Archive for February 25th, 2010
Submitted by George Washington
Yesterday, I quoted an economist with the U.S. House of Representatives Financial Services Committee for eleven years who assisted with oversight of the Federal Reserve to show that there might be some basis for Ron Paul’s questions to Ben Bernanke about the Federal Reserve’s alleged shipment of money to Iraq.
Here is some more information.
In July 2009, Congressman Henry Waxman stated:
In a 13 month period from May 2003 to June 2004, the Federal Reserve sent nearly $12 billion in cash, mainly in $100 bills from the United States to Iraq. To do that, the Federal Reserve Bank in New York had to pack 281 million individual bills … onto wooden pallets to be shipped to Iraq. The cash weighed more than 363 tons and was loaded onto C-130 cargo planes to be flown into Baghdad…
And an interesting New York Times op-ed written in 2004 by Martin Mayer, a prolific financial journalist, Brookings Institution scholar, and the author of more than 30 books on financial market issues, argues:
Among [Saddam] Hussein’s possessions when he was captured was three-quarters of a million dollars in United States currency in crisp new bills. Whence came the gentleman’s stash?
Answering this question would help our understanding of terrorist financial networks. And if the cash is sequentially numbered, as is likely, then the question could be easily answered.
All United States currency is printed by the United States Mint, to the order of one of the 12 banks of the Federal Reserve system. It comes into circulation through a bank that has an account at the Fed for which it was printed. The Fed deducts the face value of the bills from that account, and an armored car takes them to their new owner.
That regional Federal Reserve Bank keeps a record that identifies the purchasing bank. And the purchaser knows how it disposed of the bills. When they are found all together, it means that the bank that bought the bills did not feed them out from the teller window or the cash machine, but delivered them to a single customer.
And the bank knows who that customer was. Between, say, Philadelphia and Iraq, there is no doubt a chain, perhaps involving banks in the Cayman or Channel Islands, in Abu Dhabi or Dubai. Still, each bank in the chain can give the name of the customer to which it gave these bills.
Although Saddam Hussein’s government had many sanctions against it, it may well be that no laws were broken in the passage of the Federal Reserve notes from the mint to Tikrit. But it would be interesting to know which banks were collaborators in getting that cash to the tyrant of Iraq.
Unfortunately, the search for these witting or unwitting collaborators cannot even get started, because the Federal Reserve Board will not permit regional banks to reveal the identity of the purchasers of large blocks of United States currency. There is no law that prohibits such disclosure; it’s simply a Fed policy. Yet in this age of payroll services and electronic payments, there are few legitimate uses outside the banking system for very large orders of hundred-dollar bills.
The Fed has always resisted placing American banks under obligation to reveal skulduggery, whether it involves drug smuggling, commercial fraud, terrorism or other international conspiracy. Banks are not, the Fed insists, law enforcement agencies. It may be that the F.B.I. has access to the Fed’s records — a spokesman for the Fed, after checking with the main office, would not say yea or nay — but it is not clear that the F.B.I. has authority to continue such searches beyond American borders.
The Fed’s manual on the Bank Secrecy Act still says that ”know your customer”rules, while desirable, are ”not presently required by regulation or statute” — though the Patriot Act has spawned some rules on the identification of new customers. At any rate, the manual says rather mysteriously, such rules ”should not interfere with the relationship of the financial institution with its good customers.”
Senators Charles E. Grassley and Max Baucus, chairman and ranking member, respectively, of the Finance Committee, complained to the Treasury Department last year that not enough has been done to keep the financiers of terrorism from paying their bills through the American financial system. Perhaps Congress should tell the Fed to release its hold on information about which banks supply the bundles of cash that facilitate international crime.
The head of the UN office on drugs and crime says that drug money kept the global banking system afloat during the height of the financial crisis. Former Managing Director and board member of Wall Street investment bank Dillon Read, Catherine Austin Fitts, has long alleged that the American banking system launders huge amount of drug money.
I don’t know anything about money laundering, drug trafficking or terrorist networks. But I might be able to guess who could get that kind of information: the Fed.
What Goldman and other the other banks have done in Greece is no different from what they have been doing around the world for the past ten years. They facilitate various forms of questionable financial instruments with corrupt partners, and then trade on their detailed knowledge of that misrepresentation, mispricing and even outright fraud to reap enormous profits, often at the expense of the productive economy and programs designed to protect legitimate commercial banking activities. This is at the very core of the CDO financial crisis in the States.
