The Very Definition Of Arrogance!
By Walter Burien
The following article copied below by Joshua Holland is a good article. The focus in general hints around the body of the economic situation we face but misses the heart of the matter of "who" drained the wealth from the economy. The word he used per losses in the markets and housing per equity was "evaporated".
Well folks, evaporated yes out of one pocket and into another. The derivative market allows wealth to be transferred on paper through and by the trader having the 0000000000000000's at the end of their trading account and the ability to effect circumstance to effect the market moves to lock in a profit on their trading activity.
So, to get to the heart of the matter, let's look at who made a killing on their derivative trading activity. A good start would be the US Auditor Generals audit on bank derivative activity from the top 30 banks. I note that banks act as the manager for investors and those primary investors with the banks are local and federal government accounts.. (Insurance company international derivative activity would be the next good place to look)
To access this report on the banks, it can be downloaded at - http://cafr1.com/STATES/US-TreasuryReports/BankDerivativesMarch08.pdf
When you view this report scroll down over 2/3rd through the report until you get to the "Table Section" pages 22-33. As copied from page one of this report: "Derivatives activity in the U.S. banking system is dominated by a small group of large financial institutions. Five large commercial banks represent 97% of the total industry notional amount, 93% of total trading revenues, and 85% of industry net current credit exposure."
Here on TABLE 1 on page 22, the numbers are listed in "millions" so add six zeros to the numbers listed in the tables. JP Morgan Chase comes in at #1 in their derivative holdings with $89,997,271,000,000 (90 Trillion). They expanded their TOTAL CREDIT EXPOSURE TO CAPITAL RATIO to (411.6) TABLE 4 page 25 and it appears picked up a net appreciation of a little over two trillion dollars. Not a bad cash pick up in their pool of funds to buy out their competition at 10c on the dollar of whom were not part of the market manipulation game that got smashed in the derivative "forced majeure" play... And just think, government then used one-trillion in taxpayer funds to secure up their own casino in which they just crucified all other outside players in.. ( they rape you and then attach your checking account to pay themselves for having done so in the first place stabilizing their own playing field) Now that's the definition of arrogance!
For those that have an interest in gold, look at TABLE 9, JP Morgan Chase on their derivative gold position $95,230,000,000 (95 Billion dollars). Ever wonder what drove the gold market down? With derivatives you can short (sell first) or buy (buy first) on paper even if you do not own one (1) oz of gold. If you used this type of money to sell first, you can collapse the market and when collapsed offset your short positions and walk with the equity from the trade.
Also look at Graph 4 and 5B pages 12 and 14. (Graphs in trillions of dollars). It appears their activities were very profitable for them, or should I say their clients?
The people are realizing the effect of the recession if not the "D" word. They are told trillions have been lost in the economy and they have been. The issue is not that the people and resulting economy on one side of the coin have lost trillions, the issue is: with the ballooned up now 600 trillion dollar international derivatives markets, WHO took those trillions by profit on the other side of the coin???
I note that starting in the 80's government created off-shore management teams where vast amounts of revenue was transferred (in the trillions) whereby they being off shore would not be subject to the same SEC and CFTC scrutiny as they would be if managed in the USA. This gave the ability for these funds to be invested outside of the dollar and in any country - China, Russia, Mexico, etc... It also created a foundation for derivative activity and investment ownership that would be invisible to the American people. An URGENT necessatiy exists for a transparent audit of these off-shore government management groups to see the "net" results from trading activity on the run up of the stock market and crude oil prices and then the orchestrated collapse of the same. With derivatives thes government investment funds made substantial profits on both sides of the move. Most of these off-shore funds are set up on a redemption basis. So, say if local government x put in one-hundred million dollars ten years ago and that money compounded to two billion dollars over ten years, the profit would not show up on that local government's books until redemption. Again an audit of these international off-shore funds is urgently needed to establish the net results of the trading activity therefrom.
Sent FYI and truly yours,
Walter J. Burien, Jr.
P. O. Box 2112
Saint Johns, AZ 85936
Pension funds pay a salary and benefits at retirement. Any local government can be restructured to meet their annual budget needs "Without" taxes. TRF (Tax Retirement Funds) paying for every City, County, State's annual budgetary needs! This now makes the people the true owners with government being the true service provider. Government has already shown that a TRF works by example through the management of their own combined multi-trillion dollar pension funds! CAFR1 says: Make it law and make it so!
