FedUpUSA

Archive for July 8th, 2010

By Charles Hugh Smith

The con of the decade (Part I) involves the transfer of private debt to the public (the marks), who then pays interest forever to the con artists.

I’ve laid out the Con of the Decade (Part I) in outline form:

1. Enable trillions of dollars in mortgages guaranteed to default by packaging unlimited quantities of them into mortgage-backed securities (MBS), creating umlimited demand for fraudulently originated loans.

2. Sell these MBS as “safe” to credulous investors, institutions, town councils in Norway, etc., i.e. “the bezzle” on a global scale.

3. Make huge “side bets” against these doomed mortgages so when they default then the short-side bets generate billions in profits.

4. Leverage each $1 of actual capital into $100 of high-risk bets.

5. Hide the utterly fraudulent bets offshore and/or off-balance sheet (not that the regulators you had muzzled would have noticed anyway).

6. When the longside bets go bad, transfer hundreds of billions of dollars in Federal guarantees, bailouts and backstops into the private hands which made the risky bets, either via direct payments or via proxies like AIG. Enable these private Power Elites to borrow hundreds of billions more from the Treasury/Fed at zero interest.

7. Deposit these funds at the Federal Reserve, where they earn 3-4%. Reap billions in guaranteed income by borrowing Federal money for free and getting paid interest by the Fed.

8. As profits pile up, start buying boatloads of short-term U.S. Treasuries. Now the taxpayers who absorbed the trillions in private losses and who transferred trillions in subsidies, backstops, guarantees, bailouts and loans to private banks and corporations, are now paying interest on the Treasuries their own money purchased for the banks/corporations.

9. Slowly acquire trillions of dollars in Treasuries–not difficult to do as the Federal government is borrowing $1.5 trillion a year.

10. Stop buying Treasuries and dump a boatload onto the market, forcing interest rates to rise as supply of new T-Bills exceeds demand (at least temporarily). Repeat as necessary to double and then triple interest rates paid on Treasuries.

11. Buy hundreds of billions in long-term Treasuries at high rates of interest. As interest rates rise, interest payments dwarf all other Federal spending, forcing extreme cuts in all other government spending.

12. Enjoy the hundreds of billions of dollars in interest payments being paid by taxpayers on Treasuries that were purchased with their money but which are safely in private hands.

Since the Federal government could potentially inflate away these trillions in Treasuries, buy enough elected officials to force austerity so inflation remains tame. In essence, these private banks and corporations now own the revenue stream of the Federal government and its taxpayers. Neat con, and the marks will never understand how “saving our financial system” led to their servitude to the very interests they bailed out.

The circle is now complete: in “saving our financial system,” the public borrowed trillions and transferred the money to private Power Elites, who then buy the public debt with the money swindled out of the taxpayer. Then the taxpayers transfer more wealth every year to the Power Elites/Plutocracy in the form of interest on the Treasury debt. The Power Elites will own the debt that was taken on to bail them out of bad private bets: this is the culmination of privatized gains, socialized risk.

In effect, it’s a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

Of Two Minds

By Edwin S. Rubenstein

President Obama’s July 1 speech reaffirming his commitment to “comprehensive immigration reform” a.k.a. amnesty completely ignored unemployment, needless to say.

But unemployment is not ignoring him and his Administration. The June employment data, released the next day, were bad—and immigrant displacement of American workers appears to have resumed with a vengeance.

Nonfarm payrolls shrank by 125,000 in June. After adjusting for the downsizing of government census takers and other public sector jobs, the June job count was up by 83,000.

Even that is disheartening: the median forecast from economists and economic forecasting firms was that the U.S. would add 110,000 private-sector jobs.

The economy needs to add about 130,000 to 150,000 jobs a month just to keep pace with new workers entering the market (still including, incredibly, an estimated 40,000 immigrants). The labor pool is already overflowing with about 15 million unemployed job seekers.

The average duration of unemployment is now 35.2 weeks. A year ago it was 24.4 weeks.