Banks should not be able to trade in their own proprietary portfolios on the integrity of financial assets of their own devices. Otherwise, the conflicts of interest are irresistible. This is the very problem that Glass-Steagall was originally enacted in 1933 to prevent.
Only the most conservative and restrained banking system can function in the face of such obvious temptations for self-dealing. And this does not describe the financial system in the US.
Setting up regulatory hurdles, ‘chinese walls,’ and capital requirements to try and stem such obvious temptation to greed is a fool’s errand, but one that the banks encourage, knowing full well they will find ways to circumvent them as fast as they can be created.
The banks must be restrained, the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery.
Bernanke: Looking at Goldman Sachs role in Greece
Thu Feb 25, 2010 10:03am EST
WASHINGTON (Reuters) – The Federal Reserve is examining the role that Wall Street firms including Goldman Sachs (GS.N) played in helping Greece arrange credit default swaps, Fed Chairman Ben Bernanke said on Thursday.
“We are looking into a number of questions related to Goldman Sachs and other companies in their derivatives arrangements with Greece,” Bernanke said in response to a question for Senate banking Committee Chairman Chris Dodd.
Bernanke said the Securities and Exchange Commission was also “interested” in the issue and added: “Obviously, using these instruments in a way that potentially destabilizes a company or a country is counterproductive.”
Detroit Mayor on Unions "They can't read, they can't add, they can't comprehend"; 33% of Detroit is Vacant Lots or Abandoned Homes
Three cheers to Detroit mayor Dave Bing for his truthful comments about unions: ‘Either they can’t read, they can’t add or they can’t comprehend’
Mayor Dave Bing today criticized leaders of the city’s largest union for foot-dragging on contract negotiations, saying it’s costing the financially strapped city $500,000 a month and could result in more layoffs.
“Either they can’t read, they can’t add or they can’t comprehend,” Bing said at a press conference this morning in his office at City Hall. “It has to be one of the three.
“Everyone is running with a deficit in their budgets. It’s leadership or a lack of leadership that has got us to where we are.”
Bing said he’s ready to impose a contract on the American Federation of State, County and Municipal Employees Council 25 but said the city must follow the law. Both parties are now in fact-finding, a process which could last until July.
Bing has been at odds for months with AFSCME leaders over calls for concessions, including 10 percent pay cuts through 26 furlough days and fringe benefit cuts. The union represents about 3,600 workers such as landscapers, street pavers and crossing guards.
Problems With Bing’s Approach
The big problem with Bing’s approach is that he is not going far enough. He should privatize everything he can. Pussyfooting around with unions is generally a waste of time. The major goal should be to eliminate the unions entirely. The compromise position is the end of defined benefit pension plans coupled with a 33% salary reduction.
Ask for a lousy 10% cut and you end up in court, after months of delays, and all you end up with is a lousy 5% with no headway on the defined benefit issue.
By the way, Bing brought this on himself. Why is it so hard to see the need to privatize landscapers, street pavers and crossing guards? Hells bells, the goal ought to be to privatize the fire department, better yet, to have a volunteer fire department.
Thus, on second thought … Two cheers (not three) to Detroit mayor Dave Bing. He said what needed to be said, but he certainly is not acting like he means business.
33% of Detroit is Vacant Land or Abandoned Homes
Inquiring minds are investigating Mayor Bing’s Plan To Shrink Detroit
Mayor Dave Bing said Wednesday he “absolutely” intends to relocate residents from desolate neighborhoods and is bracing for inevitable legal challenges when he unveils his downsizing plan.
In his strongest statements about shrinking the city since taking office, Bing told WJR-760 AM the city is using internal and external data to decide “winners and losers.” The city plans to save some neighborhoods and encourage residents to move from others, he said.
“If we don’t do it, you know this whole city is going to go down. I’m hopeful people will understand that,” Bing said. “If we can incentivize some of those folks that are in those desolate areas, they can get a better situation.”
Bing’s staff is using its own data and a survey released last weekend by Data Driven Detroit. The block-by-block study of the 139 square-mile city showed that roughly one in three parcels are vacant lots or abandoned homes.
John Mogk, a Wayne State law school professor, said Bing’s on the right track but will face four major challenges: political support; money; creating a bureaucracy to administer the project and legal challenges.
Among the court challenges he sees ahead include the legality of cutting off city services to particular neighborhoods and using eminent domain to relocate residents. In 2006, voters approved a prohibition on government’s ability to take property for economic development.
