FedUpUSA

Archive for the ‘Corruption’ Category

On April 25, 2008, a group of concerned citizens, from across the country, who met on an online forum called Market-Ticker.org decided that it was necessary to start tying to wake people up to the fact they were being robbed. Not only were they being robbed, but the robbery was about to become brutal.

Just a few days after Bear Stearns was forcibly merged into JPMorgan, using YOUR tax dollars, we stood in downtown New York city, with signs and literature, educating the public about what had just happened. We were well-received by many people, but there were almost as many people who thought we were nuts.

After watching this video, and seeing for yourself what has happened since April of 2008, NOW how nuts do you think we are?

It has been a hard road to haul, trying to wake people up. It was hard being ridiculed and laughed at. It was hard seeing friends and loved-ones walking straight into an abyss of perpetual debt and even harder knowing that they were condemnig their children to the same fate.

Along the way, as economic conditions became more obvious, and our government’s role in perpatuating fraud and protecting the guilty at the expense of the innocent became more clear, finally, it appeared the cavalry might have arrived. FedUpUSA owes a debt of gratitute for Rick Santelli’s loss of composure on CNBC TV in February of 2009. What we had failed to accomplish, seemed to occur overnight: people started awakening from their stupor. ‘Tea Parties’ started springing up overnight in response to what can only be described as the cries of a modern-day Paul Revere, people got up off their couches and started taking their message to the streets.

Our work, however, is not over; it has just begun. Unless we address the ROOT of the problem, we cannot hope to derail the fraud and stop the corruption. The root of the problem is, no more and no less, our economic system. Our economic system is based upon a lie. The is that MONEY = DEBT. Our Founding Fathers knew this and proscribed a NON-debt denominated monetary system. This was intended to be money, the quantity of which was controled ONLY by the production of people – their human labors.

Absolutely all the corruption that now exists in our government can be traced back to the nature of our current financial system. Until or unless this system is changed, there is no hope to ever get out of debt.

Thankfully, there are some very smart people who have figured this out – and not only realize the source of the catastrophe we now face, but have come up with a solution:

Freedom’s Vision – In a Nutshell…

“It’s not WHAT backs our money, it’s WHO controls the QUANTITY!”

-Bill Still

Private Central Banks control the production of money in the United States, not our Congress as dictated by the United States Constitution. This has given them the POWER to control our economy and our politicians.

It is critical WHO controls the money system which is different than the banking system.

The system of backing our money with DEBT ensures that the system will fail, we are at or approaching the mathematical limits now. This system is controlled by Bankers, not Congress.

The quantity of money and debt is wildly out of control.

History shows that severe upheaval and “other events,” such as wars, follow such times. It is our intention to break that chain so that those other events do not occur.

Freedom’s Vision is comprised of three parts – Economic Reform, Political Reform, and Future’s Vision.

Our immediate mission is to:

“Enact monetary and political reform capable of transitioning our economy from its current debt and derivative entangled state to a prosperous & sustainable system that works to keep the quantity of money under control for the very long term.

Monetary Reform ends the process of debt backing our nation’s money at the Federal level, it establishes procedures to correctly measure our economy and through transparency coupled with checks and balances works with Congress to ensure that the quantity of money never gets out of control.

While the systems of control are simple and intuitive, the very difficult part is transitioning our economy from its current debt saturated and derivative entangled state to a sustainable and prosperous future.

Significant tax money would be returned to the people used to pay down debt for those who have it, thus deleveraging and providing immediate relief to all citizens. This first step also makes the banks more healthy.

Through the unique procedures contained within, the debts would be brought back to manageable limits on all levels. Derivatives would be untangled. All banks would survive the transition and come out of the transition ready to do meaningful and REAL business.

All businesses would immediately benefit as the economy rapidly, but in a controlled fashion, cleanses away the debt and leverage that is holding us back.

State economies will be cleansed and will take more control over their own destiny through the use of state chartered banks that will provide funding and bank control for that state, enabling low and no interest loans for the needs of the state much as the Bank of North Dakota has since the year 1919.

The dollar system that emerges would look and feel to most people almost exactly as it looks and feels today, but without the problems associated with never ending inflation.

Please follow this link to learn more details about Freedom’s Vision Monetary Reform

Political Reform works to separate special interest money from politics, thus ensuring that long term decision making can be made and that WHO controls the quantity of money remains in the hands of the people.

The short list of benefits can be found here – Benefits of Freedom’s Vision.

Swarm Politics is our method of implementing Freedom’s Vision.

Future’s Vision comes into play as the transition of our economy to Freedom’s Vision is being implemented. This third piece of the puzzle provides long term goals and focus for our nation working towards creating real and meaningful jobs while moving our nation ahead with purpose.

