Archive for September 9th, 2011
That’s all I hear today in the media – that the market has lost confidence.
Why have people lost confidence? Was it an accident? NO.
Was it an intentional act? Yes.
Who’s responsible? That’s easy.
- Congress. We know why the meltdown happened in 2008. Financial institutions sold crap to people claiming it was “Grade AAA” chocolate. It was, well, crap and this was discovered when the first bite was taken. There has been no penalty assessed for doing this.
- The Banks. They repeatedly said “we’re well-capitalized” and then blew up. Bear and Lehman among them. There was no penalty assessed for doing this.
- The President. He said he didn’t come to Washington to protect the banksters. Then he did exactly that. In short, he lied. Even after we discovered over a hundred thousand perjured documents filed in foreclosure cases, there was no criminal penalty assessed for doing this.
- The President (again). He said he’d cut the deficit in half by the end of his first term. Instead he more than doubled it and last night put forward a demand for yet more unpaid-for spending that will guarantee more than a trillion in deficits on a forward basis, along with essentially defunding Social Security and Medicare taxes while both programs are deeply in the red. In short he’s driving the nation straight toward ruin exactly like a junkie demands more and more drugs even though he’s aware that if he continues he will certainly die.
- Ben Bernanke. He’s been wrong about virtually every prognostication he has ever made about the economy, going back to 2006. He also lied when he told Congress that “The Federal Reserve will not monetize the debt”, just months before doing exactly that. There has been no penalty assessed for doing this.
- Wall Street itself. HFT abuse is the stuff legends are made of. It’s a true outrage, really. The bid and offer manipulation on a daily basis is chronicled by Nanex; I’ve also written about it repeatedly. Market manipulation is illegal. There has been no penalty assessed for doing this.
- The Banks (again) are lying about their balance sheets. We know this is a fact because in virtually every case where the FDIC has taken over a bank, from big to small, it has resulted in monstrous losses against claimed “asset values” on the balance sheet, sometimes on values claimed just weeks before in public filings. There has been no penalty assessed for doing this.
- Case-Schiller and Zillow both claim $9 trillion in residential property value losses. The Fed claims $500 billion, approximately, in decreased mortgage debt. The rest cannot be found; the presumption must be that the banks are hiding trillions in bad paper in mortgages alone! Is there another explanation? Not really. Sure, some of this loss is equity, but not $8.5 trillion out of $9 trillion. There has been no penalty assessed for doing this.
- Federal Regulators. They got caught allowing IndyMac to backdate deposits. The really ugly part of it is that the same people were involved in that as were involved in the same offense during the S&L crisis! The OCC sued to block state-level predatory lending statutes that would have largely cut off the housing bubble. That’s not idiocy, it’s rank corruption.
So on what basis should we expect “confidence” in the markets, especially when the markets all clear those those very same banks that pulled the scams, appear to be still pulling the scams, and the governments and regulators are still enabling the scams while the market has every reason to believe that the scam won’t hold up and it will all fly apart on the back of Greece defaulting?
There’s your answer.
There is persistent chatter about a Greek default over the weekend, which Greece denied, but the denier refused to be named. If it’s not true, then put your damned name on the statement or be considered what you are – liars. Greece failed to place their short-term bill rollover. That’s a declaration by the market that even for short-term paper the market has utterly lost confidence in Greece and the Euro.
Germany’s DAX market relative to the United States just hit a five year low today.
To add to the “liar liar pants on fire” calls Germany is now reported to be working a plan to recapitalize their banks if Greece defaults. This in turn means three things:
- A Greek default is considered credible by Germany and they are taking official actions related to that possibility. So much for the denials.
- German banks (and presumably French banks and all the other big banks too) are insolvent as they are carrying these bonds at well above their actual value in the marketplace. If the bonds were carried at the claimed “loss” values, which is quoted as 50%, then there would be no need to recapitalize them would there? This is an official statement of proof that the banks are lying about asset values and are in fact insolvent.