The “other” labor survey, of households rather than businesses, was even more downbeat. It reported a June job loss of 301,000. Here is the action for the month:

• Total employment: -301,000  (-0.22 percent)
• Hispanic employment: -99,000 (-0.50 percent)
• Non-Hispanic employment: -202,000 (-0.17 percent)

Our measure of native labor displacement, the VDARE.COM American Worker Displacement Index (VDAWDI), uses Hispanics as a proxy for immigrants because some 40% of them are immigrants, retreated to 125.7 in June from 126.1 in May:

VDAWDI is calculated like this:

• For every 100.0 Hispanics employed in January 2001 there were 123.2 in June 2010
• For every 100.0 non-Hispanics employed in January 2001 there were 98.0 in June 2010
• June’s VDAWDI equals 125.7 (=100 X 123.2/98.0)

We’ve always said Hispanic employment is an imperfect proxy for our primary interest: foreign-born employment and its implications for job prospects of native-born workers. In recent months the employment report has (finally!) begun tracking foreign- and native-born workers. The data are not seasonally adjusted, making month to month comparisons tricky. But we can compare this June with last June:

In other words, over the past 12 months:

• Foreign-born employment rose by 754,000, or 3.5%; natives lost 1,697,000 positions—a drop of 1.4%.
• The immigrant unemployment rate fell by 1.0 point, to 8.7%; native unemployment rose 0.1 point, to 9.8%.
• The immigrant labor force grew by 2.3%; the native labor force shrank 1.3% – a sign of discouragement.

This suggests that our VDAWDI measure has actually understated the displacement impact of immigration.

It occurs to us that the absence of seasonal adjustment does not negate the validity of month to month comparisons, so long as the bias affects native and foreign-born workers equally. After all, our interest is not just economics but fairness—i.e., how native workers fare relative to their foreign-born counterparts.

That said, June was particularly bad for native-born workers:

While (seasonally unadjusted) foreign-born employment rose 416,000, or nearly 2 percent, native-born employment declined by 30,000 in June. Native unemployment rose by 0.3 points, while foreign-born unemployment was up by 0.1 point.

Overarching everything is the burgeoning population gap between these groups.  Over the past year the foreign-born population of working age rose 2.5%—more than four-times the 0.6% rate for natives.

It’s interesting that June appears to have been a relatively poor month for Hispanics but a very good one for foreign-born workers. One possibility: native-born Hispanics are losing out to foreign-born Hispanics.

Why shouldn’t Hispanics get to share in this quintessentially American experience—being displaced by immigrants?

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.

VDare Archives

Chris Dodd, Barney Frank, and Barack Obama insist that the new financial regulation bill pending a vote in the Senate is a necessity to restore stability to troubled markets.  Instead, it looks as though Democrats have been more concerned about quota systems than economic growth.  Buried deep within the bill is a requirement for all regulatory agencies with jurisdiction in economic arenas to start beancounting based on ethnicity and gender, as Diana Furchtgott-Roth discovered:

In addition to this bill’s well-publicized plans to establish over a dozen new financial regulatory offices, Section 342 sets up at least 20 Offices of Minority and Women Inclusion. This has had no coverage by the news media and has large implications.

The Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the 12 Federal Reserve regional banks, the Board of Governors of the Fed, the National Credit Union Administration, the Comptroller of the Currency, the Securities and Exchange Commission, the new Consumer Financial Protection Bureau…all would get their own Office of Minority and Women Inclusion.

Each office would have its own director and staff to develop policies promoting equal employment opportunities and racial, ethnic, and gender diversity of not just the agency’s workforce, but also the workforces of its contractors and sub-contractors.

What would be the mission of this new corps of Federal monitors? The Dodd-Frank bill sets it forth succinctly and simply – all too simply. The mission, it says, is to assure “to the maximum extent possible the fair inclusion” of women and minorities, individually and through businesses they own, in the activities of the agencies, including contracting.

Well, this just applies to the government itself, right? These 20 agencies won’t intrude on the private sector, so there’s nothing to worry about.  Not exactly:

Lest there be any narrow interpretation of Congress’s intent, either by agencies or eventually by the courts, the bill specifies that the “fair” employment test shall apply to “financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants and providers of legal services.” That last would appear to rope in law firms working for financial entities.

