Archive for October 25th, 2010
Close The Banks. Now.
Our call for closing down control frauds and stopping the foreclosure frauds typically meets with three objections. First, it is claimed that while there were some bad apple lenders, much of the fraud was committed by borrowers. Our proposal would let fraudulent borrowers remain in homes to which they are not entitled, punishing the banks that were duped. Second, the biggest banks are too important to foreclose. And third, it is not possible to resolve a “too big to fail” institution.
Yep. The usual – “find someone to blame, and do it” game in Washington DC. Meanwhile, make damn sure you steal all the money.
Bill Black argues the same position I do in this regard:
That homeowners would default on the nonprime mortgages was a foregone conclusion throughout the industry — indeed, it was the desired outcome. This was something the lending side knew, but which few on the borrowing side could have realized.
Exactly. Indeed, what I have said since I started writing the Ticker was that the intent of these fraudulent organizations was to force you to come back in two years or so and refinance again. Not for your benefit, for theirs.
The structure of the deals made this inevitable – and also made it inevitable that this scam could only continue until house prices stopped going up. We know the banks knew this was going to happen, as they were buying CDS against their own deals! That was the essence of the Goldman Abacus case – they knew the underlying loans were bad and didn’t disclose it.
Well, we now know for a fact that by 2006 Citibank knew 60% of the loans were bad, and by 2007 80%, and their entire executive suite was aware of it.
That’s intent folks, especially when coupled with statements about “dancing while the music is playing.”
Uh huh. You weren’t dancing, you were looting, and in a just society by now we’d be done with the trial and you’d be swinging.
What to do? We suggest an immediate moratorium on foreclosures and a requirement that all notes be produced by purported holders of mortgages within a reasonable length of time. If they cannot be found, the mortgages — as well as the securities that pool them — are no longer valid. That means that the homeowners are not indebted, and that the homes are owned free and clear. And that, dear bankers, is a big, big problem. It is also the law — without evidence of debt, there is no debtor and no creditor.
Yep. Either show up and prove up your alleged claim, or it doesn’t exist. Force the fraud out into the open and force those who committed it to be held to account for it.
The “collateral damage” inflicted by the SDIs is now endangering tens of millions of American families — most of whom played no role in the speculative euphoria. Almost half of American homeowners are already underwater or on the verge of going under. In short, it was Wall Street that turned our homes over to a financial casino — and so far virtually all the losses have been suffered on Main Street.
Why of course. The man on Wall Street looks like this, although he tries to convince you he doesn’t.
So what to do? Well that’s simple: Arrest them all.
Closing the control frauds would actually benefit honest bankers by eliminating the “Gresham dynamics” created by fraudulent institutions — a race to the bottom in underwriting. Since fraudulent banks use accounting fraud to manufacture high profits, they do not actually have to use a viable business model. By eliminating control fraud from the financial sector, it will be much easier for honest banks to succeed.
When someone is stealing in some form, no matter how they’re doing it, you either have to join them in the theft or eventually fail.
Consider two breakfast restaurants. One buys his eggs and bacon. The other steals them. The first will go out of business – it is a certainty – unless the second is punished for his crimes and shut down. The honestly-run restaurant cannot compete against someone who pays nothing for his raw materials. So long as these institutions are allowed to continue to exist, the honest bank is put in an untenable position – his cost of operation is much higher, as he’s not looting people. He therefore cannot offer services at the same price as the dishonest enterprise, and has to either join in the dishonesty or go under himself.
As we write this piece, the markets are taking it upon themselves to begin to close down the control frauds — with homeowners fighting the foreclosures and investors demanding that the banks take back the toxic waste. Unfortunately, following the market solution will be a long-drawn-out and costly process — both in terms of tying up the judicial system but also in terms of the uncertainty and despair that will persist. At the end of that process, the banks will have to be resolved. No matter how much the politicians dislike it, they will end up with the banks in their hands — either now or later. Taking them now is the right thing to do.
No matter whether the government likes it or not, there is, in fact, no choice but to close these institutions and resolve them.
The people are not going to continue to put up with this on a permanent basis. They’re learning that there are ways to fight back, and they’re using them. This will continue and increase in pace. More to the point, we cannot recover economically until the bad debt is out of the system – that’s arithmetic, not desire.
