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Archive for the ‘bailouts’ Category

If one is wondering why Greece Finance Minister Venizelos is scrambling to pass the proposed bill which enacts Greek Bailout #2, without any debate or details, very much like the US Attorneys General passed the robosigning settlement without a robosigning settlement even having been inked, the following excerpt from Section E of the MoU between Greece and the Troika should explain it. Because heaven forbid someone actually ask for details as to just what ‘€[xxx]‘ of future funding needs over and above the €320 billion in committed funding means in practical terms, i.e., just how lower the minimum wage is going, how many million more jobs will be lost (in a population of just 11 million), and how soon until pension and retirement benefits go negative. Also, our German friends may be interested to know that funding 136% of Greek GDP in the form of endless “bailouts” (of which 81% goes to shore up bank balance sheets), is just the beginning. We are confident our German PM friend is more than aware of this exit clause which gives her the loophole to opt out of everything all over again.

Full MOU:
Memorandum of Economic and Financial Policies, February 8

ZeroHedge

The banking protection racket – 5 charts highlighting the laundering and dismantling of the middle class.  New methods of looking at employment.  Peak debt and tweaking statistics.

Excerpt from My Budget 360

The hidden cost of bailouts and Fed policy

Household wages have not benefitted from the trillions of dollars in bailouts.  Banks of course are back to their gambling ways even after bringing the economy to a near depression.  The end result?  Nothing has changed.  But inflation is creeping into the market:

Inflation is now running at a near 3 percent clip but wages are stagnant or falling.  So in the end Americans are becoming poorer to finance the bailouts for the banks.  Just look at the cost of fuel, food, healthcare, and education and you’ll see where items are rising.

As all these items collide we have a pattern that looks like this:

-Continued bailouts to the financial sector (the perfect synergy between Wall Street and government)

-Bailouts come from Federal Reserve and the cost is shifted out to the public via higher inflation

-We are entering a low-wage capitalism era

-The middle class is being crushed.  The top one percent control more wealth than they did to the years prior to the Great Depression

This is the not the path to prosperity here.  When we finance gamblers and protect those that siphon off from the productive sectors of the economy we are destined for a repeat of the crisis.

Read the entire article at My Budget 360

As if we aren’t already there….from The Hill this morning:

The Federal Reserve is turning its attention to reviving the ailing housing market, calling on policymakers to provide a boost to the sector and lift the broader economy. 

The Fed on Wednesday sent a 26-page white paper to Congress, providing a framework — including several steps that are already in the works within the Obama administration — designed to provide greater stability for the sector and the overall economy.

Uh huh.  As if there is something wrong with asset values correcting to come back into line with incomes. 

And here’s the blatant return to feudalism:

The Obama administration is examining ways to reduce the number of vacant, foreclosed homes by putting together properties to sell to investors for rental units. 

Sen. Jack Reed (D-R.I.) is pushing legislation that would convert hundreds of thousands foreclosed properties into rentals as demand rises for those types of properties. 

Isn’t that nice?  Subsidize investors (neo-Lords, many of the same culprits who caused this mess in the first place) so they can rent us (the serfs) back our own foreclosed homes without the banks taking a loss.

It goes on to explain:

“We caution, however, that although policy action in these areas could facilitate the recovery of the housing market, economic losses will remain, and these losses must ultimately be allocated among homeowners, lenders, guarantors, investors and taxpayers,” the paper said.

Here is an idea, why don’t we remove taxpayers from the line above and insert — banksters, congressmen, senators, legislative aides, lobbyist and employees of the Federal Reserve system. That way we can stick the losses onto the back of the people who caused the losses.

Now that would create real improvement in the economy.

Chief executive officers from eight of the largest US banks receiving government aid testify at a House Financial Services Committee hearing in Washington, DC, 02/11/09 (photo: Brendan Smialowski/Bloomberg)

I’ll be damned.

As 2011 slithers to its end, none of the major problems that led to the crisis point three years ago have really been solved. Bank balance sheets still reek. Europe day by day becomes a financial black hole, with matter from the periphery being sucked toward the center until the vortex itself collapses. The Street and its ministries of propaganda have fallen back on a Big Lie as old as capitalism itself: that all that has gone wrong has been government’s fault. This time, however, I don’t think the argument that “Washington ate my homework” is going to work. This time, a firestorm is going to explode about the Street’s head – and about time, too.

….

Over the next year, I expect the “what” will give way to the “how” in the broad electorate’s comprehension of the financial situation. The 99 percent must learn to differentiate the bloodsuckers and rent-extractors from those in the 1 percent who make the world a better, more just place to live. Once people realize how Wall Street made its pile, understand how financiers get rich, what it is that they actually do, the time will become ripe for someone to gather the spreading ripples of anger and perplexity into a focused tsunami of retribution. To make the bastards pay, properly, for the grief and woe they have caused. Perhaps not to the extent proposed by H. L. Mencken, who wrote that when a bank fails, the first order of business should be to hang its board of directors, but in a manner in which the pain is proportionate to the collateral damage. Possibly an excess-profits tax retroactive to 2007, or some form of “Tobin tax” on transactions, or a wealth tax. The era of money for nothing will be over.