None of these procedures are yet set in stone, there is still much room to improve and work on them. We will be working towards creating actual legal language as we proceed. We need your help to create and enact Freedom’s Vision so that we secure our money, our freedom, our future.

Freedom’s Vision – Securing Our Money, Our Freedom, Our Future!

Mortgage Principal Writedown Won’t Save Housing

By: Diana Olick

CNBC Real Estate Reporter

And so it begins. Big gun lawmakers are making the move toward principal writedowns as the last resort to save the housing market.

In a letter to the CEOs of Bank of America, Wells Fargo, JP Morgan Chase and Citigroup, House Financial Services Committee Chairman Barney Frank wrote, “To save homes on a large scale, we must move past temporary modifications in interest rates or terms and focus on permanent principal reductions that result in truly sustainable mortgages.”

I agree and disagree with that statement: I agree that temporary modifications (even though the Treasury calls them permanent) are going to keep some borrowers in their homes for a while, but are really just prolonging the agony. I disagree that principal reductions will create truly sustainable mortgages.

The problem is prices. Home prices have fallen so far in the hardest hit areas, the areas where the bulk of the troubled loans are, that banks would have to write down principal 30 to 50 percent to put borrowers back in the green. Accounting rules require that banks write down the value of those loans on their books, and experts tell me that if banks really accounted for all the losses in the home loan market, they’d all be insolvent.

That’s why the Obama Administration has created this kind of shell game in the first place.

I stole that shell game idea from housing consultant Howard Glaser: “We’re spending tens of billions of dollars on a tax credit to get people to purchase homes, we’re spending federal money to keep them in their homes through the modification program, and now we’re going to pay them to move out of their homes. This is not a sustainable system for the housing market. It’s a shell game. Bernie Madoff could have created this system,” Glaser told me today.

Chairman Frank is focusing on second liens, blaiming them for holding up the first lien modification process. But the largest second lien holders are also the largest first lien holders. “Large numbers of second liens have no real economic value,” writes Frank. He’s right.

These lenders are getting pennies on the dollar even when they do get some kind of payoff, and they get nothing in a foreclosure. His theory is that if you get rid of the second lien then the first lien can be written down just fine and dandy. But the banks don’t want to write down the first liens either. Why? Simple math.

Politicians want to keep borrowers in the homes because that’s the compassionate thing to do. The big bad banks just want to cut their losses right? Well, maybe not. Sure they want to cut their losses, but they also want to save the value of the housing market, and foreclosure is how they’re doing it.

Take Las Vegas as an example. Foreclosures are the whole market there, but there is actually very little inventory on the market. Why? Because banks are holding onto inventory, releasing it slowly and measurably, so as to put a bottom under prices.

I realize this is not the compassionate argument to make, but the fact is that most troubled borrowers are never going to get out from under these bad loans, even with reduced principal, and many many of them don’t want to. If you foreclose on the properties, take them back, hold them a bit, don’t write down the losses, and then slowly sell them back onto the market to hungry cash investors or buyers with good, well-underwritten loans, then home prices will stabilize.

As for the borrowers, the rental market is ripe. Rent rates are low, vacancies are high, and the hit to personal credit isn’t going to matter as much a few years from now when banks are desperate once again sell mortgages.

Breaking the American Bank – Banking Propaganda and Using the American Middle Class as a Credit Card for Wall Street Excess. How About we let the Average American Borrow from the Federal Reserve at 0 Percent and cut out the Loan Shark?

Posted by mybudget360

Banks are showing their true colors and what little regard they have for the average American.  As they advertise with cute and friendly faces assuring consumers they are looking out for their best interest, behind their backs they send in a locust of lobbyist onto Washington to do everything in their power to gut any sensible financial regulation.  The vultures are picking off every piece of what used to be the middle class.  This is the model of the new banking and financial system that many will have to contend with.  Americans have seen their access to loans and credit contract at the fastest pace in history while banks have now opened up an unlimited credit card with the taxpayer paying the bill for too big to fail.  Banks are doing their best to create a narrative that “if we didn’t bailout the banks then the world would have ended storyline” but the vast majority of Americans did not support the banking bailout.

If you want to see how quickly credit is contracting take a look at this:

The chart above merely highlights what you already know. Banks no longer trust the average American.  While they based all their bailouts on the idea that taxpayer money was needed to keep banks lending this has been a lie.  In fact, banks need the money to plug the hole that their toxic assets are burning on their balance sheets.  You can also look at the amount of credit card offers you are getting in the mail to gauge how quickly the market has changed.  No longer do banks want to give credit out (that is, unless it is government backed like mortgages which they are all the more willing to lend out).

