The (new) Financial Tsunami thread

[Virgil Showlion]

Old and gray
Message #1654 - 10/03/10 09:32 PM



One thing would prevent all this generating of credit beyond the financial system's endurance: Apportion it as the man from Ohio suggested - either through auctioning it off to banks or assigning rights. By such means credit can be monitored and controlled and kept within bounds to prevent over-issuance. Would this prevent the boom-bust cycle? Perhaps, perhaps not. But, one thing, there'd be in process control over the issuance which would be better than the after-the-fact guessing game we have in operation now.





As an after thought. . . .



But then there is always Goodhart's Law. . . (from the mid-70's). . .



". . . Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes."



Several corollaries have been attached to that main hypothesis. My contribution would be: if we were to rely on any statistics, such as setting limits on the amount of credit issued and attempting to monitor and control the issuance, no matter how valid the stats at the beginning of the regulation, those dispensing credit would soon discover a means of circumventing the regulations and render the stats invalid, going on to cause another systemic failure. In short, they'd find a way (probably with the help of their friends in Congress) to get around the restricting regulations. . . just as they did with the derivatives.

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Old and gray
Message #1655 - 10/06/10 03:11 PM



The Dodd-Frank Bill must be difficult to understand. I find a variety of tallies on the number of pages involved, up to 2200+. I downloaded one Government Printing Office copy which totaled 821. A later edition marked "Authenticated US Government Information" from the GPO extends to 848 pages. Take your pick. I don't intend to trace down the differences.

However, that does indicate that there will be a maze to climb through. And, after you've jumped through the hoops, you still have no hard and fast idea of performance since it all depends on the prevailing government strategy of passing responsibility for finalizing rules and regs on to the bureaucrats. We won't know the general outcome for at least 2 1/2 years for most issues, and in a few cases as much as five years or more. Anything can happen in the intervening two and a half or five years time, so, any attempt to guess what the law will influence or what effect it will have on our future is no more than crystal ball reading and nothing else.

New regs or rules are usually built on the experience field personnel bring back into the office, which leaves us with the suggestion that we'll be using old techniques, expanded slightly with more convoluted language. How effective will that be? Take your best guess and divide by two.



But. . If you're looking for a summary of how one department looks at the effect of the bill, the staff of the FDIC, which may be the most responsive and open government banking agency, has put together a readable summary of "Certain Provisions" of the Dodd-Frank Bill as they believe it pertains to the FDIC. Since FDIC in consort with the Fed is the principal regulating agency, insuring your money and over-seeing the dissolution of failed banks, as well as sharing the new responsibility of deciding the condition and survival of the Too Big To Fail financial institutions, the staff's opinion bears substantial weight.

The 15 page summary, in outline form, is available through this link:



[www.fdic.gov/regulations/reform/summary.pdf] www.fdic.gov/regulations/reform/summary.pdf

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Old and gray
Message #1656 - 10/11/10 06:20 PM



I just received a satisfying boost in confidence. I learned that Paul Samuelson, the second Nobel Laureate in economics in 1970, at the age of 88 in 2003, wrote

So Keynes was wrong: in the long run not all of us are dead.

Samuelson was always concise, direct, strongly assertive and, I'm pleased to say, always right!

[Virgil Showlion]

Old and gray
Message #1658 - 10/11/10 07:58 PM

He's opposed to tax cuts! Claims he has an impressive following.

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bubblyandblue
Message #1661 - 10/22/10 04:14 PM



Looks like our tag along friends; fraud, legislative capture, ommision, forgery, illegal inducements and theft were the actual culprets behind the financial tsunami !!

What you think?

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neohguy
Message #1662 - 10/23/10 07:59 PM



An editorial copied from Zero Hedge. Duff called this thread "The Root of the Financial Tsunami and a Solution..." I'm seeing more of the following as a Main st. solution:

Submitted by Charles Hugh Smith from [www.oftwominds.com/blogoct10/poisoned-well10-10.html] Of Two Minds

U.S. Financial Markets: The Well Has Been Poisoned (Anger of the Honest Part II)

When financial markets have become riddled with fraud, embezzlement and corruption that goes unpunished, then institutional players will avoid that market as crooked: the well has been poisoned.

The full consequences of what I termed The Rot Within: Our Culture of Financial Fraud and the Anger of the Honest (October 15, 2010) are now unfolding: the well has been poisoned. One of my most astute correspondents made a critical observation that I've seen nowhere else: once a market has been poisoned by fraud which goes unpunished, then institutional players will avoid that market as untrustworthy.

Without institutional trust and participation, the market then withers on the vine-- exactly what has happened to the U.S. mortgage securities market. The market for mortgage-backed securities has vanished, except for one player: the Federal Reserve, which has bought a staggering $1.2 trillion in the past 18 months to create the facsimile of an active market.The well has been poisoned. The only mortgages being traded are those 100% guaranteed by the U.S. government: in effect, the risks intrinsic to a corrupted market have been shifted to the taxpayers, while the criminals who profited from the fraud and embezzlement got away scot-free.

Here are the correspondent's comments:

RE: Will bankers Go to Jail for Foreclosuregate?:

RE: Will bankers Go to Jail for Foreclosuregate?:

When I was in the Wall Street game, our small-cap fund was for a time in the top 5% of performers. I got bored and left, which is a longer story. Anyway, I observed a phenomenon about fraud. First it happened. Then it was widely publicized. Then it was prosecuted, and some big names were jailed. At that point, it was safe to go back into the water.

This happened in a few industries prior to the mid-1990s, at which point basic law enforcement was neutered and there were no more fraud prosecutions that mattered. I have always thought that the lack of fraud prosecutions for Internet/telecom fraud was a significant reason why the NASDAQ has never made a significant recovery to anything close to its peak reached in March 2000.

Watch carefully on the foreclosure frauds. If real jail terms are handed out to some (doesn't need to be all) big players, that will be a green flag. The public at large won't see it or believe it, but the professionals will. I am not predicting that this will happen. In fact, I'm quite skeptical that it will. However, any intelligent skeptic considers all the possibilities.

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neohguy
Message #1663 - 10/23/10 07:59 PM



(continued)

This is why no institutional investor will touch private-market mortgage securities with a 10-foot pole. The U.S. government and the Fed had a stark choice: either impose the rule of law and indict and convict hundreds, if not thousands, of people who perpetrated and profited from the systemic fraud and embezzlement at the heart of the mortgage and mortgage-securities industries, or socialize the corrupted, poisoned markets and use taxpayer funds to prop up the wizened shell of a stripmined market and reward the criminals with freedom.

They chose to reward the criminals and prop up a simulacrum market with only one buyer: the Federal Reserve. You can go to the the Fed's balance sheet and see the $1.2 trillion in mortgage-backed securities it owns. There is no effort to hide the brazen socialization of what once was a private-sector, free market.

When the well has been poisoned, the only players dumb enough to drink from it are the taxpayers, who have no choice as the politico toadies of the investment banking/financial Power Elites have funneled some $13 trillion in cash, backstops and guarantees into their "partners" who fund their campaigns and write the laws via their lobbyist proxies.The Fed isn't dumb--it's desperate. The markets, systemically riddled with collusion, cronyism, fraud, embezzlement, misrepresentation and outright lies, have no participants except Central State proxies and "marks" who sadly still believe the ceaseless propaganda about "rising corporate profits," "recovery" and "a free-market economy." Hahahahaha--free market! Please don't make me laugh that hard, I might hurt myself.

If you are so confident in the "transparency" and trustworthiness of the mortgage securities market, please tell us how many private institutional investors are buying mortgage securities which aren't 100% guaranteed by the Central State.

The same distrust has poisoned U.S. stock markets. The high keening cry to "get into the market while stocks are cheap" which has been spewed daily for months on end on network TV and other channels of raw propaganda has been ignored by the "retail investor," a.k.a. the top 20% of Americans who have financial wealth to preserve and invest.For 24 straight weeks, retail investors have been pulling tens of billions of dollars out of U.S. mutual funds and plowing hundreds of billions into low-yield Treasury bonds.

Why? Because they sense the stock market is hopelessly, deeply corrupt and by comparison Treasuries are trustworthy. You won't make a lot of yield in Treasuries, thanks to the Fed's zero-interest rate policy (ZIRP) which is designed to drive money into risky assets, but then you won't lose 40% like you did in 2008-09 or 2000-2002 in the stock market.

We can also see how insiders are responding to the knowledge that the well has been poisoned: they're selling 500 shares for every share they buy. This unprecedented cascade of insider selling has been noted elsewhere many times, as has the declining expectations for the "recovery" of U.S. CEOs.

Those who know the most are selling their shares as fast as they legally can, and are publicly expressing their lack of faith in the tricked-up "recovery."The U.S. financial markets have been poisoned, with long-term negative consequences. Only crooks, fraudsters and "marks" (those who still believe the propaganda about the "recovery" and "stocks are cheap" poison) will be left in a stock market propped up by the same socialization of risk which keeps the flimsy facade of a mortgage market from crumbling. High-frequency trading machines create the illusion of a market, and State intervention via proxies and other corrupt games provides the liquidity needed to fund the facsimile of a "rising market" and a "recovery" in the U.S. economy. But the public isn't buying the fraud any longer; they finally "get it": The well has been poisoned and only a fool drinks from a poisoned well.

This is why we can safely anticipate a hollowed-out stock market which trades at a steep discount to its present propped-up levels in the years ahead--until the croo

[Virgil Showlion]

neohguy
Message #1664 - 10/23/10 08:03 PM



(continued)

This is why we can safely anticipate a hollowed-out stock market which trades at a steep discount to its present propped-up levels in the years ahead--until the crooked players are indicted and the financial markets thoroughly cleaned. That will take political will which is completely lacking in the Demopublican-Republicrat status quo.

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Old and gray
Message #1665 - 10/25/10 10:46 AM



neohguy



Hard hitting and appropriate addition. Thanks!



Tracking the perpetrators is easy, but obviously prosecution is a no-no. The reason for the entire picture: the development of the scam, condoning the piracy etc. is due to the underlying weakness of the production-marketing environment leading up to t he event. We had our eyes closed as we plugged along, mired down in inefficiency and poor returns. We mistook the increase of faux "media of exchange" for real money and paid ourselves off in real money for distributing the faux media. All along we were draining the treasury and looking the other way. Just as the auto industry eventually proved, there was no underlying strength in the markets. All the wealth was false. The consumer was "tapped" for a longer period than anyone is willing to admit. We became aware of it only after it was too severe to conceal. What little willingness to participate in normal marekt activity that remained wasn't enough in and of itself to support significant growth nor to sustain the level at which we thought we were operating.

So, when there isn't enough active interest to keep things moving legitimately and you have high priced personnel sitting around twiddling their thumbs, if you have no conscience, what recourse remains? Turn to the other end of the spectrum - the shadowy area beyond law! It's obvious Washington was aware of it, so they played along, turning a blind eye to the raids and accepting a share of the proceeds. Suddenly, all other accomplices developed selective stupidity and rendered the regulators - even if they could see the faults and flaws - impotent.

It was a deeply ingrained community move of the insiders. It's impossible to believe that of all the smart people none saw what was transpiring, our heading and the eventual outcome. Nowadays, too many respected voices are added to the chorus of analysts to believe that there is a quick way out. Whichever exit strategy we choose, nothing but quicksand and heartaches awaits. Not for those who have been able to feather their nests, but at the expense of those at the bottom who have been and will continue to pay for it. . . Marks known as taxpayers.

The industries will continue to flash trade their way up the scale (as they will today) until they tire of it and/or discover that they're only stealing from each other and/or the profits being generated are paid off with less and less valuable "money". . . which is not money at all.

Long ago the question was posed to this community - Is credit money? It was a pointed question that had been dealt with by economists. No less a pioneer economist than John Stuart Mill addressed the issue in his gigantic Principles of Political Economy (1848) which was the most widely read textbook for the next fifty years until Alfred Marshall's work passed it in popularity. In the abridged version by J. Lawrence Laughlin of Harvard (1885) which was long popular in the US, Book III, Chapter VIII, Of Credit, As A Substitute For Money, reads

·1 "Credit is not a Creation but a Transfer of the means of Production"

Credit has a great, but not, as many people seem to suppose, a magical power; it can not make something out of nothing. How often is an extension of credit talked of as equivalent to a creation of capital, or as if credit actually were capital! It seems strange that there should be any need to point out that, credit being only permission to use the capital of another person, the means of production can not be increased by it, but only transferred. If the borrower's means of production and of employing labor are increased by the credit given him, the lender's are as much diminished. The same sum can not be used as capital both by the owner and also by the person to whom it is lent; it can not supply its entire value in wages, tools, and materials, to two sets of laborers at once.

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Old and gray
Message #1666 - 10/25/10 12:10 PM



And if the faithful recall, this thread pointed out that credit was created to underwrite and distribute the instruments that caused the fateful decline. Money was created out of thin air, we stated. The bankers, who apparently understand nothing of money and the effects of over-issuing credit, believed and operated as if it would never end.



This critique was woven through this thread from the start. And, it was pointed out that you couldn't issue credit out of proportion to reserves. That didn't bother the bankers/brokers as long as they could pocket a percentage of the flow. Instead of reaching a point and backing off to ease the strain on the system, they opened the faucet wider to increase the flow, knowing full well that someone would have to make up the deficit created by the process. They operated as if they knew they would not be forced to put the gains back on the table. . . And, they haven't to date, nor do I believe they ever will. It was pointed out that there was prosecution and restitution during the Great Depression, but that was another era with different values. Maybe today's authorities firmly believe that if someone is prosecuted for their involvement in the crisis, the situation might be worsened. Whatever the reason, future development will prove that it couldn't be too much worse than what we will yet face in the long run. What we will need are long memories to remind us of the fiasco in the future and a lot of faith in the restoration process still required.

As for the above lesson J. S. Mill tried to leave for his readers, it might be a fair guess that those pages were expunged from the copies read by the folks in charge of the Great Twenty First Century Treasury Raids conducted by the Bandits of Banking.

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PoorandUgly
Message #1668 - 10/25/10 03:38 PM

Instead of reaching a point and backing off to ease the strain on the system, they opened the faucet wider to increase the flow, knowing full well that someone would have to make up the deficit created by the process. They operated as if they knew they would not be forced to put the gains back on the table. . . And, they haven't to date, nor do I believe they ever will. It was pointed out that there was prosecution and restitution during the Great Depression, but that was another era with different values.

Ahh yes, as "not be forced to put the gains back on table, or in other words paying down debt (private, public, quasi etc....). That's the idea all along, wasn't it? No allegiance to "god", country, and the laws within it. Such ideals are devoid in robber barron and reckless individuals anyhow as they know nothing of such things. Like a parasitic alien species, they move on to the next fertile playgrounds wherever they reside, privatizing the gains and publicly spreading out the losses as they go too.

"It was pointed out that there was prosecution and restitution during the Great Depression but that was another era with different values." - Indeed. Just one more reason why they were the "Greatest Generation" and from then on in, it has been down hill ever since.

No mystery or theory in that. Just pathetic and tragic sadness. Oh well.

[Virgil Showlion]

Old and gray
Message #1669 - 10/25/10 06:25 PM



Note: I should have added the observation following the quote from J. S. Mill (ending message # 1665),

The same sum can not be used as capital both by the owner and also by the person to whom it is lent. . .

We do precisely that when we calculate our GDP! It's the Credit that establishes a new account as pointed out and creates a new flow of "money" which then begins its circulation through the system. The calculation that results in the total GDP does exactly nothing to reduce the other end of the process (diminishing the source of the credit). Therefore, the one remains and the other is added. We just happen to be addicted to large numbers and probably feel safer for them. It may be the same reasoning behind jockeying for a high ratio for ROI. In that process we're willing to undergo the burden of debt so that the invested bundle is reduced and redistributed to investors. We can then point to revenue over investment and claim we're running an efficient, profitable operation, though any additional upgrading or expansion would have to be financed with more credit until the debt load frightens the bejeebers out of our lenders. Both of the foregoing deliver us to the brink of insolvency. . . And, we act so surprised when the moment of truth arrives.



As Krugman writes . . ."the beauty of mathematics over truth. . ." is preferred. How we lie to ourselves to impress others is become commonplace; nothing at all legendary or distinctive about it.

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neohguy
Message #1670 - 10/27/10 11:44 AM



The Automatic Earth summarizes a recent article in The Huffington Post:

[www.huffingtonpost.com/william-k-black/post_1115_b_772820.html] www.huffingtonpost.com/william-k-black/post_1115_b_772820.html



Illargi from The Automatic Earth writes:

There was fraud at every step in the home finance food chain: the appraisers were paid to overvalue real estate; mortgage brokers were paid to induce borrowers to accept loan terms they could not possibly afford; loan applications overstated the borrowers' incomes; speculators lied when they claimed that six different homes were their principal dwelling; mortgage securitizers made false reps and warranties about the quality of the packaged loans; credit ratings agencies were overpaid to overrate the securities sold on to investors; and investment banks stuffed collateralized debt obligations with toxic securities that were handpicked by hedge fund managers to ensure they would self destruct.That homeowners would default on the nonprime mortgages was a foregone conclusion throughout the industry -- indeed, it was the desired outcome. [..]

When the overburdened homeowner began missing payments, late fees and higher interest rates kicked-in, boosting the stated income of mortgage servicers and the value of the securities. Not coincidentally, the biggest banks own the servicers and could maximize claims against the mortgages by running up the late fees. It was quite convenient to "misplace" mortgage payments, so even homeowners who were never delinquent could get hit with fees and higher rates. And when payments were received, the servicers would (illegally) apply them first to the late fees, meaning the homeowners were unknowingly still missing mortgage payments. The foreclosure process itself generates big fees for the SDI banks.

And, miracle of miracles, the banks would end up with the homes and get to restart the whole process again -- from resale of the home through the financing, securitizing, and fee-for-servicing juggernaut.[..]

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Scared_Shirtless
Message #1671 - 10/27/10 11:50 AM



Foregone conclusion on sub prime?



Oh yeah - read John Mauldin.



How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--

and Spawned a Global Crisis











Michael W. Hudson

Introduction:

Bait and Switch

A few weeks after he started working at Ameriquest Mortgage, Mark Glover looked up from his cubicle and saw a coworker do something odd. The guy stood at his desk on the twenty-third floor of downtown Los Angeles's Union Bank Building. He placed two sheets of paper against the window. Then he used the light streaming through the window to trace something from one piece of paper to another. Somebody's signature.

Glover was new to the mortgage business. He was twenty-nine and hadn't held a steady job in years. But he wasn't stupid. He knew about financial sleight of hand·at that time, he had a check-fraud charge hanging over his head in the L.A. courthouse a few blocks away. Watching his coworker, Glover's first thought was: How can I get away with that? As a loan officer at Ameriquest, Glover worked on commission. He knew the only way to earn the six-figure income Ameriquest had promised him was to come up with tricks for pushing deals through the mortgage-financing pipeline that began with Ameriquest and extended through Wall Street's most respected investment houses.

Glover and the other twentysomethings who filled the sales force at the downtown L.A. branch worked the phones hour after hour, calling strangers and trying to talk them into refinancing their homes with high-priced "subprime" mortgages. It was 2003, subprime was on the rise, and Ameriquest was leading the way. The company's owner, Roland Arnall, had in many ways been the founding father of subprime, the business of lending money to home owners with modest incomes or blemished credit histories. He had pioneered this risky segment of the mortgage market amid the wreckage of the savings and loan disaster and helped transform his company's headquarters, Orange County, California, into the capital of the subprime industry. Now, with the housing market booming and Wall Street clamoring to invest in subprime, Ameriquest was growing with startling velocity.

