FedUpUSA

Archive for December, 2011

How people care to forget…..

Dec. 26 (Bloomberg) — Prime Minister Yoshihiko Noda faces escalating pressure to secure support for higher taxes after Japan’s budget plan for the next fiscal year showed a record dependence on borrowing.

The government will sell 44.2 trillion yen ($566 billion) of new bonds to fund 90.3 trillion yen of spending, raising the budget’s reliance on debt to an unprecedented 49 percent, a plan approved by the Cabinet in Tokyo on Dec. 24 showed. While spending will decrease for the first time in six years, Noda will delay funding the nation’s pension fund and will create a separate budget account to pay for earthquake reconstruction.

Oh, you mean like us?  A budget gap of some 40%, all-in, our legislature raiding Social Security funds to try to make the numbers look better and avoid cutting spending?

Does anyone remember when the Nikkei was pushing toward 40,000 and everyone thought happy days were here forever?  Then growth collapsed upon itself, government social spending did not decrease, and the market entered a period of fits and starts, yet today, some 20 years later, the Nikkei stands at 8,400 — and never saw a “3″ handle, say much less the vaunted “4″ it was reaching for — again.

Why?

Simple, really.  Government spending never came down.  Deficits never were cut.  The premise of “growth” was maintained as the foundation of economic policy, yet infinite exponential growth is impossible, whether it is growth in spending or growth in economic output.  It simply cannot happen because the land mass on which we live is finite and so are our resources.  While compound growth can go on for quite a while, it has an endpoint that must be accepted.

The “solution” taken when the “growth” mantra failed was financial repression, which in turn destroyed capital formation.  And now, with that having failed and near zero interest rates for more than a decade failing to revive that which was mathematically impossible, the demand is being heard to raise taxes instead of realigning the government to that which can actually be paid for.

In short the Japanese got fat, dumb and happy off government heroin.  Instead of acceptance of reality — that one cannot spend more than one makes — the people demanded more and more, and the government bought their votes with fiscally bankrupt policies.

Now the day of reckoning is at hand.

Should Japanese bond interest rates rise, the government will be instantly bankrupted.  Yet if the government tries to continue to run budget deficits of this sort, it will bankrupt itself one way or another.  Further repression means destruction of the standard of living through amazing rates of inflation, and since all such games are negative-sum, while this “works” in nominal terms it does exactly nothing for the people in real (purchasing power) terms.

Pay attention folks, because this mess is coming here, and soon.

Wow man, another story of illegal conduct that is unpunished and excused.

A personal bankruptcy is supposed to cut borrowers loose from lenders and debt collectors, but Capital One Financial Corp.—one of the nation’s largest credit-card issuers—sometimes doesn’t want to let go.

….

It wasn’t the first time the company went after its customers for debts that had been snuffed out in bankruptcy, even though the practice is illegal. A court-appointed auditor concluded earlier this year that Capital One pursued 15,500 “erroneous claims” seeking money previously erased by a bankruptcy-court judge.

So if I screw 15,000 people — each of them through an illegal act — do I get this?

Of course I do.

So why hasn’t Capital One faced a criminal indictment, since this practice is illegal?

That’s a good question, isn’t it?

Capital One, for its part, disputes the number of “erroneous” attempts to collect discharged debt, but doesn’t say what the correct number is.  It’s pretty hard to argue, though, that something you do 15,000 times is a mistake, right?

“I want some proof from the company that this was a legitimate error and not a conscious, malevolent effort to go out and collect a debt that’s been discharged,” Judge Houston said in an interview.

Good luck with that Judge.

In the meantime I want to see indictments and handcuffs.

I have learned that watching what people do is much more important than listening to what they say.  Back in 2008, financial authorities in the United States insisted that everything was gone to be okay.  But we all know now that was a lie.  Well, right now financial authorities in the U.S. and Europe are once again trying to assure us that everything is under control and that we are not headed for a global recession.  Unfortunately, their actions are telling a very different story.  All over the world, bailouts are flying around as if the end of the world is coming.  Governments and central banks are stepping in with gigantic mountains of money to prop up bond yields, major banks and even stock markets.  What we have seen over the past few months has been absolutely unprecedented.  So why are such desperate measures being taken if everything is going to be just fine?  Unfortunately, debt problems are never solved with more debt, so these bailouts really aren’t solving anything.  We are still headed for a massive amount of financial pain.  It would just be nice if the authorities would quit lying to us and would actually admit how bad things really are.