Talk Is Cheap
Daniel Howes, a Detroit News columnist correctly hammers the talk is cheap message in Bing must put actions behind words
A new tone at City Hall may be refreshing, necessary to steering Detroit out of a ditch deepened by its own digging. But it’s not sufficient without action and the kind of rigorous financial management that should control wild overspending on overtime ($54.3 million last year), that should be more aggressive in collecting $50 million spent to demolish dilapidated buildings.
In other words, talk sounds even cheaper than it is when the numbers are so grim, because the numbers don’t lie. Detroit is operating some $325 million in the red; its tax base is shrinking amid a jobs-killing recession and plunging property values; union concessions, a test of Bing’s mettle, remain undelivered.
Kwame Kilpatrick, no friend to the city’s unions, eliminated some 4,000 jobs during his abbreviated tenure. You, more than six months into a deepening crisis, have cut some 450 slots and reduced pay for salaried appointees by 10 percent, but have so far retreated from promises to take out more.
Another example: Look to Lansing, where a two-term governor in her final year in office steadfastly refuses to exercise the prodigious powers bestowed on her office by legal precedent and the state constitution. Gov. Jennifer Granholm is probably feared by no one, and she has the record to prove it.
Detroit’s crisis, likely to deepen this year, is your opportunity to change the direction of a city whose leaders — elected, appointed and union — have together led Detroiters down an unsustainable path they are unable to finance, much less afford.
But we’re not seeing much. Your spokesman still promises 10-percent pay cuts for union employees in the form of furloughs that don’t come. Your penchant to let your actions speak for themselves (like they did on NBA basketball courts) would be admirable if you had enough actions to let do the talking.
It’s a cliché, but a crisis is a terrible thing to waste. So is the support of folks inside and out of Detroit counting on you to make the difference you can.
The news commentary and columns from the Detroit News are excellent. I have several readers sending me links every day. While I can only give two cheers to Bing, I am in a cheerful mood today, so it’s three cheers for Daniel Howes.
Now if only Mayor Bing would follow through with some tough actions to go with his tough words. A good place to start would be to privatize everything in sight, including the fire department. Complete annihilation is the only thing unions understand, so why not give it to them?
The Ultimate Ponzi Scheme – FDIC is Backing $5.3 Trillion through the Deposit Insurance Fund that now has a Balance of -$20.8 Billion. FDIC has Cash and Marketable Securities of $66 Billion. Is that Really Enough to Back Every Account for $250,000?
The Ultimate Ponzi Scheme – FDIC is Backing $5.3 Trillion through the Deposit Insurance Fund that now has a Balance of -$20.8 Billion. FDIC has Cash and Marketable Securities of $66 Billion. Is that Really Enough to Back Every Account for $250,000?
Posted by mybudget360
The FDIC is running the biggest confidence game in the country. The FDIC is now protecting through the Deposit Insurance Fund (DIF) some $5.3 trillion in deposits in banks across the country. All of this is secured by an insurance fund that is now in the negative by $20.8 billion. In the middle of this financial crisis we allowed the government to suddenly up the deposit insurance coverage from $100,000 to $250,000 which on face value seems fantastic. I mean every average American wants their money to be covered so upping it to $250,000 seems fantastic even though most middle class Americans have nothing close to that and are merely trying to pay their bills from one month to another. But what if people suddenly pulled their money out of banks similar to what occurred with IndyMac Bank in California? Think this can’t happen again? One of the too big to fail banks seems to think this might be coming down the pipeline. Some interesting information on Citigroup:
“(Prison Planet) A new advisory being sent by America’s third largest bank to its account holders has stoked fears that major financial institutions could be preparing for old fashioned bank runs if the economy takes a turn for the worse.
Originally reported by John Carney over at the Business Insider website, Citigroup is sending the following information to customers along with their bank statements.
“Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change.”