Up and down the line, from loan officers to regional managers and vice presidents, Ameriquest's employees scrambled at the end of each month to push through as many loans as possible, to pad their monthly production numbers, boost their commissions, and meet Roland Arnall's expectations. Arnall was a man "obsessed with loan volume," former aides recalled, a mortgage entrepreneur who believed "volume solved all problems." Whenever an underling suggested a goal for loan production over a particular time span, Arnall's favorite reply was: "We can do twice that." Close to midnight Pacific time on the last business day of each month, the phone would ring at Arnall's home in Los Angeles's exclusive Holmby Hills neighborhood, a $30 million estate that once had been home to Sonny and Cher.On the other end of the telephone line, a vice president in Orange County would report the month's production numbers for his lending empire. Even as the totals grew to $3 billion or $6 billion or $7 billion a month·figures never before imagined in the subprime business·Arnall wasn't satisfied. He wanted more. "He would just try to make you stretch beyond what you thought possible," one former Ameriquest executive recalled. "Whatever you did, no matter how good you did, it wasn't good enough."

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Scared_Shirtless
Message #1672 - 10/27/10 11:51 AM



Continued...



Inside Glover's branch, loan officers kept up with the demand to produce by guzzling Red Bull energy drinks, a favorite caffeine pick-me-up for hardworking salesmen throughout the mortgage industry. Government investigators would later joke that they could gauge how dirty a home-loan location was by the number of empty Red Bull cans in the Dumpster out back. Some of the crew in the L.A. branch, Glover said, also relied on cocaine to keep themselves going, snorting lines in washrooms and, on occasion, in their cubicles.

The wayward behavior didn't stop with drugs. Glover learned that his colleague's art work wasn't a matter of saving a borrower the hassle of coming in to supply a missed signature. The guy was forging borrowers' signatures on government-required disclosure forms, the ones that were supposed to help consumers understand how much cash they'd be getting out of the loan and how much they'd be paying in interest and fees. Ameriquest's deals were so overpriced and loaded with nasty surprises that getting customers to sign often required an elaborate web of psychological ploys, outright lies, and falsified papers. "Every closing that we had really was a bait and switch," a loan officer who worked for Ameriquest in Tampa, Florida, recalled. " 'Cause you could never get them to the table if you were honest." At companywide gatherings, Ameriquest's managers and sales reps loosened up with free alcohol and swapped tips for fooling borrowers and cooking up phony paperwork. What if a customer insisted he wanted a fixed-rate loan, but you could make more money by selling him an adjustable-rate one? No problem. Many Ameriquest salespeople learned to position a few fixed-rate loan documents at the top of the stack of paperwork to be signed by the borrower. They buried the real documents·the ones indicating the loan had an adjustable rate that would rocket upward in two or three years·near the bottom of the pile. Then, after the borrower had flipped from signature line to signature line, scribbling his consent across the entire stack, and gone home, it was easy enough to peel the fixed-rate documents off the top and throw them in the trash.

At the downtown L.A. branch, some of Glover's coworkers had a flair for creative documentation. They used scissors, tape, Wite-Out, and a photocopier to fabricate W-2s, the tax forms that indicate how much a wage earner makes each year. It was easy: Paste the name of a low-earning borrower onto a W-2 belonging to a higher-earning borrower and, like magic, a bad loan prospect suddenly looked much better. Workers in the branch equipped the office's break room with all the tools they needed to manufacture and manipulate official documents. They dubbed it the "Art Department."

At first, Glover thought the branch might be a rogue office struggling to keep up with the goals set by Ameriquest's headquarters. He discovered that wasn't the case when he transferred to the company's Santa Monica branch. A few of his new colleagues invited him on a field trip to Staples, where everyone chipped in their own money to buy a state-of-the-art scanner-printer, a trusty piece of equipment that would allow them to do a better job of creating phony paperwork and trapping American home owners in a cycle of crushing debt.

[Virgil Showlion]

Scared_Shirtless
Message #1673 - 10/27/10 11:51 AM



Continued...



Carolyn Pittman was an easy target. She'd dropped out of high school to go to work, and had never learned to read or write very well. She worked for decades as a nursing assistant. Her husband, Charlie, was a longshoreman.In 1993 she and Charlie borrowed $58,850 to buy a one-story, concrete block house on Irex Street in a working-class neighborhood of Atlantic Beach, a community of thirteen thousand near Jacksonville, Florida. Their mortgage was government-insured by the Federal Housing Administration, so they got a good deal on the loan. They paid about $500 a month on the FHA loan, including the money to cover their home insurance and property taxes.

Even after Charlie died in 1998, Pittman kept up with her house payments. But things were tough for her. Financial matters weren't something she knew much about. Charlie had always handled what little money they had. Her health wasn't good either. She had a heart attack in 2001, and was back and forth to hospitals with congestive heart failure and kidney problems.

Like many older black women who owned their homes but had modest incomes, Pittman was deluged almost every day, by mail and by phone, with sales pitches offering money to fix up her house or pay off her bills. A few months after her heart attack, a salesman from Ameriquest Mortgage's Coral Springs office caught her on the phone and assured her he could ease her worries. He said Ameriquest would help her out by lowering her interest rate and her monthly payments.

She signed the papers in August 2001. Only later did she discover that the loan wasn't what she'd been promised. Her interest rate jumped from a fixed 8.43 percent on the FHA loan to a variable rate that started at nearly 11 percent and could climb much higher. The loan was also packed with more than $7,000 in up-front fees, roughly 10 percent of the loan amount.

Pittman's mortgage payment climbed to $644 a month. Even worse, the new mortgage didn't include an escrow for real-estate taxes and insurance. Most mortgage agreements require home owners to pay a bit extra·often about $100 to $300 a month·which is set aside in an escrow account to cover these expenses. But many subprime lenders obscured the true costs of their loans by excluding the escrow from their deals, which made the monthly payments appear lower. Many borrowers didn't learn they had been tricked until they got a big bill for unpaid taxes or insurance a year down the road.

That was just the start of Pittman's mortgage problems. Her new mortgage was a matter of public record, and by taking out a loan from Ameriquest, she'd signaled to other subprime lenders that she was vulnerable·that she was financially unsophisticated and was struggling to pay an unaffordable loan. In 2003, she heard from one of Ameriquest's competitors, Long Beach Mortgage Company.

Pittman had no idea that Long Beach and Ameriquest shared the same corporate DNA. Roland Arnall's first subprime lender had been Long Beach Savings and Loan, a company he had morphed into Long Beach Mortgage. He had sold off most of Long Beach Mortgage in 1997, but hung on to a portion of the company that he rechristened Ameriquest. Though Long Beach and Ameriquest were no longer connected, both were still staffed with employees who had learned the business under Arnall.

A salesman from Long Beach Mortgage, Pittman said, told her that he could help her solve the problems created by her Ameriquest loan. Once again, she signed the papers. The new loan from Long Beach cost her thousands in up-front fees and boosted her mortgage payments to $672 a month.

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Scared_Shirtless
Message #1674 - 10/27/10 11:52 AM



Continued...



Ameriquest reclaimed her as a customer less than a year later. A salesman from Ameriquest's Jacksonville branch got her on the phone in the spring of 2004. He promised, once again, that refinancing would lower her interest rate and her monthly payments. Pittman wasn't sure what to do. She knew she'd been burned before, but she desperately wanted to find a way to pay off the Long Beach loan and regain her financial bearings. She was still pondering whether to take the loan when two Ameriquest representatives appeared at the house on Irex Street. They brought a stack of documents with them. They told her, she later recalled, that it was preliminary paperwork, simply to get the process started. She could make up her mind later. The men said, "sign here," "sign here," "sign here," as they flipped through the stack. Pittman didn't understand these were final loan papers and her signatures were binding her to Ameriquest. "They just said sign some papers and we'll help you," she recalled.

To push the deal through and make it look better to investors on Wall Street, consumer attorneys later alleged, someone at Ameriquest falsified Pittman's income on the mortgage application. At best, she had an income of $1,600 a month·roughly $1,000 from Social Security and, when he could afford to pay, another $600 a month in rent from her son. Ameriquest's paperwork claimed she brought in more than twice that much·$3,700 a month.

The new deal left her with a house payment of $1,069 a month·nearly all of her monthly income and twice what she'd been paying on the FHA loan before Ameriquest and Long Beach hustled her through the series of refinancings. She was shocked when she realized she was required to pay more than $1,000 a month on her mortgage. "That broke my heart," she said.

For Ameriquest, the fact that Pittman couldn't afford the payments was of little consequence. Her loan was quickly pooled, with more than fifteen thousand other Ameriquest loans from around the country, into a $2.4 billion "mortgage-backed securities" deal known as Ameriquest Mortgage Securities, Inc. Mortgage Pass-Through Certificates 2004-R7. The deal had been put together by a trio of the world's largest investment banks: UBS, JPMorgan, and Citigroup. These banks oversaw the accounting wizardry that transformed Pittman's mortgage and thousands of other subprime loans into investments sought after by some of the world's biggest investors. Slices of 2004-R7 got snapped up by giants such as the insurer MassMutual and Legg Mason, a mutual fund manager with clients in more than seventy-five countries. Also among the buyers was the investment bank Morgan Stanley, which purchased some of the securities and placed them in its Limited Duration Investment Fund, mixing them with investments in General Mills, FedEx, JC Penney, Harley-Davidson, and other household names.

It was the new way of Wall Street. The loan on Carolyn Pittman's one-story house in Atlantic Beach was now part of the great global mortgage machine. It helped swell the portfolios of big-time speculators and middle-class investors looking to build a nest egg for retirement. And, in doing so, it helped fuel the mortgage empire that in 2004 produced $1.3 billion in profits for Roland Arnall.

In the first years of the twenty-first century, Ameriquest Mortgage unleashed an army of salespeople on America. They numbered in the thousands. They were young, hungry, and relentless in their drive to sell loans and earn big commissions. One Ameriquest manager summed things up in an e-mail to his sales force: "We are all here to make as much fucking money as possible. Bottom line. Nothing else matters." Home owners like

---

Scared_Shirtless
Message #1675 - 10/27/10 11:53 AM



Continued...



Home owners like Carolyn Pittman were caught up in Ameriquest's push to become the nation's biggest subprime lender.

The pressure to produce an ever-growing volume of loans came from the top. Executives at Ameriquest's home office in Orange County leaned on the regional and area managers; the regional and area managers leaned on the branch managers. And the branch managers leaned on the salesmen who worked the phones and hunted for borrowers willing to sign on to Ameriquest loans. Men usually ran things, and a frat-house mentality ruled, with plenty of partying and testosterone-fueled swagger. "It was like college, but with lots of money and power," Travis Paules, a former Ameriquest executive, said. Paules liked to hire strippers to reward his sales reps for working well after midnight to get loan deals processed during the end-of-the-month rush. At Ameriquest branches around the nation, loan officers worked ten- and twelve-hour days punctuated by "Power Hours"·do-or-die telemarketing sessions aimed at sniffing out borrowers and separating the real salesmen from the washouts. At the branch where Mark Bomchill worked in suburban Minneapolis, management expected Bomchill and other loan officers to make one hundred to two hundred sales calls a day. One manager, Bomchill said, prowled the aisles between desks like "a little Hitler," hounding salesmen to make more calls and sell more loans and bragging he hired and fired people so fast that one peon would be cleaning out his desk as his replacement came through the door.As with Mark Glover in Los Angeles, experience in the mortgage business wasn't a prerequisite for getting hired. Former employees said the company preferred to hire younger, inexperienced workers because it was easier to train them to do things the Ameriquest way. A former loan officer who worked for Ameriquest in Michigan described the company's business model this way: "People entrusting their entire home and everything they've worked for in their life to people who have just walked in off the street and don't know anything about mortgages and are trying to do anything they can to take advantage of them."

Ameriquest was not alone. Other companies, eager to get a piece of the market for high-profit loans, copied its methods, setting up shop in Orange County and helping to transform the county into the Silicon Valley of subprime lending. With big investors willing to pay top dollar for assets backed by this new breed of mortgages, the push to make more and more loans reached a frenzy among the county's subprime loan shops. "The atmosphere was like this giant cocaine party you see on TV," said Sylvia Vega-Sutfin, who worked as an account executive at BNC Mortgage, a fast-growing operation headquartered in Orange County just down the Costa Mesa Freeway from Ameriquest's headquarters. "It was like this giant rush of urgency." One manager told Vega-Sutfin and her coworkers that there was no turning back; he had no choice but to push for mind-blowing production numbers. "I have to close thirty loans a month," he said, "because that's what my family's lifestyle demands."

Michelle Seymour, one of Vega-Sutfin's colleagues, spotted her first suspect loan days after she began working as a mortgage underwriter at BNC's Sacramento branch in early 2005. The documents in the file indicated the borrower was making a six-figure salary coordinating dances at a Mexican restaurant. All the numbers on the borrower's W-2 tax form ended in zeros·an unlikely happenstance·and the Social Security and tax bite didn't match the borrower's income. When Seymour complained to a manager, she said, he was blas·, telling her, "It takes a lot to have a loan declined."

BNC was no fly-by-night operation. It was owned by one of Wall Street's most storied investment banks, Lehman Brothers. The bank had made a big bet on housing and mortgages, styling itself as a player in commercial real estate and, especially, subprime lending. "In the mortgage business, we used to say, 'All roads lead to Lehman,' " one industry veteran reca

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Scared_Shirtless
Message #1676 - 10/27/10 11:56 AM



continued...



. "In the mortgage business, we used to say, 'All roads lead to Lehman,' " one industry veteran recalled.Lehman had bought a stake in BNC in 2000 and had taken full ownership in 2004, figuring it could earn even more money in the subprime business by cutting out the middleman. Wall Street bankers and investors flocked to the loans produced by BNC, Ameriquest, and other subprime operators; the steep fees and interest rates extracted from borrowers allowed the bankers to charge fat commissions for packaging the securities and provided generous yields for investors who purchased them. Up-front fees on subprime loans totaled thousands of dollars. Interest rates often started out deceptively low·perhaps at 7 or 8 percent·but they almost always adjusted upward, rising to 10 percent, 12 percent, and beyond. When their rates spiked, borrowers' monthly payments increased, too, often climbing by hundreds of dollars. Borrowers who tried to escape overpriced loans by refinancing into another mortgage usually found themselves paying thousands of dollars more in backend fees·"prepayment penalties" that punished them for paying off their loans early. Millions of these loans·tied to modest homes in places like Atlantic Beach, Florida; Saginaw, Michigan; and East San Jose, California·helped generate great fortunes for financiers and investors. They also helped lay America's economy low and sparked a worldwide financial crisis.

The subprime market did not cause the U.S. and global financial meltdowns by itself. Other varieties of home loans and a host of arcane financial innovations·such as collateralized debt obligations and credit default swaps·also came into play. Nevertheless, subprime played a central role in the debacle. It served as an early proving ground for financial engineers who sold investors and regulators alike on the idea that it was possible, through accounting alchemy, to turn risky assets into "Triple-A-rated" securities that were nearly as safe as government bonds. In turn, financial wizards making bets with CDOs and credit default swaps used subprime mortgages as the raw material for their speculations. Subprime, as one market watcher said, was "the leading edge of a financial hurricane."

This book tells the story of the rise and fall of subprime by chronicling the rise and fall of two corporate empires: Ameriquest and Lehman Brothers. It is a story about the melding of two financial cultures separated by a continent: Orange County and Wall Street.

Ameriquest and its strongest competitors in subprime had their roots in Orange County, a sunny land of beauty and wealth that has a history as a breeding ground for white-collar crime: boiler rooms, S&L frauds, real-estate swindles. That history made it an ideal setting for launching the subprime industry, which grew in large measure thanks to bait-and-switch salesmanship and garden-variety deception. By the height of the nation's mortgage boom, Orange County was home to four of the nation's six biggest subprime lenders. Together, these four lenders·Ameriquest, Option One, Fremont Investment & Loan, and New Century·accounted for nearly a third of the subprime market. Other subprime shops, too, sprung up throughout the county, many of them started by former employees of Ameriquest and its corporate forebears, Long Beach Savings and Long Beach Mortgage.

Lehman Brothers was, of course, one of the most important institutions on Wall Street, a firm with a rich history dating to before the Civil War. Under its pugnacious CEO, Richard Fuld, Lehman helped bankroll many of the nation's shadiest subprime lenders, including Ameriquest. "Lehman never saw a subprime lender they didn't like," one consumer lawyer who fought the industry's abuses said.Lehman and other Wall Street powers provided the financial backing and sheen of respectability that transformed subprime from a tiny corner of the mortgage market into an economic behemoth capable of triggering the worst economic crisis since the Great Depression.

[Virgil Showlion]

Scared_Shirtless
Message #1677 - 10/27/10 11:57 AM



continued...



A long list of mortgage entrepreneurs and Wall Street bankers cultivated the tactics that fueled subprime's growth and its collapse, and a succession of politicians and regulators looked the other way as abuses flourished and the nation lurched toward disaster: Angelo Mozilo and Countrywide Financial; Bear Stearns, Washington Mutual, Wells Fargo; Alan Greenspan and the Federal Reserve; and many more. Still, no Wall Street firm did more than Lehman to create the subprime monster. And no figure or institution did more to bring subprime's abuses to life across the nation than Roland Arnall and Ameriquest.

Among his employees, subprime's founding father was feared and admired. He was a figure of rumor and speculation, a mysterious billionaire with a rags-to-riches backstory, a hardscrabble street vendor who reinvented himself as a big-time real-estate developer, a corporate titan, a friend to many of the nation's most powerful elected leaders. He was a man driven, according to some who knew him, by a desire to conquer and dominate. "Roland could be the biggest bastard in the world and the most charming guy in the world," said one executive who worked for Arnall in subprime's early days. "And it could be minutes apart."He displayed his charm to people who had the power to help him or hurt him. He cultivated friendships with politicians as well as civil rights advocates and antipoverty crusaders who might be hostile to the unconventional loans his companies sold in minority and working-class neighborhoods. Many people who knew him saw him as a visionary, a humanitarian, a friend to the needy. "Roland was one of the most generous people I have ever met," a former business partner said.He also left behind, as another former associate put it, "a trail of bodies"·a succession of employees, friends, relatives, and business partners who said he had betrayed them. In summing up his own split with Arnall, his best friend and longtime business partner said, "I was screwed."Another former colleague, a man who helped Arnall give birth to the modern subprime mortgage industry, said: "Deep down inside he was a good man. But he had an evil side. When he pulled that out, it was bad. He could be extremely cruel." When they parted ways, he said, Arnall hadn't paid him all the money he was owed. But, he noted, Arnall hadn't cheated him as badly as he could have. "He fucked me. But within reason."

Roland Arnall built a company that became a household name, but shunned the limelight for himself. The business partner who said Arnall had "screwed" him recalled that Arnall fancied himself a puppet master who manipulated great wealth and controlled a network of confederates to perform his bidding. Another former business associate, an underling who admired him, explained that Arnall worked to ingratiate himself to fair-lending activists for a simple reason: "You can take that straight out of The Godfather: 'Keep your enemies close.' "

Excerpted from The Monster by Michael W. Hudson

Copyright 2010 by Michael W. Hudson

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Scared_Shirtless
Message #1678 - 10/27/10 11:58 AM



Sorry for the length - I couldn't find a good link.



A book on my list...



And to think we let Mozillo off with a slap on the wrist...

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neohguy
Message #1679 - 10/27/10 12:25 PM



Thanks Shirtless. V_L may be right when he says "shutter the banks". Black thinks much of this "financial innovation", aka fraud, is due to extreme over capacity in the financial sector. Perhaps thinning the herd by liquidating the perpetrators would help the honest banks and other financial institutions?

Right now the public is brainwashed by politicians into thinking the world will end if some big banks fail. Nonsense. Where were they when we outsourced our manufacturing base? Where were they when these institutions brought the country and much of the world to its knees? Probably counting campaign donations.

Closing the control frauds would actually benefit honest bankers by eliminating the "Gresham dynamics" created by fraudulent institutions -- a race to the bottom in underwriting. Since fraudulent banks use accounting fraud to manufacture high profits, they do not actually have to use a viable business model. By eliminating control fraud from the financial sector, it will be much easier for honest banks to succeed.