The U.S. has over 8,000 banks with the large concentration of assets in 10 banks.  These banks continue to use bailout funds to plug the problems from the boom years.  But this is not in the best interest of average Americans.  If Wall Street and politicians were honest, the bailouts would have been labeled as a massive charity to the elite of the country who made disastrous bets over the past decade.  The public takes the lumps while Wall Street actually gets richer.  While banks don’t want to reel in their spendthrift ways, Americans are pulling back:

Americans are now having to save more and more of their money as is expected in a tough economy.  Yet banks are back to gambling in the stock market while shutting down lending to consumers.  Banks are playing the poor me card by arguing that with too much tight regulation, they can’t make loans because they are worried about future balance sheet problems.  Thanks for telling us after you took the public money under false pretenses!  But this is all a political ploy to steal from the working class.  With so many people just unable to even service the debt and rising bankruptcies, banks are now going after good customers who pay their bills on time each month just because they are running out of “options.”  Don’t be fooled.  They are reaping billion dollar profits because they are using excuses to squeeze the golden goose dry.  How about we allow the typical American to borrow at the subsidized low rate from the Federal Reserve directly?  Why in the world do we need banks to operate as loan sharks in between?  What we need is to transform the banking industry into a utility model.  A model designed to serve the people, not the banks.  After all, why should they get the privilege of borrowing at criminally low rates while everyone else has to pay the interest and subsidize their gambling adventure?

Even after all the correction in the market American households still carry an inordinate amount of debt:

A giant portion of income simply goes to pay off debt.  A large part of the debt is interest or money the banks can suck out of the neck of middle class Americans.  Banks live off this margin.  Take for example a $100,000 30 year fixed rate mortgage at 6 percent:

Principal:             $100,000

Total Interest:   $115,838

In the end, you are paying more than the initial cost and all that interest goes to who?  What purpose does it serve?  Banks are delusional and want the public to believe in the propaganda that they need to charge a higher rate because of “risk” in the loan.  Are they kidding?  We already know that they are being supported by the entire Federal Reserve and U.S. Treasury.  They can make the most insane kind of bets and ultimately the taxpayer will eat the bill.  And keep in mind many of these banks are borrowing at low levels from the Federal Reserve.  Why not allow the public to keep some of that interest?  How is this bad?  If banks were lending their own money it would be a different story but they are not.  They are creating a dishonest narrative and most Americans are not buying it because they operate in reality and not some parallel universe where you can create something out of nothing.

Just think of the billions charged in overdraft fees.  This is criminal.  Why not just default debit cards to stop once the account is dry?  Instead they want people that charge a $2 burger a $39 over draft “convenience fee” for this nonsense.  Are you kidding?  Most people don’t want this.  They find out the hard way and now billions have left the wallet of consumers for this nice little loan shark fee.  $39 can buy you lunch for a few days so this is nothing to laugh at when 38,000,000 Americans find themselves on food assistance.  The bulk of the billions are paid by the poor.  Good job banks for helping your fellow Americans.  Yet banks are leeches sucking the productive life blood out of the economy with gimmicks like this.  Time to break the banks up and turn them into utilities.

Take for example JP Morgan.  They announced a Q4 profit of $3.28 billion.  Where did they make their money?

“(Huff Po) JPMorgan’s biggest trouble spots were in consumer banking and credit card lending. The bank’s retail financial services division, which includes its mortgage operations, lost $399 million. That was worse than the final quarter in 2008, when credit markets had essentially shut down because of the collapse of banks including Lehman Brothers.

The company reported increases in mortgages that were charged off, or classified as uncollectible, including prime mortgages, the highest quality home loans. It also reported an increase in home equity loan charge-offs.”

Wait.  So mortgages are being charged off as foreclosures remain high.  And this has spread to so-called prime mortgages as the unemployment and underemployment rate remains at 17.9 percent.  So let us write off mortgages to average Americans.  Where in the world did they get those billions?  Maybe they made good money in their credit card unit:

“The credit-card lending division lost $306 million during the final three months of 2009. Results would’ve been worse had the bank not had a payment holiday in the period.”

More losses here?  So we’ve ruled out credit cards and mortgages which have become the life blood for Americans.  We’re running out of places to look for where they can make a $3 billion profit:

“Despite the ongoing problems with consumer banking, JPMorgan is still performing well because of its robust investment banking unit. As long as stock and bond markets continue to improve, the bank will be able to churn out profits and reward its employees handsomely.

JPMorgan’s investment bank earned $1.9 billion during the fourth quarter, while its asset management division generated $424 million in net income.

Fees from financing debt and stock offerings continued to surge in the fourth quarter. Debt financing fees jumped 58 percent to $732 million from the same quarter a year earlier, while stock financing fees climbed 66 percent to $549 million.”

