October 10, 2011

Ponzi Economics – Steve Keen

I stumbled out into the autumn sunshine, figures ricocheting around my head, still trying to absorb what I had heard. I felt as if I had just attended a funeral: a funeral at which all of us got buried. I cannot claim to have understood everything in the lecture: Sonnenschein-Mantel-Debreu theory and the 41-line differential equation were approximately 15.8 metres over my head. But the points I grasped were clear enough. We’re stuffed: stuffed to a degree that scarcely anyone yet appreciates.

Professor Steve Keen was one of the few economists to predict the financial crisis. While the OECD and the US Federal Reserve foresaw a “great moderation”, unprecedented stability and steadily rising wealth, he warned that a crash was bound to happen. Now he warns that the same factors that caused the crash show that what we’ve heard so far is merely the first rumble of the storm. Without a radical change of policy, another Great Depression is all but inevitable.

The problem is spelt out at greater length in the new edition of his bookDebunking Economics. Like his lecture, it is marred by some unattractive boasting and jostling. But the graphs and figures it contains provide a more persuasive account of the causes of the crash and of its likely evolution than anything that has yet emerged from Constitution Avenueor Threadneedle Street. This is complicated, but it’s in your interests to understand it. So please bear with me while I do my best to explain.

The official view, as articulated by Ben Bernanke, chairman of the Federal Reserve, is that both the first Great Depression and the current crisis were caused by a lack of base money. Base money, or M0, is money that the central bank creates. It forms the reserves held by private banks, on the strength of which they issue loans to their clients. This practice is called fractional reserve banking: by issuing amounts of debt several times greater than their reserves, the private banks create money that didn’t exist before. Conventional economic theory predicts that when the central bank raises M0, this triggers a “money multiplier”: private banks generate more credit money (M1, M2 and M3), boosting economic growth and employment.

Bernanke, echoing claims by Milton Friedman, believed that the first Great Depression in the US was propelled by a fall in the supply of M0, which, he said, “reinforced … declines in the money multiplier”. But, Keen shows, there is a weak association between M0 supply and depression. There were six occasions after the second world war when M0 supply fell faster than it did in 1928 and 1929. On five of these occasions there was a recession, but nothing resembling the scale of what happened at the end of the 1920s. In some cases unemployment rose when the rate of M0 growth was high and fell when it was low: results that defy Bernanke’s explanation. Professor Keen argues that it’s not changes in M0 that drive unemployment, but unemployment that triggers changes in M0: governments issue more cash when the economy runs into trouble.

He proposes an entirely different explanation for the Great Depression and the current crisis. Both events, he says, were triggered by a collapse in debt-financed demand. Aggregate demand in an economy like ours is composed of GDP plus the change in the level of debt. It is the sudden and extreme change in debt levels that makes demand so volatile and triggers recessions. The higher the level of private debt, relative to GDP, the more unstable the system becomes. And the more of this debt that takes the form of Ponzi finance – borrowing money to fund financial speculation – the worse the impact will be.

Keen shows how, from the late 1960s onwards, private sector debt in the US began to exceed GDP. It built up to wildly unstable levels from the late 1990s, peaking in 2008. The inevitable collapse in this rate of lending pulled down aggregate demand by 14%, triggering recession.

This should be easy enough to see with the benefit of hindsight, but what lends weight to Keen’s analysis is that he saw it with the benefit of foresight. In December 2005, while drafting an expert witness report for a court case, he looked up the ratio of private debt to GDP in his native Australia, to see how it had changed since the 1960s. He was astonished to discover that it had risen exponentially. He then did the same for the United States, with similar results. He immediately raised the alarm: here, he warned, were the conditions for an economic crisis far greater than those of the mid-1970s and early 1990s. A massive speculative bubble was close to bursting point. Needless to say, he was ignored by policymakers.

Now, he tells us, a failure to address these problems will ensure that this crisis will run and run. The “debt-deflationary forces” unleashed today “are far larger than those that caused the Great Depression”. In the 1920s, private debt rose by 50%. Between 1999 and 2009, it rose by 140%. The debt-to-GDP ratio in the US is still much higher than it was when the Great Depression began.

If Keen is right, the crippling sums spent on both sides of the Atlantic on refinancing the banks are a complete waste of money. They have not and they will not kickstart the economy, because M0 money supply is not the determining factor.