Further, the financial system has massive excess capacity -- as evidenced by the need to create bubble after bubble to find outlets for capacity. Almost all of the innovations in practice and instruments of the past two decades were spurred not by demand but rather by excess capacity. Downsizing the financial sector is critical to restoring it to a size that is commensurate with the needs of the economy.

The cost of not closing control frauds, by contrast, can be staggering. The business practices that maximize the fictional reported income (e.g., making "liar's loans to people who cannot repay their loans) maximize real losses and hyper-inflate financial bubbles. Control frauds destroy wealth at a prodigious rate. The one thing we certainly cannot afford is leaving the control frauds under the control of fraudulent CEOs.

[Virgil Showlion]

Old and gray
Message #1681 - 10/27/10 03:27 PM



The money banks don't have and feel they are entitled to, they create, spread it around then pocket the real stuff from the vaults. That was a major theme of this thread from the start, when we addressed "creating money out of thin air".



The question is: Can we regulate banks effectively, and if we do so, will we have a functioning economic system?



Business and development seems to be rooted in what moralists generally consider to be amoral at the best and immoral when it's subject to systemic stress. No matter how far back in history you care to go, bankers (and other commerce as well) cheat, deceive and practice fraud in their out and out robbery. Who's exempt from shady practices?

Even the economists employ shady practices in both theorizing and personal business and investment activity. One made a fortune by charging up to 55% interest in a venture he encouraged others to invest in. In the meantime, he surreptitiously sold off his holdings, packed his swag into a valise and skipped the country just before the crash. When he came back, everybody hated him, but he had his multi-millions and wrote a very concise, seminal study of the system. Who else would know better how the system worked than the man who milked it for more than it was worth?

Bankers since the twenties and thirties have taken a lesson from the best of them all, Willie "I-steal-from-the-banks-because-that's-where-the-money-is" Sutton. The difference between the two, Willie raced away in a getaway car; today's bankers have their chauffeurs drive them away in luxury while smiling in appreciation of the bountiful world. But, then, they knew how to do that and more before the twenties and thirties, too.

Would you consider that Congress may be concerned that if they were to regulate banks effectively that would hinder the economy, stunt growth, and shut down development?. I believe that's how they think when they enact sweetheart legislation which skirts around major issues and guarantees another future crash.

Why should people put up with being manhandled by banks? Start-up banks bend over backwards to help struggling businesses and as they grow large together the banks turn their backs on their first, highly honored customers in favor of the shifty quick returns that honest loans and commercial banking could never match. If a bank couldn't extend me the courtesy they first displayed when I opening the account, I moved the account. If there was a problem with any transfer, check, or transaction, I let the manager know about it instantly and put him on notice. You don't have to have a nine figure account to get his attention. And, it's more effective if you do this in the lobby, before customers. . .especially someone you know. . . that's when bankers jump higher, faster. You'd be surprised how not only the staff, but the officers turn cordial, accommodating and respectful.

Your knowledge that they are doing something improper with your money alone gives you the strength to confront them and face them down. And, both parties know it just as sure as if they wore a placard detailing their improprieties.



Turn it around and make their weakness your strength. That has always been my motto. They are not going to change anytime soon.



As for bankruptcy . . they have been operating on the razor's edge for a long time.

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reverendbarb
Message #1682 - 10/28/10 01:16 PM

Thanks for the book excerpt Shirtless, and for your comments too, O&G. I'm so ashamed of my fellow Americans that would sell their neighbors such trash and then merrily deposit the commissions and bonuses they made. Totally sickening what happened in our financial industry - there is no excuse for it.

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Scared_Shirtless
Message #1683 - 10/28/10 07:58 PM



Thanks Reverend.



About sums up where I'm at. To me - it doesn't compute. I'm just NOT built that way!

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Duffminster
Message #1684 - 11/04/10 07:22 PM

[www.opensecrets.org/news/2010/11/wall-streets-double-standard-whats.html] WALL STREET’S DOUBLE STANDARD: In two articles published on the same day in the Wall Street Journal, it has been noted that having Wall Street ties has hurt candidates in this election cycle. Yet, now that the elections are more or less completed, Rep. [www.opensecrets.org/politicians/summary.php?cycle=2010&cid=N00008091&type=C] Spencer Bachus (R-Ala.) said Republicans are going to take aim at [online.wsj.com/article/SB10001424052748703506904575592273267530084.html?mod=WSJ_Election_LeftTopStories] derivatives rules laid out in the financial regulation law. Bachus, who is projected to become the new chair of the [www.opensecrets.org/cmteprofiles/overview.php?cmte=HFIN&cmteid=H05&cycle=2010] Financial Services Committee, will be able to take legislative action on rolling back the protections passed in order to prevent another moral hazard crisis that many say started the financial bubble burst.

Bachus represents the Alabama·s 8th Congressional District and ran unopposed in the 2010 midterm elections. Still, his campaign committee raised $1.3 million and spent $1.5 million in the 2010 election cycle. Meanwhile, his leadership PAC, the [www.opensecrets.org/pacs/lookup2.php?strID=C00388793] Growth and Prosperity PAC, raised and spent the least since 2006. Still, with about $663,000 in the PAC account, Bauchus was able to give sizable donations to more than [www.opensecrets.org/pacs/pacgot.php?cycle=2010&cmte=C00388793] 70 candidates, including $15,000 to self-proclaimed political outsider Tim Burns, who this year twice ran to represent [www.opensecrets.org/races/summary.php?ID=PA12&Cycle=2010] Pennsylvania’s 12th Congressional District (he got 49% of the vote Tuesday, but still lost to Democratic incumbent Rep. Mark Critz, who beat him during a special election in May), $10,000 to Rep. [www.opensecrets.org/politicians/summary.php?cid=N00005195&cycle=2010] Roy Blunt (R-Mo.) in his [www.opensecrets.org/races/election.php?state=MO] successful quest for a U.S. Senate seat and $5,000 to Sen. [www.opensecrets.org/politicians/summary.php?cid=N00009920&cycle=2010] Richard Shelby (R-Ala.).

More than[www.opensecrets.org/politicians/industries.php?type=C&cid=N00008091&newMem=N&cycle=2010] $1 million in contributions to Bachus' leadership PAC and campaign committee have come from PACs and individuals in the financial and real estate sectors.

WHAT·S NEW AT OPENSECRETS: In addition to being able to look up detailed finances for all the newly [www.opensecrets.org/politicians/newmems.php?congno=112] elected members of Congress, you can now see the ratio of how much money a candidate spent versus whether they actually won election (or in some cases, re-election). This ·[host140.crp.org/overview/bigspenders.php?cycle=2010&Display=S&Memb=H&Sort=A] Winning vs. Spending· ratio helps shed light on the aspects that may help a candidate win a campaign. As you can see, sometimes having more cash won·t help a person win. in one such instance, now ex-Rep. [www.opensecrets.org/politicians/summary.php?cid=N00001806&cycle=2010] Jim Oberstar (D-Minn.) was defeated by [www.opensecrets.org/races/summary.php?cycle=2010&id=MN08] Chip Cravaack, despite spending about [www.opensecrets.org/races/summary.php?ID=MN08&Cycle=2010] $1 million less than the Democratic incumbent.

CENTER FOR RESPONSIVE POLITICS IN THE NEWS: The midterm election has been big news. Unprecedented spending, undisclosed spending, extremely partisan spending -- all of which the Center for Responsive Politics has chronicled and the media has repeatedly cited our findings. The [www.latimes.com/news/nationworld/nation/la-na-campaign-finance-20101028,0,5077420.story] Los Angeles Times, the [www.nytimes.com/2010/10/31/opinion/31sun1.html?_r=1] New York Times, [www.cbsnews.com/8301-503544_162-20021548-503544.html] CBS News, [blog.seattlepi.com/whidbey-pi/archives/226977.asp] Seattle Post-Intelligencer, [edition.cnn.com/2010/POLITICS/11/03/election.main/index.html] CNN and [www.businessweek.com/news/2010-11-03/republicans-claim-u-s-house-majority-gain-in-senate.html] Business Week all pointed to the Center for its tally of the election·s $3.5 billion price tag -- a price tag that is expected to rise to $4 billion when all the numbers are in. That very, very large tab marks the most expensive non-presidential race in history. The 2006 midterms cost $2.85 billion, and the 2004 presidential race cost $4.14 billion.

[Virgil Showlion]

Old and gray
Message #1685 - 11/06/10 05:08 PM



Bi Met has a great thread dealing with money supply which, depending on the depth of your interests, can serve as an indicator of Fed direction with its monetary policy "mandate". Some of us are in to that concern with sufficient intensity to carry us to the plumb the depth of Bi Met's study, some not. I have great respect for his efforts and talent.



A small contribution to the thread dealing with the matters under consideration here might be of interest to some, so that thought prompts me to post a copy here.



In times when the system is forced to struggle with available choices in interest rates, currency, inflation, deflation, and the need for freeing up credit such as we face currently, what would pass for normal results in the manipulation no longer applies. This issue has been kicked around since the obscure contentions in Keynes 'General Theory'. In an effort to explain Keynes more thoroughly, scores of economists have written, postulated and agonized over the basic contradictions without acknowledging them as such. The results began to flow in when three or four advocates of Keynes' thoughts contributed some of their own embellishments claiming them to be representative of Keynes's own. [In their own way,] They were simply trying to clarify what Keynes meant.

They worked up a lot of different thoughts but one that emerged from the pack as the front runner was the IS-LM (Investment Saving/Liquidity Preference Money Supply). It centered around some interesting graphics with admitted limited usefulness because they were static attempting to explain a dynamic occurrence. Nevertheless, quite a few were caught up in this initial foray after Keynes' General Theory appeared (1936). Much speculation and argument followed. Sir John R. Hicks was among those instrumental in bringing the IS-LM model out. Whether he originated the concept or was the first to include it in print I don't know. But, he was at the center of the new economics parlor game.

Some good things came out of it. When Japan struggled with its problems in the nineties, after about five years or so, a lot of analyses was generated and some economists trotted out the IS-LM ideas again and tried to fit it in to explain how they fell in and how they could escape. The important part of calling on IS-LM were the responses it evoked. Someone (don't ask me who or how many, please) pointed out that under depression conditions with interest rates at or near zero, normal monetary policy does not work!

I don't know which side (I believe it was the would-be-Keynesians) were suggesting that deflation should be induced in anticipation of the inflation that would be needed when the interest rates were raised to normal. It had to do with pricing which is what the IS-LM in its concern about liquidity is all about.

Assuming that prices would fall with deflation, and that interest rates were lowered to zero, no growth could be anticipated. A raise in interest rates would be essential to create the impression that conditions were improving. BUT! in order to serve debt, the interest rate would have to be kept low. So, the question remained, how do you raise interest rates and still lower them below the zero bound, which should be the monetary policy target?

Bernanke's policy seems to trade on that issue. Create deflation, or the specter of deflation, claim that you are fighting deflation by inducing inflation, then slowly (slower than the inflation rate) reassert monetary policy which would include a slow, incremental rise in interest rates. Not enough to keep pace with the inflation or outstrip it, just enough to create and sustain a gap equivalent to whatever negative rate is appropriate. If successful, the gap between the two could be increased to boost the GDP. . .another helping hand.

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Old and gray
Message #1686 - 11/06/10 05:13 PM







In our current situation, any short term money growth, such as QE2, is completely ineffective. . I think most experts see that. BiMet has been addressing the M3 issue which will handle itself once the Fed gets the interest rate/inflation wagon rolling. Once started, it may be downhill, [how far down may be another matter!] but that impetus won't occur until we get to the crest.

The [threat in the ploy is that the] effect of the inflation/interest is default. The same kind of default that's been put to use by not recognizing cost of living increases, reducing [or privatizing] "entitlements", cutting back on outlays to non-voters whether that's medical, unemployment benefits, or whatever. [It severs vested interests and diverts funds accumulated for applications to other options never contracted for by the contributors.] [But the Fed sees this move as] essential to success because before we get to that illusive crest, we're going to have more unemployment, more accumulated debt and more obligations to our foreign debtors. So, we're anticipating using cheaper money, deceptive interest rates and the hope for a better trade position to help us out of the trap. They are eyeing any source of accumulated money. Since savings is up 5% or so recently, it's been targeted. Therefore, defaulting on government obligations will force the general public to use up those accumulated savings in its stead. It is Keynesian - directly in line with the Keynesian principle of impoverishing the public (discouraging "hoarding" money) to provide capital for commerce. Of course the Treasuries-purchasing program and the accompanying inflation is part of the scheme.

Japan has tried these tactics. Bernanke explained away their failure just before we began to enter our own downswing by saying it couldn't happen here because, unlike Japanese banks, ours were sound.

I don't feel comfortable trying to escape our crisis by using a model that no less than one of its pioneers claimed that it lacked a tie-in to reality. I think that was Hicks's position.

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hvfpaints
Message #1687 - 11/12/10 06:23 PM

Can't speak for O&G but in my opinion I would cancel QE2 to the market. Instead I would use 1/10th that amount as a low interest small business loan pool in order to support the people who create jobs. As jobs are created the housing and market mess will sort it's way through as employed people can pay their bills. Another billion would go into a HUGE "Buy American" campaign. I keep hearing that that unknown missle came frome a Chinese sub in international waters. If true - it's time for sanctions on imports! Just my thoughts!

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PoorandUgly
Message #1688 - 11/13/10 01:43 PM

O&G,

This is not directly related to the financial crisis/derivatives etc.. but indirectly so. More in terms of the real economic consequences of course from the initial crises. So what do you think of this policy - Any company headquartered on American soil who does NOT employ at least 51% or greater of American workers within its workforce on American soil has to "exile" its HEADQUARTERS off its American soil. They still have the right to employ whom they wish but if it doesn't meet this requirement, they just should not take advantage of the protections on our shores afforded them here otherwise by their main residency of corporate citizenship.

This suggestion may seem radical at first but keep in mind that in realistic terms, one of the few advantages or "patents" this country has left is respecting things like property rights etc.. Individual and many other rights and liberties is what generations of soldiers fought and died for. Now more than ever, it is taken for granted, especially in the corporate sector. For instance, you saw what happened to Google in China a few months ago right? Many companies know that if they have to relocate their main headquarters to say, China or other places, they will be vulnerable to the whims of those corrupt or unpredictably unfair government systems. In other words, if the US cannot compete for labor on absolute price, we sure as hell can try to compete based on our constitution and supposed respect of rights. It may be the only way to first at least stop the blood loss of rampant and stubbornly high unemployment which can potentially become a national security threat of our own when you think about it.

[Virgil Showlion]

MI_for_me
Message #1689 - 11/13/10 10:59 PM

[] Quantitative Easing Explained

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Old and gray
Message #1690 - 11/14/10 07:15 PM



P&U



I was taught economics in a different era. I suppose most of the premises were from the "classical" school, since outmoded by the slowly evolving and still not understood Keynesian or macroeconomics school (though I believe the latter, as complex as it is at times, has much more credibility than the former). The basic premise with which I came away from my economics studies was the classical creation of wealth. i.e., taking raw material and working it to produce a marketable item. The process of adding value is the only true creation of wealth.

I take it to mean you're post implies you're in agreement with that concept. I'm all for moving production back on shore. It will help us not only in promoting self-sufficiency but would stem the outward flow of our accumulated wealth - or, what remains of it. The importance of that self-sufficiency extends beyond sustaining our economy. It also allows us to provide for our own defense. As it stands, if we were under attack, we flat out couldn't provide for ourselves. We're too dependent on foreign production for everything we use. We're too busy playing money games to allow ourselves to be distracted by unimportant incidentals like providing for survival, daily or on a long term basis. The operative concept today is "kick the can down the road", isn't it? If and when we get to the next war, let that generation deal with it. If and when we run out of credit, let the next generation deal with it. That's the new style of advance planning.



But, despite that, or maybe because of our weak, dependent position, I couldn't bring myself to put up artificial barriers to international cooperation. Along with my old-fashioned view of creating economic wealth, I also remember the US post-WWII role in resuscitating Europe and Asia, motivated principally by the anticipation of rebuilding world markets so they could afford our exports. It worked, until the other nations realized they couldn't survive by being dependent on external supplies, so they rebuilt their own economies and became competitors courtesy in large part to the assistance our foreign aid policies offered. (An outlook we have not been able to shake, despite the fact that those nations once in need of help are now healthier than we are. The current balance seems to place the benefits with other nations. They realize all the gains and we gain nothing, not even good will).

Nevertheless, those foreign nations are still our potential markets. Were we to set up a system which in effect would shut them off, trade wars would result and eventually destroy the markets or the other nations willingness to participate in them. Those potential markets are necessary. Without cross-border alliances and trades, any economic system would eventually shrivel up and fade into destitution. One thing seldom, if ever taught in economics is that fact that a few maverick economists recognize: the end product of an economy is not wealth, or subsistence, or consumption. . . It's WASTE! Think of the final resting place of consumer goods. That is the end result of all productive activity. It starts with research and Development and ends up in a graveyard of its own!

The point is - If a nation becomes self-sufficient it is a short term solution. That short term may be a couple of generations of prosperity while the system is built up. Jobs galore, anyone who cares to can work, and all seems good as gold. But what happens then, when the consumers of the nation are satisfied, or inventory begins to stockpile after the production engine is set up? The nation has all it needs to care for itself. They've built their giant piles of rubble and waste and don't have trade partners for excess inventory. And, that excess is the profit margin. So, we'd be back to stagflation again on a long term basis. Last stagflation cycle was 20 years in the making, and here we are thirty years later and still haven't completely recovered from it.

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Old and gray
Message #1691 - 11/14/10 07:16 PM



A strong case can be made that the reason we suffer as much as we do, is the falling off of export trade. We import to our detriment and lack a market for the diminishing stock of goods we hope to export. The reason for that is twofold, we don't make what they want and they have boosted their own economy to the point where they supply more than their own needs. External markets, as we think of serving them today, may be shutting down for us.

So, your proposal for banishing our own firms, no matter what the terms, would only aggravate the trend of decline we're experiencing and lead us into an even more helpless condition.

We're having a bad enough time of it already in trying to deal with international trade trends. Leading the list of unfavorable trends, our capital is not interested in investing in the US, its home country. Returns are too slow to satisfy the overnight billionaires, and too involved for their impatient (and often uninformed) wants, the TODAY!, or, NEXT MONTH AT THE LATEST! attitudes. Despite the problems that seem to plague our relations with China, US investors are buying not only Chinese goods, (I can tell you I can buy direct from Chinese manufacturers for $40 - delivered to my place of business if I had one - what sells retail in US outlets for a discounted $200!) but they are allying with Chinese manufacturers, buying Chinese production facilities, and investing in China's future more readily than with our own future. And, of course, it goes beyond China. Our financiers are heavily invested in the Euro Union, the mid-east, South America and Africa. Have I missed anything other than Russia?

Where private capital has not invested, we have wars in progress or we maintain a political agenda spearheaded with animosity.

Despite the personal pride we have and the desire for independence that drives us, I don't believe we are in a position where we can ex-communicate any of our remaning businesses. We are not in a position where we can stand as the lone reed straining against the wind of progress. Before we take an attitude like that to heart, we have problems galore to solve. And, if we are capable of doing that, before we begin cutting ourselves off to any degree, we'd better be able to provide for ourselves.





MI_for_me



Where can I buy one of these benbernank engines? It would solve all of those personal cash flow problems that pop up on occasion. That video was short and to the point.

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PoorandUgly
Message #1692 - 11/15/10 02:44 PM

O&G,

So, your proposal for banishing our own firms, no matter what the terms, would only aggravate the trend of decline we're experiencing and lead us into an even more helpless condition.

I don't know if it would only aggravate the trend but perhaps ameliorate if not at least stop it. Many corporations have been exacerbating the very trend by not playing to our American benefit, but rather other foreign interests such as China etc.. for far too long now. We must somehow consider a way to at least stop it if not reverse it. I believe vehemently that if General Electric was told tomorrow that they need to mainly reside (via headquarter locale so that means branches would still remain hence not total banishment) on China's shores versus our own, they would surely think twice and ultimately not move their main base offshore (whereby they would have to give up US corporate citizenship in a matter of speak) This is not like currency or trade wars. If corporations are giving jobs to foreigners at our expense, avoiding taxes at our expense, they still have the freedom to outsource etc.. but there must be ramifications to such when at our expense.