And there you have it.  We are financing Wall Street’s wonderful gambling casino once again while the traditional banking model has collapsed.  How this isn’t the number one priority for the government and the people to fix is simply astounding.  How we have had no serious financial reform after 26 months of the Great Recession boggles the mind.

Squeezing the Last Drop of Productivity from the American Working Class – 18 Percent National Underemployment and why Wall Street and the Government are Cheering Your Financial Failure.

Posted by mybudget360

The American financial press cheered on Friday when “only” 36,000 jobs were lost in February.  This if you haven’t noticed now passes for good economic news.  The unemployment rate remained unchanged because the actual workforce continued to show a decline yet Wall Street somehow viewed this as positive developments.  And why not?  The middle class is under assault from every angle.  Things are so twisted with propaganda that many Americans now believe that the banking elite are actually looking out for the well being of American workers.  As news of the job losses somehow echoed as positive developments, more and more Americans are continually being kicked out of their homes from banks they helped to bail out.  Irony has no meaning to Wall Street.

And if we look at the details of the jobs report, it turns out that 17.9 percent of Americans are either unemployed or underemployed or flat out have stopped looking for work:

Source:  BLS

This wasn’t the only spin going on in the media.  Before the jobs report came out there was a preemptive flow of information trying to justify the job cuts by blaming it on the weather.  Yes, now instead of blaming the financial catastrophe on the actual perpetrators in Wall Street who systematically looted the American system and turned our economy into a giant casino that they leeched onto, we are now to believe people are losing their jobs because of the weather:

“(CNSnews) Ahead of Friday’s announcement, Goldman Sachs predicted that the storm might skew the job loss number by as much as 100,000 – a prediction that was embraced by officials in the Obama administration.

“The blizzards that affected much of the country during the last month are likely to distort the statistics,” Larry Summers, director of the White House’s National Economic Council, said in an interview with CNBC. “So it’s going to be very important … to look past whatever the next figures are to gauge the underlying trends.”

If the storm caused a skewing of job loss numbers I wonder how many job losses can be linked to Goldman Sachs and their casino style gambling in the derivatives markets and mortgage backed securities?  Then again, people should be happy that the unemployment rate remained steady at 9.7 percent even though more Americans are working part-time with no benefits and many others have simply fallen off the payrolls.  This is supposedly the new American dream for the middle class through the eyes of Wall Street who are selling capitalism but living in a world of corporate handout socialism.

There is a new show called Undercover Boss where a CEO goes undercover to work in the trenches with the proletariat.  As it turns out, the middle class is being worked to death and as we all know, the CEO can’t even do the job most workers do on a daily basis.  Even Henry Ford understood the interworking of the cars he was putting out.  In the end the CEO reveals his identity and gives a nice little handout to the worker and all is well in TV land.  The check is a token of what CEOs actually make.  This is the ultimate reflection of our trickle down economy where those at the top act like sociopaths and rulers of the universe but when it comes to doing the daily tasks of their company, they have no clue.  This is the de facto rule running on Wall Street.  In fact, CEO pay has grown outrageously over the past few decades as the middle class has gotten poorer:

Source:  American Progress

In reality, part-time employment has spread even to poor CEOs making 300 to 400 times the average American worker salary.  Poor CEOs and Wall Street executives need time off to enjoy their tax payer funded yachts and all expense hedonism trips to the Caribbean.  They would like to convince each other that the money they have is all through their will power and market prowess but in reality it is nothing more than being part of a corporatocracy and buying out the government with an army of lobbyist and insiders.  You have to be a self indulgent narcissist to take the economy to the brink of financial destruction in the case of many Wall Street firms and still reward yourself with outrageous bailouts.  The fact that average Americans are still not protesting in mass about this tells me that many actually believe what Wall Street is saying.  You see this when many would rather blame the working class for the ills of today than focus their energy where it really needs to go.

Wall Street loves this economic crisis.  They receive trillions in bailouts yet convince the public that what is occurring today is merely the “market” correcting itself.  So as most Americans have more and more troubles keeping up with their daily bills, companies are squeezing every little excess from those currently working.  Those that have jobs out of fear will work harder and probably demand less merit increases in the current economy.  After all, the head guy is only making 300 times what you make even though he can’t even understand the main function of the organization.  So what if the low level guy is selling toxic crap to some homeless person with no income and giving him access to a $500,000 loan.  These Wall Street tycoons are big picture thinkers and can’t be worried with the day to day operations of the proletariat unless it means turning it into a caricature for mass viewing and quick TIVO access.