Today it was announced that the European Central Bank has agreed to make $638 billion in 3 year loans to 523 different banks.  Never before (not even during the last financial crisis) has the ECB loaned so much cheap money to European banks at one time.

This move by the ECB made headlines all over the globe.  CNBC is calling them “ultra-long and ultra-cheap loans“.

European authorities are hoping that European banks will use this money to make loans to businesses and to buy up the debt of troubled European governments.

But as we have seen in the United States, bailout money does not always get spent the way that the authorities intend for it to be spent.

The truth is that the banks could end up just sitting on the money.  That is what happened with a lot of bailout money in the United States during the last financial crisis.

European authorities hope, however, that European banks will take this super cheap money and lend it to European governments at much higher interest rates.

Unfortunately, global financial markets were not terribly impressed with this move by the ECB.  European bond yields actually rose and the euro just kept on falling.

Every few days another major “solution” to the European debt crisis is put out there, but so far nothing has worked.

For example, the European Central Bank has already spent over 274 billion dollars directly buying up European government bonds, and yet bond yields continue to hover in very dangerous territory.

But without ECB intervention, we probably would have already seen a major financial collapse in Europe.

The financial system of Europe is a total mess right now, and everyone is becoming incredibly dependent on the ECB.  The following comes from a recent Reuters article….

One of the key factors certain to have boosted demand is that banks are now more reliant than ever on central bank funds. The ECB said on Monday, in its semi-annual Financial Stability Review, that this dependency could be difficult to cure.

French banks have almost quadrupled their intake of ECB money since June to 150 billion euros, while banks in Italy and Spain are each taking more than 100 billion euros.

At this point, the ECB has the weight of the entire world on its shoulders.  One false move and we could see a huge wave of bank failures and we could be plunged into a major global recession.

But even with all of this unprecedented assistance, we have already seen some big time European banks fail.

Back in Obtober, Dexia was the first major European bank to be bailed out, and the cost of that bailout is going to exceed 100 billion dollars.

The funny thing is that Dexia actually passed the banking stress test that was conducted earlier this year with flying colors.

So what does that say about all of the other major European banks that did not do so well on the stress test?

In addition, it was recently announced that Germany’s second largest bank is going to need a bailout.

The following comes from a Sky News report….

Germany’s second largest bank, Commerzbank, is reportedly in discussions with the German government about a bailout after regulators said it needed to raise more money to cope with a potential default on its loans to governments.

“Intense talks” have been going on for several days, according to sources who spoke to the news agency Reuters.

Even with unprecedented intervention by the ECB, the truth is that the European banking system is rapidly failing.

In Greece, a full-blown run on the banks is happening.  According to a recent Der Spiegel article, funds are being pulled out of Greek banks at a pace that is astounding….

He means that the outflow of funds from Greek bank accounts has been accelerating rapidly. At the start of 2010, savings and time deposits held by private households in Greece totalled €237.7 billion — by the end of 2011, they had fallen by €49 billion. Since then, the decline has been gaining momentum. Savings fell by a further €5.4 billion in September and by an estimated €8.5 billion in October — the biggest monthly outflow of funds since the start of the debt crisis in late 2009.

In all, approximately 20 percent of all deposits in Greek banks have been withdrawn since the start of 2011.

Other European nations are implementing draconian measures in an attempt to protect their banks.  For example, in Italy all cash transactions over 1000 euros have been permanently banned.  People will either have to use checks, debit cards or credit cards for large transactions.  This will “encourage” people to keep more money in the banks, and this will also make it much easier for the Italian government to track transactions and to collect taxes.

But it is not just in the EU where we find unusual steps being taken.

In the UK, the Bank of England is acting like the end of the world is about to happen.  The following comes from a recent article on the This Is Money website….

