Financial fuckery thread

[Cain]

Well, they haven't been large ones, but I've been hearing about JP Morgan and others starting to purchase outright financial brokers (like their deal with Cazenove last month) so I presume this would be the next step.  I will admit I don't follow the minutiae of the finance world and this single example may be skewing my perceptions.

[BabylonHoruv]

What large security grabs have you seen?
i think we haven't seen anything yet.  just a trickle.  Commercial real estate and second wave of residential real estate crapout is going to hit this year...
there will be big grabs then maybe...

incidentally, if you want to take a good position in this ride, one should clear any secured debt and build up a cash position in anticipation of step 12 or so, when things are bargain basement.
better we buy them than the bankers....

Only problem with that is that inflation makes cash reserves much less valuable.

[Elder Iptuous]

We've been steadily inflating for decades.  Right now the environment is deflationary.  This guys model says that deflation will crap out the economy and then you can buy assets at rock bottom prices then they hyperinflate to extinguish their debts when they have secured the assets...
So you buy before they do that.
Or if you're already in debt, you should liquidate your assets and put them into something you can hide from the banks that will retain value.  Ride out the storm and then payoff your debts with proceeds from your hidden wealth in hyperinflated currency.
There's like this huge argument in the inflation vs. deflation camps of economic doom n gloomers.  And partly that is due to loose definitions, I think

[Cain]

Wolfgang Manchau at the Financial Times seems to think it will be massive deflation followed by hyperinflation, and anyone arguing for merely one side or another is a bit simple.

Also, fuck you, banks

http://www.ft.com/cms/s/0/caffc078-fc97-11de-bc51-00144feab49a.html

City bankers will suffer little or no impact from the bonus supertax imposed by the government last month, according to a Financial Times poll of leading investment banks.

Most banks, polled in an anonymised survey, said they would absorb all or part of the cost of the one-off 50 per cent tax by inflating their bonus pools, even at the risk of irritating the government and their own shareholders.

This is just staggering.  Also, the bit about "government and their own shareholders" should just read "government" now.  They threw tantrums about leaving the country, about witholding loans, and now they're just going to inflate their bonuses to where they're comfortable with so the tax doesn't get them.

I dread how much shit they are going to pull over the summer (Parliamentary recess) and once the Tories are in power.

[BabylonHoruv]

Wolfgang Manchau at the Financial Times seems to think it will be massive deflation followed by hyperinflation, and anyone arguing for merely one side or another is a bit simple.

Also, fuck you, banks

http://www.ft.com/cms/s/0/caffc078-fc97-11de-bc51-00144feab49a.html

City bankers will suffer little or no impact from the bonus supertax imposed by the government last month, according to a Financial Times poll of leading investment banks.

Most banks, polled in an anonymised survey, said they would absorb all or part of the cost of the one-off 50 per cent tax by inflating their bonus pools, even at the risk of irritating the government and their own shareholders.

This is just staggering.  Also, the bit about "government and their own shareholders" should just read "government" now.  They threw tantrums about leaving the country, about witholding loans, and now they're just going to inflate their bonuses to where they're comfortable with so the tax doesn't get them.

I dread how much shit they are going to pull over the summer (Parliamentary recess) and once the Tories are in power.

I dunno, if I were a shareholder I'd be pretty pissed.  Basically it means they are doubling the bonus size, thus also doubling the amount of tax they are paying.  I can see the government actually being pretty happy about that.

[Mesozoic Mister Nigel]

What large security grabs have you seen?
i think we haven't seen anything yet.  just a trickle.  Commercial real estate and second wave of residential real estate crapout is going to hit this year...
there will be big grabs then maybe...

incidentally, if you want to take a good position in this ride, one should clear any secured debt and build up a cash position in anticipation of step 12 or so, when things are bargain basement.
better we buy them than the bankers....

Only problem with that is that inflation makes cash reserves much less valuable.

Yes, inflation is great for people with mass debt, terrible for people with mass cash.