You don’t think productivity actually increased?  Take a look at this:

Source:  BLS

This recession has been fantastic for productivity.  Just look at the above chart.  American workers have been doing their part during this recession.  After all, now you can hire a cadre of “contract” workers and not have to pay them one cent in healthcare support or even contribute to their pension.  Once the job is done you can kick them to the curb.  After all, this is capitalism so long as those at the top have managed to setup sweetheart deals and golden parachutes.  This is how the top 1 percent makes sure their hold on 40 percent of the nation’s wealth isn’t damaged.  And if you think financial institutions deserve this bailout money and their outrageous bonuses then companies like Circuit City or Mervyns would still be around today if that model applied across the board.  But this doesn’t apply to the general economy.  This applies to Wall Street and somehow the absurdity of it all still goes on.  The worst financial crisis since the Great Depression and not one solid reform has been enacted.  26 months of job losses and nothing.  Who is running the show?

The rise of the part-time work force is nothing new as we become more and more like Japan.  Japan bailed out their financial institutions after their failed stock market and real estate bubbles popped and today, their working class is made up of one-third part-time workers:

“(LA Times) In the world’s second-largest economy, the global financial crisis has forced part-time workers such as Kudo to face a harsh new reality.

Over the last few years, temporary employees have gone from being a rarity in Japan to accounting for one-third of the workforce of 67 million. They enjoy far fewer protections than full-time workers — placing their necks squarely on the layoff chopping block.

By March, the government predicts, 85,000 part-timers will fall prey to haken-giri, or temporary-worker cutbacks — a relatively small number compared with U.S. layoffs but high for a nation where job security has long been a staple.

On Wednesday, embattled Prime Minister Taro Aso made the plight of part-timers a major piece of a proposed stimulus package. Aso pledged to create 1.6 million jobs, partly by turning part-time jobs into full-time ones.”

Japan’s headline unemployment rate is 4.9 percent.  Just like our headline unemployment rate, the devil is really in the details.  If we continue on this path part-time work may be all that is left.

Recessions, Depressions, and the Biblical Jubilee, Part Four

“The Math is Never Wrong” -Karl Denninger
– Jeff

Over the course of history, things change. Cultures change, technologies change, the accepted rules of legitimacy in governance change, relative levels of prosperity change, a lot of things change. But in the field of mathematics, nothing ever changes. Whether we are talking about pre-history, ancient times, medieval times or modern times, two times two has always and will always equal four.

Yet at the beginning of this Depression, which we are living through in the United States of America and around the world, with the evidence of history staring us in the face — from the Great Depression of the 1930s all the way back to Joseph in Egypt — we continue to believe and act as if, somehow or other, we are “special.” As if the vagaries of the past somehow don’t apply to us. As if “this time is different” (a subject we will explore in depth in Part Five of this series).

In recent times the economic phenomena — which God instituted the Jubilee Year to address in ancient Israel — has come to be called the Long Wave. A cycle which, like the Jubilee, recurs within the mean life span of a human being. It is a cycle that ends in a depression. Always and inevitably. That is, for any economy that does not have a Jubilee in place, patterned after the biblical example in Leviticus 25. (No one outside ancient Israel ever has, BTW.)

***

The Long Wave was first described in modern times by Soviet economist Nikolai Kondratiev. Its existence has also been detected by traders who make money in the financial markets by analyzing shorter-term patterns according to the Elliot Wave principle and other kinds of technical analyses.

However, mainstream economists of the Keynesian and Monetarist schools (the former in the United States tend to be Democrats, the latter Republicans) reject the notion that any such cycle exists. And because they are considered “mainstream,” axiomatically they are the ones with the most authority and influence over the economic policies of the government.

I believe the reason that mainstream economists remain blind to the existence of the Long Wave Cycle, is because they have failed to discover a reason for it that can be described by cause-and-effect mathematically. Or recognize it even when someone has set it right in front of their faces, like a marble on a plate.

It is Karl Denninger — a trader by profession who also publishes the award winning blog The Market Ticker and rides herd on The Market Ticker Forums — who I believe has the distinction of being the first person to describe the underlying cause of the Long Wave cycle. In terms that are not very much more complicated than 2 x 2 = 4. A matter of simple multiplication.

But Mr. Denninger has not only nailed down the cause of the Long Wave Cycle to a simple mathematical certainty. He has also published his findings far-and-wide. Which means that mainstream economists, Congress, the Administration, and the Central Bank in Washington, along the individual citizens of this nation, have no excuse. We swirling around the open drain with both eyes wide open. Willfully blind.

***

The basic mistake that ALL mainstream economists make, whether they are Keynesian or Monetarist, is the underlying assumption that economic output ALWAYS tends toward what is called Economic Equilibrium, fluctuating only according to the vagaries of supply and demand.

