Aug

15

Why Did We Bail Out The Banks?

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We could not have allowed the big banks to fail since they are vital to the powerful, monied interests that control elections, special interest groups and media that enrich the status quo serve the needs of the common citizen

Jul

24

What Doesn’t the FED Want You To Know?

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Heroic.

Visit msnbc.com for Breaking News, World News, and News about the Economy

The most successful heists are the ones that occur every day that we are not even aware of.  The Federal Reserve, the quasi-governmental agency run by ex-bankers, that controls the money supply, interest rates and manages the economy is an agency very few are familiar with.

Given the trillions of taxpayer dollars on the hook and the delicate state our economy is in, H.R. 1207 aims to audit the ongoing Federal Reserve activities.

For years, the author of this bill, Ron Paul, has spoken up and drawn attention to the importance of sound money (money with tangible value, like gold and silver) and an economy which is not micromanaged by ex-bankers or manipulated in a secretive fashion. Paul has always been a political outsider and it is good to finally see his attempts to uncover the truth finally gain some momentum.

Since politicians, like all of us, are self-interested, we need to exert our influence and let them know we expect this bill to pass.

Since this bill would expose a great deal of financial/governmental/corporate connections, it would not surprise me if there is another financial panic/disaster and this bill is pushed aside to give even more power to the Fed and Executive Branch.

The above video speaks volumes about the shape of our economy and the level of dishonesty that is fraught in our financial and economic system.

Takeaway:  As a man, it is imperative to be ever-inquisitive, curious and non-complacent.  Reading and questioning your beliefs can help you generate an Accurate Model of Reality and prepare better for your future.  Think for yourself and stand up for what you believe in, even if you stand alone.

hat tip:  Zero Hedge

May

10

Lessons to be learned from the Stress Test

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The Stress Test results were revealed last Friday after much anticipation.  The test and broadcast of the results were quite telling and there are several things we can learn from this.

My initial reaction of skepticism was confirmed when many reputable bloggers (with their own capital on the line) expressed similar qualms over the weakness of government’s test.  The two short articles I have quoted are well worth the read.

A former FX trader, “Dude”, suggests that the test is direly lacking real-world stress. He cites much more dire scenarios, which the government has not tested:

1) China didn’t show up at a Treasury Auction and bond rates jumped 3-5%
2) China started dumping US$s on the open market and our exchange rate dropped 10%
3) The Fed, under such conditions, had to raise the Fed Funds rate by 5% quickly
4) An act of war or natural disaster struck one of the big coastal cities, putting it entirely out of commission thus pushing GDP down 6-10% quickly

Admittedly, the Treasury is more interested in a longer view than I was, although given the highly leveraged derivatives positions, they might be well served to also inquire about substantial, discontinuous price changes.

I’m troubled that they don’t test for what the past suggests is possible.

What if Unemployment goes to 30% as it did in the 30s?

What if Inflation falls to -5% or rises to 12%?

What if Fed Funds goes to 17% as it did in the early 80s?

What if we can’t roll-over our foreign held debt, as has happened to most nations which have run up as large an external debt position as ours?

Karl Denninger at Market Ticker mentions:

According to The Fed’s “More Adverse” scenario prime delinquencies will reach 3-4%. Note that the PRESENT serious delinquency rate on Fannie’s credit book for single family homes is at 3.15%.  Nowhere in the “mainstream media” (e.g. CNBC, etc) has this been mentioned but it is literally right in your face while reading the Fannie quarterly report.

If we accept the above as true, we must logically draw one of two conclusions.

  1. The government knows that the stress the system could endure could be much worse.  They have decided to deliberately ignore or discount this data to assuage our fears and not report the full truth to us.  In other words, they are knowingly lying to us.  If this is in fact the case and if the government is trying to deceive us, Geithner, Bernanke and Obama should be held responsible for the misdeeds, regardless of political party.
  2. The government is ignorant of these facts that other individuals have adroitly discovered.  This would mean they are not the most intelligent or conscientious leaders to be running our financial system.  They are not fit to be in charge and should be removed as soon as possible, regardless of political party.

Takeaway:  There is a simple theme we can learn from the stress test and it comes from Buddha.  He says:

“Believe nothing, no matter where you read it or who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense.”

Ben Bernanke has made statements such as:

“It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”

(Freddie and Fannie) “…will make it through the storm”, “… in no danger of failing.”,”…adequately capitalized”

We’ve had a $700 billion bailout and numerous corporate-welfare financial programs (CPFF, TLGP, PPIP, CPFF, TARP, etc.).  Fannie and Freddie have been nationalized.

Karl Denninger has published his remarkably accurate predictions publicly (2008, 2009) and stood by them.  People might think you’re a fool for believing a blogger, rather than an MIT-educated expert.  Look at the evidence and track-record and decide for yourself. Just because someone is a popular leader (religious, business, political) or has a popular title doesn’t mean they are any more thoughtful, intelligent or honest than someone without popularity.

For more on the crisis, read here.

Mar

8

Trust the Experts

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They know what they’re talking about…

To read more about the “experts” buffonery, read here.

Feb

25

Separation of Economy and State

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At the heart of this error is the government, not the free market, which has never existed since the creation of the Federal Reserve.  A free-market organization would have gone bankrupt long before it could ever screw up on a scale this large.

The inane setup of our monetary system has led our problems, where government sets short-term interest rates, manipulates its currency, lets overleveraged banks borrow at below market rates via the Discount Window, engages in open-market transactions, and creates money out of thin air to fight wars for no clear reason, et cetera.

That, coupled with government initiatives like “making homes affordable” leads to such ideas like buying subprime mortgages (via Fannie and Freddie) and then having the taxpayer bail out the government entity when it inevitably fails.

The mindset that we will ease out of this crisis in a few years is delusional.  People’s expectations have been warped into believing the last six-seven years of growth have been genuine.  They haven’t.  The credit boom started after the dot-com crash and only when prices of assets (housing, equities) return to those levels will we see the start of a healthy correction.  Yes, house prices need to come down.  This happens by foreclosures and assets moving from those that cannot carry the debt burden to those that can.  Letting people who can’t afford to stay in their home stay there isn’t a solution.  Having the taxpayer buy the mortgage via Freddie Mac, then “renegotiate” the mortgage and take a loss should aggravate anyone with a sense of responsibility.  The hero-worship that President Obama is going to miraculously create compounding wealth by printing up cash and paving roads thereby returning us to the good old days is simply not going to happen.

Only a repudiation of our current banking and monetary system will solve this problem in the long-run.  A free market in money and currency is needed as well as the total separation of Economy and State.

To read more about our economic woes, read here.

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