Contracts are defined expansively as “all contracts for business and activities of an agency, at all levels, including contracts for the issuance or guarantee of any debt, equity, or security, the sale of assets, the management of the assets of the agency, the making of equity investments by the agency, and the implementation by the agency of programs to address economic recovery.”

This latest attempt by Congress to dictate what “fair” employment means is likely to encourage administrators and managers, in government and in the private sector, to hire women and minorities for the sake of appearances, even if some new hires are less qualified than other applicants. The result is likely to be redundant hiring and a wasteful expansion of payroll overhead.

The media has been analyzing this bill for weeks as it moves fitfully to a floor vote.  Yet none of the reports covered Section 342, which has far-reaching impact into the capital markets and banking system.  It effectively puts affirmative action into every financial transaction and gives the government a huge opening for interfering with economic growth on the basis of bureaucratic whims.  Anyone who has dealt with an EEOC issue will understand the arbitrary interventions this will create — and the damage it will do when every contract and trade can get suspended based on a complaint or even suspicion of violation.

Anyone interested in system stability would have struck these requirements the moment they first appeared.  This is a disaster in the making, and yet another indication that Democrats want to exploit the financial collapse for their goals in social engineering.  (via The Corner)

HotAir

Everyone knows that the United States is bleeding jobs.  According to one new study, the private sector in the United States has lost 10.5 million jobs since 2007.  The U.S. economy lost 125,000 more jobs during the month of June.  Approximately a million frustrated American workers have simply dropped out of the employment market altogether over the past two months.  But the question not enough people are asking is why so many jobs are being lost.  Yes, the large global corporations have been sending millions of jobs overseas where labor is far, far cheaper.  And yes, the U.S. government has accumulated so much debt that it is absolutely suffocating the U.S. economy.  But there is another very important factor that has been largely overlooked.  Traditionally, about 75 percent of all new jobs are created by small businesses.  But today, hundreds of thousands of small businesses are being strangled out of existence by all of the oppressive taxes, fees, rules, regulations, paperwork and demands that government keeps imposing on them.  In such a repressive environment, it is getting close to impossible for small businesses to thrive, and if our small businesses can’t succeed, then we simply are not going to see a lot of jobs being created.   

You see, the truth is that over the past several decades the game has become dramatically stacked in favor of large businesses.  Big corporations have the money to lobby Congress and other governmental institutions, they get almost all the tax breaks and they are the only ones who get bailouts.  They even “help” write legislation on the federal level. 

Many times large corporations will even lobby for more regulations for their own industry because they know that they can handle all of the rules and paperwork far easier than their smaller competitors can.  After all, a large corporation with an accounting department can easily handle filling out a few thousand more forms, but for a small business with only a handful of employees that kind of paperwork is a major logistical nightmare.

When it comes to hiring new employees, the federal government has made the process so complicated and so expensive for small businesses that it is hardly worth it anymore.  Things have gotten so bad that more small businesses than ever are only hiring part-time workers or independent contractors. 

So what we actually have now is a situation where small businesses have lots of incentives not to hire more workers, and if they really do need some extra help the rules make it much more profitable to do whatever you can to keep from bringing people on as full-time employees.    

In a recent article for the Las Vegas Review-Journal, Wayne Allyn Root described what he is hearing from his friends who are small business owners….

I’ve polled all my friends who own small businesses — many of them in the Internet and high-tech fields. They all agree that in this new Obama world of high business taxes, income taxes, payroll taxes, capital gains taxes, and workers compensation taxes, the key to success is to avoid employees. The only way to survive as a business owner today is by keeping the payroll very low and by hiring only independent contractors or part-time employees provided by temp agencies.

Can the U.S. economy thrive in such an environment?

Of course not.

Small businesses are slowly being strangled out of existence.

Unless something changes quickly, small businesses are going to continue looking for ways to shed employees rather than hire them.

In the article referenced above, Wayne Allyn Root explained why this is true….

My small business-owning friends aren’t creating one job. Not one. They are shedding jobs. They are learning to do more with fewer employees. They are creating high-tech businesses that don’t need employees. And many business owners are making plans to leave the country. In a high-tech world where businesses can be run from anywhere, Obama has a problem. His one-trick pony — raise taxes, raise taxes, raising taxes — is chasing away the business owners he desperately needs to pay his bills.