According to the model that mainstream economists follow, depressions are far from regular, predictable, or inevitable events. Rather, they view depressions as economic aberrations. And the worst kind of economic aberration too, because of the damage an economic depression causes.

A depression therefore represents an aberration which — from the positions of power that mainstream economists occupy at places such as the Federal Reserve and the Department of the Treasury — they are fighting with all the fiscal and monetary tools that the government of the United States has at its disposal.

One problem. Their underlying assumption is WRONG. Depressions are in fact a regular, predictable, and inevitable phenomenon. Which is why the policies which the Federal Reserve and Treasury have followed and have cajoled the politicians in Congress into following, are not only failing abysmally during the current economic downturn. They are making it worse. FAR WORSE.

How? By neglecting the mathematics that the biblical Jubilee in Leviticus 25 addressed by canceling all debts every fifty years. The mathematics which show that the overhanging debt that looms over EVERY economy ALWAYS compounds faster than that economy’s output. A situation which, as Mr. Denninger points out in his blog post The Price of Capitalism, CANNOT be sustained.

Remember, everyone seeks a profit. Therefore, those who loan capital out will demand some price above the “risk free” return that can be obtained by simply sitting in the economy and lapping up the growth.Nobody will take an intentional loss as long as there are alternatives, and unless you steal people’s property, there are!

Therefore, there will always be a “spread.”

But look at what happens [see Figure 1]. In the first year, the “spread” between the two – the difference between the economic outcome and the lending price – is 3%. But by the fifth year that spread has grown to 21% and is accelerating rapidly – 21% is much higher than 3 x 5, or 15%.

In 10 years the spread is much worse – 63% instead of the “expected” 30%, and in 20 years its horrifying – 286%!

Why?

Because both functions are exponents (compound functions) and so long as people seek a profit it will always cost more to borrow capital than the rate of growth in the economy, as you must induce them to take a risk.

Left alone the overhang of debt will always “run away” and destroy the economic and monetary systems.

Therefore if we are to avoid a complete collapse of the economic and monetary systems there must be times when the “overhang” of bad debt defaults, lest it grow so much that nobody can make the payments and the economy is choked off.

That is exactly what has happened because our government intentionally prevented the defaults that were NECESSARY in 2000-2003 to restore balance between these two functions.

Now the pain is worse, and as you can see above, the longer you try to put it off the worse it gets. It’s bad now (about 10 years in); if we try to “kick the can” for another 10 years it will be catastrophic.

It should be as plain as the nose on my face, to anyone looking at Figure 2 who has an ounce of common sense, that an economy in which the debt is growing along the red line while the output of that economy is only growing along the blue line — that before long THE ABILITY OF THAT ECONOMY TO SERVICE ITS DEBT BECOMES IMPOSSIBLE. This graph is no aberration, however. It applies to EVERY ECONOMY THAT HAS EVER OR WILL EVER EXIST “until the day dawns and the darkness disappears.”

God commanded ancient Israel to observe a Jubilee year in Leviticus 25, so that there would be an ORDERLY liquidation of this debt overhang every fifty years. Obviously, with a date for universal debt forgiveness written in stone, no lender would ever set terms for repayment PAST the Jubilee year.

Which means as the Jubilee approached, the red line and the blue line in Figure 2 would come together in an ORDERLY fashion WITHOUT a depression. Unlike the financial panics and economic crashes that have characterized the Long Wave cycle for every other economy that has ever existed.

The chart of “Total Credit Market Debt as a Percent of GDP” (Figure 3) is illustrates a fact that every American citizen should be aware of and educated about. The chart shows the total debt of the United States economy, public and private, as a percentage of our yearly Gross Domestic Product (GDP, which is equal to our Gross Domestic Income, GDI) from 1920 to 2008.

During the WORST of Great Depression, when under Hoover and FDR the federal government was taking previously unprecedented steps to counter a Long Wave downturn, our total debt in the United States at its peak did not exceed 240% of our GDP and GDI. But at the outset of our current Depression in 2008, our total debt in the United States was ALREADY at 350% of GDP. That was before the Obama Administration began taking its own unprecedented steps to counter this Long Wave downturn. Karl Rove in the Wall Street Journal notes that:

Consider that from Jan. 20, 2001, to Jan. 20, 2009, the debt held by the public grew $3 trillion under Mr. Bush — to $6.3 trillion from $3.3 trillion at a time when the national economy grew as well.By comparison, from the day Mr. Obama took office last year to the end of the current fiscal year, according to the Office of Management and Budget, the debt held by the public will grow by $3.3 trillion. In 20 months, Mr. Obama will add as much debt as Mr. Bush ran up in eight years.