- Remember that we were just told days ago that these banks were fine and needed no capital and in fact calls for more capital by the IMF were officially refused. The same claim has been made about our banks. You were just told officially by Germany that their claim of adequate capital just days ago was a lie as they are now planning to recapitalize the banks. Do you believe our banks are not similarly exposed and also insolvent? YOU’RE BETTING YOUR FUTURE ON THE BELIEF THAT THEY ARE, SO THIS QUESTION IS QUITE GERMANE AND TIMELY: ARE YOU SURE YOU’RE NOT BEING LIED TO EXACTLY AS WE WERE ABOUT GERMAN BANKS?
Coincident with this hitting the wires there was a massive flow of money into the Japanese Yen – and out of the Euro. A monstrous safety trade – people fleeing the European common currency for what they perceive as a “safe haven.” At the same time our markets are down 300 DOW points, the S&P is down 2.5% on the day and more than forty points off the early-morning top — and there’s no sign that things are stabilizing at all.
I said the Euro was going to par, and that might be too conservative. With that our stock market will get cut in half — or more — from here and once again the banks, insurance companies and everyone else will start crying poor mouth.
The problem is that this time there’s no money to bail them out with in the US and as a result if this outcome manifests they will fail. The embedded losses in those institutions on mortgages alone total trillions, which is several times the available debt ceiling and so far beyond the FDIC’s reserves that there is no way to cover you, the average person.
Nobody – and I do mean nobody – in our political establishment from either party gives a damn about the lies and outright fraud in our financial system. Neither political party, including some very specific representatives that have railed about various problems in capital markets, the IMF and similar over the last couple of years will even open their damn mouths, say much less demand structural changes and an end to the frauds.
I have been making attempts to break through that “glass ceiling” now for four years with several representative and senatorial offices. How many speeches have you seen on this topic, or even questions directed at like people such as Bernanke under oath?
I’ll answer that for you: ZERO.
The opportunity to fix these problems has been there since 2007 and I have steadfastly put forward plans that will work to resolve these issues, albeit at the cost of there being no more leverage-driven asset-stripping games. I’ve written over four thousand Tickers since 2007 and a couple of White Papers and distributed them to Congressional offices by postal mail and fax. In addition there are literal hundreds of staffers that access The Ticker on a regular basis along with every three-letter government agency, including the law-enforcement ones.
There can be no claim that “nobody saw this coming” because I assure you that not only did plenty of people see it coming I have repeatedly warned of the “end game” and consequences – loudly.
Nobody from either party will address this or even discuss this and the reason should be obvious – the banks own the politicians. That’s fine – they can both hang on the rope of their own construction through their willful and intentional acts of malfeasance and fraud. Absolutely none of this was a mistake.
I believe the alarm has now rung. The market calls all bluffs and that’s exactly what it’s doing right here, right now, today. The lies have been overwhelmed by the functional facts – that you cannot make payroll or pay the light bill with imaginary money – you need real money, and there isn’t any. The time has run out on the fraud pulled in 2009 by Kanjorski with his “mark to fantasy” crap game.
We are doing the same thing right here in the United States with Obama’s demands for “more stimulus” with no way to pay for it, games being run by banks suppressing price discovery and hiding losses on mortgages engendered by nine trillion in residential property value loss, the asset-stripping that was performed on the citizens of Jefferson County Alabama and more. Not one damn thing has been done to fix the underlying problems and nobody has gone to jail for these acts.
You cannot solve a debt crisis with more debt any more than you can fix a drunk with a case of whiskey. Yet that is exactly what we’ve tried to do both in the United States and internationally. The end point of that process here is exactly the same as it is there. You’re getting a preview America, and if you think that a 20% sell-off in the stock market is what we get when it happens here, you’re wrong. Try a 90% loss on for size followed by the utter failure of every pension fund and insurance company that has sold annuities – including yours.