 It’s in all our interests to understand how to stop another Great Depression | George Monbiot | Comment is free | The Guardian

President Obama justified the bank bailout on the grounds that “a dollar of capital in a bank can actually result in eight or 10 dollars of loans to families and businesses. So that’s a multiplier effect.” But the money multiplier didn’t happen. The $1.3 trillion that Bernanke injected scarcely raised the amount of money in circulation: the 110% increase in M0 money led not to the 800% or 1,000% increase in M1 money that Obama predicted, but a rise of just 20%. The bail-outs failed because M0 was not the cause of the crisis. The money would have achieved far more had it simply been given to the public. But, as Angela Merkel and Nicolas Sarkozy demonstrated over the weekend, governments have learnt nothing from this failure, and seek only to repeat it.

Instead, Keen says, the key to averting or curtailing a second Great Depression is to reduce the levels of private debt, through a unilateral write-off, or jubilee. The irresponsible loans the banks made should not be honoured. This will mean taking many banks into receivership. Otherwise private debt will sort itself out by traditional means: mass bankruptcy, which will generate an even greater crisis.

These are short-term measures. I would like to see them leading to a radical reappraisal of our economic aims and moves to develop asteady-state economy, of the kind proposed by Herman Daly and Tim Jackson. Governments and central bankers now have an unprecedented opportunity to learn from the catastrophic mistakes they’ve made. It is an opportunity they seem determined not to take.

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October 10, 2011

Links

What once was a mercantile world has become a global playpen for moving hot money to squeeze out the highest return on investment. Replacing nation states with international capital is now sport. Undermining the sovereignty of countries by an elite club of financial manipulators is the purpose for the grand game. Illustrating this fact, David Callaway writes in Market Watch. “The sale of the New York Stock Exchange to Deutsche Boerse this week underscores the lack of historical antipathy for Germany, the world wars not withstanding, but also something more significant. The deal officially slammed the door on the surge of protectionist overreaction that sprang from the global financial crisis”. The conquest of the NYSE by German economic dominance is ironic, since so much of the financial funding of the Third Reich came out of Wall and Broad Street.

Money is the ultimate leveler. The dilemma is that capital is not democratic. If you have money, you have options. If you do not, you are at the mercy of the transnational system of financial bondage. All too often people equate capitalism with free enterprise. Nothing could be further from the truth. Crony Capitalism destroys genuine free market competition. Wealth creation is the nature of authentic commerce. Command and control is the objective of cabal moguls. Entrepreneurship is the business plan for prosperity, while systemic usury is the formula used bybanksters to enrich favored cohorts in crime.

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The current article in Rolling Stone by Matt Taibbi asks a key question, Why Isn’t Wall Street in Jail?“Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people”.

Sensible citizens want an answer. Justice demands accountability. Yet, few people fully comprehend that the supra-capitalists of the imperial cult of the money-world, ignore the rules of nation states. Above the fray, theseIlluminati live in a sublime existence of self-established privileged. The reason that they can get away with murder is simple. They are the rulers and the designers of the laws. Countries adopt policies, follow instructions and shield the controllers of counterfeit money creation. Jails are for renegades, not for capital deities. Influence routinely bought, prepares the way for more mergers of Wall Street exchanges. The protected few are not subject to the same standards that destroy any ordinary transgressor.

A true hypocrite socialist, who masquerades as a prophetic filmmaker; Michael Moore, brings this lesson home. His latest project, Capitalism: A Love Story is available for viewing. He depicts Wall Street as financial whores effectively. However, his alternative for a paradise on earth reveals the lunacy of this buffoon in all his psycho glory. Two reviews of the movie offer substantial criticism.Capitalism: A Love Story by Michael Moore Movie Review and Michael Moore Mistake in “Capitalism: A Love Story” on FDR’s Second Bill of Rights?

From the Mises Daily, Michael W. Covel in Michael Moore Kills Capitalism with Kool-Aid provides insight and the text for the brave new world of Democratic Socialism.

“What is his solution? Tugging on your idealistic heartstrings of course! Moore ends his film with recently uncovered video of FDR talking to America on January 11, 1944. Looking into the camera, a weary FDR proposed what he called a second Bill of Rights — an economic Bill of Rights for all — regardless of station, race, or creed — that included”.

the right to a useful and remunerative job in the industries or shops or farms or mines of the nation;

the right to earn enough to provide adequate food and clothing and recreation;

the right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

the right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

the right of every family to a decent home;

the right to adequate medical care and the opportunity to achieve and enjoy good health;

the right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;

and the right to a good education.

