Archive for April, 2010

April 27, 2010

The banking oligopoly controlling USA GNP

Today financial power is being concentrated in the hands of fewer and fewer individuals.  In fact, the six biggest banks in the United States now possess assets equivalent to 60 percent of America’s gross national product.  Back in the 1990s that figure was less than 20 percent.  These six banks – Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo – literally dictate what goes on in the U.S. banking industry.  These entities are the poster children for “too big to fail”, and they donate massive amounts of cash to the campaigns of both Republicans and Democrats to ensure that they will continue to receive favorable treatment.  The vast majority of Americans have had a banking account, a credit card and/or a mortgage with one of these institutions at some point.  If they acted in concert, these six banks could literally bring down the U.S. economy overnight if they wanted to.  Together with the Federal Reserve, these six banks represent the real financial power in America.  They are the 800 pound gorilla in the room that influences nearly every major financial deal that gets done and virtually every major political decision that gets made.  As the last couple of years have demonstrated, top politicians from both parties (John McCain and Barack Obama for example) will instantly jump into action and start advocating that the U.S. government spend billions upon billions of dollars when the interests of these behemoths are threatened.  The frightening thing is that the power of these megabanks is growing at a frightening pace.  As dozens upon dozens of smaller U.S. banks are “allowed to fail”, they either go out of existence or the Feds actually encourage these smaller banks to sell themselves to one of the big sharks.  In either event, the banking power in the United States becomes further consolidated in the hands of the megabanks. (Read More….)

The Economic Collapse

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April 26, 2010

Panic and Booms, a lesson from 1897

Readers: Paper Money Illusion Jail Break recommends the following article with a 8/10 rating.

Thanks to Patrick for an absolute gem.  Earlier this week, he linked to a fantastic newspaper article written in 1902.  That article actually reprinted a paper written five years previously, entitled “Panics and Booms” by L.M. Holt.  When Holt wrote the paper, the economy was at the tail end of a depression.  Holt argued that booms always follow busts, so folks should anticipate the return of flush times.  Fast-forward five years, a new boom was in full swing, and the newspaper republished Holt’s paper as a warning that the next depression was due around 1910, give or take.  The Bank Panic of 1907 arrived a bit ahead of schedule.

It’s a great read, particularly now when most observers remain conflicted about what kind of economic funk we’re in.  Mr. Holt described quite clearly the economic conditions we face today, a depression created by over-indebtedness.  And he offers a prescription for how to dig ourselves out: pay back debt.  It’s a prescription I endorse wholeheartedly.

The paper is so good, for posterity’s sake, I have reproduced it here in full.  Another reason: Irving Fisher generally gets credit for having created the “debt deflation theory of depressions,” but Holt beat him to it by 36 years.  Enjoy!

“Panics and Booms”

L.M. Holt

Ever since the establishment of the human race on this planet there has been a gradual increase of population and a more rapid consumption of wealth.

Wealth is the result of labor, and without labor there can be no wealth.

Men live and pass away, but as they cannot take their wealth with them a large percentage accumulates for the benefit of their successors. Hence the wealth of the world today, per capita, is much greater than ever before, and it is continually on the increase.

The transfer of wealth, or property, from one person to another creates business.  Under favorable conditions, transfers are numerous and business is brisk.  Under unfavorable conditions transfers are few and business is dull.

During periods of business activity there is work for all, and this of itself makes greater business activity.  During periods of business depression there is not work for all, and this of itself makes business dull and unprofitable.

The existence of either one of these conditions leads necessarily to the other.  It is an impossibility for either prosperous times or depressed times to continue permanently.

This is where it starts to get good…

During prosperous times, there being work for all, all are supplied with the means of accumulating wealth, and thus all are enabled to provide themselves, and families with all the necessaries, and many of the luxuries, of life; and hence, during the prosperous times the demand for goods and property increases and soon the demand exceeds supply, and then prices advance.

This rule, which is applied to the laborer, is also applied to the business man.  Prosperous times induce business men to branch out in their several lines of trade….The volume of trade being large, each gets a corresponding proportion of it.  Many business men find that they can do more business than is allowed by their limited capital.  They then buy on credit.

Prices are continually advancing, therefore they are able to make margins of profit not only on the capital furnished by themselves, but on the capital furnished through their credit.

This rule also applies to people dealing in real estate.  The country is growing; money is easy; the times are good; business is prosperous and therefore speculation is favored.  A man worth $5000 can buy four times that amount of property using his credit, and sometimes he buys ten times that amount or more.  While prices are advancing he not only gets the benefits of the advance in the price of the property represented by the capital furnished by himself, but also on the capital furnished by his credit.

When prices of property and goods during a period of business depression are falling, the loss does not come on the entire property, but only on that portion of it represented by the cash capital the man has invested in it.  The debt never shrinks until the real investment is all gone.

A fantastically simple description of leverage, that is, investing with borrowed money as a way to amplify potential gains at the risk of greater losses.  How quaint that Holt seems impressed by “ten times” leverage.  He would blush at the leverage ratios permissible today.

