Archive for April 25th, 2012
Much of this will not be new to regular readers, but for those of you who are new to trying to understand our economic situation, or for those of you who have friends and family that never seem to ‘get it’ or continually tell you that you’re nuts, here’s something you can show the skeptics.
The next time you find yourself at a family gathering and Uncle Jim insists that we’re ‘recovering’ and ‘everything’s going to be just fine, ‘ whip this out, you’ll be the life of the party.
Derivatives expert Janet Tavakoli takes a hard look at what — and who — caused the financial crisis.
Janet Tavakoli calls it as she sees it — and what she often perceives isn’t a pretty picture. But for any advisor, or other investment professional, to ignore this industry veteran’s razor-sharp insights would be folly.
A gutsy critic of both Wall Street and the federal government, the Chicago-based consultant, specializing in derivatives and structured products, pulls no punches. Through her independent research into the global financial crisis, Tavakoli uncovered what she calls massive, widespread fraud committed by a network of mortgage originators, securitizers, and rating and regulatory agencies, among others.
Earlier, the founder of Tavakoli Structured Finance, 58, predicted the thrift industry blow-up and the demise of Enron. Then she foresaw that excessive leverage and structured products’ misratings would lead to a global financial crisis.
In her just-published e-book, The New Robber Barons, Tavakoli charges that the relationship between failed mortgage lenders and investment banks that securitized and sold risky loans was “the largest Ponzi scheme in the history of our capital markets … a financial Pearl Harbor,” where “investment bankers piloted many of the planes.”
Now Tavakoli sees another huge financial crisis looming.
The University of Chicago MBA has traded, structured and sold derivatives at firms including Merrill Lynch, PaineWebber and Westdeutsche Landesbank; and she had earlier stints at Bear Stearns and Goldman Sachs. Research recently talked with her about red flags and preventive solutions.
You write that, in the past three years nothing has been fixed but that we must hold Wall Street responsible for the fraud that resulted in the financial crisis. What should be done?
We need to have investigations. But with the pushback and all the lobbying, what they’ve been counting on is that the statute of limitations for some of these frauds is expiring. So if you don’t file complaints, you may not be able to.
Members of Congress are enabling the lack of punishment and covering up great misdeeds in our financial system — and they’re doing it with no fear of consequences — i.e., being voted out of office, in which case they could find themselves the subject of investigation.
What do you mean: “covering up”?
Many people are covering up for cronies who have a lot of money sloshing around. We threw money into the financial system with no accountability and thus made the problem worse. Our system has been completely infiltrated and bought off. Things aren’t changing because Big Money doesn’t want it to change.
What other indications are there of a cover-up?
The MF Global dog-and-pony show. The attitude toward bundlers like Jon Corzine [the firm’s ex-CEO], who is a big bundler for the Obama campaign, is that the guy can do no wrong. This was before he even testified. People who are raising big money for campaigns get off with no real investigation.
In the Sarbanes-Oxley age, for MF Global to say they were unaware of what they were doing beggars belief. And yet there has been no indictment.
Is President Obama part of the cover-up?
Yes, in that he’s enabled it. He’s left people in place who crashed the global financial system in the first place: [Treasury Secretary] Tim Geithner and [Federal Reserve chair] Ben Bernanke. Obama had told us: “You can’t keep doing things the same way and expect different results.” So he’s been quite a hypocrite.
Who else is in the cover-up?
Mary Schapiro was appointed [by President Obama] to head the SEC. She was formerly head of FINRA, the antichrist of investor advocacy! Yet she was chosen SEC [chair] because the regulators are captive by and serve the people they’re supposed to be regulating. They do not serve investors.
In a way, Obama has been the anti-regulator because he didn’t put people in the regulatory agencies, the Fed or the Treasury who would investigate and fix things that are wrong in our global financial system.
If he’s re-elected, then presumably, things will continue in this same way?
What if a Republican is elected President?
Who else is not in the pocket of Big Money interests!
So, no matter who’s President, these crimes — if you want to call them crimes — will be perpetuated?