[Cain]

http://abcnews.go.com/Business/wireStory?id=9709670

The government's response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.

The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

Since Congress passed $700 billion financial bailout, the remaining institutions considered "too big to fail" have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.

Barofsky also said his office is investigating 77 cases of possible criminal and civil fraud, including crimes of tax evasion, insider trading, mortgage lending and payment collection, false statements and public corruption.

[Cain]

Source seems a little suspect, but I'm sure you can all tell me if the economics are sound or not

http://theeconomiccollapseblog.com/archives/it-is-now-mathematically-impossible-to-pay-off-the-u-s-national-debt

A lot of people are very upset about the rapidly increasing U.S. national debt these days and they are  demanding a solution. What they don't realize is that there simply is not a solution under the current U.S. financial system. It is now mathematically impossible for the U.S. government to pay off the U.S. national debt. You see, the truth is that the U.S. government now owes more dollars than actually exist. If the U.S. government went out today and took every single penny from every single American bank, business and taxpayer, they still would not be able to pay off the national debt. And if they did that, obviously American society would stop functioning because nobody would have any money to buy or sell anything.

And the U.S. government would still be massively in debt.

So why doesn't the U.S. government just fire up the printing presses and print a bunch of money to pay off the debt?

Well, for one very simple reason.

That is not the way our system works.

You see, for more dollars to enter the system, the U.S. government has to go into more debt.

The U.S. government does not issue U.S. currency - the Federal Reserve does.

The Federal Reserve is a private bank owned and operated for profit by a very powerful group of elite international bankers.

If you will pull a dollar bill out and take a look at it, you will notice that it says "Federal Reserve Note" at the top.

It belongs to the Federal Reserve.

The U.S. government cannot simply go out and create new money whenever it wants under our current system.

Instead, it must get it from the Federal Reserve.

So, when the U.S. government needs to borrow more money (which happens a lot these days) it goes over to the Federal Reserve and asks them for some more green pieces of paper called Federal Reserve Notes.   

The Federal Reserve swaps these green pieces of paper for pink pieces of paper called U.S. Treasury bonds. The Federal Reserve either sells these U.S. Treasury bonds or they keep the bonds for themselves (which happens a lot these days).

So that is how the U.S. government gets more green pieces of paper called "U.S. dollars" to put into circulation. But by doing so, they get themselves into even more debt which they will owe even more interest on.

So every time the U.S. government does this, the national debt gets even bigger and the interest on that debt gets even bigger.

Are you starting to get the picture?

As you read this, the U.S. national debt is approximately 12 trillion dollars, although it is going up so rapidly that it is really hard to pin down an exact figure.

So how much money actually exists in the United States today?

Well, there are several ways to measure this.

The "M0" money supply is the total of all physical bills and currency, plus the money on hand in bank vaults and all of the deposits those banks have at reserve banks.  As of mid-2009, the Federal Reserve said that this amount was about 908 billion dollars.

The "M1" money supply includes all of the currency in the "M0" money supply, along with all of the money held in checking accounts and other checkable accounts at banks, as well as all money contained in travelers' checks.  According to the Federal Reserve, this totaled approximately 1.7 trillion dollars in December 2009, but not all of this money actually "exists" as we will see in a moment.

The "M2" money supply includes everything in the "M1" money supply plus most other savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).  According to the Federal Reserve, this totaled approximately 8.5 trillion dollars in December 2009, but once again, not all of this money actually "exists" as we will see in a moment.

The "M3" money supply includes everything in the "M2" money supply plus all other CDs (large time deposits and institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.  The Federal Reserve does not keep track of M3 anymore, but according to ShadowStats.com it is currently somewhere in the neighborhood of 14 trillion dollars.  But again, not all of this "money" actually "exists" either.

So why doesn't it exist?

It is because our financial system is based on something called fractional reserve banking.