The context of this pious pontification of the patrician Franklin Delano Roosevelt needs to be seen for what it is, his true religion – the supremacy of the Federal Government, at the cost of the destruction of free enterprise. Moore, a modern day charlatan is an apt surrogate for the Roosevelt legacy of Totalitarian Collectivism. Wall Street is no friend of ‘Merchant Class’ business. Only the speculator and the monopolist have a love affair with the financial culling that takes place in the rigged markets.Moore’s delusory faith in a communal democracy is a paternal insult to the underclass that follows a pied piper into perpetual servitude that rests upon a one person, one vote equality myth. The film glorifies dysfunctional creatures, who behave as if they are in the formative stages of just learning to walk. Most demonstrate they are better at crawling on all fours. This kind of marginal human society will never rid the world from the scourge of international capitalism.

The inescapable result of herding illiterates into democratic camps of welfare subsistence cannot create actual wealth. The crowd that raves the Michael Moore remedy will be prime targets for extermination, when the inevitable bankruptcies of governments explode. Who or what will fill the void. One person’s white knight is often a demon to another.

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The portrait of a triumphant Napoleon Bonaparte by Jacques-Louis David has the General Crossing the Alps at the Saint-Bernard Pass. This famous image symbolizes the historic pattern of a strong leader taking charge during a political debacle. It happens, either by a forceful takeover or by an anointed selection from the ruling class to be the next puppet. Seldom are there successful libertarian revolutions that limit the influence of the banking syndicates.The emperor attempted the enforcement of the Continental System which was a blockade aimed at denying the British any trading access to ports in Europe, theoretically destroying British trade and denying them the money they needed to fund Napoleons enemies on mainland Europe. The United States was able to acquire the Louisiana Purchase because of Napoleon’s need to finance his wars. The House of Rothschild was the major financier of the British and greatly multiplied their wealth during the Napoleonic Wars. In 1815, Napoleon Bonaparte observed,“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes… Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”

If the full weight of the Old Guard and Napoleon’s Grande Armée was at the mercy of the banking loans, how can usury interests be tamed by a FDR second Bill of Rights? Any rational and moral person cannot believe that this kind of modern social contract can liberate inventive economic wealth creation. The Jacobin Club was the inspiration behind the implementation of the Reign of Terror during the French Revolution. The anti-cleric and aristocracy purge by the Committee of Public Safety sounds like a natural fit for the proponents of a FDR/Moore final solution.

 

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The Wall Street elites are the real closet Jacobins of the international capitalist plantation. Their objective is to create a permanent “Sansculottes” underclass. During the late 1790’s they were the ‘shapeless, mostly urban movement of the laboring poor, small craftsmen, shopkeepers, artisans, tiny entrepreneurs and the like’. Today the wretched dispossessed is the middle class. They are hanging on by a thread. Yet, they reject the absurdity that rights come from society and are dispensed by government.The only love affair for Wall Street plutocrats has a populist revolutionary cheer. Not off with their heads, but strip them of all their cash. The French mob, demonstrators, rioters and the constructors of barricades, demanded blood. Now, the working oppressed is in the perplexing position of engaging in a necessary revolt in order to survive.

The financial exploitation today is at such an obscene level, that saneness requires courage and action from citizen heroes. Another famous painting is of the Singer Chenard, as a Sans-Culotte. Waiting and placing your fate in the hands of a Bonaparte has its risks. Rally to the flag of an authentic, Declaration of the Rights of Man. Intrinsic natural rights, not arbitrary state authority, are the only valid standard. The banner of traditional Christian values and sound money practices is the way out of the dead zone. The global Illuminati financial House of Rothschild creates the present ongoing terror. Confiscation of their ill-gotten gains from their universal pillage is far more effective than relying on a socialistic redistribution of wealth to the masses. America needs to rebuild a crippled society. 

 

A successful Thermidorian Reaction that establishes a true accountable Republic, which strives to attain liberty, property, security, and resistance to oppression, is the proper goal for all citizens. Scriptural principles of economics and free markets are the foundation of lawful entrepreneurship, which would lead to national prosperity. Wall Street has betrayed those functions and needs a total reorganization before the peasants storming the citadel, becomes unavoidable.
August 29, 2011

Links

It’s the Economy, Dummkopf! | Business | Vanity Fair

What is Debt? – An Interview with Economic Anthropologist David Graeber « naked capitalism

Europe’s Debt Default Crisis: It’s the CDS, Stupid :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

The Collapse of Paper Money and the Vertical Move of Gold by Darryl Robert Schoon

The Battle of the Bonds – Robert Skidelsky – Project Syndicate

NeoLiberalism and the Counter-Enlightenment | Michael Hudson

Washington’s Blog

What’s left to trust in the world of money? – Telegraph

Europe’s wakeup call – Le Monde diplomatique – English edition

The United States Of Europe: A Proposed “Economic Government” Would Integrate Europe To A Degree Not Seen Since The Roman Empire