Our economic system and quite-possibly our government is finished if we allow this to occur.
The claims that “it will all be ok if we just help these people bridge the gap” is now being exposed as an outright and intentional fraud. That fraud has been perpetrated against you, the American taxpayer, by your government and central bank.
Three years into this since the 2008 collapse and not a damn thing has been addressed or fixed. You can see that proof in the employment statistics which, incidentally, are about to get much worse.
YOU have been seduced by the siren song of “Guns, Gays and God” (or “Obama’s gonna pay my mortgage!” if you prefer) instead of the truth – a bunch of assholes stole your future sequentially over more than 30 years by levering up on your back, knowing full well they couldn’t cover their debts. These intentional acts, which are acts of fraud — all of them — occurred in Washington DC and on Wall Street, and they were not limited to the United States. This is a worldwide phenomena.
We’re now in the endgame. Greece, if you recall, showed up in early 2010 as a problem. Did our government take this warning and act on it, stop the frauds, prosecute the wrongdoers, close the insolvent banks, and force the recognition of the nine trillion in lost value in residential housing? Did we see bankruptcy occur for those who are in fact bankrupt?
EVERY ONE OF THE POLITICIANS ON BOTH SIDES OF THE AISLE – ALL OF THEM WITHOUT EXCEPTION – HAVE LIED, CHEATED AND STOLE FROM YOU TO PROTECT A GANG THAT HAS REPEATEDLY ABUSED LEVERAGE TO ROB YOU BLIND. NOW THE PONZI SCHEME IS COLLAPSING AS WE ARE OUT OF SUCKERS – GLOBALLY – WITH WHICH TO PERPETUATE IT.
While I write this CNBC runs claims of “we’re going to show you how to protect yourself in this market.” Oh really? Why didn’t you just tell people to get the hell out in 2007 as I advised and sit back with a bunch of popcorn? You’d still have all your damn money and none of the heartburn. NOW, after the market is down nearly 20% off the recent highs, you want to talk about “protection”? NOW?
You have one final opportunity to choose America: Watch Dancing With the Stars or demand and enforce your demand that this crap stop right now.
Just be aware – if you choose “Dancing With The Stars” that it won’t be long before you have no job, no money and perhaps no electricity with which to power your TV and no “free stuff” coming from a bankrupt government either. Yes, it can happen here, and if you think not you’re dumber than a box-of-rocks and deserve exactly what is coming.
Choose now, choose here and choose wisely.
Dissecting the Lies in Obama’s $447 Billion “Shock-and-Awe” Reelection Ploy; Dead-on-Arrival in Congress? Alternative Proposal Will Not Cost a Dime.
President Obama’s rumored $300 stimulus program ballooned to $447 billion upon unveiling. For a full text of the speech, please see President Obama’s jobs address
Amusingly, the plan is overweight tax cuts in an attempt to get Republican buy-ins.
Let’s dissect portions of Obama’s speech, lie by lie.
Obama: I am sending this Congress a plan that you should pass right away. It’s called the American Jobs Act. There should be nothing controversial about this piece of legislation.
Mish: That is lie #1. There shouldn’t be anything controversial about the proposal, but there is. Obama’s proposal is primarily an election stunt as opposed to a genuine effort to produce jobs.
Obama: Everything in here is the kind of proposal that’s been supported by both Democrats and Republicans – including many who sit here tonight.
Mish: That is lie number two. There is no general consensus by Democrats for tax cuts or Republicans for fiscal stimulus.
Obama: And everything in this bill will be paid for. Everything.
Mish: That is lie number 3. I will cut the president some slack and call those sentences one lie repeated rather than two lies. Obama’s stimulus plan is nothing but another spend now, make cuts later “sleight-of-hand” proposal.
Obama: The purpose of the American Jobs Act is simple: to put more people back to work and more money in the pockets of those who are working. It will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and hire, there will be customers for their products and services.