Yes. And we do want to call them crimes! They are crimes.
What should Obama do now to help Americans?
He has a lot of resources at his disposal, one main one being moral suasion — he’s got the pulpit. When there was a crisis, Reagan, Carter, Bush went on television and explained what needed to be done. We haven’t seen that kind of leadership from President Obama. If anything, the American people have been told things to make them think [conditions] aren’t really as bad as they are: inflation isn’t as bad as you think because an iPad is cheaper now — nonsense like that.
So the public is being poorly informed?
Yes. Therefore, financial advisors need to be doing fundamental analysis of investments and not [only] be reading the Wall Street Journal or, God forbid, watching CNBC.
In other words, FAs should do their own research and figure things out for themselves.
Yes. Sadly, you’re on your own. That’s part of how we got into this mess: We lost the art of rolling up our sleeves and looking for opportunities.
On Internet TV, you stated that we’re “absolutely vulnerable to a repeat [crisis] because the fraud went unpunished and we printed money like crazy to bail us out of the last one.” That’s scary.
But the fact is we’ve bailed people out and had no consequences for them. So it emboldened them to turn around and behave in the same way. Look at banks like JP Morgan: Shortly after the crisis, they thumbed their nose at the idea of trying to separate speculation from the rest of the bank. So if you don’t have restraints on behavior, you’ll see it repeated. And now we’ve made it worse. It’s like handing a drunk driver who got into a crash the keys to a bigger, faster car together with a bottle of vodka.
In every area of finance where we bailed people out, you see the same wrongdoers volunteering to help fix the situation. That’s pretty funny: They weren’t trustworthy before, and they’re not trustworthy now.
But what about the investigations that already have been held?
They’re all for show, and people end up with a slap on the wrist for minor issues. Investigators should be looking instead at the interconnected fraud that infected the mortgage lending market. And there is still a lot today, especially fraud on borrowers. If you go to the root of the problem and choke off the money supply, you stop the fraud in its tracks.
But the banks say they lost money.
The fact that a bank lost money isn’t an indication that they were a victim as opposed to being a perpetrator. A classic problem with control fraud is that the parasites destroy the host — in this case, the host being the bank and the parasites being the bank employees. If you were the victim of a control fraud by the people who worked in your own bank but meanwhile, you were collecting huge bonuses, you overlooked the control fraud within your own institution.
Read the rest at AdvisorOne
Spain is about to enter a full-scale Crisis.
A few facts about Spain:
• Total Spanish banking loans are equal to 170% of Spanish GDP.
• Troubled loans at Spanish Banks just hit an 18-year high.
• Spanish Banks are drawing a record €316.3 billion from the ECB (up from €169.2 billion in February).
Things have gotten so bad that Spanish citizens are pulling their money out of Spain en masse: €65 billion left the Spanish banking system in March 2011 alone.
As bad as they are, even these data points don’t do justice to the toxic sewer that is the Spanish banking system.
Case in point, over HALF of all Spanish mortgages are owned by Spanish cajas.
If you’re unfamiliar with the caja banking system, let me give you a little background…
Until recently, the caja banking system was virtually unregulated. Yes, you read that correctly, until about 2010-2011 there were next no regulations for these banks (which account for 50% of all Spanish deposits). They didn’t have to reveal their loan to value ratios, the quality of collateral they took for making loans… or anything for that matter.
So, with Spain today, we have a totally unregulated banking system sitting atop HALF of ALL Spanish mortgages after a housing bubble that makes the one that happened in the US look like a small bump.
Spain’s housing bubble is the dark blue line below. The US is the gray one.
Oh, I forgot to mention, the cajas primary lending market during Spain’s housing boom were subprime and sub-sub prime borrowers.
Put another way, today the entire Spanish banking system is saturated with toxic mortgage debt on a level that makes the US in 2008 LOOK GREAT.
If you don’t want to take my word for it, have a look at the Spanish stock market. It’s been in a free fall for over a month as Spain’s banking system teeters on the brink of collapse (remember they’re drawing over €300 BILLION in emergency loans from the ECB.