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Was The 'Credit Crunch' A Myth Used To Sell A Trillion-Dollar Scam?
By Joshua Holland
There is something approaching a consensus that the Paulson Plan -- also known as the Troubled Asset Relief Program, or TARP -- was a boondoggle of an intervention that's flailed from one approach to the next, with little oversight and less effect on the financial meltdown.
But perhaps even more troubling than the ad hoc nature of its implementation is the suspicion that has recently emerged that TARP -- hundreds of billions of dollars worth so far -- was sold to Congress and the public based on a Big Lie.
President George W. Bush, fabulist-in-chief, articulated the rationale for the program in that trademark way of his -- as if addressing a nation of slow-witted 12-year-olds -- on Sept. 24: "Major financial institutions have teetered on the edge of collapse ... [and] began holding onto their money, and lending dried up, and the gears of the American financial system began grinding to a halt." Bush said that if Congress didn't give Treasury Secretary Hank Paulson the trillion dollars (give or take) for which he was asking, the results would be disastrous: "Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession."
For the most part, the press has continued to echo Bush's central assertion that there's a "credit crunch" preventing even qualified borrowers -- that's the key point -- from getting loans, and it's now part of the conventional wisdom.
But a number of economists are questionioning the factual basis of the credit crunch narrative. Columnist David Sirota recently looked at those claims and concluded that Americans "had been punk'd" -- that "the major claims about a credit crisis that justified Congress cutting a trillion-dollar blank check to Wall Street were demonstrably false," and the threat of a systemic banking crash was used by the Bush administration to overcome popular resistance to the "bailout."
It's a reasonable conclusion; this is an administration that used the threat of thousands of al-Qaida sleeper cells in the United States to sell Congress on the Patriot Act, the specter of mushroom clouds rising over American cities to push through the Iraq war resolution and the supposedly imminent crash of the Social Security system to push for privatizing Americans' retirement savings.
But the question comes down to what they knew and when they knew it. The analyses that suggest the whole credit crunch narrative is false are based on data that lagged behind the numbers that policymakers had available, in real time, back in September. So the question -- probably unanswerable at this point -- comes down to whether or not they looked at the situation and in good faith believed that pumping hundreds of billions of dollars into the banking system would contain the damage and save an economy teetering on the brink of collapse.
What Else Could Be Happening?
Of course, no one disputes the fact that as the economy has tanked, the number of new loans being issued to American families and businesses has plummeted. But is because credit has dried up for qualified borrowers?
Economist Dean Baker doesn't think so. He explains the situation in simple terms: The media, he argues, "are blaming the economic collapse on a 'credit crunch' instead of the more obvious problem that consumers just lost $6 trillion of housing wealth and another $8 trillion of stock wealth." It's a commonsense argument: much of the economic growth of the Bush era existed on paper only, built on the rise of a massive bubble in real estate values rather than growth in productive industries.
When all that ephemeral wealth vaporized -- and with the economy shedding jobs like a dog with dermatitis -- consumers stopped buying, and businesses, anticipating a long slowdown, stopped seeking the loans that they might have otherwise tapped to expand their operations.
Whether good borrowers can't get credit from banks because the latter are hoarding cash or lending has stopped because of a drop-off in demand for new loans is not some wonky academic debate; it's of crucial significance. Because if lending to qualified parties has truly frozen, then even if the specific implementation of the Paulson Plan was deeply flawed, its broad approach -- "recapitalizing" banks in various ways, buying up some of their crappy paper and guaranteeing some of their transactions -- is fundamentally sound.
If, on the other hand, the primary problem is that people are broke and maxed out on debt, and firms aren't looking for money to expand, then the kind of massive stimulus package being considered by the Obama transition team and congressional Dems -- largely designed to stimulate demand from the bottom up, with public works projects, tax cuts for working families, aid to tapped-out state and municipal governments and new money for unemployment and food stamps -- is obviously the best approach to take.
Broadly speaking, these are the parameters of the debate in Washington, and that means that properly diagnosing the underlying problem is crucially important.
Is the Credit Crunch a Big Lie?