Mish: That is lie number 4. The primary purpose of the American Jobs Act is simple: To keep one person (namely President Obama), in his job.
Payroll tax cuts to businesses will not spur hiring. The idea is sheer lunacy. Businesses will hire only when it makes economic sense, not because of a reduction in employer social security taxes.
Obama: Pass this jobs bill, and we can put people to work rebuilding America. Everyone here knows that we have badly decaying roads and bridges all over this country. Our highways are clogged with traffic. Our skies are the most congested in the world.
Mish: Putting people to work will un-congest the skies? Is that lie number 5 or just complete silliness? High speed trains are not going to replace a significant amount of air traffic, nor will such programs be economically viable. Instead they will be a long-term drain on taxpayers. Moreover, if the president did any homework he would know China’s high speed rail program is rife with fraud and shoddy workmanship, was overbudget, is falling apart, and is barely used. It was not economically viable.
Obama: The American Jobs Act will repair and modernize at least 35,000 schools. It will put people to work right now fixing roofs and windows; installing science labs and high-speed internet in classrooms all across this country.
Mish: Excuse me for asking, but didn’t we pay for this already in the first stimulus plan?
Obama: And to make sure the money is properly spent and for good purposes, we’re building on reforms we’ve already put in place. No more earmarks. No more boondoggles. No more bridges to nowhere. We’re cutting the red tape that prevents some of these projects from getting started as quickly as possible. And we’ll set up an independent fund to attract private dollars and issue loans based on two criteria: how badly a construction project is needed and how much good it would do for the economy.
Mish: Will it be the same geniuses who were responsible for guaranteeing $535 million to a solar energy firm that is now bankrupt?
Obama: Pass this jobs bill, and thousands of teachers in every state will go back to work. These are the men and women charged with preparing our children for a world where the competition has never been tougher. But while they’re adding teachers in places like South Korea, we’re laying them off in droves. It’s unfair to our kids. It undermines their future and ours. And it has to stop. Pass this jobs bill, and put our teachers back in the classroom where they belong.
Mish: I have a better idea. Cut union pay and benefits and even more teachers will go back to work and at no expense to taxpayers.
Obama: The agreement we passed in July will cut government spending by about $1 trillion over the next ten years. It also charges this Congress to come up with an additional $1.5 trillion in savings by Christmas. Tonight, I’m asking you to increase that amount so that it covers the full cost of the American Jobs Act. And a week from Monday, I’ll be releasing a more ambitious deficit plan – a plan that will not only cover the cost of this jobs bill, but stabilize our debt in the long run.
Mish: Neither the president nor Congress has remotely done anything to stabilize the debt. In spite of promises, Obama will not do so a week from Monday. We will graciously call this lie number 6.
Obama: By eliminating pages of loopholes and deductions, we can lower one of the highest corporate tax rates in the world. Our tax code shouldn’t give an advantage to companies that can afford the best-connected lobbyists. It should give an advantage to companies that invest and create jobs here in America.
Mish: Hooray! The president finally put together an entire paragraph that makes sense.
Obama: And on all of our efforts to strengthen competitiveness, we need to look for ways to work side-by-side with America’s businesses. That’s why I’ve brought together a Jobs Council of leaders from different industries who are developing a wide range of new ideas to help companies grow and create jobs.
Mish: You do not need a jobs council. All you need to do is scrap Davis-bacon, kill prevailing wage laws, and pass a national right-to-work law.
Obama: I reject the idea that we have to strip away collective bargaining rights to compete in a global economy. We shouldn’t be in a race to the bottom, where we try to offer the cheapest labor and the worst pollution standards. America should be in a race to the top. And I believe that’s a race we can win.
Mish: While it is true we do not need to have the worst pollution standards in the world, but the president lumps all of these things together as if it is one big idea. When it comes to collective bargaining the president rejects common sense.