The U.S. government has become like the 500 pound fat guy who jumps on a horse and then gets angry when it won’t move.

Passing even more ridiculous regulations and raising taxes even higher is not going to fix business in America.

The burdens we have placed on our small businesses have gotten worse under every single presidential administration of the past several decades.  Now our great economic machine has become so overburdened and so tired that it is simply refusing to move.

And this is not a short-term problem either.  Yes, we have lost a ton of jobs since the beginning of the “Great Recession”, but our problems go back a lot farther than that.  The reality is that the U.S. population has grown by about 25 million people since they year 2000, and we needed to create millions upon millions of new jobs to support that increased population.  Instead, we have lost a total of 3 million jobs since 2000.

Needless to say, that is not a good trend.

There are simply not enough jobs for everyone.

Today, there are more than 5 unemployed Americans for every single job opening.

It is becoming harder and harder to find a job, and the number of Americans who are chronically unemployed is absolutely exploding.

In America today, the average time needed to find a job has risen to a record 35.2 weeks.

There are millions of Americans out there tonight who feel like punching the walls or drinking themselves under the table out of frustration because they can’t find a job.

And many of those who are “chronically unemployed” are about to experience even more pain.

So far, the U.S. Senate has refused to extend long-term unemployment benefits for about 1.3 million Americans.  Without this assistance, these Americans and their families will be forced to survive on food stamps and whatever else they can scrape together.

The tent cities that are popping up all over the United States are about to get a lot more crowded.

So is there much hope that this is going to turn around any time soon?

Unfortunately, no.

Big corporations are not going to pay U.S. workers ten times more money than what they are paying employees in Malaysia, China or the Philippines just because they feel sorry for them.

Small businesses are not going to hire a lot more workers as long as things stay the way that they are.  In fact, many small businesses are going to continue to look for ways to cut employees.

The public sector is the one place that had been hiring more workers, but due to growing concern about exploding budget deficits, there isn’t going to be a lot of additional hiring in the public sector either.

The truth is that there is not a lot of reason for optimism right now.  The U.S. economy is being battered by a host of economic problems, and with each passing week even more economists warn that we are likely headed for the second half of a double-dip recession.

So if you still have a job, be thankful.  If you don’t have a job, you are probably going to have to get really creative. 

Times are tough and they are going to get even tougher.  But it is in the midst of challenging times that we find out who we really are.

The Economic Collapse

Really?  Then what’s this?

The lenders being tested include 14 from Germany, six from Greece and four from the U.K., the Committee of European Banking Supervisors said in an e-mailed statement. EU banking regulators have told lenders that their planned stress tests may assume a loss of about 17 percent on Greek government debt and 3 percent on Spanish bonds, according to two people briefed on the talks.

Uh, a loss on government bonds held to maturity eh? 

That would only happen in the event of a default by both governments!

I have said repeatedly that there is no possibility that the previous trajectory on government spending could be maintained.  Various European officials, including Trichet, have repeatedly said there would be no “default” or “restructuring” of Greek debt.

Well, which is it?

And if the ECB has taken in all the Greek debt that the banks can puke up to it (it has), and the premise of the “stress tests” is that there will be a 17% haircut, how is the ECB going to handle the losses on those bonds?

There are two possibilities:

1. Puke ‘em back up to the banks and make them eat ‘em (ha!)

2. Swallow and monetize.

Neither is a good thing for the stability of the Euro zone.  The former trashes bank balance sheets, the latter trashes nations that weren’t involved in the overspending to a degree that their government debt was not impugned, such as Germany.

“This sounds like the softest option possible,” said Stephen Pope, London-based chief global equity strategist at Cantor Fitzgerald. “If that is the indicator how stringent the stress tests will be, then they aren’t worth too much.”

Oh.  So the definition of “stress” is kinda like our definition – let people lie, and try to suck them into the market to support bankrupt firms – in this case, bankrupt banks.

That often works – for a little while.  But it doesn’t work forever because solvency doesn’t suddenly appear from insolvency.  That’s sort of like trying to unscramble an egg.

Best-a-luck to the European banks….. and those who believe whatever BS comes from the so-called “stress tests.”

The Market-Ticker