The deputy governor of the Bank of England today warned the situation surrounding the single currency was ‘worrying’ and that the Bank was making preparations to support British banks, should the eurozone collapse.

A temporary loan facility has been introduced as a precaution, for use in the event of contagion from the eurozone crisis endangering UK institutions, Charlie Bean said in an interview on BBC Radio 4’s World at One.

An article posted on Business Insider a while back says that Switzerland is also preparing for “a euro collapse”….

The Swiss government is preparing for a collapse of the euro, according to Swiss Finance Minister Eveline Widmer-Schlumpf.

She told parliament that a work group was studying the imposition of capital controls and negative interest rates to protect Switzerland from the capital flight that a euro collapse would engender

Frightening stuff.

On the other side of the world, the government of China is also taking action.  In fact, China is actually injecting money into the stock market in order to prop up stock prices.

The following comes from an article in the China Post….

In a movement considered “long overdue” by some analysts, the injection of government money into the tanking stock market to prop up stock prices has been given the green light, government officials announced yesterday.

Vice Premier Chen, the topmost government official charged with the country’s financial stability, however, insisted the fundamentals of the economy and the stock market are sound, expressing his hope for continued optimism among the people.

Of course the Federal Reserve is not going to stand on the sideline while all of this is going on.  In a recent article, I described how the Federal Reserve is helping to bail out European banks….

The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Bank of Japan and the Swiss National Bank have announced a coordinated plan to provide liquidity support to the global financial system.  According to the plan, the Federal Reserve is going to substantially reduce the interest rate that it charges the European Central Bank to borrow dollars.  In turn, that will enable the ECB to lend dollars to European banks at a much cheaper rate.  The hope is that this will alleviate the credit crunch which has gripped the European financial system by the throat.  So where is the Federal Reserve going to get all of these dollars that it will be loaning out at very low interest rates?  You guessed it – the Fed is just going to create them out of thin air.  Our currency is being debased so that Europe can be helped out.

If the global financial system was in good shape, all of these bailouts would not be happening.

These desperate measures are a clear sign that something is up.

The financial authorities of the world are doing their best to keep the system together, but in the end they are not going to be able to prevent the collapse that is coming.

The world is heading for incredibly hard economic times.

So is the end of the world coming?

No.

But to many in the financial world it may feel like it.  The coming global recession is not going to be fun.

We have now reached a point where it has become “normal” for governments and central banks to throw money at one financial crisis after another.

At one time, bailouts were so unusual that they provoked a great deal of outrage.

Today, bailouts have become standard operating procedure.

The bailouts will continue to get larger and larger, and authorities all over the globe will do their very best to keep the house of cards from coming crashing down.

Unfortunately, they will not be successful.

The Economic Collapse

Ultimate money magician in the Federal Reserve and the art of shadow bailouts – The continuing secretive bailout of the $3.5 trillion commercial real estate market.

The Federal Reserve is the ultimate magician in concealing bad bets for the flawed banking system.  Few in the history of the Federal Reserve have called them out on their shadow bailouts but people are starting to wakeup no thanks to the mainstream controlled media.  Think about how insane it is to have a central bank that does not even report to the people of the country it serves and is able to destroy the currency by bailing out bosom buddy bankers at the expense of the population.  How is that even possible?  Since this is the architecture of the system it becomes possible to create mega shadow bailouts like that occurring in the commercial real estate market (CRE). The CRE bailout is largely a sign of what is wrong with our broken financial system.  Sure, with residential real estate the argument can be made that this impacts most American families.  Of course even in that arena it has been a failure for the public but the CRE market is strictly a big money and big banking issue.  The market imploded from being valued at $6.5 trillion a few years ago down to $3.5 trillion today.  Yet why is it the responsibility for average Americans to bailout banks for bad bets on luxury hotels and failed strip malls?

The continuing bailout you are not hearing about

There is a false narrative flowing in the market that the bailouts are winding down and somehow we have turned a profit.  All we need to do is look at the Federal Reserve balance sheet to see that this is not the case:

*Update December 2011

The Fed balance sheet is at a peak nearly reaching $3 trillion in a mix of toxic loans and odd backdoor bailouts.  A large part of this is bad bets in the CRE market.  Think that the bailout money is only going to poor segments of our economy.  How about aiding the Ritz?