The US cannot afford a $447 billion boondoggle that will create zero lasting jobs, for no other purpose than to get the president reelected. If Congress has any sense, this proposal will be Dead-on-Arrival in the US house.
As an alternative, and as proposed previously in Bernanke’s Waterloo; Midst of Deflationary Collapse or Brink of Inflationary Disaster? 12 Specific Recommendations here is an alternative set of stimulus proposals that will not cost a dime.
The basis for the following set of ideas is that throwing money at problems never solves a thing. We must first fix numerous structural problems immediately if there is any hope for this economy.
Twelve Specific Recommendations
- Banks and bondholders should take a hit. Banks are not going to lend anyway so bailing them out at the expense of taxpayers is both morally and economically stupid. End the bailouts, all of them, and prosecute fraud, the higher up the better.
- Implement serious bank reform now, not 9 years from now. Banks should be banks, not hedge funds. This proposal will necessitate breaking up banks. So be it.
- Scrap Davis-Bacon and all prevailing wage laws. Such laws drive up costs and have wreaked havoc on many cities and municipalities, now bankrupt or on the verge of bankruptcy.
- Pass national right-to-work laws. Once again, we need to reduce costs on businesses and local governments to spur more hiring and reduce costs.
- End collective bargaining rights of all public unions. The goal of unions is to provide the least service for the most money. The goal of government should be to provide the most services for the least money.
- Scrap ethanol policy and end all tariffs.
- Legalize hemp and tax it. Prison costs will go down, tax revenue will grow, and biofuel and fiber research will expand as hemp produces very soft fibers.
- Corporate income tax rates should be lower in the US than abroad. Current policy encourages capital flight and jobs flight via lower tax rates on profits overseas than in the united states. This penalizes businesses that work only in the US, especially small businesses that do not have an army of lawyers and lobbyists.
- Stop the wars and set a plan to bring home all US troops from Iraq, Afghanistan, and 140 or so other countries.The US can no longer afford to be the world’s policeman.
- Implement Paul Ryan’s Medicare voucher proposal. It is the only way so far that anyone has proposed that puts much needed consumer “skin-in-the-game” that will reduce medical costs.
- Legalize drug imports from Canada
- End the Fed and fractional reserve lending. Both have led to boom-bust cycles of ever-increasing amplitude.
Those are the kinds of things we need to do, not throw more money at problems. The latter does nothing but drive up national debt and interest on the national debt for short-term gratification.
Notice how counterproductive Fed policy is and how counterproductive Obama’s policies are.
The Fed wants positive inflation but businesses have not been able to pass the costs on. Instead, companies outsource to China. Those on fixed income get hammered.
Obama wants to create jobs via stimulus measures. It’s a fool’s mission.
Prevailing wages drive up the costs, few are hired, and the cost-per-job (created or saved) is staggering. Money never goes very far because the US overpays every step of the way.
Stimulus plans that do not fix the structural problems are as productive as pissing in the wind. Then when the stimulus dies, which it is guaranteed to do, a mountain of debt remains.
Instead, my 12-point recommendation list will fix numerous structural problems, create lasting jobs, and reduce the deficit. What more can you ask?
Well one more thing: campaign finance reform is needed to stop the vote-buying of unions and corporations alike.
With that, I wish to reiterate “The primary purpose of the 447 billion dollar American Jobs Act is simple: To keep one person (namely President Obama), in his job.”
If it works, it will be the most costly price paid per job created-or-saved in history (in more ways than one).
Mike “Mish” Shedlock
U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will trim its weekly gain, after President Barack Obama’s $447 billion plan to boost jobs failed to bolster confidence in the world’s largest economy.
President Obama channeled the national frustration with the economy that threatens his political standing and challenged the U.S. Congress to pass a $447 billion jobs plan tilted heavily toward the Republican prescription of tax cuts.
