FedUpUSA

Archive for the ‘Wall Street’ Category

“Rolling Stone” magazine published an excellent article on April 25, 2013 on the out-of-control illegality of the world’s big banks. The thrust of the piece is that banks are so big that government is scared to reign them in. But the problem is deeper than breaking up the big banks. It can’t be fixed unless you do two things. Features a synopsis of Prof. Jeffrey Sachs comments from last week.

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I am not the author of today’s catchy headline. No, that was Gretchen Morgenson writing in the New York Times on January 5, 2013.

If you were hoping that things might be different in 2013 — you know, that bankers would be held responsible for bad behavior or that the government might actually assist troubled homeowners — you can forget it. A settlement reportedly in the works with big banks will soon end a review into foreclosure abuses, and it means more of the same: no accountability for financial institutions and little help for borrowers.

Last week, The New York Times reported that regulators were close to settling with 14 banks whose foreclosure practices had ridden roughshod over borrowers and the rule of law. Although the deal has not been made official and its terms are as yet unknown, the initial report said borrowers who had lost their homes because of improprieties would receive a total of $3.75 billion in cash. An additional $6.25 billion would be put toward principal reduction for homeowners in distress.

Gretchen was reporting a few days before the official announcement. The deal was done, and the settlement turned outto be $8.5 billion, with $3.3 billion of that set aside for cash relief for homeowners.

The settlement Bank of America, Citigroup Inc, JPMorgan Chase & Co, Wells Fargo & Co and five other banks entered with regulators pays out up to $125,000 in cash to homeowners whose homes were being foreclosed when the paperwork problems emerged.

Remember that $125,000 number. That’s pure propaganda, given the size of the group of aggrieved mortgage holders.

About $3.3 billion of the $8.5 billion settlement with the Office of the Comptroller of the Currency will be in cash, with the rest in changes to the terms of loans or mortgage forgiveness.

In April 2011, the government required banks that collect payments on mortgages, known as servicers, to review whether errors in the foreclosure process had harmed borrowers.

Gretchen did some “back of the envelope” math for us. I am too lazy to correct it for the lower cash settlement.

Some back-of-the-envelope arithmetic on this deal is your first clue that it is another gift to the banks. It’s not clear which borrowers will receive what money, but divvying up $3.75 billion among millions of people doesn’t amount to much per person. If, say, half of the 4.4 million borrowers were subject to foreclosure abuses, they would each receive less than $2,000, on average. If 10 percent of the 4.4 million were harmed, each would get roughly $8,500.

Gretchen then did a follow-up on January 12, 2013 called Paying the Price, but Often Deducting It, which I will not quote. She notes that these unimpressive settlements are usually tax-deductible for the banks.

And then FRONTLINE (PBS) ran yet another hour-long documentary about why no bankers have gone to jail. It’s called The Untouchables, and contains this quote from Lanny Breuer, who has been the head of the Department of Justice’s criminal division in the 1st Obama administraton, and who was still in that position when the documentary was made.

MARTIN SMITH — You gave a speech before the New York Bar Association. And in that speech, you made a reference to losing sleep at night, worrying about what a lawsuit might result in at a large financial institution.

LANNY BREUER — Right.

MARTIN SMITH — Is that really the job of a prosecutor, to worry about anything other than simply pursuing justice?

LANNY BREUER — Well, I think I am pursuing justice. And I think the entire responsibility of the department is to pursue justice. But in any given case, I think I and prosecutors around the country, being responsible, should speak to regulators, should speak to experts, because if I bring a case against institution A, and as a result of bringing that case, there’s some huge economic effect — if it creates a ripple effect so that suddenly, counterparties and other financial institutions or other companies that had nothing to do with this are affected badly — it’s a factor we need to know and understand.

This is as candid a statement as you’re ever going to read that the banks in question are considered too big to fail, and, as such, they are above the law. And now we learn that Lanny is resigning, having done his job to protect those banks, and having been exposed as a fraud.

Lanny Breuer is leaving his position as head of the Justice Department’s criminal division, The Washington Post reported Wednesday.

As assistant attorney general, Breuer led the effort to pursue allegations of fraud and corruption at major banks in the wake of the financial meltdown. The Post said it was unclear when Breuer will leave, and didn’t offer a reason. A DOJ spokeswoman told FRONTLINE that the department wouldn’t comment on the report.