There's plenty of evidence that Baker's right. He points out that even though mortgage rates have plummeted, the number of applications for new loans has dropped to very low levels and argues it's "the most glaring refutation of the claim that people are unable to get credit." If creditworthy applicants were being denied loans by banks unable or unwilling to lend, Baker explains, "then the ratio of mortgage applications to home sales should be soaring" as qualified homebuyers apply to multiple banks for a loan. "Since there is no notable increase in this ratio, access to credit is obviously not an issue."
Again, this is common sense. Consumer spending drives about 70 percent of the U.S. economy, and in recent years, much of that spending was financed by people taking chunks of home equity out of their properties -- people might have been eating in fancy restaurants, but they were essentially eating their living rooms to do so.
That the American people don't have the appetite to go deeper into debt than they already are in order to make new purchases is hard to dispute. In November, consumer prices across the board fell at a record rate for the second month in a row. And even with mortgage rates plummeting, so many homeowners are "underwater" -- owing more on their homes than they're worth -- that they're unable to refinance because the equity isn't there. Paul Schuster, a vice president at Marketplace Home Mortgage, told the St. Paul Pioneer Press, "What I'm really concerned about is the job picture ... If (people) don't feel good about their jobs, rates aren't going to matter."
The National Federal of Independent Business' November survey of small-business owners found no evidence of a credit crunch to date, concluding that if "credit is going untapped, it's largely because company operators are not choosing to pursue the credit. It's not that companies can't get the extra money, it's that they don't want or need it because of the broader slowdown in economic activity."
The credit crunch narrative -- and the justification for creating Paulson's $700 billion TARP honeypot -- is built on three related assertions: 1) banks, fearing that they'll be unable to meet their own financial obligations, aren't lending money to one another; 2) they're also not lending to the public at large -- neither to firms nor individuals; and 3) businesses are further unable to raise money through ordinary channels because investors aren't eager to buy up corporate debt, including commercial paper issued by companies with decent balance sheets.
Economists at the Federal Reserve Bank of Minnesota's research department -- V.V. Chari and Patrick Kehoe of the University of Minnesota, and Northwestern University's Lawrence Christiano -- crunched the Fed's numbers in an examination of these bits of conventional wisdom (PDF), and concluded that all three claims are myths.
The researchers found that "interbank lending is healthy" and "bank credit has not declined during the financial crisis"; that they've seen "no evidence that the financial crisis has affected lending to non-financial businesses" and that "while commercial paper issued by financial institutions has declined, commercial paper issued by non-financial institutions is essentially unchanged during the financial crisis." The researchers called on lawmakers to "articulate the precise nature of the market failure they see, [and] to present hard evidence that differentiates their view of the data from other views."
That finding was backed up by a study issued by Celent Financial Services, a consulting firm, again using the Treasury Department's own data. According to a story on the report by Reuters, Celent's researchers concluded that the "data actually suggest world credit markets are functioning remarkably well." Rather than a widespread banking problem, Celent found that the rot was limited to "a few big, vocal banks and industries such as car manufacturing, which would be in difficulty anyway."
There are also some important caveats. Economists at the Boston Federal Reserve responded to the Minnesota Fed's research (PDF), arguing that the use of aggregate data doesn't fully reflect the dysfunction in specific subsectors of the economy, nor does it adequately reflect the decline in new loans.
It's also the case that single-cause explanations for complex crises usually fail to hit the mark. Banks, having fueled the housing bubble (and similar bubbles before that) with the creation of ever-shadier "exotic" securities, are probably erring on the side of caution in writing new loans. They're looking at their balance sheets as quarterly reports approach, and the number of foreign investment dollars coming into the U.S. has declined, meaning that some qualified firms may, indeed, have trouble raising cash in the near future.
Dean Baker, while arguing that "the main story is that people don't have money and therefore want to spend," acknowledged that "some banks are undoubtedly anticipating more write-offs from other loans going bad, so they will hang on to their capital now rather than make new loans." And, as Sirota notes, some of the institutions that are relatively healthy are reportedly holding cash in anticipation of picking up weaker banks on the cheap.
But one thing is clear: the economic crisis may have woken up Washington's political class when it hit the banks, but it remains a product of long-term imbalances in the economy, and the idea that it's primarily a pathology of the banking system in isolation is a misdiagnosis that, if uncorrected, can only result in a longer, deeper and more painful recession than might otherwise be the case.