“(WSJ) The developers of the Ritz-Carlton Highlands hotel at Lake Tahoe apparently have leaned a little too far over their skis. Bank of America Corp., the lead lender in the hotel’s $157 million mortgage, has filed a default notice against the property.

Developer and owner East West Partners, based in Avon, Colo.,  is “talking daily” with its lenders to resolve the situation, East West senior partner Blake Riva said. At issue: $10 million of the loan has matured without being paid, and the lenders want East West to pitch in another $8 million of capital.

Otherwise, East West and Ritz-Carlton, a unit of Marriott International Inc., say the hotel is doing well. Like many mountain-resort businesses, the Ritz is temporarily closed and slated to reopen by mid-May, after the “mud season” passes and vacationers return to the area on the California-Nevada border.”

Isn’t it amazing that these shadow bailout are presented as some sort of method of keeping lending going to average Americans?  Instead, major CRE projects are defaulting and banks are simply ignoring the losses or are passing the bad notes over to the Fed as a sanctuary of bad bets.  The public does not have this convenient access of course.  Accounting trickery seems to be an area of expertise of the Fed and their fellow big bank friends.

Read the rest at My Budget 360

I don’t agree with everything Matt comes up with, but when you’re right, you’re right.

It seems America’s bankers are tired of all the abuse. They’ve decided to speak out.

…..

there is this from Blackstone CEO Steven Schwartzman:

Asked if he were willing to pay more taxes in a Nov. 30 interview with Bloomberg Television, Blackstone Group LP CEO Stephen Schwarzman spoke about lower-income U.S. families who pay no income tax.

“You have to have skin in the game,” said Schwarzman, 64. “I’m not saying how much people should do. But we should all be part of the system.”

There are obviously a great many things that one could say about this remarkable collection of quotes. One could even, if one wanted, simply savor them alone, without commentary, like lumps of fresh caviar, or raw oysters.

One has to wonder about the litany of the 1%ers.  As Matt correctly points out, this is the guy who blew $5 million on a birthday party (it’s your money, do with it what you want) with money he made skinning the public off an IPO that cost investors 3/4 of their money.

And yeah, skinned is the right word — that’s not a fleecing, it’s a flensing.

There are those who hate anyone who has “made it” — they don’t care how they got it, they want it, and if you won’t give it up they’ll steal it.  That sort of instinctual hatred of success is Satanic, and there’s plenty of it out in the world.

But far-more often the issue isn’t hating people who “made it” — it’s the utter revulsion and hatred of those who “made it” by stealing it, and used their money, power and influence to find new and creative ways to steal it without going to prison for doing so.

Swaps deals for Jefferson County, money laundering for Mexican Drug gangs, ripping off entire nations via hinkey deals in Greece and elsewhere in Europe — the visceral reaction isn’t about success at all. It’s about theft.

These folks at the “top” of the game ought to be doing some serious reflection about now.  Under any rational system of justice they’d all be in the graybar motel here and now, getting their hour in the prison yard and spending the other 23 in a nice little cage.  No caviar, no raw oysters, and the “sauce”, if they got any at all, would be their cellmate’s and administered involuntarily.

The “hee haw” attitude from these people is dangerous to everyone, including most-especially them and their families.  See, there’s this premise among those goons that they’re invincible.  It’s reasonably-well cultivated too, just like it is among the Mob.  Nobody tries to hit the Mob, right?

Well, nobody who has something to lose does.  And that dynamic is what the 0.1%ers rely on as well.  The general premise continues to exist that murder and mayhem is punishable, and that punishment is a deterrent.

What happens when it’s no longer a deterrent?

If that’s not keeping the 0.1%ers up at night they’re not very bright.  On the route we’re on the wall is just up ahead.  These guys all passed middle-school math — how they think we’re going to go from a 20-25% reduction in the size of government being required in 2007 to a 50% one in 2011 and not recognize that this is a geometric series that has two to four years — at the outside — remaining before impact is rather odd.