When you go over to your local bank and deposit $100, they do not keep your $100 in the bank.  Instead, they keep only a small fraction of your money there at the bank and they lend out the rest to someone else.  Then, if that person deposits the money that was just borrowed at the same bank, that bank can loan out most of that money once again.  In this way, the amount of "money" quickly gets multiplied.  But in reality, only $100 actually exists.  The system works because we do not all run down to the bank and demand all of our money at the same time.

According to the New York Federal Reserve Bank, fractional reserve banking can be explained this way....

"If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000)."

So much of the "money" out there today is basically made up out of thin air.

In fact, most banks have no reserve requirements at all on savings deposits, CDs and certain kinds of money market accounts.  Primarily, reserve requirements apply only to "transactions deposits" – essentially checking accounts.

The truth is that banks are freer today to dramatically "multiply" the amounts deposited with them than ever before.  But all of this "multiplied" money is only on paper - it doesn't actually exist.

The point is that the broadest measures of the money supply (M2 and M3) vastly overstate how much "real money" actually exists in the system.

So if the U.S. government went out today and demanded every single dollar from all banks, businesses and individuals in the United States it would not be able to collect 14 trillion dollars (M3) or even 8.5 trillion dollars (M2) because those amounts are based on fractional reserve banking.

So the bottom line is this....

#1) If all money owned by all American banks, businesses and individuals was gathered up today and sent to the U.S. government, there would not be enough to pay off the U.S. national debt.

#2) The only way to create more money is to go into even more debt which makes the problem even worse.

You see, this is what the whole Federal Reserve System was designed to do.  It was designed to slowly drain the massive wealth of the American people and transfer it to the elite international bankers.

It is a game that is designed so that the U.S. government cannot win.  As soon as they create more money by borrowing it, the U.S. government owes more than what was created because of interest.

If you owe more money than ever was created you can never pay it back.

That means perpetual debt for as long as the system exists.

It is a system designed to force the U.S. government into ever-increasing amounts of debt because there is no escape.

We could solve this problem by shutting down the Federal Reserve and restoring the power to issue U.S. currency to the U.S. Congress (which is what the U.S. Constitution calls for).  But the politicians in Washington D.C. are not about to do that.

So unless you are willing to fundamentally change the current system, you might as well quit complaining about the U.S. national debt because it is now mathematically impossible to pay it off.

***UPDATE***

It has been suggested that the same dollar can be used to pay off debt over and over - this is theoretically true as long as the dollar remains in the system.

For example, if the U.S. government gives China a dollar to pay off a debt, there is a good chance that the U.S. government will be able to acquire that dollar again and use it to pay off another debt.

However, this is not true when debt is retired with the Federal Reserve.  In that case, money is actually removed from the system.  In fact, because of the "money multiplier", when debt is retired with the Federal Reserve it can remove ten times that amount of money (and actually more, but let's not get too technical) from the system.

You see, fractional reserve banking works both ways.  When $100 is introduced into the system, it can theoretically create $1000 as the example in the article above demonstrates.  However, when that $100 is removed, it can have the opposite impact.

And considering the fact that the Federal Reserve "purchased" the vast majority of new U.S. government debt last year, we have got a real mess on our hands.

Even if a way could be figured out how to pay off all the debt we owe to foreign nations (such as China, Japan, etc.) it would still be mathematically impossible to pay off the debt that we owe to the Federal Reserve which is exploding so fast that it is hard to even keep track of.

Of course we could repudiate that debt and shut down the Federal Reserve, but very few in Washington D.C. have any interest in doing that.

It has also been suggested that instead of just using dollars to pay off the U.S. national debt, we could use the assets of the U.S. government to pay it off.

That is rather extreme, but let us consider that for a moment.

That total value of all physical assets in the United States, both publicly and privately owned, is somewhere in the neighborhood of 45 to 50 trillion dollars.  Of course the idea of the U.S. government "owning" every single asset of the American people is repugnant to our entire way of life, but let's assume that for a moment.