Breuer was featured in FRONTLINE’s documentary The Untouchables, which aired on Tuesday and explored the reasons why no Wall Street executives have been prosecuted for fraud in connection with the financial crisis. Breuer told FRONTLINE that the DOJ had pursued charges when officials found evidence of fraud. “But in those cases where we can’t bring a criminal case — and federal criminal cases are hard to bring — I have to prove that you had the specific intent to defraud. …If we cannot establish that, then we can’t bring a criminal case,” he said.

And now I will make a few remarks.

I find it telling that humans, in this case Americans, continue to pretend that they live in a legitimate, fair society, despite massive and compelling evidence to the contrary. Or a society which—once again?—things might be set right. As usual, that observation tells us a lot more about humans (and Americans) than it does about the specific injustices and corruption in these pro-forma ”prosecutions” of the banks, which are merely typical examples of how elites control complex human societies. As such, this kind of behavior is exactly what we would expect to see, independent of the messy details about how elite control is implemented.

As usual, if you research this particular manifestation of typical human corruption, of elite control, you will find much wailing and gnashing of teeth, for example, at places like Naked Capitalism.

I mean, why does FRONTLINE (video below) even bother to make these documentaries? So I’m here to ask disconcerted “progressives” and do-gooders some simple questions—

What the fuck did you expect to happen with the banks?

What is it, exactly, that you are complaining about?

Do you actually expect that this typical human corruption might be eradicated?

If you have not already seen PBS Frontline’s The Untouchables, I encourage you to do so.

Dave Cohen – Decline of the Empire

Smoke and mirrors economy – 47 percent of the members in Congress are millionaires. 67 percent of Senators. Fed and Treasury money close to $7 trillion.

The Federal Reserve is really deep into uncharted territory.  In no other time in history has the Fed been so intricately involved in the overall economy.  The Fed balance sheet has expanded to an incredible level under very little scrutiny by the public or elected officials, many who have a vested interest in keeping the status quo.  The banking system has been bailed out but the working and middle class still struggle.  There is an interesting narrative going on in the press.  Since Wall Street is on the mend and hefty banking bonuses are once again making the rounds, every corner of the country is now somehow celebrating in this same process, at least in theory.  That is simply not the case in actuality.  The system has been decoupled internally.  Profits are made globally with local banking subsidies.  The public is left holding the bag on massive speculation and is shifted out of any prosperity.  It is odd what passes for good news.  The fact that Congress acknowledges that they will deal with the fiscal challenges facing our nation is applauded even though this is their job and most are already millionaires.  The Fed is still deeply intertwined in the current economy.

Fed and Treasury Total Money

There is an interesting chart examining all Fed and Treasury Money out in the economy.  The Fed has introduced a historic amount of measures to bailout the current market.  In 2008, this mixed bag of funding was at $1.5 trillion.  Today that figure is near $7 trillion:

Source:  Nowandfutures

Does the above look like the Fed is unwinding?  In fact, you can rest assured this is only going to increase with QE3 now in full bloom.  The risk of course is that the unwinding of these mechanisms back into the market is going to cause inflation.  Some argue that there is no inflation so why worry.  Well just look at the above.  Can the Fed permanently keep that near $7 trillion on its balance sheet forever?  That seems to be the plan and banks are happy with this approach since they can keep churning profits in the meantime.

The issue of course is that working and middle class Americans are being left behind.  The middle class has demonstrably shrunk over the past few decades.  This trend is unmistakable.  Some of it is simply due to the fierce competition globally but a lot of it has to do with internal banking welfare and an antagonistic view towards labor.  The same people that disparage working class Americans in the same voice talk about the need to grow jobs.

Read the rest at My Budget 360

Debt.  There isn’t a day that passes as of late that the issue of debt doesn’t arise.  Federal debt and consumer debt (including mortgages) are of the most concern due to its impact on the domestic economy.   Debt is, by its very nature, a cancer on economic growth.  As debt levels rise it consumes more capital by diverting it from productive investments into debt service.  As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host.  The chart below shows the rise of credit market debt and its impact on both personal savings and economic growth.

From the 1950’s through the late 1970’s interest rates were in a generally rising trend with the Federal Funds rate at 0.8% in 1954 and rising to its peak of 19.1% in 1981.  Of course, during this time the U.S. was the manufacturing and production powerhouse of the entire global economy post the wide spread devastation of Europe, Germany and Japan during WWII.  The rebuilding of Europe and Japan, combined with the years of pent up demand for goods domestically, led to a strongly growing economy and increased personal savings.