Panics and Booms, a lesson from 1897 | Analysis & Opinion |


April 22, 2010

Mind games behind paper money

Anon:

Rule number 1 of a debt ponzi-scheme economy. “You are not permitted to talk down the economy-even when it is telling the truth”.

Rule number 2 “you are supposed to beleive that opportunists trying to talk up the economy are telling the truth, even when it is obvious that they are lying”.

….and then there is the picture of the attractive lady with a sign saying “welcome” a big smile and a pit of leg….here we go again…vested interests once again using sexual meaning as a means stiffening the demand curve for houses, when there are ghost estates everywhere.

Advertising is always about strenghtening the emotional resolve of the buyer so that they are less concerned about price.

April 20, 2010

Goldman Sachs Tales

“Although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not a ‘bet against our clients.'”

That claim, from Goldman’s letter to its shareholders, is easily refuted. The S.E.C. has brought fraud charges on one of Goldman deals known as synthetic subprime mezzanine collateralized debt obligations, or CDOs. While most of these deals remain shrouded in secrecy, one of them, Anderson Mezzanine Funding 2007, Ltd. lays out its blueprint in sufficient detail so that we can pinpoint how and why this transaction’s failure was never in doubt.

When the deal closed on March 20, 2007, there was virtual certainty that investors would get wiped out and that Goldman would receive a windfall. And that’s exactly how things turned out. By December 2009, Anderson Mezzanine’s nominal value had shrunk by more than two-thirds, from $307 million to $94 million, though remaining assets’ fair market value was far less. The investment portfolio, which held only two performing assets, had an average credit rating of CC.

Anderson Mezzanine is by no means unique. More than $70 billion worth of toxic assets were dumped into mezzanine CDOs during an eight-month period between September 2006 and April 2007, when it became obvious to Wall Street banks that the lower-rated slices, or tranches, of mortgage-backed bonds were worthless. Other Goldman deals–Hudson Mezzanine Funding I and Hudson Mezzanine Funding II, various Abacus deals–were also designed to insulate the banks from losses on assets it knew to be worthless.

Eventually The Risk of Failure Morphs Into Absolute Certainty

A CDO is like a mutual fund or a hedge fund. It’s an investment portfolio, which, subject to certain limitations, may be actively managed. Sometimes a CDO, including Anderson, also acts like an insurance company. It receives fees for insuring certain identifiable risks, and, whenever called upon to pay out on an insured claim, it will liquidate part of the investment portfolio.

But insurance companies take on risks when the outcome is in doubt. Anderson Mezzanine was more like a life insurance company that insured the lives of 61 patients with Stage IV lung cancer. Whenever a patient died, Goldman, the insured beneficiary for all 61 patients, would collect $5 million. If Anderson had insufficient cash on hand, Goldman could dip into CDO’s investment portfolio and decide which asset it wanted to liquidate. If the asset could not be sold easily, Goldman would arrange an auction, in which Goldman might end up as the winning bidder.

Cynics might argue that these arrangements smack of fraud and abusive self-dealing, but Goldman could rightfully point to documents that put investors on notice. All of these pitfalls were identified in writing.

Playing the Ratings Game

But these pitfalls weren’t exactly conspicuous. A potential investor would need to spend a lot of time and effort deciphering the offering circular and related documents, such as the Bond Indenture, the Liquidation Agency Agreement, or the Forward Purchase Agreement, in order to figure out what was really going on. He would also need to conduct a financial analysis of the 61 different mortgage securities being insured via credit default swaps.

Or he might take some shortcuts, and simply rely on the deal’s stellar ratings. The most senior tranches of the CDO, comprising 70% of the capital structure, were rated AAA. After all, the rating agencies had reviewed and rated all of the 61 insured mortgage bonds, so their institutional memory and expertise was embedded inside the ratings awarded the Anderson deal.

David Fiderer: Goldman’s Blueprint for Dumping Toxic Assets: How These CDOs Were Designed to Fail

April 20, 2010

Goldman Sachs tales

This should be a lesson to all those young, aggressive, upwardly mobile Wall Street wannabes who think they are somehow going to fast track their way into the stratosphere of high finance.

Sorry, kids!  There’s no room left at the top, and soon you’re going to see even those old money families tearing each other apart for what’s left of a collapsing fiat money system that has just about run its course.

I submit to you the unfortunate tale of Goldman Sachs’ naïve boy protégé, Fabrice Tourre, the so-called ‘Fabulous Fab’ who is alleged to be the mastermind behind a scheme to sell toxic mortgage investments that were deliberately designed to fail in the US housing market crash.

Fabrice Tourre, 31, is the classic patsy and the kind of villain the American people love to hate.  He’s foreign (French), flamboyant, young, rich and shrewd.  He  was only 22 and fresh out of college when he started working for Goldman Sachs in 2001.  Just five years into his employment, he found himself at the center of a scheme devised by one of the world’s richest billionaires, hedge fund manager John Paulson.

