FedUpUSA

Archive for February, 2010

AIG Gets The Dreaded “Going Concern”

Posted by Karl Denninger

Bernanke Repudiates Famous 2002 Speech

You Should Intentionally Default: President Obama

Posted by Karl Denninger

More Evidence that the Fed Sent Money to Iraq

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.

Bernanke Says He Will Investigate

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?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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