However, beginning in 1980 the world changed.  The development of communications shrank the global marketplace while the rise of technology allowed the U.S. to embark upon a massive shift to export manufacturing to the lowest cost provider in order to import cheaper goods.  The deregulation of the financial industry led to new innovations in financial engineering, easy money and wealth creation through the use of leverage which led to a financial boom unlike any seen in history.  The 80-90′s was a period of unrivaled prosperity and the envy of every nation on earth.

Unfortunately – it was the greatest economic illusion ever witnessed.

The reality is that the majority of the aggregate growth in the economy was financed by deficit spending, credit creation and a reduction in savings.  In turn this reduced productive investment in the economy and the output of the economy slowed.   As the economy slowed, and wages fell, the consumer was forced to take on more leverage to maintain their standard of living which in turn decreased savings.   As a result of the increased leverage more of their income was needed to service the debt – and with that the ”debt cancer” engulfed the system.

The Austrian business cycle theory attempts to explain business cycles through a set of ideas. The theory views business cycles “as the inevitable consequence of excessive growth in bank credit, exacerbated by inherently damaging and ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings.”

In other words, the proponents of Austrian economics believe that a sustained period of low interest rates and excessive credit creation results in a volatile and unstable imbalance between saving and investment.   In other words, low interest rates tend to stimulate borrowing from the banking system which in turn leads, as one would expect, to the expansion of credit.   This expansion of credit then, in turn, creates an expansion of the supply of money.

Therefore, as one would ultimately expect, the credit-sourced boom becomes unsustainable as artificially stimulated borrowing seeks out diminishing investment opportunities. Finally, the credit-sourced boom results in widespread malinvestments. When the exponential credit creation can no longer be sustained a “credit contraction” occurs which ultimately shrinks the money supply and the markets finally “clear” which then causes resources to be reallocated back towards more efficient uses.

The chart below shows the increasing levels of money supply and debt versus the changes in economic and wage growth.  The impact of debt on the economy remains unrecognized by policy makers and central bankers who have failed to understand what the current downturn encompasses.  Therefore, these same individuals continue to chase economic theories based on a mistaken belief that the current recession is an ordinary period of falling aggregate demand.  However, the reality is something far different.

The reason that the policies which have been enacted by the current Administration up to this point have all but failed, be it “cash for clunkers”  to “Quantitative Easing”, is because they were designed to either drag future consumption forward or to slow the deleveraging process.  The Keynesian view that “more money in people’s pockets” will boost consumer spending, and ultimately grow GDP, has clearly been wrong.  It hasn’t happened in 30 years.   What is missed is that things like temporary tax cuts, or one time injections, don’t create economic growth but merely reschedules it.  While the average American will act on a near-term increase in their take home pay – any increased consumption in the present will be matched by a decrease later when the tax cut is revoked.

This is, of course, assuming the balance sheet at home hasn’t broken.  The problem today is that for only the second time in the history of the United States we are in the process of deleveraging the balance sheet of the U.S. economy.   As we saw during the period of the“Great Depression” most economists thought that the simple solution was just more stimulus.   Work programs, lower interest rates, government spending all didn’t work to stem the tide of the depression era.

The problem is that during a “balance sheet” recession the consumer is forced to pay off debt which detracts from their ability to consume.   This is the one facet that Keynesian economics doesn’t factor in. More importantly it also impacts the production side of the equation as well since no act of saving ever detracts from demand.  Consumption delayed is merely a shift of consumptive ability to other individuals, and even better, money saved is often capital supplied to entrepreneurs and businesses that will use it to expand, and hire new workers. 

So, while classical economics says that production comes first, the problem becomes that during a “balance sheet recession” the economy is put into a stranglehold for productive investment. The continued misuse of capital and continued erroneous monetary policies have instigated not only the recent downturn but actually 30 years of an insidious slow moving infection that has destroyed the American legacy.

This is why we need real reform in government that leads to a smaller government, more clarity for businesses through pro-growth policies, real regulation of Wall Street which separates banks and brokerages, as well as programs and subsidies for bringing back to America those jobs that require a little hard work and a little bit of sweat but create a whole lot of pride and prosperity along the way.

It’s time for our leaders to wake up and smell the burning of the dollar – we are at war with ourselves and the games being played out by Washington to maintain the status quo is slowing creating the next crisis that won’t be fixed with monetary bailout.

Lance Roberts – Street Talk Live

Bill Black: Top Justice official tells Wall Street how to avoid prosecution.