Paulson had presented a roster of sub-prime mortgage deals that he was betting would fail in the housing market.  He paid Goldman Sachs $15 million to find clients that would bet the other way.  The scheme was packaged into what has come to be known as an ‘Abacus Deal’.

Tourre is alledged to have taken this portfolio to potential investors and sell them as favorable risks while hiding the fact that he was working with Paulson, who was betting against them.

To help with pitching these toxic investments, they employed the services of ACA Capital Holdings, Inc. and convinced them that Paulson was actually investing in these mortgages.  Tourre and Paulson then used ACA’s endorsement of the mortgages as a credible and sound investment.  Everything went as planned and Paulson cashed in on a cool $1 billion while the Goldman Sachs investors took it in the shorts.

Now the SEC has been called in to restore their tarnished image with the public by bringing suit against the investment giant and taking aim, in particular, at the novice Tourre.  So far, the SEC has conducted five interviews including one with the now notorious ‘Fabulous Fab’.  They have not elected to interview any one of the top Goldman Sachs executives, including  Tourre’s manager Jonathan Egol.  They’ve also apparently found no need to trouble Mr. Paulson with any of their inquiries.  Goes to show you that only the little minnows get swallowed up in the cesspool of Wall Street.

More…Goldman Sachs Eats Its Young « Revolt of the Plebs

April 18, 2010

Paper money mechanics I

MONEY & BANKS ….

THE HIDDEN TRUTH BEHIND GLOBAL DEBT .

1) What is money… how is it created and who creates it?

2) Why is almost everyone up to their eyeballs in debt… individuals, businesses and whole nations?

3) Why can’t we provide for our daily needs – homes, furnishings cars etc. without borrowing?

4) How much could prices fall and wages increase if businesses did not have to pay huge sums in interest payments which have to be added to the cost of goods and services they supply…?

5) How much could taxes be reduced and spending on public services such as health and education be increased if governments created money themselves instead of borrowing it at interest from private banks…?

“If you want to be the slaves of banks and pay the cost of your own slavery, then let the banks create money…” Josiah Stamp, Governor of the Bank of England 1920.

WHAT IS MONEY….?

It is simply the medium we use to exchange goods and services.

  • Without it, buying and selling would be impossible except by direct exchange.
  • Notes and coins are virtually worthless in their own right. They take on value as money because we all accept them when we buy and sell.
  • To keep trade and economic activity going, there has to be enough of this medium of exchange called money in existence to allow it all to take place.
  • When there is plenty, the economy booms. When there is a shortage, there is a slump.
  • In the Great Depression, people wanted to work, they wanted goods and services, all the raw materials for industry were available etc. yet national economies collapsed because there was far too little money in existence.
  • The only difference between boom and bust, growth and recession is money supply.
  • Someone has to be responsible for making sure that there is enough money in existence to cover all the buying and selling that people want to engage in.
  • Each nation has a Central Bank to do this – in Britain, it is the Bank of England, in the United States, the Federal Reserve.
  • Central Banks act as banker for commercial banks and the government – just as individuals and businesses in Britain keep accounts at commercial banks, so commercial banks and government keep accounts at the Bank of England.

TODAY’S “MONEY”… CREATED BY PRIVATE INTERESTS FOR PRIVATE PROFIT.

“Let me issue and control a nation’s money, and I care not who writes it’s laws.” Mayer Amschel Rothschild (Banker) 1790

  1. Central banks are controlled not by elected governments but largely by PRIVATE INTERESTS from the world of commercial banking.
  2. In Britain today, notes and coins now account for only 3% of our total money supply, down from 50% in 1948.
  3. The remaining 97% is supplied and regulated as credit – personal and business loans, mortgages, overdrafts etc. provided by commercial banks and financial institutions – on which INTEREST is payable. This pattern is repeated across the globe.
  4. Banks are businesses out to make profits from the interest on the loans they make. Since they alone decide to whom they will lend, they effectively decide what is produced, where it is produced and who produces it, all on the basis of profitability to the bank, rather than what is beneficial to the community.
  5. With bank created credit now at 97% of money supply, entire economies are run for the profit of financial institutions. This is the real power, rarely recognised or acknowledged, to which all of us including governments the world over are subject.
  6. Our money, instead of being supplied interest free as a means of exchange, now comes as a debt owed to bankers providing them with vast profits, power and control, as the rest of us struggle with an increasing burden of debt….
  7. By supplying credit to those of whom they approve and denying it to those of whom they disapprove international bankers can create boom or bust and support or undermine governments.
  8. There is much less risk to making loans than investing in a business. Interest is payable regardless of the success of the venture. If it fails or cannot meet the interest payments, the bank seizes the borrower’s property.
  9. Borrowing is extremely costly to borrowers who may end up paying back 2 or 3 times the sum lent.
  10. The money loaned by banks is created by them out of nothing – the concept that all a bank does is to lend out money deposited by other people is very misleading.

MONEY & BANKS….. THE HIDDEN TRUTH BEHIND THE GLOBAL DEBT SCAM by Richard Greaves