I’m sure most of them think their Citation or Lear will “take them away”, but unfortunately this problem is global and we’ve not yet had our Mr. Zefram Cochrane show up, so no matter where they are they’re stuck with the other 99.9% of us.  And it only takes one deranged individual, driven to their individual point of rage by the injustices heaped upon them by those robber barons.

Is having your sewer bill hiked 400% through hinky derivative deals fueled by outright bribery enough?  Maybe not, but there’s a hell of a lot of people who got hosed on that list, and it’s a rather odd bet that none of them began by being a bit mentally “off.”  Then there are the millions who got rooked out of everything in their lives by the hinky deals in the mortgage space.  Or, for that matter, the Greeks and others in Europe who were financially gang-raped by the international banking cartel with the cooperation and complicity of their own governments!

We live in a world, as I’ve repeatedly noted, where there are two justice systems — one that governs all manner of property and violent crime, and then one that governs only violent crime and even then not so tightly.  The first is the one that the 99.9% of us live under — we don’t rob, we don’t murder, we don’t rip off little old ladies in part because we have a conscience and it’s wrong to do such things but even those who are somewhat-inclined to commit such acts have the deterrent value of clanging bars in the backs of their minds, and for the most part it’s enough.

Then there’s the 0.1% who commit financial acts that would under any real justice system be deemed felony fraud and lead to the same clanging bars.  But it’s not, because we have people all the way up to the President declare that “no crimes were committed”, much like Sgt. Schultz exclaims “I see nothing!”

I don’t expect the 0.1% to change their stripes willingly.  It’s much like a rattlesnake — it may be the nicest-looking and most-sedate rattlesnake you’ve ever seen, but it’s still a rattlesnake.  If you pick it up you’re odds-on it will bite you.  Maybe not this time, maybe not next, but the odds are still what they are — it’s a rattlesnake, after all.

I fear for this nation and the convulsion that lies ahead if we do not put a stop to the frauds and scams, starting in Washington DC.  The latest “compromise” on the Payroll Tax is just another example; blowing a $200 billion hole in the deficit with a so-called “pay for” over 10 years is outright fraud.  The “pay for” will never happen, being quietly repealed somewhere down the road, and besides, it’s being done with a “fee” on money-losing government enterprises (Fannie and Freddie) which is an utter crock to begin with — those firms are well into triple-digits on the loss already inflicted on the US Taxpayer (for which nobody has gone to jail) and the book is not yet closed on the extent of that damage (incidentally, with the majority of the $10ish trillion in mortgages out in some way connected to them, if we escape with less than a trillion in damage out of these two fraud factories we’re going to be very lucky.)

Those on Fraud Street pulling these schemes and games got their example from Washington.  Make no mistake about it — this latest exhibition is just another in the long example of lies and scams, and if you’re wondering how all these clowns on Wall Street get the idea that they can screw America with impunity you need only look to the US Capitol for the answer.

Charles Ponzi was a piker, and yet he went to jail.  In his “memory” we simply came up with bigger and more-audacious crooks, starting in DC, and today we’re due to be served yet another dish of fraudulent accounting and financial rape — and I’m willing to bet that the majority of America, including the so-called “Tea Party” will cheer it because the words “tax cut” are embedded in the narrative.  We’ll see if there’s even one honest Representative in the House today that will demand a recorded vote and at least force people to come back next week and go on the record with their “assent” to screwing you, the common man and woman, once again — or whether the so-called “fiscal conservatives”, including the Tea Party, will silently allow it to pass by “unanimous consent” in a pro-forma session.

Just remember that “tax cut” folks in a couple of years when Social Security and Medicare — and the US Federal government — collapses, because robbing the payroll tax to your thunderous applause is a significant part of how it came to be.

Students stuck with gargantuan loans for life are bound in a bank-dominated “improvement” of indentured servitude.

Yesterday (Risk is Necessary for Adaptation, Innovation and Success)I discussed the inevitable failure of systems in which risk has been transferred from those who reap the gain to others. In the case of student loans, the risk has been transferred to students who enter decades of indentured servitude.