If you think that chart looks bad, take a look at Spain’s LONG-TERM chart where the market has just broken a 15-YEAR TRENDLINE signaling that the bully market is OVER and setting the stage for a horrific Crash.
This is hands down the ugliest chart out there today. Spain is telling us point blank that disaster is looming.
With that in mind, I believe we have at most a month before Spain drags down the entire EU. The Spanish economy and banking system are too large to be bailed out. The IMF and ECB know this.
Moreover, worldwide banking exposure to Spain is well over €1 TRILLION. What impact do you think that might have on the EU which has an entire banking system that is leveraged at 26 to 1 (Lehman Brothers was leveraged at 30 to 1 when it collapsed)?
Heck even Ben Bernanke and others have issued warnings that Europe could drag down the US banking system if it crumbles.
So if you’re not already taking steps to prepare for the coming collapse, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.
This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com
Graham Summers – for Zero Hedge
I wish there was something approaching an honest reporter left in this country among the mainsleaze media. But there’s not.
Updated 4:05pm ET The trustees of the Social Security system said Monday the fund that helps sustain retiree and survivors’ benefits will become exhausted in 2033, three years sooner than they projected last year.
At that point, payroll taxes and taxation of Social Security benefits will provide only enough income to pay about 75 percent of the benefits that Congress has promised to retirees and survivors.
In practical terms, this means that a 40-year-old worker who is eligible to collect retirement benefits in 2039, would see his or her expected retirement benefit cut by about 25 percent, unless Congress took action to change the program’s funding or its benefit structure.
So far so good. But it’s the assumptions that are the problem:
The trustees said that to keep the Social Security trust funds solvent over the next 75 years, Congress could take a number of steps:
- increase the payroll tax rate from its current level of 12.4 percent to 15.01 percent;
The Payroll Tax is not 12.4%; that’s a lie.
Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.
So the tax is actually 10.4%. And note carefully that the Trustees said that a roughly 2.5% increase would balance Social Security. But we’ve done exactly the opposite by almost exactly the same amount.
So who’s going to be honest and call for (1) an immediate full stop to that payroll tax cut and (2) an increase in the payroll tax to 15%?
In point of fact there’s another option for Social Security that would make even more sense — index to longevity. That would, along with a less than 1% increase (to 13%; the “cut” that’s allegedly temporarymust go away right here and now in any event) put the system back into balance.
In short Social Security is pretty easy to fix. It’s unpopular to talk about what has to happen to fix it, but it’s fixable and at a reasonably-small cost to the average employee in terms of tax impact.
Separately, the trustees, who are also the trustees of the Medicare program, reported that the Medicare fund that pays hospital costs for older and disabled Americans will be exhausted by 2024, the same forecast as they made last year.
After the assets of the Medicare fund are gone, if Congress were to take no action, projected Medicare revenue would be adequate to cover 87 percent of the estimated spending in 2024 and about two-thirds of projected costs in 2050.
Nonsense. These figures are nowhere near accurate as they do not include the 9.2% rate of increase that is currently being suffered.
The BEA says that compensation of employees is $8.4 trillion (last quarter of 2011, which is the latest available at present.) That’s $244 billion a year in Medicare tax (2.9%, both employer and employee parts.)
But the Federal Government spent $820 billion last year on health costs, approximately $550 billion of it in Medicare and Medicaid. While the program claims to have taken in $530 billion there’s obvious game-playing going on here as the total employee compensation as of the last quarter of 2011 is annualized to $8.4 trillion and Medicare tax is 2.9% of this, or $244 billion.
On a basic cash-flow analysis and given the $244 billion of actual bonds in the system for Medicarethere is about one year of benefits available on a cash-flow basis, including tax receipts and “bonds in the drawer” for Medicare.
To be succinct Medicare is functionally bankrupt right here and now!
Medicare and Medicaid cannot be fixed at all as the problem is not found in those programs — it is found in the underlying medical system in our nation.