What our government is attempting to do can be likened to an alcoholic who tries to treat his drinking problem by consuming alcohol at an EIGHT TIMES FASTER RATE. The only difference being that what the American people and the United States government are addicted to debt. It is our debts that are the root cause of our worsening economic problems, AND INCREASING OUR DEBT IS ONLY GOING TO MAKE MATTERS WORSE.

***

Alongside Leviticus 25, the first chapter of Ecclesiastes also points out the pervasiveness of what can be called cycles, or more accurately recurring themes, in the natural world:

Ecclesiastes 1:4-7
One generation passeth away, and another generation cometh: but the earth abideth for ever.The sun also ariseth, and the sun goeth down, and hasteth to his place where he arose.

The wind goeth toward the south, and turneth about unto the north; it whirleth about continually, and the wind returneth again according to his circuits.

All the rivers run into the sea; yet the sea is not full; unto the place from whence the rivers come, thither they return again.

The politicians, leaders in business and finance, and the American people have just begun a lesson — courtesy of “the school of hard knocks” — in the mathematical accuracy of the Word of God regarding the biblical Jubilee. The mathematics behind the cycles of expansion and contraction that govern human economies can no more be resisted by mere human beings than the hydrological cycle, the cycles of climate and weather, the orbiting of the earth, or the passing of the generations.

At this point credit markets are headed for what is called a parabolic blow off or a blow off top, which will be accompanied by long-term damage to our economy, from which it will take decades for the United States and the world to recover. The question is not “if” the blow off is going to happen, only when. Probably sooner rather than later, but either way as Mr. Denninger likes to point out, “The math is never wrong.”

Other Posts in this Series

• Part One
• Part Two
• Part Three

***

ADMISSION By FDIC: Massive Balance Sheet FRAUD

Posted by Karl Denninger

Janet Is On It Again (Sovereign CDS)

Posted by Karl Denninger

Barney Frank: The Liar Is (Again) In The House

Posted by Karl Denninger

Will this man ever take responsibility for what he does?

Many second liens have little value because of the plunge in home prices, Rep. Frank wrote, adding: “Yet because accounting rules allow holders of these seconds to carry the loans at artificially high values, many refuse to acknowledge the losses and write down the loans.”

How did that happen Mr. Frank?

Oh yeah, I remember!  Your committee pressured FASB to drop “mark to market” accounting requirements last year!

That is, YOU were personally responsible for this crap.

Remember the subcommittee hearing chaired by your fool-in-chief Mr. Kanjorski?  I remember that circus show of horrors well.  In case you’ve forgotten, let me help jog your memory:

Washington, DC – Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, today announced that the Subcommittee will hold a hearing to examine the mark-to-market accounting rules that many contend have exacerbated the current troubles in the financial industry and in the broader economy. The standard requires companies to value assets they hold at current market values. For assets that are frozen and have a diminished current market value but may recover value in the future, the standard has proven problematic. Companies are then forced to write-down billions in assets, which can lead to further write-downs elsewhere.

Like second mortgages, for instance?

Yeah.

This hearing was what prompted those banks to mark those loans to fantasy values, a practice they are still continuing to this day, even though if the first is underwater and goes into foreclosure the second is in fact worth zero. 

Therefore, a first that is both underwater and is late by 60 days or more is almost certain to either short sale or foreclose ultimately, and under mark to market rules the second would have to be written off.

But your committee, which sits over the subcommittee on Capital Markets, effectively bludgeoned FASB into legalizing the accounting fictions that you now complain about.

Indeed, the testimony of FASB was that:

The fact that fair value measures have been difficult to determine for some illiquid instruments is not a cause of current problems, but rather a symptom of the many problems that have contributed to the global crisis, including lax and fraudulent lending, excess leverage, the creation of complex and risky investments through securitization and derivatives, the global distribution of such investments across rapidly growing unregulated and opaque markets that lack a proper infrastructure for clearing mechanisms and price discovery, faulty ratings, and the absence of appropriate risk management and valuation processes at many financial institutions.

None of which, I might add, your Committee has bothered to address.

Having done nothing but bleat and ram down the throat of FASB changes in accounting standards that have legalized outright balance sheet fraud, you now have the temerity to complain about the results, when I and many others said at the time this would be precisely what would happen.

The solution to the problem is, of course, to reverse the outcome of that idiotic hearing and restore mark-to-market accounting forthwith for all bank assets.

Go look in the mirror Mr. Frank – you made this mess yourself, and while you’re at it drag that clown-car occupant Kanjorski with you.

Oh, The Off-Balance Sheet Lies Are International?