They shouldn't be allowed to take advantage of the country's patented constitutional rights, fought and died for by many, at our expense. If we do nothing, the rape will continue. My point is, imho, how can it get any worse than rape? This plan doesn't put up any trade barriers or play around with currencies. And it is certainly not a QE or stimulus plan that would cost us a great deal. This idea just follows through on the simple notion of what is right and just for us as a country going forward, especially in this complex global economy. For instance, a great president by the name of Teddy Roosevelt did something along similar ways at the turn of the last century and he had to go up against lions (trust buster) in the goal of justly protecting our national interests. I don't think we have leaders anymore with a backbone to do what is right for American people. They are either too cowardly, corrupt, or bought and paid for to think in our truly national interests otherwise. It may take great tragedy I am afraid before we ever have a leader with backbone to do what is right for the people, like Roosevelt, Jackson, Lincoln and others before etc...

P.S. Yes, O&G, I am with you. Not a kensyian. I am in agreement on the value process etc.. But I believe the government at least must foster and allow an environment for basic safety nets of socioeconomic survival and related thriving for its national interests, not take away from such as what is happening for a while now. If we don't heed this, it will be the Old West all over again where truly anything goes and the winners are those who are most adept and brash and/or just plain reckless at taking the most without any recourse or fair consequence otherwise against the remaining fruits of this country.

[Virgil Showlion]

Old and gray
Message #1693 - 11/16/10 10:51 PM

They shouldn't be allowed to take advantage of the country's patented constitutional rights,

Agreed! But, then if a company like Halliburton wants to move its headquarters to the mid-east, where is their allegiance to begin with? A former Vice President of the US is a former head of the company and they undergo a transformation and no longer feel they're an American company? Taxes and other obligations are too demanding, obviously.



If your memory is long enough, you'll recall that this is not the start of the trend. Corporations were so disillusioned with conditions during the onset of stagflation (leading up to the top of the spike), they adopted a new name - multi-nationals, arguing that they were not strictly American companies, they deserved world citizenship. All of which meant nothing more than they should not pay US taxes. . . delivered along with the threat that they would pack their corporate books and set out for a more congenial location out there in the new World. It was all part of the package that accompanied the convenient new category they originated for themselves.

I never kept track of it, but, how many did actually leave? I'm sure some did and provided that new capital other nations were desperate for and bestowed benefits in gratitude. That was when we suddenly found ourselves with influxes of clothing with tags like "Hecho in Mexico", or from Sri Lanka, the Orient and elsewhere; when New England shut down its shoe industry and car parts had "Made in ? ? ?" stamped on them. It was when this movement became the obvious hard cutting edge of the trend that Nixon was forced to recognize and establish diplomatic relations with China. So, we're looking back forty years or more.

Fast forward to the 2000's and what is obvious? . . . . We realize we've got to rebuild our industry. I agree with that, but I also recognize those emerging countries didn't surface on their own. They did it with the help of our vanishing capital! That was more than a leak. . more like a broken dam that couldn't be stopped! When the problems of the nineties surfaced in the small southern Asian nations - opening the vaults to settle debts with their cache of USD and discovered someone had absconded with the proceeds - that was not the accumulation of money they hacked out of tropical jungles! Our loyal internationalized citizens were willing to play patsy with the politicians of the small nations. They got away with it until someone finally decided it had gone far enough, and demanded their payment before the roof collapsed. Unfortunately, that was too late.



What we have is not a newly developed situation - it's the sum total of our loyal involvement in trying to evade the responsibilities of citizenship. What began as an attempt to rebuild markets for our exports (the WWII reference above) was eventually turned around to be a self-serving venture not meant for the betterment of the US.



When the UK was in trouble a couple of decades ago, if you recall, a foreigner earning money on British shores, was limited in how much money he/she could take out of the country. (I vaguely recollect the Brits themselves were restricted in like manner.) The Brits knew of the threat that leakage represented. Remember, they were the bankers to the world for centuries before WWI. Any nation wanting a loan turned to the UK. Those bankers know money matters without Milton Friedman and long before the balderdash of Keynes. . . and they were realistic about it, "That's our money and you can't take it with you!" We never had such dedication here in the US. If money leaked out of our system, we simply printed more. In such a way, we've become addicted to inflation; and, although the world may have had the concept of paper money operating long before our nation was born (and some nations abused the convenience of the currency by decree to the ruination of their system - as in France early 1700's), we became the foremost proponents of "helicopter money" long before there were helicopters.

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Old and gray
Message #1694 - 11/16/10 10:53 PM



Whether the speculators and entrepreneurs had the upper hand in the matter, or our authorities believed they could control our system despite the leaking capital, someone else can write up. If they believed that, they were delusional. If profligate issue of credit is responsible for the boom bust cycle, having an international market simply enlarges the playing field and provides more opportunity for issuing more credit so that we can produce the boom-bust phenomenon more frequently and more severely.



Paul Krugman received the Nobel Prize on the basis of his study of international trade, holding that certain areas are better adapted to producing certain goods, do so more efficiently and more profitably. So, we have seven and nine year old kids tying knots in Persian rugs and by the age of eleven their fingers are too big to do the job and they are retired from the business. Obviously that market is more efficient than thirty year old American men and women trying to do the same thing! So we buy the rugs from the mid-east. (We have a couple of beauties on our floors! Incomparable artistry!) That's a form of specialization, practiced in a few other places but not many.

The rubber trees in Malaysia are another example. . a product that does not grow in abundance elsewhere. Same goes for the inexhaustible supply of gold and diamonds in South Africa. Chinese tea, American wheat, Argentinean beef, African chocolate, Swiss watches - how much time do we have? - you can go on for quite a while. It's a matter of artisans, resources and the willingness to produce that sets up these sources for specialized goods and the promotion of international trade. Notice I mention specialized goods! That may have been Krugman's original reference point but he expanded the idea to include trade. . . a natural progression. Make something, if you can't sell it, it serves no purpose.

However that original thesis was written more than thirty years ago (and since expanded on). We've gone beyond the rudimentary situation. Those emerging nations have factories producing high tech modern electronics, essential durable goods and toys as well, something to capture the minds as well as the hearts of the potential market in the US and elsewhere. I don't mean to imply that the US is the only nation suffering capital leakage and the management and entrepreneurial brain drain. Ambitious folks of other nationalities are doing the same. . Go where the opportunity to make the biggest profit margin is found. That destination was once the United States.



Can we lay claim to that anymore?



I agree in your expressed admiration of Teddy Roosevelt. . there were giants in those days. . . well, at least one. We may be headed for that tragedy you mention sooner than either of us believe. Then, we'll arrive at a fork in the road requiring a decision. Which path do we take? What will we elect to serve?

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Old and gray
Message #1695 - 11/19/10 06:25 PM



Uncle Ben Bernanke is taking it on the chin lately from all directions. Rooting for the underdog is a personal passion, so the natural inclination is to claim the barbs are undeserved. Unfortunately, they are not.



Duffminster posted a link to an outside editorial on Bernanke's delivery to the European Central Bank Panel Discussion today at 5:45 AM EST. That observer believed that Uncle Ben made his statement with a strong voice. Wish it were so. Character changes occur neither quickly nor without pain. As much as criticism must hurt the man, he hasn't felt the degree of pain yet tha would impel a change. No question the trial is wearing on him, but not enough to change his outlook.



So much is being written about the crisis today that a quick scan can uncover several papers a day to support any contention about the "recovery" program(s) pro or con covering the full 360 degree spectrum. A link on one of these MT threads led to a paper discussing Too Big To Fail from September, 1999 written by Professor Kevin Dowd of the University of Sheffield. . . UK, I take it. Ten years later we look at it and conclude quickly, "I've heard that tune before, same music, same lyrics." The hope would be that something was learned the last time we suffered through this, or that new thoughts are emerging from today's experience, but, alas, that's far from the case.

From the opening, the author's contention that shareholders and managers of LTCM benefitted hugely, that the "Fed's intervention was misguided and unnecessary" and the Fed's estimate of the effect on the "financial markets was exaggerated", the impression of deja vue is unmistakable. The third paragraph of the paper. published under the aegis of the CATO Institute, deserves verbatim reproduction here.

The intervention also is having more serious long-term consequences: it encourages more calls for the regulation of hedge-fund activity, which may drive such activity further offshore; it implies a major open-ended extension of Federal Reserve responsibilities, without any congressional authorization; it implies a return to the discredited doctrine that the Fed should prevent the failure of large financial firms, which encourages irresponsible risk taking; and it undermines the moral authority of Fed policymakers in their efforts to encourage their counterparts in other countries to persevere with the difficult process of economic liberalization. CATO Institute Briefing Papers No. 52, Kevin Dowd, Sept. 23, 1999.

We don't profess economic liberalization in the US now (if we ever did). Other than that, the paragraph could have written yesterday or tomorrow for that matter.



This paper addressed the consequences of the rescue by the Fed when it was under the leadership of Alan Greenspan. Now, we have a Princeton professor in the driver's seat and nothing has changed except the stakes are exponentially higher. Princeton always was an expensive school. Dowd's analysis might have been the prophetic voice of Cassandra as some of those posting here as the Sunshine Boys might notice.

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Old and gray
Message #1696 - 11/19/10 06:26 PM



Dowd's criticism took this path:

The Fed intervened because it was concerned about the possibility of dire consequences for world financial markets if it allowed the firm to fail.

The firm would not have failed, and even if it had, there would not have been the dire consequences that Federal Reserve officials feared.

Indeed, letting LTCM fail might well have had a salutary effect on financial markets: it would have sent a strong and convincing signal that no financial firm·however big·could expect to be bailed out from the consequences of its own mismanagement.

The rescue also implies a massive and open-ended extension of Federal Reserve responsibilities, without any congressional mandate.

. . . the rescue implies a return by the Federal Reserve to the discredited doctrine of ·too big to fail··the belief that the Fed will rescue big financial firms in difficulty·for fear of the possible effects on financial markets of letting big firms fail.

Too big to fail encourages irresponsible risk taking by financial firms, which makes them weaker and financial markets more fragile.

It was twelve years ago this past September that the Fed rescued LTCM. And, Dowd's observations after a year's cogitation, were an accurate view into the innards of the sometimes clouded crystal ball.

There's an additional similarity between now and then. LTCM was a hedge fund. Hedge funds deal in speculation, highly leveraged, assets five to ten times greater than their capital. Derivatives, the cause of the present banking failures. . . and the "banking failure" reference is used deliberately!. . . were leveraged to the skies, and even more speculative, more in the order of the "numbers" game the neighborhood bookies used to run. . . quite profitably! Serious doubt is in order. . . whether the Fed took any note of Professor Dowd's observations or predictions. That study should have been framed, made required reading for Fed employees at all levels and the basic contentions should have become foundation for Fed regulating and supervisory policy. It wasn't, so the circle closed in twelve years (from the S&L scandal), except for those nations in the Orient that experienced the great squeeze in about half that time. Like a see-saw the balance moves from one arena to the next in about a five year interval. Central Banks at work enjoying benefits of what they were founded to prevent!

[Virgil Showlion]

Old and gray
Message #1697 - 11/19/10 07:36 PM



As for Uncle Ben himself. . . He's been busy with two speeches yesterday. At 11:15 AM Frankfurt time he delivered an address on "Rebalancing the Global Recovery; at 11:45 AM he participated in a Panel Discussion and delivered remarks on the progress of "Recovery". . . . AND!!! on November 17, 2010 the following proposal was released for comment from the industry.

FEDERAL RESERVE SYSTEM

12 CFR Part 225

Regulation Y; Docket No. R-1397

RIN No. AD 7100-58

CONFORMANCE PERIOD FOR ENTITIES ENGAGED IN PROHIBITED PROPRIETARY TRADING OR PRIVATE EQUITY FUND OR HEDGE FUND ACTIVITIES.

AGENCY: Board of Governors of the Federal Reserve System ("Board").

ACTION: Proposed rule; request for public comment.

SUMMARY: The Board is requesting comment on a proposed rule that would implement the conformance period during which banking entities and nonbank financial companies supervised by the Board must bring their activities and investments into compliance with the prohibitions and restrictions on proprietary trading and relationships with hedge funds and private equity funds imposed by section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"). Section 619 is commonly referred to as the "Volcker Rule."

Notice, the very last line!! Very last words. . . "Volcker Rule". Despite all the protesting, posturing and indignation, the Fed is discussing installing the Volcker Rule.

In all, those three documents provide another 70 pages or so for evaluation which will appear as each piece is read. The opening remarks tot he Panel Discussion has been perused and notated, but since it is the last of the sequence, comment will be delayed lest embarrassment result from rushing too fast into the breach.



The full PR and the link to the above quoted document are posted just below this message.

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Old and gray
Message #1698 - 11/19/10 07:40 PM

November 17, 2010

The Federal Reserve Board on Wednesday requested comment on a proposed rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that give banking firms a defined period of time to conform their activities and investments to the so-called Volcker Rule.

The Volcker Rule generally prohibits banking entities from engaging in proprietary trading in securities, derivatives, or certain other financial instruments, and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. The statute generally provides banking entities two years to bring their activities and investments into compliance with the Volcker Rule, and allows the Board to extend this conformance period for specified periods under certain conditions. The Dodd-Frank Act requires that the Board issue rules implementing the Volcker Rule's conformance period.

In developing the proposed rule, the Board consulted with the Department of the Treasury, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission.

Comments on the proposal must be submitted within 45 days after publication in the Federal Register, which is expected shortly.

[www.federalreserve.gov/newsevents/press/bcreg/bcreg20101117a1.pdf] Attachment (133 KB PDF)

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PoorandUgly
Message #1699 - 11/22/10 03:30 PM

It was twelve years ago this past September that the Fed rescued LTCM.

I couldn't agree more what a poor message this sent to the financial system under then Fed head Greensnore. We could have saved a whole heap of cost and pain, both financially and socially since then if this possibly did not come to pass.

Central Banks at work enjoying benefits of what they were founded to prevent!

In the Greater Depressions thread, I just recently brought up how the moral hazard is so bad now that it is normal beyond the pale how many don't necessarily pay back nor are expected to be paid back on their debts. It is rather quite ironic that within this new fact unfolding for several years now and exacerbating going forward, that that itself is now an 8 headed beast against the very existence of the central banks itself. How does this story continue to unfold in 1, 5 and 10+ years from now should be interesting to be sure. Have any wise prognostications or guesses on your part, O&G??

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Old and gray
Message #1700 - 11/22/10 08:38 PM

How does this story continue to unfold in 1, 5 and 10+ years from now should be interesting to be sure. Have any wise prognostications or guesses on your part, O&G??

Prognosis? Guess?

The US's greatest competitive threat is in the Orient, a not so silent giant growing beyond all expectations. All of Washington is in a big tizzy about China taking advantage of us. Really? On their own?

No nation can accomplish what they have (penetrating the world's markets, perhaps "capturing" might be a better characterization) without collaboration. It is a competitive war, end result of which is not only dominance of world's markets, but in terms of survival it eventually establishes the affordability of living and whether a nation can sustain its businesses or, more importantly, its way of life.

Before the question is answered with an experience posted elsewhere (without the punch line which will be included here), make a mental note of who you might believe is our worst enemy in this war by providing the most assistance to our major competitor.

Here's the story. . . in every respect. . . personally experienced. . without adornment.

In a search for a price break for a particular item, popular, used world-wide by countless millions, an internet search led to a firm in China. The item was ordered on the eighth of the month at an unbelievable price slightly above $40. That $40 included express shipping, a guarantee that the product would clear customs and if it did not, it would be replaced. Plus, attached was a 4 week guarantee; if the product did not perform as expected, it could be returned for a full refund no questions asked. Ordered the eighth (as mentioned) it was delivered on the twelfth, four days later, express courier, tracking number and all, intact, put to use, and by the next day proven totally reliable and completely, totally satisfactory. Then, a series of emails followed, in a dunning process asking if the customer was satisfied with the product and what could be done to make the customer happier. What more can you ask from any business?

The kicker: At a local store I found the item on sale for more than $200! Identical product, packaged identically. (No one around to even discuss the item. . . austerity measures, I'm sure.)

The catch: the product purchased, assumed to have been made in China, was made in the USA! The manufacturer can afford to make the item here, ship it to China where it can be resold to worldwide customers at a price 1/10th of that offered to US customers. At the $40 price, it can be sent express shipment, follow up can be excessively concerned and everyone is making a profit. What, then, can we call the proceeds realized at the $200+ price. . more than 5 times the Chinese price?

That's not the only product where our citizens are discriminated against by our own people. It's commonly visible if we have the exposure to the markets in the rest of the world. Autos, wines, clothing, drugs, all the health care services . . . cheaper, but in no way below US standards. . are available world-wide with the exception of the US! And, if the industry o the rest of the world can't provide us with the goods we need or desire, our own entrepreneurs abandon our people, close up shop here and fabricate for our markets elsewhere and sell to people working at lesser jobs than they had been.

That $40 price is hyperinflation from one aspect, but, then again, it is not! US citizens suffer the burden of cheap money; yet, the Chinese are willing to accept the same $40 as fair exchange. How can such a transaction not be looked on as a matter of hyperinflation? With such a conditioned market established here, other nations can peddle their products to us and ask for inflated prices which then adds to our personal burdens of being under compensated but imposed upon with higher prices than elsewhere.

[Virgil Showlion]

Old and gray
Message #1701 - 11/22/10 08:39 PM



Scandalous? Who's strangling whom? Who's working against our interests? Isn't that evidence strangely indicative of hyperinflation? If not, what can be more convincing? The inflation is localized, internal to the US, but with external ramifications! What does that make our dollar worth? In order for a resident American citizen of the US to afford to pay the price of an item made here at home, he must earn that much more than a Chinese worker. And, how much more than a German or a Frenchman? Where does that put us on a competitive international scale?

More directly, who is our enemy in such a set up? There are so many more such examples no one wants to hear with similar facts no one wants to acknowledge.

Domestically, we do the same thing. On one of the Market Talk threads, someone posted a link to a boxed out diagram of the complex mortgage market which includes more hands in the stewpot than could be counted. Back at the original site, the first comment following the article was, ". . . and everybody made money on the deal!" Is that free enterprise? Does a buyer enter into a mortgage arrangement aware that a dozen or so others, beside the mortgagor will soon have their hand in the pot? And that the mortgagee will have to support all those people. And that if he does not, the system will collapse? Is such a system sustainable, or, is it simply panic?

We are so conditioned to being imposed upon, we accept it without knowing what the rest of the world is doing including our friend, the neighborhood mortgagor or the next door friendly banker.

Need anyone really prognosticate or depend on guesses to point direction or consequences? One year, five years, ten years. . . as this thread has been pointing out for 3 months short of two years, . . . it will get progressively worse until we prosecute successfully and meaningfully to the extent that the point men in this system are cleaned out and our businesses redirect themselves to more viable standards and all of us regain confidence in our nation. My basic perception is that the system doesn't believe in itself. 5 or 10% of the people are doing exceptionally well, don't trust anyone else, and from that point on, it's down all the way. These people consider themselves "leaders"?

What kind of future does that attitude and that outlook in the front ranks promise? Show me a leadership willing to clean it up and I'll give you a more heartening prognosis. Right now, all they do is give themselves a time frame. It needn't be done until I'm out of office.

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neohguy
Message #1702 - 11/23/10 04:13 PM

The catch: the product purchased, assumed to have been made in China, was made in the USA! The manufacturer can afford to make the item here, ship it to China where it can be resold to worldwide customers at a price 1/10th of that offered to US customers. At the $40 price, it can be sent express shipment, follow up can be excessively concerned and everyone is making a profit. What, then, can we call the proceeds realized at the $200+ price. . more than 5 times the Chinese price?