Simply put we have to shut down the cost-shifting, including that represented by:
- EMTALA, which resulted in the destruction of charity care in general; the Catholic Church “cheered” this as it’s roughly six hundred hospitals were largely relieved of being fully-charity-funded (that is, from your donations in the plate on Sunday) and managed to shift a huge part of that funding to you, the taxpayer, via explicit health “insurance” and private payer support! This of course the Church does want to talk about; a “gun up the nose” isn’t charitable at all, yet this is much of what so-called “charity hospitals” do today. The Church needs to be called out on this loud and long; they’re liars and frauds and have done their level damndest to pretend to provide charity care while offloading it on the general public. This sort of intentional deception is a Satanic abuse of the alleged moral high ground the Church claims for itself.
- Outrageous development cost shifting from the rest of the world to the United States; price controls in other nations effectively prohibit the cost of development of new drugs and devices from being borne by health systems in other countries. Canada and the UK are two of the worst offenders but hardly the only ones; other nations frequently threaten to break patents wholesale unless they get favored pricing. The medical industry then got passed laws prohibiting reimportation, codifying a “wall” in federal law with felony penalties for breaches that allows this rip-off of the American consumer to continue. As a consequence Americans often pay 10x or even more what a Canadian pays for the same drug or device; we effectively cover all development costs for the entire planet. This must end — now.
- Specific legal exemptions from anti-trust law and shielding from consumer-hostile practices such as permitting and even encouraging disparate billing for procedures, drugs and devices depending on how one pays; a discriminatory act that when taken for the purpose of reducing competition is flatly illegal in other fields, blatant limiting of competition for various technological practices (e.g. licensing restrictions prohibiting the free opening of new MRI centers to drive down costs) and other acts that in any other field would land the parties involved in the graybar motel for felony criminal violations of anti-trust and restraint-of-trade law.
All of this combines to cause the cost of medical care in the United States to be a literal double that which is charged and obtained in other nations. We simply cannot afford to continue on this path as the growth rate (9.2% compounded for the last 30 years) will result in the bankruptcy of the federal government and destruction of our economy within the next two decades.
The game-playing within the system cannot be maintained; eventually cash flow always wins. You can move things around and pretend for a while but doctors, hospitals and others in the supply chain don’t take empty promises, they want checks. Eventually you are forced to admit that the money doesn’t exist and you’re shuffling the deck and playing with the cash flow from one place or another so as to avoid telling the truth about what’s really going on in the budget and these funds.
This problem has to be solved, and solved now. Neither political party will talk honestly about this, but we must as Americans demand both the truth and real resolution, as the path we are on will resolve in a disorderly collapse of our medical system and shortly thereafter our economy and government.
We cannot afford to continue to play the game that both the Republican and Democrat parties are running in this regard, nor are the so-called “third party” claims (e.g. Gary Johnson) honest assessments either.
The medical system in this country is terminally broken and if it is not corrected now we will all discover that there is simply no money and thus what people claim they have been promised will be shown to be a sham and collapse — and this outcome will be apparent much sooner than people think.
Why do chimpanzees throw poop? The federal government would like to know and is using your tax dollars to investigate the matter. Every single year, we all send huge amounts of our hard-earned money to the federal government. We hope that they will spend that money wisely. Unfortunately, that is simply not the case. You are about to read some examples of how the government is wasting your money that are absolutely mind blowing. Anyone that claims that there is not a lot of waste that can be cut out of the federal budget is lying to you. Our politicians have racked up the biggest pile of debt in the history of the world and they are spending our money on some of the stupidest things imaginable. It is imperative that the American people be educated about all of this outrageous government waste, because right now the political will to change this corrupt system is simply not there among the current crop of politicians in Washington. We are stealing trillions of dollars from future generations and many of the things that our politicians are wasting that money on are almost too bizarre to believe.
The following are 30 mind blowing ways that the government is wasting your money….
#1 In 2011, the National Institutes of Health spent $592,527 on a study that sought to figure out once and for all why chimpanzees throw poop.