James K. Galbraith: The Final Death (and Next Life) of Maynard Keynes | MyFDL

European Central Bank must go nuclear to save Europe – Telegraph

Please Europe, either put up or break up – Telegraph Blogs

European Central Bank paralysis sparks global chaos – Telegraph

The Consumption Economy Is Dying—Let it Die – Michael Mandel – Business – The Atlantic

Europe’s sickly banks – The Term Sheet: Fortune’s deals blog Term Sheet

The ECB throws Italy and Spain to the wolves – Telegraph

 

July 25, 2011

Debt Based Econ Crisis

Conspiracy theory :

‘……The attack in Norway arrives as populism grows in Germany, Europe’s reluctant paymaster for the contrived debt-based economic crisis. Establishment politicians in Germany have balked at a second bankster bailout … The EU and the European political establishment are beholden to the bankers and their “free market” – as in free to loot and plunder – neoliberal policies and have now pulled out all the stops in an effort to crush resistance to endless bailouts designed to crash local economies and destroy national sovereignty.

It is no mistake the corporate media is comparing Anders Behring Breivik to Timothy McVeigh. Hours after the terrorist attack, Norway’s public broadcaster NRK cited Tore Bjørgo at the Police College in Oslo who said the attack resembled the bombing of the federal building in Oklahoma City. The 1995 attack blamed on Timothy McVeigh killed 168 people …

The Oklahoma City bombing was a false flag event used to roll out several draconian aspects of the police state in the 1990s … Breivik is obviously a patsy for a Gladio operation to destroy political opposition to the bankers. Operation Gladio was a “strategy of tension” devised by the elite that employed terrorism – assassination and bombings – to discredit political opponents in Europe. It was set-up by the CIA and staffed in part with former members of Mussolini’s secret police.’

May 28, 2011

Links

Nothing stops bankers from ripping off population again – journalist — RT

http://www.bloomberg.com/news/2011-05-16/death-derivatives-emerge-from-pension-risks-of-living-too-long.html

Federal Reserve Lending Revelations Intensify Criticism Of Central Bank’s Secrecy

http://www.bloomberg.com/news/2011-05-26/fed-gave-banks-crisis-gains-on-secretive-loans-as-low-as-0-01-.html

 

May 21, 2011

IMF, Bailouts, Goldman Sachs

Seniors, Guns and Money – NYTimes.com

http://www.truthdig.com/avbooth/item/chris_hedges_we_speak_in_the_language_of_terrorism_20110516/?utm_source=twitterfeed&utm_medium=twitter&utm_campai…

http://www.businessinsider.com/goldman-sachs-lied-2011-5

MATT TAIBBI: Here’s How Goldman Sachs Lied To Its Customers And Congress

http://www.project-syndicate.org/commentary/stiglitz138/English

IMF tells Greece to stop dragging its heels over reform – Telegraph

Robert Reich (The Great Switch by the Super Rich)

Robert Scheer: One Lawman With the Guts to Go After Wall Street – Robert Scheer’s Columns – Truthdig

May 15, 2011

Links

Entertainment News and Opinion on The Huffington Post

The Automatic Earth: December 13 2010: The Debt-Dollar Discipline: Part III – Future Reorganization

April 17, 2011

Illusion Links / ROLLING STONE Article

SSRN-The Irish Economy: Three Strikes and You’re Out? by Constantin Gurdgiev, Brian Lucey, Ciarán Mac an Bhaird, Lorcan Roche-Kelly

The Real Housewives of Wall Street | Rolling Stone Politics

Dozens of DC Elite, from Mitt Romney to Nancy Pelosi to Ron Paul Are Earning up to $27k/month in “Unclaimed Dividends”

IMF Survey: G-20 Moves Forward to Tackle Global Imbalances

Neutrality of money – Wikipedia, the free encyclopedia

America has two national budgets, one official, one unofficial. The official budget is public record and hotly debated: Money comes in as taxes and goes out as jet fighters, DEA agents, wheat subsidies and Medicare, plus pensions and bennies for that great untamed socialist menace called a unionized public-sector workforce that Republicans are always complaining about. According to popular legend, we’re broke and in so much debt that 40 years from now our granddaughters will still be hooking on weekends to pay the medical bills of this year’s retirees from the IRS, the SEC and the Department of Energy.

Why Isn’t Wall Street in Jail?

Most Americans know about that budget. What they don’t know is that there is another budget of roughly equal heft, traditionally maintained in complete secrecy. After the financial crash of 2008, it grew to monstrous dimensions, as the government attempted to unfreeze the credit markets by handing out trillions to banks and hedge funds. And thanks to a whole galaxy of obscure, acronym-laden bailout programs, it eventually rivaled the “official” budget in size — a huge roaring river of cash flowing out of the Federal Reserve to destinations neither chosen by the president nor reviewed by Congress, but instead handed out by fiat by unelected Fed officials using a seemingly nonsensical and apparently unknowable methodology.

