withdraw the cash and operate with cash. Save thousands in fees. Pretty much all bills that are late get ridiculous fees attached, from taxes to utilities to credit debt.
    What is the public to do. We carry the huge burden of ridiculous fees when money gets low. The economic landslide is inevitable in these conditions.

    Problems summery:

    Unstable utility costs
    Unstable fuel costs
    Current banking, finance and insurance systems

    Ronald Reagan really had it wrong when he said, “government regulation is the problem not the solution”.

    A private company should not have the ability to paralyze the U.S. economy single handedly.

    It is essential to have all critical economic infrastructures government regulated, primarily, Banking, Insurance, Utilities and Fuel Systems.

    I would also recommend getting the economy somewhat a little less stressed and back on tract if it were passed by congress to have one or two months revolving credit debit and mortgage payments deferred if requested by the borrower. It would allow families to catch up with some other bills and get a little more cash injected into the country instead of the bank systems.

    These business systems have the potential for corruption, greed for record profits at the health of the countries expense. We cannot depend on groups of businessmen to act honest and ethical nor should the pubic have to. It needs to be insured by written laws and sustainable by government systems.