In other words, let us assume many clients decide to withdraw all their funds in a short period of time because people suddenly realize that $250,000 is actually being supported by pure faith. In addition, average Americans realize that -$20.8 billion will certainly not cover $5.3 trillion in actual deposits that can be redeemed at any given time! That is the psychology of our current banking system. As long as people believe the wizard behind the curtain can back up the deposits then all is fine. This worked as long as assets actually had values that banks claimed were true. We know that game is over. In fact, that is why the entire banking system has received roughly $13 trillion in bailouts and backstops. It really is this fragile. This is how the deposit insurance fund looks like:
So you would think that people would at least try to diversify their investments since even a minor bank run would cause major damage. But instead, people have increased their deposits at these banks at a rapid pace:
And I can’t blame them. What choice is there? Gamble in the Wall Street rigged casino or put it in the bank. If we go back to December of 2007 when the crisis started, DIF-Insured deposits have shot up by $1.1 trillion and the actual fund has gone negative because of all the additional bank failures. This psychology really does remind me of the mania surrounding the housing bubble boom. What if, hypothetically, people decide that one of the too big to fail is suddenly not that big at all, and Americans start withdrawing funds to some other institution. Worse yet, they take their funds out and put them in a non-DIF insured institution. Then what? Or maybe people want the actual cash. This is what is so troubling. Just go to any local store and see how much actual cash is being exchanged. It is all electronic debits and credits. Insured to $250,000? On what? Clearly the U.S. Treasury would step in at this point and flat out start printing money but what use would that be since the dollars you are being paid with would quickly devalue (even more).
I’ve seen a few people dismiss the current negative DIF fund by saying “the FDIC is flush with cash.” Really? Let us examine that part of the equation. From the latest FDIC quarterly bank report:
“In June 2008, before the number of bank and thrift failures began to rise significantly, total assets held by the DIF were approximately $56 billion and consisted almost entirely of cash and marketable securities (i.e. liquid assets). As the crisis has unfolded, liquid assets of the DIF have been to protect depositors of failed institutions and were exchanged for less liquid claims against assets of failed institutions. As of September 30, 2009, although total assets had increased to almost $63 billion, cash and marketable securities had fallen to approximately $23 billion.”
Did you get that? The FDIC “cash” went from roughly $56 billion in June of 2008 to $23 billion in September of 2009. And supposedly, they now have “assets” of $63 billion but how much of this is crap mortgages from failed banks like WaMu and IndyMac? In reality, the FDIC at this point only had $23 billion to back up $5.3 trillion. But in December of 2009 the FDIC took the radical step to front-load prepaid assessments:
“To provide the FDIC with the funds needed to carry on with the task of resolving failed institutions in 2010 and beyond, but without accelerating the impact of assessments on the industry’s earnings and capital, the FDIC approved a measure to require insured institutions to prepay 13 quarters worth of deposit insurance premiums. These prepayments—about $46 billion—were collected on December 30, 2009. Cash and marketable securities stood at $66 billion on December 31, 2009.”
Now don’t you feel better? The FDIC took in 13 quarters of prepaid deposit insurance premiums and we now have a combined total of cash and marketable securities of $66 billion. In other words, one too big to fail going down and good luck with that $250,000 backup really being worth what you would actually think. This is what surprises me here. We all know things are actually getting worse with the banking system yet we keep piling on the risk. In fact, the FDIC has even upped the number of troubled banks on their list:
You know if the FDIC is saying 702 we know it is much higher. I still stand by my prediction that this crisis will bring down at least 1,000 banks when all is said and done. I love how the FDIC lists “assisted institutions” as 8 with total assets of nearly $2 trillion. I wonder who those could be?
The bottom line is, we are playing a very big game of confidence here. Gallup just ran a poll showing that 19.9 percent of Americans are underemployed. That number is getting really close to the 25 percent rate of the Great Depression but with part-time employment. That does a number on the psyche of average Americans.
By Eric Fry
02/25/10 Laguna Beach, California – The recession is over. Everyone says so. Well, not everyone actually…just economists…especially economists from Wall Street and Washington.
In a research note entitled, “Return to Normalcy,” John Silvia, Chief Economist at Wachovia, gushes, “With the war against the Great Recession over, our newly reappointed head of the Federal Reserve now seeks to take us back to normalcy in the financial markets. Let’s trust that he too ushers in a decade of prosperity.
“After World War I,” Silvia explains, “American voters longed for a return to normalcy and elected Warren Harding, whose administration began a decade of economic growth. For Ben Bernanke, the return to normalcy we expect will lead to at least two years of economic expansion but with some volatility along the way.”
Okay, so two years is not quite the same thing as ten years. But at this point, most Americans would settle for two months of “normalcy.”
“Two important indicators – industrial production and leading indicators index – suggest continued economic growth,” says Silvia, explaining his optimism, “Industrial production registered its seventh straight increase and these data suggest the economic recovery began in the second quarter of 2009.”
Upbeat macro-economic projections from the likes of John Silvia illustrate that economics is less a “dismal science” than a “faux science” – guided by prejudice and misguided by personal experience.