Approximately six years ago, I was trying to help an elderly relative out by ordering medication from a reputable Canadian pharmacy. These medications were not narcotic and the pharmacy required a prescription from the doctor. The cost was 1/3 the cost from US pharmacies. Everything was going well until one day I get a letter from homeland security saying they had seized the package and if I wanted it then to come in and face possible charges. They also gave me the alternative of stopping and the matter would be dropped this time. I remember the pharma industry back then of saying that higher prices were charged in the US to support research. The sad thing is that most Americans accepted that explanation.

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PoorandUgly
Message #1703 - 11/23/10 07:52 PM

Approximately six years ago, I was trying to help an elderly relative out by ordering medication from a reputable Canadian pharmacy. These medications were not narcotic and the pharmacy required a prescription from the doctor. The cost was 1/3 the cost from US pharmacies. Everything was going well until one day I get a letter from homeland security saying they had seized the package and if I wanted it then to come in and face possible charges. They also gave me the alternative of stopping and the matter would be dropped this time. I remember the pharma industry back then of saying that higher prices were charged in the US to support research. The sad thing is that most Americans accepted that explanation.

Indirectly, that makes me sick to my stomach. So let me get this straight: With all the real terrorist threats and other significant domestic dangers out there now, the fascistly-controlled, government unit called "Homeland Security" is able to afford its limited time and resources interrogating/investigating/threatening/and or fining some poor elderly "sap" (not meant in bad way of course) who is just trying to afford his god damn medications so he can have a decently afforded remaining life?? When does it end???!! Again, I repeat what John McEnroe would say: YOU CANNOT BE SERIOUS!!!!!!

As is then under Bush like now under Obama when it comes to security such as airline security, let alone ordering prescription drug medications, either the security mechanisms from our government are either completely stupid, lacking absolutely no common sense with no cognizance of prioritization of relative importance OR sinister and just after looking out for profit for their true owners of our government: big business (in this instance - big pharma) or as in many other instance - banks, private health insurance etc.. Either way, it is outrageous.

The whole system is endemically broken for regular American citizens. Robber barrons and the reckless rule the roost now more than ever.

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Old and gray
Message #1704 - 11/23/10 11:10 PM



I have to get back on track with the structured comments I have in mind. It seems like I'm getting distracted too easily lately. It may well be the situation our country is experiencing right now has me a little down.

Age is working against my interests. It's beginning to get nastier than an old heart like mine can tolerate. Any thinking person would want to do something to help understand the situation well enough that they could extend a helping hand to someone in need. But, after a little study and thought, when the lines are defined and you can see the battle field, you come to realize your limitations. A young man can trot over to the sapling and break off a stout stump and make a cudgel for himself and then rush into the fray and take a couple of good swings at the identified adversary. I know who they are. . and I can guarantee they know who I am by this time. When you try to set up a line of defense for protection, they discover how to penetrate it and become a thorn in your foot or some other part of your anatomy.

They've done that. I referred to my Russian secure defense, the St Petersburg code. That's been decimated. My PC will not work with that blocking the way. They learned how to shut my PC down when they confront the defense. I've tried switching to the laptop, but same thing. Family have offered their PCs, but there's no escaping it, and I wouldn't want to foul up their equipment. Not a nice legacy. This is true! Never had such an experience before I joined the Market Talk group. Haven't tried to disguise myself. . why? Signing on to the thread reveals ID immediately. As a result of the intrusions, it's getting more difficult to work my Programs with those odd messages popping up and that d ----d disabling interference which is more and more frequently occurring. Went to a new OS which is touted as being more secure. If someone builds it, someone else can manipulate it. I truly believe that my age has been my first line of defense, my best protection.



Other things are taking place out there in the fabricated world the privileged have constructed. Listening to the sycophantic TV commentators is upsetting.

Two things occurred today, one good one bad.

For the bad, earlier a gentleman appearing on CNBC a little after noon, finished up his dissertation on pension plans and 401Ks following a buyout. He summarized his position this way: "When the new people come in, those charged with handling the funds don't really do much, they just shuffle around the old setup. They don't create any wealth." He was cut off at that point. That left the viewer to conclude that whoever does this "shuffling around", rearranging of funds and investments, takes a hefty chunk of compensation for doing nothing. Which is about what I've witnessed. Grit the teeth and keep the mouth shut. It was not my business nor was I engaged to represent the people or protect their interest. That hurts when you're young and more willing to make a point forcefully. When you age, you are considerably short of a position to make the point.

That aside, what bothered me about the gentleman's wrap up, the echo didn't die out when the grating voice-over quickly jumped in to comment, "I understand what you're saying and disagree with most of it." Of course, she must have a PhD in economics as well as an MBA to qualify her for such judgment.

Episode two, the better of the two, was later in the day on MSNBC. Dylan Rattigan had Rep. Kaptur from Ohio discussing Foreclosure gate and she has her ducks in a row. There are a few people in Congress who take the representation of their constituents seriously. They do a little more than the thirty second posture-and-fume dance and then go off and vote for the bandits. She happens to be one of those who votes as she speaks. . . . And, she was right on target with MERS, Wall Street, the banks, and the redistribution of wealth which is the goal of that entire fiasco.

[Virgil Showlion]

Old and gray
Message #1705 - 11/23/10 11:11 PM



Dylan put up the Jefferson quote in which Good ol' Tom said if the banks are allowed to make the currency, their goal would be to have everyone homeless in short order. Kaptur was saying that those powerful people who have developed this scheme have access to the Presidential Throne in the White House. They had access to it and they used the privilege shamelessly. As a result, she points out that something in the order of 12 million homes are now in the foreclosure mills and 15 million people will be homeless if something isn't done about it.

In a less populated era, the thirties, there were nothing like fifteen million homeless. Millions, yes. They lived in shanty towns, the equivalent of boxes, whatever scrap pieces of anything they could lash together. They had no place to go, so they wandered aimlessly from town to town. They were not shiftless people! There was no place for them to go, no job opportunity, no promise for tomorrow, nothing more than the destitution they felt yesterday. My stepfather hired a few of them when he could. He took me with him on a couple of occasions and I felt uncomfortable among those people, probably ashamed that I didn't have to suffer the way they did. . and, those he hired became his friends. I didn't think he was an overly-likeable man at the time, but in retrospect, I was unfair to him and didn't understand him thoroughly. One of the men he pulled out of the local Rescue Mission eventually established himself and became the stepfather's business rival! Competitive as can be, yet the two were friends through everything. Another was working around the house doing every conceivable thing. . . right up to the mobilization drive when we entered the war. He married while we was living at our house. I put in a year of college before my own marriage, was then drafted and he was gone while I was away at school.

Getting back to Jefferson, he'd probably be aghast if he heard a member of Congress mention that 15 million people might become homeless and might even curse out the bankers for their handiwork, and demand to know what the shiftless members of Congress were doing to stem the tide. The bandits accomplished what they started out to do. . I have no doubt!

It's going to get worse. I never developed a shell to climb into and hide. So, I'll suffer some pain, mental and physical, before long. I have a feeling I won't survive to see the worst of it in play. It's a shame. I prayed that I'd never see anything like the Great Depression again. I may get my wish, but not in the way I'd like to.



Enough of that! I still have some posts to finish.

---

Scared_Shirtless
Message #1706 - 11/23/10 11:41 PM



You pique my professional curiousity O&G.



You run some serious software on your PC for a professed novice.



The Russian firewall doesn't work now huh?



EVERYTHING you load on your PC wants to "help" you by sending data back to "whomever".



It drives me wacky. It is becoming alarmingly invasive - and that's from a 40+ year I.T. guy.



If someone is helping you - what do they say? Sorry. Just curious. I consider myself so so on a PC - I'm much better on cerrtain bigger computers.

---

Duffminster
Message #1707 - 11/24/10 04:28 AM



I hear you O&G. I found the attached article fascinating and in so far as it treatment of currencies cuts through all the noise we are getting from the mainstream noise machine and its treatment of the local and nature of the ongoing and increasing corruption, it is refreshing. If you find anything in this that resonates particularly with you and in relation to your ongoing structured comments, I would be pleased to hear from you on this.




Wishing you and all the members of this thread and board a Happy Thanksgiving:

[www.martinarmstrong.org/files/Show%20Me%20The%20Money%2010-15-2010.pdf] www.martinarmstrong.org/files/Show%20Me%20The%20Money%2010-15-2010.pdf

---

Old and gray
Message #1708 - 11/24/10 06:01 PM



scared



You're posts prodded some reminiscences.

Never claimed to be a novice, just not a pro. Been in computers since about 1960 +/-. Was that before you were born? Saw the advantage shifting over to those with access to computers and the know-how to coax info and data from them. Recently my Alma Mater sent a questionnaire around to graduates and asked what was the greatest technical innovation while we were attending school. I responded with, "The Slide Rule!. . . and, the Monroe electronic roll calculator."

I was already deeply into consulting at the time my computer interest emerged, and I reasoned if a consultant can't help himself by adapting innovation to his benefit, what good will he be to clients? So, it was a part-time return to schooling (that never-ending supplementation). . . college of engineering, to pick up on developments. Cobra, Fortran and the like complete with the legendary Hollerith cards . . even before paper tape! First personal PC was the mini TV attachment early or mid-1960s, the Sinclair, and Bill Gates's first BASIC program (the one he still claims as the best he ever wrote) operating on a 16K RAM memory . . upgradable to an astounding, mind-boggling 32K!

Are you laughing yet?

It was an engineering feat when the IBM 1620 came out. About the size of a moderate office desk, perhaps a little more compact. We still struggled with debugging the hand written programs, the key punchers' errors, proof-reading and correcting until we got it to run correctly. And as soon as we had the team operating efficiently, one by one, the newly trained technical "experts" drifted off to greener pastures, to employers who had interest in or possessed the equipment but had no one who could properly decipher the system. In came someone barely above the level of "novice" and they were walking on water!

Never lost my interest in innovations and applications since. But, there's nothing you can do when a real, professional technician spends his working days hacking away at your system with the manufacturers cooperation and assistance. You're certainly aware of what teen-agers are capable of, just multiply that by 10 times and you'll approximate the capabilities of the professional hackers for hire or on staff.

I also know what goes on in the world. For a brief period early on, the government trained me to know or if I did not know, how to find out. If I was not so captivated by a certain beautiful woman, who knows where I would have ended up doing what for whom. But, there is no other earthly temptation capable of overriding the effect of a captivating woman. I hope you know that. That's 99% of the secret of life.

Maybe my PC education is somewhat outdated, but it still gives a base on which to work with systems. The hardware may be more compact, demanding a better pair of eyes or more agile fingers to work with but I'm still like the early pioneers, the early computer users, electronics engineers or technicians bringing their professional life into their home life, going down to Federated Purchasers outlets, buying their Heath kits and ignoring the wife's three AM entreaties to come to bed. I still have not purchased an assembled PC except to cannibalize certain parts to adapt to my home-mades. But, I'm on my last one, I believe. It might be interesting to see whether the old guy can put just one more PC together. . to find out if I could handle it, no other reason. If you know the innards, you certainly can figure out the programming. But, there's not enough time for everything if you have other interests in life.

Security programs? I may be slightly better than average on updated systems. But admittedly out-classed by the professional snoops.

[Virgil Showlion]

Duffminster
Message #1709 - 11/24/10 07:56 PM

But, there's nothing you can do when a real, professional technician spends his working days hacking away at your system with the manufacturers cooperation and assistance.

Yes, and they have done this with voting machines. When the head of Diebold, the massive voting machine manufacturer, a staunch partison says he is "[www.commondreams.org/headlines03/0828-08.htm] committed to helping Ohio deliver its electoral votes to the president next year" and given how immently hackable these machines are, I have come to realize that technology has not only undermined our currency but our democracy and trust in general.



[shenews.projo.com/2010/11/new-chief-technologist-for-ftc.html] New 'Chief Technologist' for FTC exposed hackability of voting machines



"[www.cs.princeton.edu/~felten/] Ed Felten, whose track record puts him on our side of computer privacy and security and voting integrity, is [ftc.gov/opa/2010/11/cted.shtm] joining the government.

"My main role at the FTC will be to provide advice on technology policy issues," Felten writes ([www.freedom-to-tinker.com/blog/felten/dr-felten-goes-washington] Dr. Felten Goes to Washington )at [www.freedom-to-tinker.com/] Freedom to Tinker.

Network World does the explainer: [www.networkworld.com/community/blog/ftc-appoints-cool-hacker-first-chief-technolo] Privacy and Security Fanatic: FTC Appoints Cool Hacker as First Chief Technologist: The Federal Trade Commission appointed Edward Felten as FTC's first Chief Technologist. This might mean the FTC is about to dive deeper into digital privacy issues facing consumers. There is a great deal to like about the accomplished computer scientist, hacker, and security researcher. He's taken on some big names with some pretty impressive hacks, despite attempts to intimidate him.

Felten is a former EFF (Electronic Frontier Foundation) board member and a Princeton professor of computer science and public affairs. He is also the founding Director of the Center for Information and Technology Policy at Princeton University.

....In 2006, Felten and graduate students hacked a Dielbold voting machine and then published their security analysis. "Malicious software running on a single voting machine can steal votes with little if any risk of detection. The malicious software can modify all of the records, audit logs, and counters kept by the voting machine, so that even careful forensic examination of these records will find nothing amiss."

---

PoorandUgly
Message #1710 - 11/24/10 09:19 PM

So I guess then the machines really are taking over.

Talk about art imitating life!

---

Scared_Shirtless
Message #1711 - 11/24/10 10:10 PM



Wow.



Nope. Not laughing - you masked it well O&G. Ahh yes - captivating women - I SO understand. Now you make me reminisce.



I am famous (infamous?) for carrying a punch card in my wallet. I used to carry two. Bill Zeitler of IBM has the other. Oh yeah - the 96 column ones - they fit in a wallet thank you. Always remember your roots. I had the greatest mentor. My first system - in October 1971 - was an IBM 402. And files in those days were stored in tubs! No disk drives! That tub of cards? Inventory. That tub over there? Sales. And yes - I was around - born in 52. I was good on a slide rule! For some reason I was working towards being a mathematician and one day woke up in college and said: "What am I doing? I hate math! I'm good at it - but I hate math!" We won't discuss the next few years though they were 1970 or so and the hippy years.... In SoCal Duff... Berdoo / Riverside. I've boat raced in San Diego - many times. But I stuck to computers through it all. Boy - could I program. My mentor was an absolutely BRILLIANT designer but was only a mediocre programmer. Drove himself crazy. And then he met me. No schooling - just picked it up. From my first code I was writing structured modular code - before it had a name. He used to take it to users groups and say - look at this! Readable code! Not decipherable. Readable - there is a difference. It just came naturally to me. After 20 years I got tired of programming. Almost exclusively flavors of RPG but been around basic, Cobol and Fortran too. Went to the Systems Engineer side of the house. But of course I still program!



I never built my own PC. I got into them in the DOS days. I worked on IBM midrange systems and decided I better learn them because it would fall to me to make them talk to the big ones - my real job. And boy - it wasn't easy making things talk or play nice in those days. AS/400's now. The archaic AS/400. I worked on my first one 6 months before it was given the name! Going on 23 years that platform has served my career. And still going strong - BEST computer ever built - right with the System/38. That's what its based on. I can still do more on green screen than anyone on GUI. Any time. Any day. In 1999 I went to my boss and said: "I just saw the most amazing thing called LPAR - its the future!" Its known as virtualkizing today. Glad I brought it up. There were 6 SE's globally in our company then. I'm the last one standing. Everythings now in one place.



I don't build PC's - but I'm the resident expert (LOL) for friends relatives and family. I've set up more PC's... I try to keep that a secret (my PC knowledge) and you know why! Self defense. Seems funny - the grey beard is who the young folks around here turn to with PC's. I chuckle on that one. Every time. (grin)



In the early 70's I read an article in Computerworld that said in computers - half on everything you know is out of date every fours years. Always considered that a fair statement - if you ain't learning - you're falling behind. Fast! There are SO MANY systems I'm an "expert" at - and will never touch again - obsolete!



Looking to retire sooner than later. Kinda burned out among other things.



Always exercise the mind - can't help it. You do. Your imagination is your only limitation.



And in regards to that mentor thing. Now I've been blessed with two in my life - thanks so much for that O&G.



And one last thing...



I wish you had 100 machines left. I sincerely do...

---

Old and gray
Message #1712 - 11/24/10 11:06 PM



Duff



Armstrong presents hard hitting literature.



From his beginning, the statement of his former company's "mission" to

"gather global data and to bring that together to create the world's largest and most comprehensive computer system and model that would monitor the world capital flows"



sounds promising; but, then he leaps into suggesting that someone should have written a book on How to Manage the Economy for Dummies rather abruptly. I wouldn't dispute the data he supplies, but his style is rough-hewn.

He make several valid points with which agreement can be found, but his leap to establish connection between the data and his conclusions is across a chasm I might need more faith to attempt. Comprehension may be hobbled by his style and the attempt to compress the message into a printed out 22 pages.

His dating system is interesting, 2011.45 which he pinpoints as June 13 1/4, 2011, "a critical turning point for China insofar as it will be 17.2 years from the 1994 real economic low, 21.5 years from the 1989.95 turning point and 30.1 years from the 1981.35 start of the collapse." Does anyone else use such a dating system?

Not to leave things hanging, the above quotation leads to the warning. . .

"The real big turning point will be 2020.05 from the Chinese perspective. The US peaked in 1999 with the low in gold on the major 224 year cycle, so everything is right on target with that major shift in the economic power from the USA to China. Britain peaked from the Glorious Revolution of 1689 224 years later that brings us to the start of World War I in 1914. Britain had captured the financial capitol of the world status from the Dutch with William of Orange. It lost it in 1914 as it shifted to America. Now America has lost it and it is shifting to China thanks to the collapse of Marxism now in the western culture."

I can't resist: 2020.05 converts to January 18th and 1/4. That approaches their New Year! Will there be fireworks?

Someone explain to me the 224 year cycle that stretches from 1914 to 2020.5. 2020.5 minus 224 puts us back in 1796.5. Or, is his 224 cycle established by Britain's history and no more? He points out the progression from Babylon to Greece, to Rome, the Turkey, Italy, Germany, Amsterdam, London and New York. That's eight locations. If they were all fitted with a 224 year cycle, it would result in a time frame of 1792 years. It would include latter day Rome but little preceding that; considerably short of Greece's B.C. heyday, and leaving Babylon out of the picture entirely. His prediction carries on.

"The West has lost that crown and it now passes to China who will eventually lose it to Europe and the circle will be complete."

"Reasoning" and "facts" like that cause me a little consternation, Duff.

Despite that kind of presentation, here and there are statements with which I find myself in total agreement. Such as "NO AMOUNT OF DECLINE FOR THE US$ . . will ever rebalance the global economy." True. But, then I'd have to ask myself, why would China want to jeopardize itself by assuming the leadership role and placing itself in such a vulnerable position? Will they contend "This time it will be different?" Or, "China would know better?"

[Virgil Showlion]

Old and gray
Message #1713 - 11/24/10 11:08 PM



He's also correct in asserting that trade wars are in the making. From a personal point of view, G20 began with a promising agenda; but, after the last meeting which could be characterized as without resolution of any kind, there's some question if they will ever be able to regroup and be recognized as an effective committee. Sovereign pride goeth before a fall. Doha round of agreements seemed to be progressing so well with the US agreement with India which was to be finalized sometime in the future when suddenly India declared they could not accept the terms they'd agreed to at the previous meeting. . . this was a unilateral declaration (2008?) issued by India something like seven years after the tentative agreement!!?? Again, the Bretton Woods agreement was an anomaly, surprising, too, in the fact that it carried on for twenty years before it was discovered to be inoperable. . . mostly due to the ridiculous assumption that global finance could function on a base of a hard fixed price on gold while the currency was allowed to fluctuate in the inflationary environment. So, we didn't do away with the perceived advantages of fiat currency; we released it from the ties to an inflexible gold standard and continued to inflate away.