The president, speaking before a joint session of Congress, demanded six times that lawmakers act “right away” on a plan that would boost spending on infrastructure, stem teacher layoffs and cut in half the payroll taxes paid by workers and small business owners.
Riiight. Let’s turn Social Security into even more of a Ponzi scheme (can we stop with the “prepaid” lie when the movement is to cut the payroll tax that you allegedly pay in?) and start talking about how we got here and how we fix the structural problems that led us into this rathole in the first place.
Bloomberg, amazingly, is starting to figure it out and actually put it in print. In a stunning editorial they said:
Would you give money to a compulsive gambler who refused to kick the habit? In essence, that’s what the world’s biggest banks are asking taxpayers to do.
At the same time, bankers are campaigning against regulators’ efforts to address a root cause of the problem: Big banks’ addiction to excessive leverage, or to using borrowed money to boost their shareholders’ returns. In a recent flurry of letters to the Basel Committee on Banking Supervision, which is in the process of setting new rules for the largest global institutions, various banking groups warn that higher capital requirements — tantamount to putting limits on leverage — will reduce credit availability and stunt the economy’s growth.
Did I actually read that? In Bloomberg?
Remember, I’ve been pounding the table on one dollar of capital for years. It’s the only way to stop this crap, because it forces banks to hold one dollar of actual capital against any unsecured lending, no matter how it’s done. It does not differentiate between a credit card (unsecured) and an OTC derivative (unsecured); if the position is not secured by a marked-to-market asset that can be seized and liquidated (that is, demonstrably provable value with a clean chain of title) every night, it’s an unsecured loan and must be funded in cash by an investor or through retained earnings.
That ends all systemic risk and it also ends all the threats from the banksters. It prevents arbitraging (and extorting) governments and citizens, in short.
But what it does not do is prevent the market intermediation function, it does not prevent lending for any purpose (although it will make speculative lending expensive) and it does not prevent the essential payment-clearing process that banks engage in every day – and which is, in fact, essential to modern society.
There is no job growth in America, as I’ve noted, because there is no reason for an entrepreneur to grab for the brass ring. Capital formation has been destroyed by the banksters and Bernanke. Until this distortion is ended, and it is clear that doing so will require that Bernanke be removed from office and the banksters stripped of their political power through whatever means are necessary there will be no meaningful entrepreneurship funded with capital formation because there is no capital formation happening.
Borrowing is not the same thing as saving, and funds from borrowing are much less efficient at building sustainable businesses than that formed from capital.
Capital must always come from economic surplus – that is, what you produce in excess of what you consume. It cannot come from any other place. Attempting to replace capital formation with lending always fails – not only is there a mathematical problem that precludes this strategy working on a durable basis (the basic law of exponents) such a replacement causes gross misallocations of capital. Until the people of this nation and indeed all nations tell the banksters to stuff it up their behinds and refuse to accede to their demands and threats, forcing the insolvent out of business as we should have years ago, the economy will not recover.
Not here, not over in Europe, not anywhere.
Wake up America.
101 years of the most secretive central bank in history – Dollar has fallen over 90 percent since Fed was put into place. Fed running out of ammo with negative interest policy.
Few people realize how secretive the Federal Reserve operates even though it is the central bank to our financial system and wields a sword strong enough to be called Excalibur. The Federal Reserve came about from a secretive meeting on Jekyll Island by some of the world’s top financiers back in 1910 including the powerful J.P. Morgan. What very few know is that in November of 2010 Ben Bernanke made a trip to the island off of Georgia to commemorate the 100-year anniversary of the original meeting. This original meeting was held in the strictest of secrecy lest the public realize how the powerful bankers sought to aggregate power in a few hands. With the too big to fail becoming even bigger and the Fed blocking full out audits like a hockey goalie, it is nice to see few things change even after 100-years of destroying the U.S. dollar.
What does the Federal Reserve have in its balance sheet?