According to the 2008 Financial Report of the United States Government, which is an official United States government report, the total liabilities of the United States government, including future social security and medicare payments that the U.S. government is already committed to pay out, now exceed 65 TRILLION dollars.  This amount is more than the entire GDP of the whole world.

In fact, there are other authors who have written that the actual figure for the future liabilities of the U.S. government should be much higher, but let's be conservative and go with 65 trillion for now.

So, if the U.S. government took control of all physical assets in the United States and sold them off, it could not even make enough money to pay for everything that the U.S. government is already on the hook for.

Ouch.

If you have not read the 2008 Financial Report of the United States Government, you really should.  Actually the 2009 report should be available very soon if it isn't already.  If anyone knows if it is available, please let us know.

The truth is that the U.S. government is in much bigger financial trouble than we have been led to believe.

For example, according to the report (which remember is an official U.S. government report) the real U.S. budget deficit for 2008 was not 455 billion dollars.  It was actually 5.1 trillion dollars.

So why the difference?

The CBO's 455 billion figure is based on cash accounting, while the 5.1 trillion figure in the 2008 Financial Report of the United States Government is based on GAAP accounting. GAAP accounting is what is used by all the major firms on Wall Street and it is regarded as a much more accurate reflection of financial reality.

So needless to say, the United States is in a financial mess of unprecedented magnitude.

[Requia ☣]

 I can't wait

[Cain]

http://www.nytimes.com/2010/02/08/us/politics/08lobby.html?hp

Republicans are rushing to capitalize on what they call Wall Street's "buyer's remorse" with the Democrats. And industry executives and lobbyists are warning Democrats that if Mr. Obama keeps attacking Wall Street "fat cats," they may fight back by withholding their cash. "If the president doesn't become a little more balanced and centrist in his approach, then he will likely lose that support," said Kelly S. King, the chairman and chief executive of BB&T. Mr. King is a board member of the Financial Services Roundtable, which lobbies for the biggest banks, and last month he helped represent the industry at a private dinner at the Treasury Department. "I understand the public outcry," he continued. "We have a 17 percent real unemployment rate, people are hurting, and they want to see punishment. But the political rhetoric just incites more animosity and gets people riled up" . . . "If the president wanted to turn every Democrat on Wall Street into a Republican," one industry lobbyist said, "he is doing everything right."

See kids, name-calling does have consequences.

[Cain]

http://www.guardian.co.uk/business/2010/feb/17/china-sells-us-treasury-bonds?utm_source=twitterfeed&utm_medium=twitter

China sold $34bn (£21.5bn) worth of US government bonds in December, raising fears that ­Beijing is using its financial ­muscle to signal that it has lost confidence in American economic policy.

US treasury figures for the period ending in December 2009 show that, following the sale, China is no longer the largest overseas holder of US treasury bonds. Beijing ended the year sitting on $755.4bn worth of US government debt, compared to Japan's $768.8bn.

Since the sub-prime crisis that began on Main Street USA grew to engulf the global economy, China's leaders have repeatedly expressed concerns about US policy. December's $34bn sell-off made only a tiny dent in Beijing's total holdings of US assets, which amount to well over $1tn when stakes in American companies, as well as treasury bills, are taken into account.

But the news intensified concerns about China's appetite for bankrolling ever-widening American deficits. Premier Wen Jiabao told reporters last year: "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried."

When Timothy Geithner, the US treasury secretary, visited China last summer, he sought to reassure his hosts, using a speech to promise that "the United States is committed to a strong and stable international financial system. The Obama administration fully recognises that the United States has a special responsibility to play in this regard, and we fully appreciate that exercising this special responsibility begins at home."

But Allan Meltzer, an economics professor at Carnegie Mellon University, said China's bond sales should be a wake-up call for Washington. "The Chinese are worried that we have unsustainable debt levels, and we do not have a policy for dealing with it," he said.