This article appears in the April 28, 2011 issue of Rolling Stone. The issue will be available on newsstands and in the online archive April 15.

Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and discovering a host of outrages and lunacies in the “other” budget. It is as though someone sat down and made a list of every individual on earth who actually did not need emergency financial assistance from the United States government, and then handed them the keys to the public treasure. The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. “Our jaws are literally dropping as we’re reading this,” says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. “Every one of these transactions is outrageous.”

Wall Street’s Big Win

But if you want to get a true sense of what the “shadow budget” is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall’s haul doesn’t seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn’t seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.

Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley’s investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.

RS Politics Daily: Political news and commentary from Rolling Stone writers and editors

The technical name of the program that Mack and Karches took advantage of is TALF, short for Term Asset-Backed Securities Loan Facility. But the federal aid they received actually falls under a broader category of bailout initiatives, designed and perfected by Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner, called “giving already stinking rich people gobs of money for no fucking reason at all.” If you want to learn how the shadow budget works, follow along. This is what welfare for the rich looks like.

In August 2009, John Mack, at the time still the CEO of Morgan Stanley, made an interesting life decision. Despite the fact that he was earning the comparatively low salary of just $800,000, and had refused to give himself a bonus in the midst of the financial crisis, Mack decided to buy himself a gorgeous piece of property — a 107-year-old limestone carriage house on the Upper East Side of New York, complete with an indoor 12-car garage, that had just been sold by the prestigious Mellon family for $13.5 million. Either Mack had plenty of cash on hand to close the deal, or he got some help from his wife, Christy, who apparently bought the house with him.

The Macks make for an interesting couple. John, a Lebanese-American nicknamed “Mack the Knife” for his legendary passion for firing people, has one of the most recognizable faces on Wall Street, physically resembling a crumpled, half-burned baked potato with a pair of overturned furry horseshoes for eyebrows. Christy is thin, blond and rich — a sort of still-awake Sunny von Bulow with hobbies. Her major philanthropic passion is endowments for alternative medicine, and she has attained the level of master at Reiki, the Japanese practice of “palm healing.” The only other notable fact on her public résumé is that her sister was married to Charlie Rose.

It’s hard to imagine a pair of people you would less want to hand a giant welfare check to — yet that’s exactly what the Fed did. Just two months before the Macks bought their fancy carriage house in Manhattan, Christy and her pal Susan launched their investment initiative called Waterfall TALF. Neither seems to have any experience whatsoever in finance, beyond Susan’s penchant for dabbling in thoroughbred racehorses. But with an upfront investment of $15 million, they quickly received $220 million in cash from the Fed, most of which they used to purchase student loans and commercial mortgages. The loans were set up so that Christy and Susan would keep 100 percent of any gains on the deals, while the Fed and the Treasury (read: the taxpayer) would eat 90 percent of the losses. Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment.

So how did the government come to address a financial crisis caused by the collapse of a residential-mortgage bubble by giving the wives of a couple of Morgan Stanley bigwigs free money to make essentially risk-free investments in student loans and commercial real estate? The answer is: by degrees. The history of the bailout era reads like one of those awful stories about what happens when a long-dormant criminal compulsion goes unchecked. The Peeping Tom next door stares through a few bathroom windows, doesn’t get caught, and decides to break in and steal a pair of panties. Next thing you know, he’s upgraded to homemade dungeons, tri-state serial rampages and throwing cheerleaders into a panel truck.

It was the same with the bailouts. They started out small, with the government throwing a few hundred billion in public money to prop up genuinely insolvent firms like Bear Stearns and AIG. Then came TARP and a few other programs that were designed to stave off bank failures and dispose of the toxic mortgage-backed securities that were a root cause of the financial crisis. But before long, the Fed began buying up every distressed investment on Wall Street, even those that were in no danger of widespread defaults: commercial real estate loans, credit- card loans, auto loans, student loans, even loans backed by the Small Business Administration. What started off as a targeted effort to stop the bleeding in a few specific trouble spots became a gigantic feeding frenzy. It was “free money for shit,” says Barry Ritholtz, author of Bailout Nation. “It turned into ‘Give us your crap that you can’t get rid of otherwise.’ ”

The impetus for this sudden manic expansion of the bailouts was a masterful bluff by Wall Street executives. Once the money started flowing from the Federal Reserve, the executives began moaning to their buddies at the Fed, claiming that they were suddenly afraid of investing in anything — student loans, car notes, you name it — unless their profits were guaranteed by the state. “You ever watch soccer, where the guy rolls six times to get a yellow card?” says William Black, a former federal bank regulator who teaches economics and law at the University of Missouri. “That’s what this is. If you have power and connections, they will give you a freebie deal — if you’re good at whining.”