#2 The National Institutes of Health has spent more than 5 million dollars on a website called Sexpulse that is targeted at “men who use the Internet to seek sex with men”. According to Fox News, the website “includes pornographic images of homosexual sex as well as naked and scantily clad men” and features “a Space Invaders-style interactive game that uses a penis-shaped blaster to shoot down gay epithets.”
#3 The General Services Administration spent $822,751 on a “training conference” for 300 west coast employees at the M Resort and Casino in Las Vegas.
The following is how the Washington Post described some of the wasteful expenses that happened during this “conference”….
Among the “excessive, wasteful and in some cases impermissable” spending the inspector general documented: $5,600 for three semi-private catered in-room parties and $44 per person daily breakfasts; $75,000 for a “team-building” exercise — the goal was to build a bicycle; $146,000 on catered food and drinks; and $6,325 on commemorative coins in velvet boxes to reward all participants for their work on stimulus projects. The $31,208 “networking” reception featured a $19-per-person artisanal cheese display and $7,000 of sushi. At the conference’s closing-night dinner, employees received “yearbooks” with their pictures, at a cost of $8,130.
You can see some stunning pictures of GSA employees living the high life in Las Vegas right here.
#4 Do you remember a few days ago when credit rating agency Egan Jones downgraded U.S. government debt from AA+ to AA? Well, someone in the federal government apparently did not like that at all. According to Zero Hedge, the SEC plans to file charges against Egan Jones for “misstatements” on a regulatory application with the SEC.
Normally, the SEC does not go after anyone. After all, when is the last time a major banker went to prison?
No, the truth is that the SEC is usually just a huge waste of taxpayer money. According to ABC News, one investigation found that 17 senior SEC officials had been regularly viewing pornography while at work. While the American people were paying their salaries, this is what senior SEC officials were busy doing….
One senior attorney at SEC headquarters in Washington spent up to eight hours a day accessing Internet porn, according to the report, which has yet to be released. When he filled all the space on his government computer with pornographic images, he downloaded more to CDs and DVDs that accumulated in boxes in his offices.
An SEC accountant attempted to access porn websites 1,800 times in a two-week period and had 600 pornographic images on her computer hard drive.
Another SEC accountant used his SEC-issued computer to upload his own sexually explicit videos onto porn websites he joined.
And another SEC accountant attempted to access porn sites 16,000 times in a single month.
#5 According to InformationWeek, the federal government is spending “millions of dollars” to train Asian call center workers.
#6 If you can believe it, the federal government has actually spent $750,000 on a new soccer field for detainees held at Guantanamo Bay.
#7 The U.S. Agency for International Development spent 10 million dollars to create a version of “Sesame Street” for Pakistani television.
#8 The Obama administration has plans to spend between 16 and 20 million dollars to help students from Indonesia get master’s degrees.
#9 The National Science Foundation spent $198,000 on a University of California-Riverside study that explored “motivations, expectations and goal pursuit in social media.” One of the questions the study sought an answer to was the following: “Do unhappy people spend more time on Twitter or Facebook?”
#10 The federal government actually has spent $175,587 ”to determine if cocaine makes Japanese quail engage in sexually risky behavior”.
#11 In 2011, $147,138 was given to the American Museum of Magic in Marshall, Michigan. Their best magic trick is making U.S. taxpayer dollars disappear.
#12 The federal government recently spent $74,000 to help Michigan “increase awareness about the role Michigan plays in the production of trees and poinsettias.”
#13 In 2011, the federal government gave $550,000 toward the making of a documentary about how rock and roll contributed to the fall of the Soviet Union.
#14 The National Institutes of Health has contributed $55,382 toward a study of “hookah smoking habits” in the country of Jordan.
#15 The federal government gave $606,000 to researchers at Columbia University to study how heterosexuals use the Internet to find love.
#16 A total of $133,277 was recently given to the International Center for the History of Electronic Games for video game preservation. The International Center for the History of Electronic Games says that it “collects, studies, and interprets video games, other electronic games, and related materials and the ways in which electronic games are changing how people play, learn, and connect with each other, including across boundaries of culture and geography.”