But it won’t just end with taxes. When the great day comes, Wall Street will pray for another Pecora, because compared with the rough beast now beginning to strain at the leash, Pecora will look like Phil Gramm. Humiliation and ridicule, even financial penalties, will be the least of the Street’s tribulations. There will be prosecutions and show trials. There will be violence, mark my words. Houses burnt, property defaced. I just hope that this time the mob targets the right people in Wall Street and in Washington. (How does a right-thinking Christian go about asking Santa for Mitch McConnell’s head under the Christmas tree?) There will be kleptocrats who threaten to take themselves elsewhere if their demands on jurisdictions and tax breaks aren’t met, and I say let ‘em go!

Hoh hoh hoh.

Michael Thomas is right, you know.  I’ve been trying to get purchase for draining the swamp and punishing the wrongdoers among the various political classes in DC and elsewhere for a long time, in some cases dating back to the 1990s.  My stock in trade is mathematics — that irrespective of the money flowing into the coffers of campaigns and lobbying offices what’s being attempted cannot work and as a consequence we are choosing between doing the right thing now and having it suck and doing it later by force and having it suck more.

Why appeal to people in this way?  Well, what else do you have when the base case — that you should do the right thing because it’s right — no longer has any currency?  In a city (DC) and nation (America) where bribery and corruption have become a way of life, where lies told to the electorate as a means of buying votes has become the degenerate set that’s left of what used to pass for law and order, you can no longer appeal to people’s “better virtues.”

All that’s left is trying to appeal to their desire to survive what’s coming, whether that survival is political or at rather-more-fundamental level.

This isn’t the sort of thing that anyone wants to talk of openly, of course, but we must, because just like mathematics it is inevitable on the path we are on.  The idea that one can “throw money from helicopters” as Bernanke has put forward is an intentional fraud.  Diluting the currency base of course simply makes everything more expensive you need while attempting to bail out those in debt at the same time.  For the common man in debt nothing happens.  For the poor who never had access to credit at a material level they literally starve and thus civil and political order is threatened.  The wealthy, for their part, simply skim off more and more to “protect” their capital.   That a man who runs this sort of crap manages to get reconfirmed after intentionally averting his eyes to the bubble being blown as a consequence of his policies is an outrage.  It speaks to the high corruption of public process and public life, but it is not an isolated incident or uncommon in the world of today.

The IMF’s Lagarde talks of Europe being “everyone’s problem”, as if Germany and France decided to con the world with hinky Greek derivative deals.  Perhaps some French or German banks did so (along with American ones), but France and Germany themselves?  No.  But now, having happened, it suddenly is someone else’s problem to bail out, and oh by the way, it’s not just Greece.

At its core the problem is both simpler and more complex than it first appears.  The complexity is intentionally used as a foil by various pundits and others who argue that we must support the “financial innovators” lest it all go somewhere else.  But Paul Volcker, hardly a dummy, has said in public that the only real “innovation” in the financial industry in the last 30 years was the ATM!

He’s right, you know.  Ginning up some debt deal and selling it to rubes, knowing full well that it was crap and destined to eventually blow up, is nothing new at all.  A column over at Interfluidity argues that the bankster model is not only old hat but has driven much of innovation through the ages.  To that argument I call bull.

Simply put the question being put forward in the latter article proceeds from a false premise.  The idea that we gain some sort of “societal benefit” from these misallocations of capital is trivially proved to be false using nothing more than basic analysis and mathematics.  All you have to do is look here:

Notice how the outstanding debt increase, quarter by quarter, exceeds that of output.  The premise run by Interfluidity is that the societal good in terms of Nash Equilibria is therefore false, as it is not adjusted for the claims made against the future.  This of course is exactly the sort of lie the banksters and politicians have run as their stock in trade for 30 years, and it is not surprising at all that Steve would fall into the trap.  After all most of us alive have spent the majority of our lives in this lie.

If I can falsify the premise from which you proceed then the remainder of your argument goes in the ashcan.  Sorry Steve.

The smartest guys in the room (that would be the banksters) always believe they can get away with it, of course.  Some of them are delusional, many for the same reasons.  A number of those who are considered “respectable” even subscribe to idiocies like “MMT”, believing that somehow the government causes economic growth through deficit spending.

But the graph above does not lie.  As I have repeatedly commented these beliefs are much like perpetual motion in its various forms; there is always someone who claims to have figured it out.  But the laws of thermodynamics say perpetual motion is impossible, and ultimately once again the person running the scheme is proved to be wrong — usually intentionally so when their hidden energy source is discovered.

The choice is not between a modern economic system that favors growth and living in caves.  It is between economic progress that is sustainable and funded from economic surplus and one that is built on debt bubbles, lies, and ultimately must and does collapse.

The former is an economy that grows through actual innovation and improvement in productivity, where debt is a tool to liquify transaction flow rather than pyramid upon the shoulders of the people.  The latter is the lie we’ve lived for 30 years, and which is now reaching its mathematical conclusion.

We face a time when in the present we have a choice of becoming adults and accepting what we’ve done, along with what we must do, or continuing to pound on the table like a petulant child demanding another bar of chocolate.  The latter path has been the road of the last 30 years, but now the supply of chocolate is exhausted.  There is food to be had outside in the form of strawberries, ears of corn and even a rabbit or three, but to obtain the latter we must get off our collective asses and pick the strawberries, cultivate the corn or shoot, skin and cook the rabbit.  We are choosing now between recognition and personal effort, along with acceptance of the harm we’ve done by eating all that chocolate (we’re all 100lbs overweight!) or literal starvation through laziness.

The old political and bankster ways are out of gas folks.  There is no path forward on the road we’ve been traveling — the bridge is out and our choice is to either stop before we reach the edge or take the plunge onto the rocky cliffs below.

Choose wisely.

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