This is where TALF fits into the bailout picture. Created just after Barack Obama’s election in November 2008, the program’s ostensible justification was to spur more consumer lending, which had dried up in the midst of the financial crisis. But instead of lending directly to car buyers and credit-card holders and students — that would have been socialism! — the Fed handed out a trillion dollars to banks and hedge funds, almost interest-free. In other words, the government lent taxpayer money to the same assholes who caused the crisis, so that they could then lend that money back out on the market virtually risk-free, at an enormous profit.

Cue your Billy Mays voice, because wait, there’s more! A key aspect of TALF is that the Fed doles out the money through what are known as non-recourse loans. Essentially, this means that if you don’t pay the Fed back, it’s no big deal. The mechanism works like this: Hedge Fund Goon borrows, say, $100 million from the Fed to buy crappy loans, which are then transferred to the Fed as collateral. If Hedge Fund Goon decides not to repay that $100 million, the Fed simply keeps its pile of crappy securities and calls everything even.

This is the deal of a lifetime. Think about it: You borrow millions, buy a bunch of crap securities and stash them on the Fed’s books. If the securities lose money, you leave them on the Fed’s lap and the public eats the loss. But if they make money, you take them back, cash them in and repay the funds you borrowed from the Fed. “Remember that crazy guy in the commercials who ran around covered in dollar bills shouting, ‘The government is giving out free money!’ ” says Black. “As crazy as he was, this is making it real.”

This whole setup — in which millionaires and billionaires gambled on mountains of dangerous securities, with taxpayers providing the stake and assuming almost all of the risk — is the reason that it’s insanely premature for Wall Street to claim that the bailouts have actually made money for the government. We simply can’t make that determination until the final bill comes in on all the dicey securities we financed during the bailout feeding frenzy.

In the case of Waterfall TALF Opportunity, here’s what we know: The company was founded in June 2009 with $14.87 million of investment capital, money that likely came from Christy Mack and Susan Karches. The two Wall Street wives then used the $220 million they got from the Fed to buy up a bunch of securities, including a large pool of commercial mortgages managed by Credit Suisse, a company John Mack once headed. Those securities were valued at $253.6 million, though the Fed refuses to explain how it arrived at that estimate. And here’s the kicker: Of the $220 million the two wives got from the Fed, roughly $150 million had not been paid back as of last fall — meaning that you and I are still on the hook for most of whatever the Wall Street spouses bought on their government-funded shopping spree.

The public has no way of knowing how much Christy Mack and Susan Karches earned on these transactions, because the Fed has repeatedly declined to provide any information about how it priced the individual securities bought as part of programs like TALF. In the Waterfall deal, for instance, we know the Fed pledged some $14 million against a block of securities called “Credit Suisse Commercial Mortgage Trust Series 2007-C2” — but that data is meaningless without knowing how many units were bought. It’s like saying the Fed gave Waterfall $14 million to buy cars. Did Waterfall pay $5,000 per car, or $500,000? We have no idea. “There’s no way of validating or invalidating the Fed’s process in TALF without this pricing information,” says Gary Aguirre, a former SEC official who was fired years ago after he tried to interview John Mack in an insider-trading case.

In early April, in an attempt to learn exactly how much Mack and Karches made on the TALF deals, Sen. Chuck Grassley of Iowa wrote a letter to Waterfall asking 21 detailed questions about the transactions. In addition, Sen. Sanders has personally asked Fed chief Bernanke to provide more complete information on the TALF loans given not only to Christy Mack but to gazillionaires like former Miami Dolphins owner H. Wayne Huizenga and hedge-fund shark John Paulson. But Bernanke bluntly refused to provide the information — and the Fed has similarly stonewalled other oversight agencies, including the General Accounting Office and TARP’s special inspector general.

Christy Mack and Susan Karches did not respond to requests for comments for this story. But even without more information about the loans they got from the Fed, we know that TALF wasn’t the only risk-free money being handed over to Wall Street. During the financial crisis, the Fed routinely made billions of dollars in “emergency” loans to big banks at near-zero interest. Many of the banks then turned around and used the money to buy Treasury bonds at higher interest rates — essentially loaning the money back to the government at an inflated rate. “People talk about how these were loans that were paid back,” says a congressional aide who has studied the transactions. “But when the state is lending money at zero percent and the banks are turning around and lending that money back to the state at three percent, how is that different from just handing rich people money?”