The Fed for most of its history has been rather mundane in the types of instruments it would hold as collateral. This was typically in the form of U.S. Treasuries. However, since 2008 the Fed has become rather exotic in regards to its holdings and has grown its balance sheet to a size well over $2.8 trillion:
The Fed only recently has delved into the mortgage buying game and did so with the gusto of a kid in a candy shop. The Fed through Quantitative Easing has purchased over $1 trillion in mortgage backed securities from the too big to fail banks. The Fed has also inherited luxury hotels, fast food restaurants, and other failed projects that require banks to be bailed out. Of course this has come at the expense of a declining dollar. The pain being felt in the economy is simply a symptom of a central bank built on darkness and keeping the public completely ignorant to its doings. This was the purpose of the Fed from day one. Reading about the founding of the Fed is like reading about a Skull and Bones initiation:
“(The Creature From Jekyll Island) Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundred of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance. I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written…”
It was never intended for the public to even have a sense of who was behind the scenes pulling the strings to create the Federal Reserve. Just like in the Wizard of Oz, the power of the wizard comes from the smoke and mirrors.
Read the rest at My Budget 360
There are some very ominous rumblings coming from the European continent this morning.
First, Greece has the mother and father of all inverted yield curves, with the 1 year now trading at or near an implied 100% interest rate.
That’s not really news though – it’s been there for the last few days.
The new news is that some of the T-Bill auctions they ran were technical fails, with failures to place the entire offering.
This is no longer a liquidity event. It is now a “no money in the checking account” event.
Greece’s attempt to elicit “voluntary” rollovers is under doubt as well.
The underlying error and problem is that authorities both in Europe and here have refused to take my counsel (and that of few other people, as the economic world seems to be prone before the banksters) on enforcing one dollar of capital with the banking institutions in question.
Coupled with balance sheet lies this means that there is severe and imminent risk of a complete collapse initiating somewhere in the European banking system. That, in turn, is why the screaming from the IMF and others about the “need” to take various emergency actions to prevent a Greek default.
But there is no preventing a Greek default.
Greece passed that event horizon more than a year ago.
The lesson in here is that the technical point where one passes beyond the event horizon and thus default is inevitable occurs quite a bit earlier than recognition of that fact in the markets, or among the governments in question.
There is something we had better pay attention to here in the United States embedded in this episode, providing that the banking system in Europe survives this excursion and thus it matters to us in the intermediate term.
That lesson is:
- You will not know at the time in question that default is inevitable, which is the exact point I’ve made now for four years – fiscal consolidation always drives the ratios the wrong way for a while. This makes it impossible for anyone to give you an exact point beyond which you’re screwed. In turn this means you must not dance close to the edge of the cliff, lest you step over the line and the apparent solid ground under you disappear.
- You must not permit institutions to lie about their exposures and valuation of their alleged “assets.” You’d think we learned this in 2008, but we did not. We had damn well better learn it quickly, and act on it – right now. We still have a window on this in the United States but it is closing rapidly. If we do not learn this lesson from what is going on over in Europe we are absolutely fooked when this dynamic moves over here, and it inevitably will, perhaps within weeks or months rather than years.
- We must move toward One Dollar of Capital. Yes, that’s going to piss off the banksters who will no longer be able to lever up on the back of the taxpayer. Too damn bad. This is the source of the socialized losses and all of the “tanks in the streets” threats and it must end. This is not about social justice or any such thing – it is about the fact that the banksters, if allowed to continue this behavior, will bankrupt nations through this process. If you doubt they will then you doubt Greece’s problems are real, but they clearly are. You can’t have this one both ways folks.
I am getting extremely pessimistic in the intermediate term with regard to markets – in particular credit markets and then the economy as a whole. This is not simply due to the ongoing and un-paid for “stimulus” measures, including Obama’s latest demands.
It is due to the fact that financial terrorism has become the means of survival for these large banking institutions and we have not only continued to negotiate with the terrorists, we have given into their demands on a serial basis both here and abroad.