What eventuated was fluctuating rates of exchange and . . imagine this! . . Trade Wars! A primary reason is always fluctuating exchange rate. So, Mr. Armstrong is predicting more trade wars. When has international trade ever been free of the threat? In history all the animosity, the legendary naval battles, invasions were primarily matters of settling trade privileges when negotiations failed. Every nation seeks those elusive items, "growth" and "advancement".



Here and there he has some sound statements, such as, "We cannot fix everything by manipulating currency!" Of course not. "We also need SOUND ECONOMICS AND FINANCE. . ." Also true. But, ". . . above all STABILITY IN TAXATION." Sorry, I believe that taxation . . . in ALL ITS FORMS! . . . is one of the few mechanisms available to sovereign governments to aid in balancing systems unbalanced by unsound economic practices and the financial systems countervailing practices of our financial "leaders". Taxation allows us to provide for ourselves under certain dire circumstances, protect the nation, build infrastructure that would not exist otherwise, pay for Congressional junkets, and provide social services to citizens to aid in strengthening the nation and keeping us competitive. Our citizens' strength is our nation's strength! Without taxes we'd have neither. And, unfortunately, counter to Mr. Armstrong's demand for Stability in taxation, the national environment changes unpredictably. . .so do demands on the government; therefore, tax structure changes.



He contends that "currency is the most misunderstood concept within the entire economic landscape." Had he contended it was the most neglected by the entire economic spectrum I would agree. But, it's also true that there have been distinguished voices trying to direct attention to the greater need for the general study of currency as has been pointed out on this thread. It may well be that the subject is not taught effectively to aspiring economists, or, the compensation to an economist specializing in monetarism is not as enticing as it is in international trade, government or banking. There are impressive studies of currency in the economic literature.



So, in all he does advance thoughts with which I'd agree, but somewhere along the line we part company. . . amicably, but we part. On the other hand, some people may find he presents their point of view with the necessary force to get the attention of the "important" people.

---

Duffminster
Message #1714 - 11/25/10 12:00 AM



O&G,



Thanks for breaking this down into the bytesize bits I can digest. I find myself now understanding this document much better. Although many questions remain, on the issue of taxation, I am in agreement, as long as there is real represenation for the tax payers on a non-weighted basis among the commonwealth.

---

Old and gray
Message #1715 - 11/27/10 03:51 PM



By way of illustrating a point made early in this thread, that of banking Boards of Directors not doing their jobs and considering the appointment an honorary sinecure, an attitude which in turn led us to the bind we're in now, the following excerpt from an FDIC directive (a matter of public record) is offered without too much additional comment. It was selected from among a long list of "cease and desist" and "consent orders" issued this week-end to selected banks throughout the country. This is your FDIC at work, at its best.

1. BOARD OF DIRECTORS

(a) Immediately upon issuance of this ORDER, the Board shall increase its participation in the affairs of the Bank, assuming full responsibility for the approval of sound policies and objectives and for the supervision of all of the Bank's activities, consistent with the role and expertise commonly expected for directors of banks of comparable size. The Board shall prepare in advance and follow a detailed written agenda for each meeting, including consideration of the actions of any committees. Nothing in the foregoing sentences shall preclude the Board from considering matters other than those contained in the agenda. This participation shall include meetings to be held no less frequently than monthly at which, at a minimum, the following areas shall be reviewed and approved: reports of income and expense; new, overdue, renewal, insider, charged-off, and recovered loans; investment activity; operating policies; and individual committee actions. Board minutes shall document these reviews and approvals, including the names of any dissenting directors.

The bank's name will not be provided here. That's more or less irrelevant for this purpose. I didn't cull through the lengthy list, but there must be a dozen or two with the same type of admonishment.

The statement is typical of comments or assessments the FDIC includes in their orders. It's a strong indicator of the vigilance needed in supervising banks. You'd expect maturity at the top levels, but like all other top level activity, posturing and preening (along with compensation) may be more satisfying to incumbents than being lauded for a job well done. Once ensconced, Directors generally feel they've accomplished what they set out to do and no further activity, participation, or management is necessary. Like school boys, they then show up and feel their presence alone satisfies all requirements and qualifies them for the stipend they receive. That's the kind of thinking that leads us to the brink of disaster.

Then, like school boys, most of them have to be told what their duties are by the principal. . . in this case, the FDIC.

We probably need something similar to a PTA set-up to deliver us to ethical banking. . . get the public involved!

---

Old and gray
Message #1716 - 11/28/10 03:16 AM



To complete the train of thought introduced in message # 1698, concerning the Fed's involvement in Sec. 619 of the Dodd-Frank Act, the Volcker Rule, here is a review.



As originally proposed by Paul Volcker, the rule was a simple statement: Banks should not be involved with proprietary trading. They have enough to do with settlements, payments and tending to the ordinary banking business of their depositors.

In an appearance before the Senate committee, Volcker explained in his characteristic direct and unambiguous style that he knew what it meant and everyone in the trade knew what proprietary training meant. A viewer·s suspicions might be that the senators, reluctant to antagonize one of the most generous contributing sectors (if not the biggest) were already looking for holes in the Swiss cheese legislation they would eventually turn out. They weren·t handed the clue then, so they were forced to work out something with help from other sources.

The rule is now in writing in the Dodd-Frank Act. Under Title VI · IMPROVEMENTS TO REGULATION OF BANK AND SAVINGS ASSOCIATION HOLDING COMPANIES AND DEPOSITORY INSTITUTIONS, Sec. 619 (starting on page 245) entitled Prohibitions on proprietary trading and certain relationships with hedge funds and private equity funds, there·s no question that proprietary trading is the main issue. However, the very first sentence sends up signals that all is not as simple as Mr. Volcker conveyed to the Senate Committee. It begins

··(a) IN GENERAL.·

··(1) PROHIBITION.·Unless otherwise provided in this section,

a banking entity shall not·

··(A) engage in proprietary trading; or

··(B) acquire or retain any equity, partnership, or other

ownership interest in or sponsor a hedge fund or a private

equity fund.

Non-bank Financial Companies Supervised by the Board (FRB) are also included in this section, but, understandably and, realistically, are accorded greater latitude in their operations. Should they fail, the world would not collapse on the spot. We may be better off with one less ·Non-bank financial company·. Brokers, no doubt, would either find immediate employment elsewhere or start up their own new brokerage.

But, I draw attention to the first line (a)(1) ·Unless otherwise provided. . .· We·re put on immediate notice that there will be exceptions to the rule. Not precisely what Mr. Volcker had in mind. Why propose it if you had no intent to enforce it? Duffminster provided a comment to an article back at #1565 which noted that Mr. Volcker might be disappointed with the gerrymandering to his proposal.

First, since the law calls on rulemaking by regulators and responsibility for review and final acceptance is placed in an authority not yet constituted, it·s a long way between the cup and the lip. The Financial Stability Oversight Council has 6 months to draw up their considerations. Up to 9 Months after completion of the study, the regulating entities involved, the Fed, FDIC, SEC and CFTC will adopt rules based on the study. The rules would then become effective 12 months following. And, banks needing to divest themselves of activities would have 2 years to do so.

We·re looking at 4 · years before banks will be forced to abandon their old habits. . . provided, that is, that those regulating agencies see fit to draw up rules strict enough to require action. Much can happen in that process. It·s entirely possible that, given that banks are running downhill even without additional burdens from new rules, we may be forced into a quicker downturn with more severe suffering than we·ve seen or have been promised to date. Current conditions indicate the economy is not heading upward in the immediate future. Postponing rule-making/enforcement another 4 · years does not provide any degree of assurance that chances for the downturn is lessened in any way.

[Virgil Showlion]

Old and gray
Message #1717 - 11/28/10 03:18 AM



The legislators saw fit to include these provisions to be considered in drawing up the new rules:

· ··(A) promote and enhance the safety and soundness of banking entities;

· ··(B) protect taxpayers and consumers and enhance financial stability by minimizing the risk that insured depository institutions and the affiliates of insured depository institutions will engage in unsafe and unsound activities;

· ··(C) limit the inappropriate transfer of Federal subsidies from institutions that benefit from deposit insurance and liquidity facilities of the Federal Government to unregulated entities;

· ··(D) reduce conflicts of interest between the self-interest of banking entities and nonbank financial companies supervised by the Board, and the interests of the customers of such entities and companies;

· ··(E) limit activities that have caused undue risk or loss in banking entities and nonbank financial companies supervised by the Board, or that might reasonably be expected to create undue risk or loss in such banking entities and nonbank financial companies supervised by the Board;

· ··(F) appropriately accommodate the business of insurance within an insurance company, subject to regulation in accordance with the relevant insurance company investment laws, while protecting the safety and soundness of any banking entity with which such insurance company is affiliated and of the United States financial system; and

· ··(G) appropriately time the divestiture of illiquid assets that are affected by the implementation of the prohibitions under subsection (a).

By themselves, the calls set out as they are do nothing to promise improved conditions. We could proceed through this list and point out weaknesses in the assumptions behind many of the provisions. For instance what·s the definition of unsafe and unsound activities in (B)? Most of the practices banks engaged in that brought us to the brink of collapse were safe had they been put to use in moderation. It then becomes an issue of what are the safe limits? (E) of course addresses those limits, but if the committee will develop rules for each of these items separately (after all, they are separated by the legislation) one will not be dependent on another unless someone steps in to deliberately point out there is an important relationship.



Drawing attention to insurance companies (F), and limiting (·eliminating· would be preferred) transfers of Federal Subsidies to entities not entitled to them would be expected (C). I don·t like the idea of ·protecting taxpayers·. In no way should they be involved. It·s neither their choice nor their will that the financial system behaves the way it does . . . and they usually draw no profit from the speculation. That would put real meaning into killing Too Big To Fail. But, what will result after the regulators bring in their regulated charges for consultations may not be a set of rules we·d expect.



After rules are in place, banks will have 2 years to divest themselves of the illiquid funds they still hold. Additional Capital requirements will be imposed on banks not only when the new rules emerge but during the interim.



We pointed out before that derivatives were accounted for off-balance sheet. The new standard for investment activity will be limited to 3% of banks Tier 1 assets. Strange as it might seem (or not so strange) banks have claimed that they were involved with derivatives no further than the 3% level, and that it should not have caused any problems. Well, yes, 3% of what·s on the balance sheet! When assets are in the $13 trillion range and derivatives are in the $200 trillion range, that might be 6.5% more or less but that does not recognize liabilities. Subtract the liabilities of $11.5 trillion and that 7% falls to 0.75%!!! And, I see no provisions for the banks bringing the off-balance sheet to on-balance sheet status in the new regulations. It may be somewhere else, but I sincerely doubt it. The legislators are not that informed. . .

---

Old and gray
Message #1718 - 11/28/10 03:19 AM



. . .or detailed in their specs.

Then, there is the original warning. . . ·Unless otherwise provided in this section. . .· That is found in (d) Permitted Activities-.

During the body of this thread it was pointed out that derivatives had three functions: hedging, speculation, and market-making. Well, we·re there again!

Among the permitted activities (d)(1)(B) and (C). . .

··(B) The purchase, sale, acquisition, or disposition of securities and other instruments described in subsection (h)(4)* in connection with underwriting or market-making related activities, to the extent that any such activities permitted by this subparagraph are designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties.

··(C) Risk-mitigating hedging activities in connection with and related to individual or aggregated positions, contracts, or other holdings of a banking entity that are designed to reduce the specific risks to the banking entity in connection with and related to such positions, contracts, or other holdings.

(B) and (C) fit the derivatives definition to a ·tee·. The last section of (B), ·. . . not to exceed the reasonably expected near term demands of clients, customers, or counterparties. . .· is laid to rest later when bankers roles are defined. Banks can Manage, supervise, sponsor, or. . and here is surprise on page 252. . .

··(i) REQUIREMENT TO SEEK OTHER INVESTORS.·

A banking entity shall actively seek unaffiliated investors to reduce or dilute the investment of the banking entity to the amount permitted under clause (ii).·

Two conditions follow: in one year, the bank·s share may be no more than 3% of the total ownerships of the fund, and, (ii) aggregate of all such funds are limited to 3% of Tier 1 capital of the banking entity. But, if the bank can·t find participants in one year its holding period can be extended for another 2 years. Think about that for a minute . . . the bank·s share can be reduced to the 3% limit. . which means they can start out at a level exceeding the 3% limitation! And if they can·t bring it back into specs in a year they can have a two year extension! Then what?



Of course, the main question would be why would a bank be allowed to ·sponsor· or actively seek customers if it was prohibited from engaging in the basic practice. Perfect setting for the manager of such enterprises within a commercial bank to approach me and ask if I would like to participate in a setup, all we·d need would be fifty more participants. . . needn·t worry about that, the bank can handle the solicitation as sponsor. . . and, the stipulation that banks may ·actively seek unaffiliated investors·. It·s all perfectly within the law.

To sum it up: the way the Volcker Rule has been re-designed, with still one more set of rules to be established:



Banks would not be able to engage in

Proprietary trading or retain any equity, partnership, or interest in or sponsor a hedge fund or a private equity fund;

Except:

They can participate in the sale, acquisition and disposition of securities and ·other instruments· for underwriting or market-making activities so long as they don·t exceed ·reasonably expected· near term demands of clients, customers or counterparties;

And,

They can engage in risk-mitigating hedging activities. . . designed to reduce risks to the bank;

However,

If they do exceed any of the limits or restrictions specified, they can actively seek other investors to ·reduce or dilute· their share of the investment.

Now, after all that, can the new legislation meet the expectations of a simple statement that banks should confine themselves to banking business and, in order to reduce the strain derivatives place on the financial system, abstain from proprietary trading?



This is neither a simplification nor the spirit of the Volcker Rule. They're being told they can continue issuing derivatives and involve themselves in the shadow banking areas but not to call it that.



*see post 1728 below.

---

Old and gray
Message #1719 - 11/28/10 02:37 PM



As an attachment to the above opinion, two items may be of interest:



The Securities Act of 1933 now has a reference to securitizations as amendments stipulate in Sec. 621. Conflicts of Interest, "Conflicts of Interest Relating to Certain Securitizations". It's pointed out just to assure those who might be worried that the big mix-up in mortgages caused by untraced transactions on the global market might have been done away with. About seven paragraphs on pages 256 and 257 of H.R. 4173 (that's easier to type than the short name of the Dodd-Frank Act) reference securitization transactions subsequent to the initial transaction.

The SEC will propose rules by the ninth month following enactment of HR 4173 (which places the due date in the last half of April 2011) b which time the rules should be formulated. However, as in all these matters, the Act provides exceptions to the regulations.



··(c) EXCEPTION.·The prohibitions of subsection (a) shall not apply to

··(1) risk-mitigating hedging activities in connection with positions or holdings arising out of the underwriting, placement, initial purchase, or sponsorship of an asset-backed security, provided that such activities are designed to reduce the specific risks to the underwriter, placement agent, initial purchaser, or sponsor associated with positions or holdings arising out of such underwriting, placement, initial purchase, or sponsorship; or

··(2) purchases or sales of asset-backed securities made pursuant to and consistent with·

"A) commitments of the underwriter, placement agent, initial purchaser, or sponsor, or any affiliate or subsidiary of any such entity, to provide liquidity for the asset-backed security, or

··(B) bona fide market-making in the asset backed security."

Title VII- dealing with swaps follows hard on the heels of this section and in Sec ****, this little gem is found.

(2) SECURITIES AND EXCHANGE COMMISSION.·Nothing in this title, unless specifically provided, confers jurisdiction on the Securities and Exchange Commission or State securities regulators to issue a rule, regulation, or order providing for oversight or regulation of·

(A) swaps; or

(B) with regard to its activities or functions concerning swaps·

(i) swap dealers;

(ii) major swap participants;

(iii) swap data repositories;

(iv) persons associated with a swap dealer or major swap participant;

(v) eligible contract participants with respect to swaps; or

(vi) swap execution facilities with respect to swaps.

Barring the discovery of provisions which might counter this thought, even though the Gramm Leach Bliley Act Sec. 206B and 206C may be rescinded, it would appear that the invisibility of swaps is still in place as far as the SEC is concerned. The CFTC was the major recipient of the restrictions which placed derivatives in general in the "invisible" category. Sec 712 of Title VII has this revelation preceding the above:

(b) LIMITATION.·

(1) COMMODITY FUTURES TRADING COMMISSION.·Nothing in this title, unless specifically provided, confers jurisdiction on the Commodity Futures Trading Commission to issue a rule, regulation, or order providing for oversight or regulation of·

(A) security-based swaps; or

(B) with regard to its activities or functions concerning security-based swaps·

(i) security-based swap dealers;

(ii) major security-based swap participants;

(iii) security-based swap data repositories;

(iv) associated persons of a security-based swap

dealer or major security-based swap participant;

(v) eligible contract participants with respect to

security-based swaps; or

(vi) swap execution facilities with respect to security-based swaps.

---

Old and gray
Message #1720 - 11/28/10 02:49 PM



Not offering myself as an expert on interpreting legislative language, but this certainly does appear to be Congressional approval for the continuation of swaps activity in unchanged pre-crisis conditions despite all the bold, posturing, restrictive language found elsewhere. Besides the watered down Volcker Rule, we also have the groundwork providing for continuation of other risky and untraceable activities in securitization, hedging and market-making. . . The speculative facet of these threatening devices just happens to tag along under these circumstances.



The law now begins with a "prohibition", then we have one category, that which is "permitted", which appears contrary to the prohibition, then we have "exceptions" which further reduce the effect of the prohibition. In the end, the "prohibition" may be no prohibition at all. Point to one section of the law and say that this fulfills the requirements to clean up the business landscape that caused the problem last cycle, but when the entire document is understood, nothing of note may have been achieved except those consulted about whether one approach or another would suit their purposes, the industries involved elected to continue on the course that proved disastrous last time around the track. We're back to the motto, "This time we know better!"



Any thought that Dodd-Frank would treat banking differently than had been the practice before the crisis surfaced seems to have faded. . . at least where derivatives and their subcategories are concerned. The only thing missing from the old GLBA is the reference to manipulation and fraud. Would that imply that dealers in these instruments are then open to such charges in civil court? and that Congress thereby has opened the door for the public to pursue further developments in the issue in courts?

[Virgil Showlion]

neohguy
Message #1721 - 11/28/10 08:27 PM



I watched an interesting interview on Fareed Zakaria GPS this morning. He is interviewing David Stockman who was Ronald Reagan's first budget director. Mr Stockman provided excellent opinion about our economy and did not get into any type of political rant.

The following are the transcripts from that interview. The interview starts about half way down the page after the interview with Admiral Mullen:

[archives.cnn.com/TRANSCRIPTS/1011/28/fzgps.01.html] archives.cnn.com/TRANSCRIPTS/1011/28/fzgps.01.html

---

Old and gray
Message #1722 - 11/29/10 02:06 AM



Neohguy



Thanks for the link. Interesting point of view from Stockman. You're right, restrained and thoughtful presentation. I selected this passage to represent his viewpoint.

The panic that occurred in September, 2008 was not in main street America. It wasn't businesses about ready to close their doors because they didn't have cash to meet payroll. That is all urban legend. It's mythology. The panic that was going on was in the fifth floor of the Treasury Building. It was in the Eccles Building where the Federal Reserve and Bernanke reside, and they created the panic. They stirred up Congress. They were so concerned about where the stock price of Morgan Stanley and Goldman was that they didn't look at the bigger picture.

If a couple more banks had gone under, they would have gone under. If the Golden stock had gone down to $10 and stayed there for a couple of years, it wouldn't have been the end of the world. But when we did that, that was the waterloo for fiscal policy because how can you ever tell a congressman from Alabama to cut cotton subsidies after you have bailed out every one of the major banks and not only bailed them out, but within a year they were back to a picture of rosy pink health and paying bonuses which they will this year of $144 billion, nearly the highest in history.

And I'll never forgive the Bush administration and Paulson for basically destroying the last vestige of fiscal responsibility that we had in the Republican Party. After that, I don't know how we ever make the tough choices.