China's sales contributed to a record drop in foreign holdings of short-term treasury bills in December: in all, net overseas holdings of short-term bills fell by $53bn. The previous record was $44.5bn in April last year.

[Elder Iptuous]

Source seems a little suspect, but I'm sure you can all tell me if the economics are sound or not

http://theeconomiccollapseblog.com/archives/it-is-now-mathematically-impossible-to-pay-off-the-u-s-national-debt

I don't think this article is entirely accurate....

The Federal Reserve is not a 'for profit' private bank.  It is a quasi-federal, private enterprise that has the best of both worlds.  Government power and private autonomy.  It does run a profit, but all profits are returned to the US Treasury.  Of course, the fact that the FED is run by Big Private Bank alumni should not be overlooked.  They forge monetary policy and determine who get the shaft and who gets their knobs polished....  The Fed Reserve stocks are owned by the member banks (which are private).

The Federal Reserve does not buy treasuries from the Treasury.  It must buy them on the open market.  That's why you hear in the news about 'treasury auctions' in the context of the general market, because the treasury has to auction them to private investors, and if there's weak demand for them, then the bond prices go down, the dollar goes down, and people get in a tizzy.  It is only after they are on the open market that the Fed can buy them.  Of course, the fact that when there is weakness in the auctions, there are little islands in the Caribbean which all of a sudden buy shitloads of them, and then the Fed buys them up from these 'private investors' should not be overlooked...

Also, I would take exception with how he says the money that is created as credit by means of the fractional reserve system is not 'real money'.... It is true that it is not 'real' in the sense that as the debt is repaid, the digits that represent the money vaporize, but until that debt is repaid, it is 'real money' in that it circulates and is spent on goods and services and effects the supply and demand with the concomitant price adjustments.  For example, if they dropped the reserve requirement to zero, (which is not entirely unprecedented) and there was willingness to build up debt massively by the public, the credit accounted for in the M3 would definitely have an impact on the price of your happy meal.  That makes it 'real money'....

I do agree with this:

You see, this is what the whole Federal Reserve System was designed to do.  It was designed to slowly drain the massive wealth of the American people and transfer it to the elite international bankers.

But I do not agree with this:

If you owe more money than ever was created you can never pay it back.

You can pay it back.... With your sweat.  With your time. With your life.
That's what they're after.

[Requia ☣]

Stop! Hold the phone. What this statement indicates is that Fannie Mae, the largest mortgage company in the entire world, was holding eight times the amount of mortgages off-book than it had on-book.

Thus despite the fact that it is losing tens of billions of dollars every quarter, and has borrowed $76.2 billion so far, it was actually hiding the vast majority of its worst performing mortgages off-book. The only reason you move assets off-book is if they are illiquid. And that's not even taking into account Freddie Mac, which has borrowed another $50 Billion from the taxpayers so far.
How bad are those assets? It's hard to say for certain, but after moving $2.4 Trillion dollars worth of assets, the net worth of Fannie Mae only improved by $2 Billion, or 0.083% of the assets.

http://www.economicpopulist.org/content/enron-fun-fannie-and-freddie

[Juana]

Holy shit.

[Jasper]

Stop! Hold the phone. What this statement indicates is that Fannie Mae, the largest mortgage company in the entire world, was holding eight times the amount of mortgages off-book than it had on-book.

Thus despite the fact that it is losing tens of billions of dollars every quarter, and has borrowed $76.2 billion so far, it was actually hiding the vast majority of its worst performing mortgages off-book. The only reason you move assets off-book is if they are illiquid. And that's not even taking into account Freddie Mac, which has borrowed another $50 Billion from the taxpayers so far.
How bad are those assets? It's hard to say for certain, but after moving $2.4 Trillion dollars worth of assets, the net worth of Fannie Mae only improved by $2 Billion, or 0.083% of the assets.

http://www.economicpopulist.org/content/enron-fun-fannie-and-freddie

That is like 2.4 teradollars.  Fucking whoa.