Those kinds of deals were the essence of the bailout — and the vast mountains of near-zero government cash turned companies facing bankruptcy into monstrous profit machines. In 2008 and 2009, while Christy Mack was busy getting her little TALF loans for $220 million, her husband’s bank hauled in $2 trillion in emergency Fed loans. During the same period, Goldman borrowed nearly $800 billion. Shortly afterward, the two banks reported a combined annual profit of $14.5 billion.

As crazy as it is to lend to banks at near zero percent and borrow back from them at three percent, one could at least argue that the policy may have aided American companies by providing banks more cash to lend. But how do you explain the host of other bailout transactions now being examined by Congress? Like the Fed’s massive purchases of securities in foreign automakers, including BMW, Volkswagen, Honda, Mitsubishi and Nissan? Or the nearly $5 billion in cheap credit the Fed extended to Toyota and Mitsubishi? Sure, those companies have factories and dealerships in the U.S. — but does it really make sense to give them free cash at the same time taxpayers were being asked to bail out Chrysler and GM? Seems a little crazy to fund the competition of the very automakers you’re trying to rescue.

And then there are the bailout deals that make no sense at all. Republicans go mad over spending on health care and school for Mexican illegals. So why aren’t they flipping out over the $9.6 billion in loans the Fed made to the Central Bank of Mexico? How do we explain the $2.2 billion in loans that went to the Korea Development Bank, the biggest state bank of South Korea, whose sole purpose is to promote development in South Korea? And at a time when America is borrowing from the Middle East at interest rates of three percent, why did the Fed extend $35 billion in loans to the Arab Banking Corporation of Bahrain at interest rates as low as one quarter of one point?

Even more disturbing, the major stakeholder in the Bahrain bank is none other than the Central Bank of Libya, which owns 59 percent of the operation. In fact, the Bahrain bank just received a special exemption from the U.S. Treasury to prevent its assets from being frozen in accord with economic sanctions. That’s right: Muammar Qaddafi received more than 70 loans from the Federal Reserve, along with the Real Housewives of Wall Street.

Perhaps the most irritating facet of all of these transactions is the fact that hundreds of millions of Fed dollars were given out to hedge funds and other investors with addresses in the Cayman Islands. Many of those addresses belong to companies with American affiliations — including prominent Wall Street names like Pimco, Blackstone and . . . Christy Mack. Yes, even Waterfall TALF Opportunity is an offshore company. It’s one thing for the federal government to look the other way when Wall Street hotshots evade U.S. taxes by registering their investment companies in the Cayman Islands. But subsidizing tax evasion? Giving it a federal bailout? What the fuck?

As America girds itself for another round of lunatic political infighting over which barely-respirating social program or urgently necessary federal agency must have their budgets permanently sacrificed to the cause of billionaires being able to keep their third boats in the water, it’s important to point out just how scarce money isn’t in certain corners of the public-spending universe. In the coming months, when you watch Republican congressional stooges play out the desperate comedy of solving America’s deficit problems by making fewer photocopies of proposed bills, or by taking an ax to budgetary shrubberies like NPR or the SEC, remember Christy Mack and her fancy new carriage house. There is no belt-tightening on the other side of the tracks. Just a free lunch that never ends.

What Europe’s coming debt default will look like – Telegraph Blogs

When it comes to default, fat cats and self-publicists alike have a lot to lose – Analysis, Opinion – Independent.ie

April 16, 2011

Corporate Crown H.Q

London: Heart of Empire and Global City

Financial Imperium

April 10, 2011

Ceasing Libya’s State Owned Central Bank

Regime Change Libya: Privatization of their Central Bank and the Theft of their Nationalized Oil Profits

Posted on March 29, 2011 by willyloman

by Scott Creighton

(I couldn’t resist)

“Give me your hungry, your tired, your poor, I’ll piss on em

that’s what the Statue of Bigotry says

Your poor huddled masses, let’s club em to death

get it over with and dump them on the boulevard” Lou Reed

 

There is no question anymore as to why the Obama administration is attempting to impose a change of the regime of Libya.

On March 17th I wrote about the invasion of Libya being about two main objectives: privatizing the national oil company and the state-owned central banking system. I pointed out that the US and British inserted language in the UN resolution that allowed them to freeze the accounts of the nationalized oil company as well as the central bank of Libya. Well, before they have even won their coup, the CIA backed pro-west opposition has taken the time to announce that they have formed a new national oil company and central bank. Obviously they have allowed our neo-liberal economic hit-men to write-up the legal documentation for this action and I am sure it hands over control to multinationals outside Libya.  This is why so many globalist apologists and neo-liberals have been running around the last week claiming that the real government in Libya is the Transitional National Council.