Taking these banks into receivership now is a bold step that would send a strong message to both Main Street and Wall Street. It would tell Main Street that the days of citizen robbery – by banks and their executives – are over. It would dramatically improve consumer and business confidence. It would help those honest bankers, and there are some, who did not participate in these frauds and only want a level playing field on which to make honest loans and conduct honest business.
Wall Street, on the other hand, would be shown that there are risks and costs associated with this sort of fraud. Instead of being able to literally rob Main Street at will, Wall Street would learn that there’s a new way of looking at things – there is a very real risk of going to prison if you are involved in these acts.
Laws without enforcement are not laws at all. Mere fines are simply costs of doing business.
The only solution is to close these institutions and eject their executives, prosecuting all who are found to have committed fraud upon the public.
Bill Black On Dylan Ratigan
Time To Go Timmy Geithner and Ben Bernanke!
The price of oil has been hovering around 80 dollars a barrel for quite some time now, but get ready, because it is going to move significantly higher. Oil prices have already risen about 9 percent over the past month, and many believe that this could very well be the start of a new trend. Lawrence Eagles, a top analyst at JP Morgan, recently made headlines across the globe when he stated that oil could hit 100 dollars a barrel “much sooner than we expect”. Not only that, but a number of top OPEC officials are also publicly discussing the possibility of 100 dollar oil. But just because a few people are talking about it does not mean that it is going to happen. So are there any other reasons why we should anticipate a significant increase in the price of oil?
Well, yes there is.
*The Decline Of The U.S. Dollar
Since August 27th, the U.S. dollar has declined approximately 4.8% against the currencies of major U.S. trading partners. Unfortunately, there seems to be every indication that the dollar is going to continue to decline. As the U.S. dollar continues to display weakness, just about everything priced in dollars (including oil) is going to continue to rise.
*The Threat Of Quantitative Easing By The Federal Reserve
For weeks, top Federal Reserve officials have been making public statements about the need for more quantitative easing. If the Fed does initiate a significant program of quantitative easing in the coming months, that is going to put even more downward pressure on the U.S. dollar and even more upward pressure on the price of oil.
*Other Commodities Have Been Skyrocketing
Over recent weeks, the prices of a wide array of key commodities have been absolutely skyrocketing. As I noted in a previous article, not only has the price of gold been setting records, the truth is that almost every major commodity has been spiking. In a recent column entitled “An Inflationary Cocktail In The Making“, Richard Benson noted some of the commodity price increases that he has been tracking this year….
-Agricultural Raw Materials: 24%
-Industrial Inputs Index: 25%
-Metals Price Index: 26%
-Palm Oil: 26%
-Iron Ore: 103%
The increase in the price of oil is just part of a larger trend of soaring commodity prices. As long as this trend in commodity prices continues it is unlikely that the price of oil will go down.
*The Strikes In France
The austerity strikes in France have interrupted the flow of gasoline in that country. Once the strikes are over there will be an increase in demand as inventories are restocked.
*Increased Demand From China And Other Emerging Nations
Most analysts are forecasting that the demand for oil in China and other emerging nations will continue to grow at an impressive pace. This growing demand will also cause upward pressure on the price of oil.
*The Potential Of War In The Middle East
As always, war could break out in the Middle East at any time. A minor conflict in the Middle East would likely push the price of oil over 100 dollars a barrel very quickly. A major conflict would likely push it over 200 dollars or even beyond. War is very, very difficult to predict, but it does seem quite likely that some kind of conflict will break out in the Middle East at some point over the next several years.
So how soon will oil reach the 100 dollar mark?
That is very hard to say.
But even now, Americans are already having to dig deeper into their wallets at the gas pump.
For the two week period ending October 22nd, the average price of gasoline in the United States increased 5.23 cents to $2.82 a gallon.
As the price of oil continues to rise significantly over the long-term, it is going to have an impact on thousands of other prices. Virtually all products must be transported, and an increase in the price of oil will cause those transportation costs to go up.
So an increase in the price of oil would be really bad news.
If we do see 100 dollar oil, that will be a huge challenge for the U.S. economy.
If we end up seeing 150 dollar oil (especially for an extended period of time) it will be an absolute nightmare for the U.S. economy.