Posted by Karl Denninger

Finance Superstars Talk About the Massive Fraud in Our Economic System

“Make Markets Be Markets” conference of financial reform all-stars offers an alternative to Washington’s disastrous oversight of the economy.

Last Wednesday, I attended a conference initiated by the Roosevelt Institute on the financial mess, called Make Markets Be Markets. The conference’s speakers included people with experience on Wall Street, the banking industry, government and academia; Nobel Prize-winning economist Joe Stiglitz, Elizabeth Warren, and other luminaries who have offered an alternative and reformist narrative to our recent financial crisis.  At two and half hours, it was relatively short, giving each speaker the opportunity to make their points and providing a sharp focus. One underlying theme of the event was fraud, the great elephant in the room, that neither the press or our government officials acknowledge, though it is a fundamental element to the financial crisis and its solutions.

Joe Stiglitz started the conference and stated how reducing transparency and hiding information was an essential element to the crisis. Stiglitz concluded, “Innovation was regulator and tax arbitrage.” Wall Street and the banks deliberately added opacity and complexity to confuse clients and consumers. Elizabeth Warren pointed out, “complexity made a lot of profits,” for example, she showed how the average credit card contract in 1980 was one page, today it is thirty.

This opacity and complexity helped make the financial industry predatory against their clients and customers. Not only did government regulatory agencies fail in stopping this confidence game of historical magnitude, but so did markets. NYU’s Lawrence White pointed out the credit agencies such as Moody’s and S&P, whose role is to provide independent analysis, essentially became co-conspirators as their business model changed from being paid by investors to being paid by the Wall Street issuers, making it against their interests to issue dour ratings on investments.

The only truly rigorous aspect of economics is accounting. It’s no surprise that as the banks and Wall Street sought opacity and confusion through complexity, their greatest target would be the accounting system. There were various elements of “accounting innovation”, but the largest, most notorious, and completely incredulous was the practice of “off balance sheet” accounting. One of the greatest elements of this off-book accounting was secularization—simply, the practice of taking existing debt, be it mortgages, student loans, or even credit card debt, bundling it together, then selling it as a completely different product. Financial analyst Josh Rosner, who called the Fannie and Freddie accounting scandal in 2001 and the housing peak in 2005 stated:

“Poorly developed and opaque securitization markets drove excess liquidity and irresponsible lending and borrowing…securitization markets too often operate in a “Wild West” environment where the rules are more often opaque than clear, standards vary, and useful and timely disclosures of the performance of loan level collateral is hard to come by. Asymmetry of information, between buyer and seller is the standard.”

While Mr. Rosner pointed to the problems of securitization, Frank Partnoy, a finance and legal expert, went after the greatest scam, the derivatives markets. Mr Partnoy pointed out there is currently $600 trillion in derivative positions on a global economy of $60 trillion. Derivatives are another off-balance sheet innovation, in which speculators may take pure gambling positions, allowing them to take positions on matters in which they have no stake. It was in paying-off derivatives that a $185 billion of tax-payer money flowed through AIG. Today, then New York Fed head Timothy Geithner, Treasury Secretary Hank Paulson, and Fed Chair Ben Bernanke all claim they didn’t authorize this payout, the check seemingly magically sent.

To make his point even clearer, Mr. Partnoy put up Citi’s official balance sheet, saying it was a “fictional balance sheet”, representative of an industry in which financial innovation made the most basic accounting, the one thing which can offer real insight into a company’s health, just another part of an elaborate scam.

Michael Greenberger of the University of Maryland made the important point that most of what we all call financial innovation is simply the resurrection of many old practices, outlawed in the 1930s, now dressed in new garb. He pointed specifically to the 1936 Commodities Exchange Act as representative of all New Deal financial reform. It insured transparency, open exchanges, anti-fraud, and anti-manipulation. He contrasted this to the 2000 Commodities Futures Modernization Act which gave modern derivatives and open field. Greenberger noted the Act was supported vigorously by then Fed Chair Alan Greenspan, SEC Chairman Arthur Levitt, and Treasury Secretary Larry Summers. The law turned derivative markets into history’s largest casino and its proponents knew exactly what was coming and preempted state gaming laws, thus derivative gambling could be completely unfettered.

Rob Johnson of the Roosevelt Institute was the last speaker and talked about the final arbitrage, which is “too big to fail.” It is the arbitrage of the republic by looters who have created a system so rife with fraud that it brought down the American economy, throwing millions out of work, paying the very perpetrators trillions of dollars and counting. These very same people bought and sold our elected officials so often in the past several decades, that today DC might very well be deemed the one functional market. You actually get what you pay for.

The conference put out a very excellent report available here. If we’re going to get our economy up and running again, the first thing we’re going to have to do is end the fraud.