Of course the economists on Wall Street believe the recession has ended. Why wouldn’t they? Former Treasury Secretary, Hank Paulson, shipped enough taxpayer money to Lower Manhattan in 2008 to employ every Wall Street economist for life…along with every Wall Street CEO, proprietary trader, managing director, vice-president, secretary, security guard, lunch-runner, limo driver and yoga instructor.
Similarly, the economists in Washington have absolutely no reason to doubt that the recession has ended…because the recession never arrived in Washington in the first place! Government employment in the Greater Washington DC region has jumped more than 10% during the last eight years, while retail employment has gone nowhere. And this divergence has accelerated as the recession has deepened!
Unfortunately, the employment trends depicted in the nearby chart are not the trends that typically produce national prosperity. If government employment were to continue rising while private sector employment fell, the economy would become less productive…at least that would be our guess. (Picture the post office operating every McDonald’s in the land).
Thus, the recession may be ending for Wall Street economists and government workers, but not for anyone else. Adult male workers, to name just one conspicuously under-employed group of Americans, are hurting big-time…
“Male employment (aged 25 to 54 years old) plunged 114,000 in January and is back to levels last seen in June 1996,” observes David A. Rosenberg, an economist who toils neither for Wall Street nor Washington. “Almost 10% of what was once considered the ‘breadwinner’ part of the workforce has been extinguished during this recession. How could anyone realistically be excited about recovery prospects knowing this?”
Furthermore, Rosenberg notes, “the average duration of unemployment rose to a record 30.2 weeks from 29.1 weeks in December; and for the first time ever, we have more than 6.3 million Americans (up from 6.1 million in December) who have been looking for a job with no luck for at least six months. That is an unprecedented 41.2% share of the pool of unemployment… The level of unemployment today, at 129.5 million, is the exact same level it was in 1999.”
Not surprisingly, therefore, your average American laborer is noticeably less optimistic than your average Wall Street economist. The Conference Board’s Consumer Confidence Index plummeted from 56.5 in January to 46 this month. Even more telling, the “present conditions” component of the index dropped more than 20% from January, to its lowest reading since 1983. At the same time, the “business is good” component of the index dropped to its lowest reading in the 43-year history of the Consumer Confidence Index.
If these are the signs of recovery, it is a very strange recovery indeed.
Posted by Karl Denninger
Gee, didn’t we see this movie a couple of years ago? (See article posted directly below this one.)
Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.
Uh huh. I think it looked kinda like this:
Now we get to repeat it, because we have refused to force these abusive derivatives out of the market.
Except this time, instead of destroying a few banks, we’re going to do nations, likely destroy the EU, perhaps destroy the Euro, and there’s a non-zero chance we get a war out of it before we’re all done too.
I’ve been clearly stating for three years that this crap has to be stopped. That these instruments need to be either banned outright or forced onto regulated exchanges where I can see bid, offer, size and last trade, concentration of risk can be monitored, position limits enforced and we can all know that those who place the bets are good for it – nightly – or they get margined out.
As done today, as done since the “Commodities / Futures Modernization Act”, these “contracts” are a scam as there is zero evidence presented that the person who “wrote” the swap is actually able to pay. And as we all know, some of them couldn’t and can’t – AIG anyone? Yet despite what was absolute proof that these contracts were being written fraudulently – that is, without ability to pay – Congress and the Justice Department have done exactly nothing about it.
We can’t “impair” the theft stream, er, I mean “profit stream” of the Goldman’s of the world can we? That would not be fair! We can’t stop them from asset-stripping the entire damn world!
Well CONgress and Mr. President-who-blows-bankers, now you get to deal with what happens when you ignore the “little rumbling” and sit on your ass instead of running – the rumbling was warning of an impending Richter 9 earthquake.
Good luck containing this one folks.
An additional note to Mr. Denninger’s analysis: Remember who now owns AIG. (That would be YOU the American taxpayer.) In addition, the Monetary Control Act of 1980 allows the Federal Reserve to purchase any and all foreign securities it deems necessary to assure financial stability. Such purchases are expressly exempt from any and all audits by the GAO. (See Public Law 95-320 1978)
What do you think the Federal Reserve will do with all that new revenue money they’re going to get free and clear from the passage of the ‘promise of health care,’ the benefits of which are not scheduled to be enacted for three years? Huge tax levy NOW, for benefits ‘promised’ LATER. Where have we heard this before?