---

djrick
Message #1723 - 11/29/10 05:13 PM

fwiw

For all who are long banks in general.

[www.dailyfinance.com/story/credit/bank-of-america-mortgage-document-errors-trouble-countrywide/19728402] www.dailyfinance.com/story/credit/bank-of-america-mortgage-document-errors-trouble-countrywide/19728402/


"There's been talk on the street for years that banks didn't send the notes up the line when they did securitizations," explained [www.maxbankruptcybootcamp.com/] Max Gardner, a consumer bankruptcy attorney not affiliated with this case but who has litigated foreclosures based on bad bank documents for years. "But this is the first time I've seen someone under oath admit there was a policy not to deliver the notes. I had to read it twice to make sure that's really what she said, but she did: It was customary."
See full article from DailyFinance: [srph.it/ar7Mlc] srph.it/ar7Mlc

---

Old and gray
Message #1724 - 11/30/10 02:48 PM



In line with the quotation from an FDIC Consent Order in Message #1715, here is another example of a not complimentary assessment of another bank failure, in Utah, which pins responsibility for failure on improper - or completely absent attention to - bank business details beginning - where else but at the board and senior management level.

Executive Summary In-Depth Review of the Failure of Centennial Bank, Ogden, Utah

Causes of Failure and Loss

Centennial failed because its Board and management did not effectively manage the risks associated with the institution·s significant concentration in ADC loans. The institution·s ADC loan portfolio consisted primarily of single-family residential real estate, much of which was concentrated in pre-sold construction loans, large residential loans over $500,000, and stated income loans. Limited loan underwriting on a substantial portion of Centennial·s loan portfolio and deficient credit administration and related monitoring practices also contributed to Centennial·s failure. Some of these practices and their apparent significant impact on the failure of Centennial are the subject of ongoing investigative activities.

Although not a primary cause of failure, Centennial relied heavily on brokered deposits to fund its ADC lending activities and maintain adequate liquidity. When the institution·s financial condition deteriorated, access to this funding source was restricted, placing a strain on the bank·s liquidity.

Weaknesses in Centennial·s lending markets began to negatively affect the quality of the institution·s loan portfolio in late 2007. By the close of 2008, the quality of the loan portfolio had become critically deficient, primarily due to the poor performance of ADC loans. The deterioration in the loan portfolio continued into 2009, and by early 2010, the associated losses and provisions had depleted Centennial·s capital, rendering the institution insolvent. Despite considerable efforts undertaken by bank management and the Board to attract capital from external sources that commenced in late 2008 and continued into 2009, the bank was unable to raise sufficient capital to support its operations. Consequently, the UDFI closed Centennial on March 5, 2010.

To view the full report, go to www.fdicig.gov

Report No. IDR-11-003

November 2010

Followers of this thread from the beginning may recall that criticism of the banking's general condition began at the Board and senior management level. FDIC Analysis of the banking flaws seem to be centering on the flaws found in the Board room, which is as it should be. Seeking reasons for failure of short-comings in any entity, corporation, public or private, the starting point is the board room. And usually the board room is the most adamant in insisting that the flaw lies elsewhere - somebody else didn't do their job!

The lower echelon rarely, if ever, outperforms the top strata of an organization.

What the FDIC is re-affirming is our contention that eventually resolves itself in the statement, that more banks than we are willing to admit are not set up to function properly. Just as a majority of all organizations are not set up with proper staff to operate effectively - much less efficiently. There simply is not enough trained talent around to provide what's needed. Those are the principal reasons for holding to the view that business cycles, boom/bust, will not likely be controlled - egos and bull-headedness - two of the three worst enemies of decision making and management.

[Virgil Showlion]

Old and gray
Message #1725 - 11/30/10 02:49 PM



By this week-end, if the current rate continues, we should surpass 150 failures for the year with a month remaining - by no means a record, but a significant number nonetheless. There will be more paring in the industry through next year. 160 + for this year is not beyond a realistic number of closings or takeovers. If they do not come up with that elusive, informed talent desperately needed for management positions, we may be facing a continuing slow contraction of the number of banks available and fewer options for banking services provided to depositors.

Our hope should be that the FDIC can continue its orderly transition to a leaner, stronger, more efficient banking industry. The fear is that the Dodd-Frank construct with its new Agencies and Councils preparing new rules and putting less than optimally talented people in control of the industry would meddle too much with the business of the effective agencies, in effect dragging them down to a lower level in the name of standardization. After all if you can't get suitable talent to fit the job at hand, you lower the bar to fit the job to available talent. . . All in the name of efficiency.



BTW, for those interested, the pdf presentation of the entire document quoted above can be found at this site.



[www.fdicig.gov/reports11/11-003IR.pdf] www.fdicig.gov/reports11/11-003IR.pdf

---

Old and gray
Message #1726 - 11/30/10 03:28 PM



I'm very much in sympathy with Stockman's quoted description of the origin of the panic that overtook the government and the implication of the kind of mental state which controlled the reaction to the crisis. Had those in authority simply empowered existing staff to go in and clean up the sloppiness prevailing in the industry, establish rules to prevent the recurrence, we would have had a quicker, simpler resolution, it would have proved that the system worked, and the general public would have had confidence restored and we could have proceeded to a higher ground. But that's not the way the egos in Washington work.

To date much of the carelessness or even recklessness that was pointed out early in this thread has not even been mentioned for fear of damaging delicate egos at industry management top levels. Most of the problems are reprised in message # 1593. You can decide for yourself whether they are important or if they have been addressed - much less attended to. From this end, the belief is stronger than ever that: (1) the institutions are too big to manage; and, (2) the accounting standards are desperately in need of revision to deal with the off-balance sheet tragic-comedy.

A number of the obvious objections could have been taken care of by way of the Volcker Rule if that had been allowed to see the light of day, but as outlined above starting in Message # 1716, the belief here: it was still born without even the dignity of burial or respect of a memorial service.

What we'll have now may be confusion - everyone spinning around in circles for years wondering how this should work out and whose toes will be avoided and whose will be tromped on mercilessly. Think Homeland Security, pat downs, strip searches and x-ray machines which today have turned up nothing and subsist on the specious argument, "Well, if we didn't have them, something would have happened." We did have them and something did happen. Our freedoms took another hit and the marvelous document, The Declaration of Independence, was diluted to a lower level.



Fear rules the day in more ways than one.

---

BGA4444
Message #1727 - 12/01/10 08:33 PM

How about instead of "limit" on (E) we change to "stop" or change (E) to (S) for "Screw" the American people. I have a even better Idea bring back Glass-Stegall. When doing this arrest all those who voted to repeal Glass Stegall and try them for treason. We can do this starting with Gramm Leach Bliley and get the rest from there!

---

Old and gray
Message #1728 - 12/02/10 04:26 AM



* Footnote to post # 1718. -



In message #1718, about 2/3 of the way along the 5th line, the reference (h)(4) has been italicized in bold type. That sub Paragraph in the "definitions" section describes the specific instruments which are "prohibited" except when they are "permitted" or "exempted", a clear demonstration that the solons did not rush into this legislation with their eyes closed. The text is as follows -

··(4) PROPRIETARY TRADING.·The term ·proprietary trading·, when used with respect to a banking entity or nonbank financial company supervised by the Board, means engaging as a principal for the trading account of the banking entity or nonbank financial company supervised by the Board in any transaction to purchase or sell, or otherwise acquire or dispose of, any security, any derivative, any contract of sale of a commodity for future delivery, any option on any such security, derivative, or contract, or any other security or financial instrument that the appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission may, by rule as provided in subsection (b)(2), determine."

The bold and italics have been added to call attention to the investment instruments to which the "prohibited", "permitted", and "exempted" labels apply.



Fully aware of Sec. Geithner's proposal to separate derivatives as "standard" and "non-standard" when he discussed the CCP clearing house platform for derivatives, (exempting the "non-standard" from those controls even before the House or Senate had assembled their versions of the bill) we should be aware that the SEC and CFTC can add any additional definitions to those instruments which might be excluded, permitted or exempted from regulatory oversight.

[Virgil Showlion]

DumDeeDoe
Message #1729 - 12/03/10 01:35 AM



Does it not seem that the big banks are just following business 101?

1) Eliminate competition: Small banks that are not to big to fail are failing at a alarming rate. With loan interest rates below default rates that is bound to happen. To survive small banks will need to change up their income models from loans to something else.

2) Eliminate bad debt: Roll it into derivatives and sell it to less informed/important customers.

3) Get credit at the lowest possible rates and increase capital by getting investors: I don't know if the American people were willing investors, but 50 billion bailout does prop the capital up a bit. And practically free and unlimited credit through the fed is very supportive.

4) keep your customer base up: Hard to do after a lot of your customers got screwed with the derivative scam. so lets use the government to ok 401k monies to be invested, but limit the avenues of investment to a few classes of investment bank mutual funds. Then use that money(2.2 trillion) to back your plays in the markets to keep your big investors happy during the "recession."

5) keep your employees at a good morale to improve production: 144 billion in bonuses should help the guilt ridden derivative salesmen to feel a little less guilty.

---

Old and gray
Message #1730 - 12/03/10 06:00 AM



DumDeeDoe



You might say that small banks are failing at an alarming rate, but I witnessed an era (rather young at the time, but it was pointed out to me by an eager mother and grandmother) that there was a saloon on each of the four corners of almost every intersection. One thing about Prohibition, it shut down the saloons and when it was repealed, the saloons returned in more moderate numbers. You might say that there were just too many saloons in operation and it turned public opinion against them. When saloons were replaced with speakeasies, their relatively harmless value was discovered, and they were restored to a position of trust and social honor in more moderate numbers and with just enough management talent available to be well managed.



Do we really need as many banks as we have. . one on every one of the four corners of an intersection? We will see more of these small banks upbraided by the FDIC and regulated with a different set of rules by the Fed. It stands to reason if there are too few qualified managers and directors to staff the number of banks on hand, they need to be reduced until the number fits the supply of qualified personnel available. Apparently, we're not interested in training personnel to fill the positions.

That responds to number one on your list.



The other four can be answered quite simply by turning the clock back. An English Professor, Alfred Marshall, largely has been labeled the last of the philosopher/economist/moralists. He wrote his textbook in a style which would be understood by the layman and would appeal to that level of reader, I'd suppose. He believed in math, but held off on peppering the text with formulae. If you wanted that exposure, turn to the footnotes and the appendices. He had a very popular book, not outsold until the twenties and thirties when everybody and his brother was an "expert" economist and there was such a clash of ideas that nothing seemed to make sense to any one else and one after the other, the economist "experts" lost their shirts in the downturn of the markets. It wasn't until Paul Samuelson pulled everything together in 1948 that economics seemed to start off in a more or less unified direction.

At any rate, Marshall's book has a response that might address your tongue-in-cheek last four points. Near the beginning, Book I, Chapter IV, Section 4, this appears:

I.IV.11

· 4. . . . The practical issues which, though lying for the greater part outside the range of economic science, yet supply a chief motive in the background to the work of the economist, vary from time to time, and from place to place, even more than do the economic facts and conditions which form the material of his studies. The following problems seem to be of special urgency now in our own country:·

I.IV.12

How should we act so as to increase the good and diminish the evil influences of economic freedom, both in its ultimate results and in the course of its progress? If the first are good and the latter evil, but those who suffer the evil, do not reap the good; how far is it right that they should suffer for the benefit of others?

Book I, Chapter IV, Section 4.

Written between 1881 and 1890, his Principles of Economics was published in 1891 and was the leading economics textbook in England until the high-flying days of the twenties and the depression years of the thirties when such sentiment had no place in the roaring business climate of the times.

Strangely enough, and to demonstrate how we live in cycles of all kinds, take careful note of the preceding fragmented sentence closing the first paragraph.



Seems to fit today's situation, too, doesn't it? That's why hardly anyone other than scholars reads Marshall today. He was a man with an imagination, a conscious and a set of morals. Doesn't fit well when you're trying to reach that annual goal of a nine figure bonus.

---

5parts2ahorse
Message #1731 - 12/03/10 10:59 AM



O&G & Duff, or Bruce...?



With all that O&G has referred to here beginning with #1716,

Where do farm subsidies and their cooperative "lenders" fit in?

Being as this seems to be a major $ value economically and in many instances taxpayer supported? The language seems to have been customized to exempt that major market from any scrutiny/accountability or did I miss something?

Just a thought-

---

Old and gray
Message #1732 - 12/03/10 03:20 PM



You could have missed it!

At $20 billion dollars in a $14 trillion economy (about 0.17%), although farming is a significant part of our economy, subsidies are not a significant part of the budget. The European Union generally spends about twice that percentage on their subsidies, still not a significant portion. Elizabeth A. Duke, on the Fed Board of Governors is deeply involved in farming, her principal investment interest, so farms are well represented in the Fed's decisions.

Economists don't spend a great deal of time analyzing smaller items in monetary policy studies. It might be difficult to find a large collection of literature devoted to the subject. It's there, but not on top of the pile. Among the reasons for what can be considered a diminishing interest are: 1) the evolution of large corporate farming (at least in the US); and the current openly political aspect of the subsidy practice. It's easy to understand the importance of subsidies during the thirties - the dust bowls of Central US, the small family farms, the share-croppers and the forced migration away from the small farming homesteads. Without government assistance, we may have ended up with an insufficient domestic food source.

But, today with dominance of the large corps which are mostly self-sufficient and profitable, subsidies have drifted more into the role of a political tool except for those farm units which are still "small" and family operated. The term "subsidies" has taken on a connotation something in the order of "socialism" (another bad word - misuse and all). In the late 90s politicians have dealt with that by renaming the practice "Direct Payments" so they can now claim there are no more "subsidies". The support, although significant to perhaps less than 10-20% of total farmers in the nation and vital for survival to a still smaller percentage, is more important to the politicians than it is to the national economy or food supply chain unless you care to argue from a national self-sufficiency point of view.

The American housewife has become accustomed to seeing her food labeled as imported from South and Central America, or somewhere in Asia (China, Thailand, etc.). Europe on the other hand still is blessed with agrarian communities, small towns where the farmers live, while they set out to tend their farms surrounding the town or village. Lately, those people have come around to boasting that no matter what happens to the rest of the world as a a result of the games of the financial communities, the residents of the small agrarian villages will never go hungry. Food is plentiful and cheap in those locations. . . and, the people can't understand why it is not so everywhere else. The advantages of these smaller communities might be more obvious if cross border financing and transportation complexities are considered. The local, small farm arrangements have no problems with financing or transportation, spoilage or marketing, fluctuating interest rates, etc. (The rates themselves have become less of a burden what with i-phones yielding instant up-to-date exchange rates).

[Virgil Showlion]

Old and gray
Message #1733 - 12/03/10 03:21 PM



So, as important as food supplies are to survival, the politicians have handled the domestic cosmetics of subsidies, the profitable corporations have handled the guarantees of supplies (even if most of them over-produce certain products and are dependent on export markets), and local banks (which currently are stronger than the large internationals), which are deeply involved in their communities, are providing the financing needed to support the crop cycle. Granted these banks may need attention at times, but the politicians dependent on votes will see to it that the flow of support wouldn't dry up in the event the situation became desperate. Votes are more important than all else. . . even food. Ask the politician.

When we're talking about $12 to $20 trillion to clean up the banking and financial mess, $20 billion is little more than a toss-off and won't generate a flood of studies or taxpayer complaints. . . . except if someone proposes to cut out "direct payment" for cost cutting purposes as a gesture. There's no evidence the Bowles-Simpson Committee considered that possibility. They'd do away with education and defense spending before they'd sacrifice farm votes.

---

Old and gray
Message #1734 - 12/07/10 02:58 PM



In message # 1715, an excerpt from an FDIC report in re a bank's upper management failure to function properly was posted accompanied with a comment that such would be the case with a large number of assessments of banks poor performance.

Well, yesterday, the FDIC Inspector General released reports on five banks with pretty much the same conclusions.

[www.fdicig.gov/reports11/11-009.pdf] Material Loss Review of R-G Premier Bank of Puerto Rico, Hato Rey, Puerto Rico

[www.fdicig.gov/reports11/11-008.pdf] Material Loss Review of Eurobank, San Juan, Puerto Rico

[www.fdicig.gov/reports11/11-007.pdf] Material Loss Review of Westernbank Puerto Rico, Mayaguez, Puerto Rico

[www.fdicig.gov/reports11/11-006.pdf] Material Loss Review of Frontier Bank, Everett, Washington

[www.fdicig.gov/reports11/11-005.pdf] Material Loss Review of CF Bancorp, Port Huron, Michigan

The conclusions echo each other:

Causes of Failure and Material Loss

R-G Premier failed primarily because its Board and management did not provide effective oversight of the institution and failed to react in a timely manner to deteriorating economic conditions in Puerto Rico. . . .

Eurobank failed because the Board and management did not effectively oversee or appropriately react to the impact that Puerto Rico·s prolonged and severe recession had on the bank·s CRE and ADC loan portfolios. Management mishandled the administration of these portfolios as the economy deteriorated, real estate sales slowed, and loans became delinquent. . . . .

Westernbank failed because the Board and management·s lending strategy focused on growth without ensuring that credit risk management practices kept pace with the changing loan portfolio. . . .

Frontier·s failure was attributed primarily to weak Board and management oversight of its high CRE and ADC loan concentrations. Specifically, the Board and management did not establish risk management practices commensurate with the risks associated with this lending, some of which involved speculative construction lending. . . .

CF Bancorp·s failure was due to poor risk selection, which included concentrations in CRE and ADC loans with collateral located in Michigan and Florida, and investments in private-label collateralized mortgage obligations (CMO). . . . .

If you show up only on Thursdays to pick up your paycheck and accept the adulation of the peasants, you can't very well be there to manage the bank on a day to day basis, can you?

---

djrick
Message #1735 - 12/09/10 09:09 PM

An Irishman Tells The Truth (NSFW)



[]

---

Ž
Message #1736 - 12/09/10 10:13 PM

lol...the Irish don't pull any punches when they've finally had enough of the crap!

[Virgil Showlion]

Old and gray
Message #1737 - 12/15/10 02:02 PM



Unable to sleep, I climbed out of bed at 4:20 AM, put my robe on and sat down at my PC to compose thoughts, watching the screen unfold. This subject has been under consideration so long, that not only do I have an updated version of MS Office, and a still unfamiliar appearance of the new Word desktop, but, my OS has been replaced by a completely new system. New technology, or at least the appearance of newness has taken over as we continue to plug away almost without conscious awareness of changes around us.

Is that too long to be occupied with one subject? So many variations of thought, different viewpoints have been encountered along the way that it·s difficult not to think of the Tower of Babel. I wouldn·t blame anyone for losing interest as we wended our tortured path bordering on, if not crossing over into tiresome or just plain boring.

Exhaustion or boredom can easily prompt us to conclude that it doesn·t pay to analyze a situation as complex as this financial crisis. After presenting evidence that includes sovereign law, historical recall, legal precedence, the internal operations of a government, personal experience and the recorded thoughts and annals straight from a sanctified ·science·, one might be induced to call the effort an indistinct smear across a portion of our lives, instead of a clear analysis and distinct proposal for a solution.

Eric Hoffer comes to mind: blinded by an accident at an early age, he recovered his sight mid or late teens and proceeded to read everything he could lay his hands on. He committed thoughts and experience to writing and eventually found a publisher and about fifty years ago a series of thin books were issued under his byline. At that point he was working on the San Francisco docks as a common dockhand, but the books and his subject matter delivered fame to his doorstep. The concept of thin books is emphasized because he kept his books short guided by his personal impression that people usually write two books. The first was a short book covering everything they knew; the second, a long book with everything they didn·t know. In this thread, we may very well have passed directly through to the longer version leaving the shorter version behind, untouched.