#17 The federal government has given approximately $3 million to researchers at the University of California at Irvine to fund their research into video games such as World of Warcraft.
#18 In 2011, the National Science Foundation gave one team of researchers$149,990 to create a video game called “RapidGuppy” for cell phones and other mobile devices.
#19 The U.S. Department of Agriculture once handed researchers at the University of New Hampshire $700,000 to study methane gas emissions from dairy cows.
#20 In 2011, $936,818 was spent developing an online soap opera entitled “Diary of a Single Mom”. The show “chronicles the lives and challenges of three single mothers and their families trying to get ahead despite obstacles that all single mothers face, such as childcare, healthcare, education, and finances.”
#21 The federal government once shelled out $2.6 million to train Chinese prostitutes to drink responsibly.
#22 Last year, the federal government spent $96,000 to buy iPads for kindergarten students in Maine.
#23 The U.S. Postal Service once spent $13,500 for a single dinner at Ruth’s Chris Steakhouse.
#24 In 2011, the Air Force Academy completed work on an outdoor worship area for pagans and Wiccans. The worship area consists of “a small Stonehenge-like circle of boulders with [a] propane fire pit” and it cost $51,474 to build. The worship area is “for the handful of current or future cadets whose religions fall under the broad category of ‘Earth-based’, which includes Wiccans, druids and pagans.” At this point, that only includes 3 current students at the Air Force Academy.
#25 The National Institutes of Health once gave researchers $400,000 to study why gay men in Argentina engage in risky sexual behavior when they are drunk.
#26 The National Institutes of Health once gave researchers $442,340 to study the behavior of male prostitutes in Vietnam.
#27 The National Institutes of Health once spent $800,000 in “stimulus funds” to study the impact of a “genital-washing program” on men in South Africa.
#28 The National Science Foundation recently spent $200,000 on a study that examined how voters react when politicians change their stances on climate change.
#29 The federal government recently spent $484,000 to help build a Mellow Mushroom pizzeria in Arlington, Texas.
#30 At this point, China is holding over a trillion dollars of U.S. government debt. But that didn’t stop the United States from sending 17.8 million dollars in foreign aid to China in 2011.
Do you feel good about paying your federal taxes after reading all of those examples of wasteful government spending?
All over America, middle class families are scratching and clawing in an effort to survive in this economy, and the oppressive levels of taxation imposed on those families certainly does not make things any easier for them.
It is tremendously immoral for the federal government to take money out of the hands of hard working families and spend it on such ridiculous things.
So what do you all think about the list above?
Do you have any things that you would add to that list?
Are you disgusted by how the federal government is mismanaging our money?
Feel free to leave a comment with your opinion below….
Susan Romano read her son Zach’s financial-aid letter from Drexel University, and her eyes jumped to the line highlighted in yellow: “$13,442 expected payment”for the first year at the $63,000-a-year school.
“At first, I thought it was great,” said Romano, 48, an insurance claims representative from Huntington, Pennsylvania.“The more I read it over and over, the worse it got.”
It turned out the college’s “offered financial aid”included $42,000 in loans to be taken out by the family, including a “suggested” $36,178 in parental borrowing or private loans.
“A loan to me is not financial aid,” Romano said. “It is money I have to pay.”
It’s intentionally deceptive and acts for the pecuniary interest of the college and to the detriment of the student and their family, which makes it a fraudulent practice. It is aimed at ordinary people (you), which makes it a violation of consumer protection laws. And it’s done in concert by two or more people at the institution and is happening across multiple institutions who are all aware of the deceptive nature of the claims (loans are not “aid”) which is the predicate for a Racketeering prosecution.
I’m done. You want to keep screwing our kids, I say “NO.” You keep this crap up my answer is that I will make a maximum lawful effort to see your so-called “universities” DESTROYED.
De-funded, de-certified, your degrees treated as toilet paper and your graduate’s resumes shredded on sight.
STOP SCREWING OUR YOUNG ADULTS — THIS IS NOT A REQUEST.