It has always been about gaining control of the central banking system in Libya. Oil is just a profitable side issue like every other state asset that is waiting in Libya to be privatized and sold off to multinational corporations like Bechtel, GE, and Goldman Sachs.  Oil is important and it is certainly a target but it isn’t the driving force behind these global wars for profit. Banking is.

 

Once the Coalition Provisional Authority took over in Iraq, the second thing they did, after signing a law banning the Baathists and disbanding the military, was to sign over the state-owned central banking system to privately held banking interests, bringing Iraq online with the web of private central banks. That took place the very first day of the CPA’s control of Iraq.

United Nations resolution 1483 transferred the authority to authorize expenditures from Iraq’s oil revenue from the United Nations to the Coalition Provisional Authority The International Advisory and Monitoring Board consisted of senior financial experts from the United Nations, the International Monetary Fund, the World Bank...

… After the U.S. military came in and took over Iraq, the CPA quickly began issuing many binding orders privatizing Iraq’s economy and opening it up to foreign investment. This was welcomed by many multinational corporations who saw the war as an opportunity to make billions of dollars in profits.“  Wiki

If you control the issuance of money in a country and can turn huge profits while enslaving the population with the debt that it produces, then everything, everything including the oil and everything else, belongs to you.

“You control the debt, you control everything. This is the very nature of banking. To make us all, whether it is a nation or an individual, slaves to debt.” The International

That is why control of the central bank was far more important than the oil in Iraq or in Libya.

“The rebels in Libya are in the middle of a life or death civil war and Moammar Gadhafi is still in power and yet somehow the Libyan rebels have had enough time to establish a new Central Bank of Libya and form a new national oil company.

…  According to Bloomberg, the Transitional National Council has “designated the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya and the appointment of a governor to the Central Bank of Libya, with a temporary headquarters in Benghazi.”  Apparently someone felt that it was very important to get pesky matters such as control of the banks and control of the money supply out of the way even before a new government is formed.”  The Economic Collapse

The UN security council resolution was passed on the 17th of March late in the day. I wrote about it the very same night. According to the statement released by the “new government” of Libya, they met and hashed out the details of their new oil company and central bank system on the 19th,  not 48 hours after the UN resolution promised ONLY to provide an no-fly zone over Libya for “humanitarian purposes”.

More than anything else, this new disclosure from the “new government” of Libya proves that this was NEVER about protecting the civilians, it was ALWAYS about stealing from them control of their monetary system and the nationalized oil profits that provide them with health-care, education, and even cash put right into each and every Libyan bank account as their part of the profits derived from a natural resource that belongs to them.

“The Transitional National Council released a statement announcing thedecision made at a March 19 meeting to establish the “Libyan Oil Company as supervisory authority on oil production and policies in the country, based temporarily in Benghazi, and the appointment of an interim director general” of the company.

The Council also said it “designated the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya and the appointment of a governor to the Central Bank of Libya, with a temporary headquarters in Benghazi.”

The Security Council adopted a resolution on March 17 that froze the foreign assets of the Libyan National Oil Corp. and the Central Bank of Libya, both described in the text as “a potential source of funding” for Qaddafi’s regime.” Bloomberg

Obama prevented no humanitarian catastrophe, he saved not one single life. What he has done is not in service to the people of Libya but rather those who he serves, the banking interests that put him in power in the first place. In Libya, Obama’s intervention was not designed to protect the people but to ensure that they too are enslaved just as we are enslaved. That is why a waitress at the hotel the press corp was staying at called Eman a traitor. They know what is at stake here just like most American liberals know. But to them it is more important to maintain the shared illusion in the face of a crumbling liberal ideology that is literally rotting from the inside.

What is happening in Libya will hurt the people of Libya, not help them. It will steal from them their health-care and their education. It will return them to a time before Gadhafi when they had an literacy rate of only 10% and sky-rocketing poverty. It will impose upon them the same crippling banking structure that the people of this country know altogether too well.  There is no question anymore, there is no argument. The only question is how much damage will we allow our corrupt government to inflict on the rest of the world before we stand up and say enough. That is the only question that is left and the only question worth discussing.

Are we as morally bankrupt as the phonies who run our country or not?  It’s just that simple.

“Give me your hungry, your tired, your poor, I’ll piss on em

that’s what the Statue of Bigotry says

Your poor huddled masses, let’s club em to death

get it over with and dump them on the boulevard” Lou Reed

Regime Change Libya: Privatization of their Central Bank and the Theft of their Nationalized Oil Profits « American Everyman