But, by now, on all of the MS Money message boards, I would guess that the community has contributed over two million words, more likely double that, dealing with this crisis. If you look for explanations and definitions, it·s a weighty study. Tossing in our own slanted views of the world tends to color the study differently at every turn. Under those conditions, can we render an impartial verdict? To present conclusions after all that·s been written, might generate something appearing to be heavy handed and short of reason, yet, somewhere a line has to be drawn and doors closed on our issues in order to prepare for the next battle. . . and, in order to keep the healthcare givers from interrupting by popping in at 5 AM, asking if everything is all right.

We·ve got to reset our world in an upright position and restore order for all concerned. So, let·s see what we·ve presented to this point. . . and after we close the door again for the fifth or tenth time, it·ll work itself loose again and remain ajar coaxing us back in for more discussion.

From the start we·ve maintained that this crisis is not much more than a redistribution of wealth. True, it·s complex, steeped in arcane, technical moves to take advantage of what·s allowed ad skirt what·s disallowed thereby penetrating into areas that lack clear definition in law, tradition, or expectations. Complex though it may be, the results were controlled by one thought, one vision, that of the perpetrators who accomplished what they had in mind · more of the world·s wealth concentrated in fewer collection points. To a certain point it·s a laudable ambition to improve oneself, but when it upsets the balance of the system to the point where it·s frozen in inaction, perhaps there·s some not so laudable over-reaching involved.

---

Old and gray
Message #1738 - 12/15/10 02:04 PM



The gap in income and accumulations between the general populace and those running the game at the top has, as has been generally noticed globally, stretched further than had been the practice in the recent past. How this compares to centuries ago when one person might have owned entire counties or royalty presided over nations is difficult to judge, given the confounding nature of continuing inflation, growing population, continuing technical and cultural changes and political evolution. We don·t really know if we·re comparing the same fruit or comparing fruits and nuts! Yet, we may reasonably develop an impression that today·s social structure has evolved into just another restatement of the old landed aristocracy/peonage order. Even as the events changed our world, the struggle was constant, even unremitting. Live through enough years and you·ll conclude that our dress and environment may change, but the same heart beats underneath, and the same mind controls. Whatever changes we passed through, some among us never lost sight of our goal and, it would seem, the driven class eventually achieved what they sought.

Is this claim incontrovertible? Let·s recognize that sympathies and personal aims will prod us to dispute that it may not be. But, for the sake of wrapping this up, I·d ask forbearance so we can proceed, otherwise we·re facing another half million words.

Above, they·re called a reconstitution of nobility of old because the reality is that they do control government, they do establish standards in dress, culture, even what is taught in schools, what constitutes a science, what science shall stand for, what conclusions science will draw from data, what popular thought shall prevail, what standards rule in the streets (even though there are elements disputing who·s in control), what social habits and occupations will receive the most support, all very much like the nobility of old. They can buy and sell lives, honor and fealty, chiefs (think CEOs, CFOs, and COOs) and presidents. What·s the difference between today·s culture and yesterday·s structure besides the language, landscape and dress codes?

In today·s words, the inescapable fact of the distinction between our new royalty and the unwashed masses is acknowledged. The point of the phrase ·Wall Street and Main Street· covers it all. The ideas of, or hope for pure democracy have been suppressed, quietly, but the docile obeisance and compliance by the government to the new royalty·s wishes is another substantiating bit of evidence. Only the claim of divine rights is missing and that was supplied pointedly (and joked about later) with the bold announcement that they ·do God·s work·. The circle is complete. We·re back in the middle ages.

So, accepting this as the goal and the method having been discussed at length through the tsunami thread, how can we summarize the cure for our current ailments? The last severe financial problem we had was dealt with effectively. As mentioned elsewhere, we didn·t like what Paul Volcker did in his tenure at the Fed, called for his job, his scalp and his honor, but he prevailed, strong-willed icon that he is. And he fought a fight that was called inappropriate solely because it was inconvenient to the wants of those at the top.

Today we can·t fight at all to re-establish order because we·re all trying to be diplomatic, avoid hurting someone·s feelings, or protect our future which happens to reside in someone else·s hands, something that held no interest whatsoever for Mr. Volcker. He saw a problem, recognized that if a course wasn·t selected and a stand taken, the difficulty could lead us into ruination.

---

Old and gray
Message #1739 - 12/15/10 02:06 PM



We don·t do that today. Politicians must be mindful of who helps them gain office and who can help them hold office so their opinions must be respected. Readers who·ve worked inside political parties can, if they could be so bold, testify to this. The absolute last concern within political parties is for the general public. After all the needs and wants of the sponsors are taken care of, if there is anything left, the system is supported, infrastructure is cared for and then the public may receive token attention. In the last there is little diplomacy, just enough to settle any ruffled feathers of those below that might cause consternation to the top echelon. The kind of delicacy called for in that respect does not look for a hard and fast solution that could upset sponsors. Reality is toyed with and alternate solutions are justified through long and twisted paths of reasoning. . . All designed to maintain the status quo. There are times when the upper echelon finds a solution is not necessary.

Is there another 6 foot seven giant from Cape May on the horizon who can work through the current difficulty resolute and unperturbed?

What he·d need to do is consider the policy of the Fed which is myopic and administered with the same trepidation mentioned above. There are conflicts in the textbooks, both history and economics, about just what might be effective. We·re caught up in the myth that interest and money supply is our principle weapon for correcting imbalance, the myth phase of that being that they must be maintained within certain limits for balance. The limits placed on interest is a carryover from England·s practice of nearly two hundred years ago in which statutory law controlled interest rates within rather strict limits and left only currency adjustments by the Bank of England to respond to systemic financial bumps and bounces. Economists got busy at this point, not in verification, but in justification catering to the upper class, their usual tack.

After Jevons, we turned toward math with more determination and eventually arrived at Fisher·s equation in his investigation of money and the price level. It still has its uses. But, precisely what it can explain in practical terms to help solve the current ·wholesale· run on banks is poorly stated if it applies at all. Yet, the Fed insists it will play with the amount of currency balanced off against the amount of debt in anticipation of providing the environment needed to stimulate growth and leave interest at an artificially low position. Among other things, interest should provide compensation to the lender for the risk involved. Considering today·s investment environment, there is considerable risk promised therefore, there should be appropriate compensation to the lender through higher interest rates.

Since growth is dependent on demand, unless that currency is placed directly in the hands of the spending public, there·s little hope of correction to lack of demand unless one of two things occurs, the first being the obvious level is reached where enough currency is released to debase its value and relieve the burden of debt. This is not what the top echelon would favor. So, our central bank has been tiptoeing around the issue trying to resolve its puzzle · how do you do this without offending their patrons. They ignore entirely the one proven way to handle the issue, and choose to be guided by delicacy which is totally ineffective.

The second course of action is through adjusting rates. The truth of interest rates was stated when at one point in the proceedings the thought surfaced that there is a point where interest attracts both investors and commerce and both benefit. This was the driving principle behind Volcker·s move in the early eighties whether he acknowledged it or not. A man with his experience could sense the rationale and by trial and error make the appropriate adjustments until the stability and benefits were evident in the economy.

To institute such a program today would require a resolve not found in abundance on the current board.

---

Old and gray
Message #1740 - 12/15/10 02:07 PM



The benefit to commerce is to quell the risk taking that has delivered us to the debt level we currently occupy. We also need a reminder to the various industries that care is needed. The business cycle has run its course, is at a standstill and needs to regenerate. At the present level of consumption, there is no need for expansion. Thus, the second purpose of interest rise, to distribute funds to the consumers and holders of the circulating wealth of the system (which is now lying fallow), would help fuel the recovery by reactivating dormant markets from the demand side. Contrary to the old canard, production does not generate its own demand. When the means are absent, demand is reduced. Reinforce the redistribution back to the consumer·s side and demand will reassert itself. Once the markets are functioning again, interest rates could be lowered to a more reasonable level and prepare the credit system for whatever may be required by commerce to meet demand.

Since the original intent of the chosen upper echelon, the inordinate thirst for more, delivered us to the current imbalance which deprives the general population of liquidity and the currency flow that feeds the marketplace, the suggested move would tend to redistribute the wealth back to the levels that would put it to general use and divert it from uses which are related to hoarding since those highly personal applications take the currency or wealth out of circulation. Just look to the early eighties for conformation.

Passing $250 out once to every taxpayer or $700 billion to commerce will not stimulate long term recovery. Providing the strapped consumer with a promised, continuing income through higher interest rates long term, is more reassuring, currency will begin to recirculate and will stimulate recovery. More consumer activity in the markets means more activity in the support industries, and generally it means a better circulation of wealth, currency and operating capital. It is guaranteed that the business cycle can then recover. Play it close to the vest and there is no guarantee of recovery in any predictable future timeframe.

We·ve seen it done, but the conclusive evidence is not convincing if we have other agendas that supersede general welfare.

[Virgil Showlion]

kman49
Message #1741 - 12/16/10 03:19 AM

Eric Hoffer comes to mind

One of my favorites. " no such thing as boring work. Only boring people" I was telling this to my 18 year old this evening. I've kept this author close to me over the many years of working heavy construction. Eric Hoffer also stressed that you are never done learning.
I enjoy learning from experience. Your original thoughts are priceless. Thank you for paying it forward O&G.
I trade my own 401k. I take direction from what I learn. My business creates American jobs. I take advantage of the greedy with my investment strategy. It's easy to take advantage of evil. The work load to turning that into a positive is a challenge but worth it.

---

Old and gray
Message #1742 - 12/18/10 05:17 AM

Thank you for paying it forward O&G.

Eric Hoffer had one for paying it forward, too, kman. It was the story of the pea patch. My favorite BTW.



At one time in his wandering life, Hoffer was an itinerant farmhand. He signed up for working a pea patch and was assigned a row to pick. Busy at work for some time, he stopped, looked up and off at the far end of his row, another hand was busy picking peas in Hoffer's row. He stared at the man, who finally looked up and waved at him briefly and went on picking Hoffer's peas.

They worked toward each other and the closer they got, the angrier Hoffer grew. Finally, they were a couple of steps away from each other and Hoffer was burning something fierce and turned to confront the man who calmly took the bag off his shoulder and held it toward Hoffer, and said quietly, "Now, it's your turn to pass it on," turned and walked away.

---

kman49
Message #1743 - 12/19/10 02:26 AM

Great story from the longshoreman philosopher. A book was given to me from a high School counselor. It's a great message for the youth of any generation. Whenever I am in a position to help and I am asked.."what do I owe you" I look them in the eye and say " pay it forward". Now I have two people I will think of, every time I pay it forward. God Bless O&G. The beauty of Hoffer , is that it does not matter if you are a union laborer or a NASA scientist...It all apply s.

---

Duffminster
Message #1744 - 12/20/10 12:59 AM

So, are the rumors floating around that the MSN money message boards and Market Talk are going to be disappeared? I want to know straight out from the moderators. Duffminster is almost ready if that is the case.

[Virgil Showlion]

Old and gray
Message #1745 - 12/20/10 05:09 AM



Whatever MSN decides, let's maintain contact, Duff. I'll provide an address briefly (as per last contact) if and when the story unfolds.

Don't expect much truth from rumors. Market Talk could be here for another decade or two. . . . or dead tomorrow. You never know. If it dropped off the face of the earth suddenly, I'd google Duffminster for a start.

---

ComoKate
Message #1746 - 12/20/10 06:02 AM

Old and Gray,
I think Duff has my contact info. I would be honored to stay in touch, if you so desire. You are a gem of intelligence, wit, wisdom and compassion and, would be sorely missed !

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Scared_Shirtless
Message #1747 - 12/20/10 12:56 PM

Me too!

---

neohguy
Message #1748 - 12/21/10 12:26 PM



Thanks Old and gray. This board will die but the tsunami thread won't.

One of the things I did not understand, that was mentioned in this thread, was how criminals would make a fortune from an economic collapse "legally". I found out how concerning housing, specifically shadow (buried/invisible) inventory. The following is happening at the lower levels:

1. A lower to mid level bank manager is instructed to liquidate 100 (random no.) of foreclosures.

2. The bank manager calls a buddy realtor and gives him a contract to advertise and sell at least 90 of these properties quickly but to let these five languish for awhile (wink/nod).

3. The realty manager gives his agents a list of the ninety properties that he wants sold. He personally handles the five properties the bank specified and five properties that he's cherry picked.

4. Eighty five of these properties are aggressively advertised. Pictures and attributes are available at all real estate web sites and the agents are eager to sell them. Selling price is 25% below conventional.

5. Ten of the remaining fifteen are difficult to find and the other five are invisible. No pictures on the internet. Difficult to get a showing. No sign in the front yard.

6. Most of the properties are sold in twelve to eighteen months and the bank manager authorizes his buddy in the realty business to lower the asking price of the remaining properties by another 25% and gives him another 100 properties to sell. ninety asap, no hurry on ten of them, specifically these five.

7. The remaining 15 properties from the original batch aren't moving. The price is reduced to a ridiculous level and the shadow/invisible inventory is suddenly bought by insiders. Friends of the banker, realty manager and some of his agents.

9. Wash, rinse, repeat.

10. Is it illegal? Hard to prove but definitely unethical.

[Virgil Showlion]

neohguy
Message #1749 - 12/21/10 12:35 PM

Oh, and one more thing. You occasionally mentioned economics as once being part of philosophy. I can assure you that there are philosophy students, including masters and doctorates in ethics, have the tsunami thread. Thanks again. I know this for a fact because I'm closely related to one of them.

---

PoorandUgly
Message #1750 - 12/21/10 03:26 PM

Great story from the longshoreman philosopher. A book was given to me from a high School counselor. It's a great message for the youth of any generation. Whenever I am in a position to help and I am asked.."what do I owe you" I look them in the eye and say " pay it forward". Now I have two people I will think of, every time I pay it forward. God Bless O&G. The beauty of Hoffer , is that it does not matter if you are a union laborer or a NASA scientist...It all apply s.

That's right. Treat everyone fairly and as if you would want yourself, or your family treated right back. Words can be a beautiful thing. Abundant in the knowledge of reading such for sure. HOWEVER, many times it doesn't mean squat because action tends to speak louder than words. And what I see in this country is that the union laborer and what others consider peons are treated like crapola and left for dead while the NASA scientist or banker, fancy lawyer or the bureaucrat is treated like royalty. It all doesn't matter at the end of the day if we don't practice what we preach. I see less and less of that and more and more of the arrogant puerile greedy hypocrisy that overwhelms it all. The unemployed people desperately seeking jobs for which there are few out there who paid taxes all their lives, who are now trying to survive day to day don't need other Americans to call them lazy or don't want to work etc..... Tell that to the families of the ones' who already lost their lives because they seemed in many's sick logic to choose death over work!!!!!!!!!!!!!

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traelin0
Message #1751 - 12/21/10 11:25 PM

Is someone moving this thread over to Moonbeam's new boards?

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Old and gray
Message #1752 - 12/22/10 03:25 AM



Comokate is the big moving spirit. With help from A hamburger, Virgil, and I contributed some.



It'll be there in its entirety up to and including 1746. I'll take the rest now and be back later to check for others that may be posted.









It was good while it lasted and if any MS folks pass by, Thank you for providing us with the opportunity to collect our thoughts and exchange them. It was a worthwhile community effort in which all participants profited I firmly believe.

[Virgil Showlion]

InNeedofTrust
Message #1753 - 12/22/10 05:47 AM

Old and Gray,

My brother Duffminster wants to stay in touch. He says to either go to his main site duffminster.com or send him an email at [e-mail] with your MSN screen name and he'll stay in touch. He is rolling out his new site early next year and it will have boards and forums and blogs and serve as an alternative to the increasingly un-neutral mainstream media.

In any case he wanted me to post this for him. I have also read nearly every post in this thread. I am very sorry to see this go. In any case, thanks.

---

PoorandUgly
Message #1754 - 12/22/10 02:50 PM

I posted the below on two other threads and I think it bears with worth repeating on this one that has become so erudite for many:

Once this site goes, it will be all the harder for internet strangers who happen to want to check in on financial news, their stock quotes etc.. to easily see what people like us say anymore. Titles of threads along with the debate therein was easily observable and accessible to a great many eyeballs b/c msn, like yahoo finance, and some others was the front facade of the internet (despite current popularity of facebook and google search etc.) The new site relative to this one is like the tiny formerly planet of Pluto, if not beyond, and MSN Money was like the Sun that many could see upfront. You see how this is all adding up not only financially but otherwise? Having said that, technically the other site seems pretty good nonetheless. However, know that going forward after January, it will become more of a club simply sharing info with one another rather than a truly open forum where more of the world can be watching and may learn or discover what is said or debated. I don't pretend to completely know full intentions but imho, cost alone is not the only issue if even that.

Keep up the crusade for the knowledge and truth. But remember what I said several years ago O&G - In the present, perception (especially for those who hold its power in their grasp) rules! Hence, all the enlightenment and truth and knowledge in the world can have a hard time going up against that. Hopefully, time is the ally where only then perception becomes realization and then finally enlightenment. Never stop learning. Good luck and God bless.

---

Old and gray
Message #1757 - 12/22/10 09:06 PM



P&U

Never stop learning. . .

In 4 months I'll be entering my tenth decade! I began to read with my sainted oldest sister - sprawled over the floors of every room in the house reading out of encyclopedias. She taught me to read, think and enjoy life, on the way to her being the greatest influence in my life.

My departed wife laughed that I still can't pass a scrap of paper with writing on it without stopping to read it. What I've learned is that the dressing changes but the habits and essence doesn't. There are predators and saints among us, murderers looking for victims, lovers looking for partners, saints looking for the downtrodden, and bankers looking for the vulnerable, along with Pollyannaish do-gooders and way too many confused souls wandering in search of answers and road signs. We're forced to deal with them all; and, with each of them, you need another tack; one approach does not suit all!

One person can't understand it all, and may not know anything about some subjects no matter how intensely they apply themselves. There are human, physical and natural limitations and all of us are subject to and limited by them. And, just when we think we've learned something, it changes. Outlooks, values, beliefs are transitory no less than the stream of life that delivers all the joy and pain we experience.

Despite that, changes, too, are limited insofar as we seem to be going around in circles, repeating what's been said, done, thought, or experienced for good or bad. . . making the same mistakes, the same promises, and succeeding or failing no more or less than we did the last time the same thing was said, done or thought.

Once in very long while, someone unusual comes along. . . a DaVinci, a Galileo, an Einstein, that spins us on our ear and causes concepts to change and opens new doors to our imagination. But, for all our gains, collectively we are little more than small, nearly invisible dots in the vast expanse of the universe, trying to breathe a personal importance into our lives for the briefest of instances in all of time.

But, none of it makes much difference if you don't have someone to share it with no matter how brief or lasting, no matter how congenial or grating, no matter how intimate or disdainful the concern in the relationship. We all bring something to each other.

That's what this was all about, wasn't it?

And, then that old bugaboo comes back. . change. The end of something and the search for something to replace it. Another site, another company, another try.

Change builds character, teaches us to adapt and survive and reserve a little dignity. . . and, that human trait helps us overlook our infinitesimally minor personal role in this great enactment.

No matter how we pump up our opinion of ourselves, it's not much more than a lot of air and a handful of substance. That's all we have to go on. . . that and each other. We're indispensible to each other whether we like it or not. The big lesson is learning how to appreciate that.

---

Old and gray
Message #1758 - 12/22/10 09:12 PM



InNeedofTrust;





Tell Duff I contacted him.

[Virgil Showlion]

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VirgilBot TP v0.01 Completed Thread Port - 513 post(s) in 9234 seconds.

Final post: Message #1758 - 12/22/10 04:12 PM

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[manofpeace]

Virgil, You Rock

[comokate]

Virgil; my favorite digital present of the season. Many thanks !

[olderstill]

Virgil . . . What can I add to what you already know. . . Fantastic job. You make the rest of the text look like graffiti posted by drunken school children!

The community owes you gratitude and thanks.

Not only that but in 9200 seconds, he vaulted into the honor of being appointed a senior member!!!!

O&G

[scaredshirtless]

I noticed that two. Little over 2 1/2 hours.

A very good person.

Go Canada!!! (I lived in Winnepeg as a kid - eh?)