Indentured servitude has a long history in the U.S.; many immigrants accepted servitude of between two and seven years in exchange for passage to the New World.  Orphans were indentured out of orphanages to the age of 21–potentially a much longer servitude. Indeed, the labor of anyone on the public dole could be auctioned off:

From Wilma A. Dunaway’s Online Archive:

By the time of the Revolutionary War, indentured servitude had been a common practice in the United States for 150 years.Following British laws established during the colonial period, post-Revolutionary public  authorities indentured the labor of those who were likely to fall upon the public dole.  Appalachian county governments bound out indigent adults and children whose families could  no longer care for them. The age, gender, and racial trends are clearly documented in early  records of Appalachian poor houses, for women and orphans represented more than two-thirds of the individuals whose labor was auctioned off by county governments.

Isaac Miller of Anderson County, Tennessee, advertised in 1819 for the return of Margaret Hutcheson who had been bound to him by the county poor house. Obviously, the  seventeen-year-old girl had tried the patience of her master, for he offered only  “a reward of 6 1/4 cents to the person who w[ould] deliver her to [him],” caustically adding, “but I will not thank any person for doing so.”

When an orphan was bound out by the county poor house, the child was legally tied to the master until the age of eighteen or twenty-one.

Orphans were often bound to tradesmen or farmers until age 21, and indigent adults were typically bound for three to seven years. However, there is no way to document how many laborers were bound out by their own families. When parents indentured their own children, it was for “a usual term of seven years if a girl, or five if a boy.”

Let us consider the modern form of indentured servitude, student loans, which now exceed a staggering $1 Trillion: “It’s Going To Create A  Generation Of Wage Slavery” (Zero Hedge), or perhaps more accurately, indentured servitude, because the debt cannot be dismissed via bankruptcy.

Student loans outstanding will exceed $1 trillion this year(USA Today):

Lenders have little risk of losing money on the loans, unlike mortgages made during the real estate bubble. Congress has given the lenders, the government included, broad collection  powers, far greater than those of mortgage or credit card lenders. The debt can’t be shed  in bankruptcy.The credit risk falls on young people who will start adult life deeper in debt, a burden that could place a drag on the economy in the future.

“Students who borrow too much end up delaying life-cycle events such as buying a car,  buying a home, getting married (and) having children,” says Mark Kantrowitz, publisher  of FinAid.org.

“It’s going to create a generation of wage slavery,” says Nick Pardini, a Villanova  University graduate student in finance who has warned on a blog for investors that student loans are the next credit bubble — with borrowers, rather than lenders, as the losers.

The University of Phoenix, the nation’s largest, got 88% of its revenue from federal  programs last year, most of it from student loans.

In effect, students getA Mortgage with Every College Graduation (Dr. Housing Bubble,  via Jed H.) with one key difference: there is no way to get out from underneath the student loans.

This is the perfection of indentured servitude. How many students pay off their $100,000 loans in a mere seven years?Modern banks and corporate “higher education” diploma mills have improved the old system of indentured servitude, extending the servitude  from seven years to decades.

The key dynamic here is the transference of risk from the lenders, who stand to reap immense profits from these loans, to the students.This transference is enforced of course not by the banks but by their partner, the Savior State, which obliterated the right to bankruptcy for students while guaranteeing profits to the banks via Sallie Mae, another guarantor of private profits backstopped by taxpayers.

The feedback between risk and return has been severed.Lenders can extend massive loans to marginal students attending for-profit colleges, knowing their losses  will be backstopped while the gains are theirs to keep, and the debt-serf students are indentured for life.

Imagine if risk were connected to gain.Maybe lenders would be a bit more careful about which students they deemed worthy credit risks; perhaps they would begin differentiating between low-market-value liberal arts degrees from hard-science degrees.

Maybe they’d start considering the students’ incomes while in university. Maybe they’d recognize differences in risk between for-profit diploma mills protected by the  rapacious, captured-by-corporations Savior State and state universities.

There can be no “fix” to our decline until risk is bound once again to return and gain. If risk is transferred to others, you’re left with some type of indentured servitude and financial tyranny in service of the banks and their Savior State toadies.

Charles Hugh Smith – Of Two Minds